As filed with the Securities and Exchange Commission on May 4, 2018

File No. 001-38414

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form 10

 

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12 (b) OR (g) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

 

SPIRIT MTA REIT

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   82-6712510

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2727 North Harwood Street, Suite 300,

Dallas, Texas

  75201
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (972) 476-1900

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

to be so registered

 

Name of each exchange on which

each class is to be registered

Common Shares of Beneficial Interest,

par value $0.01 per share

  New York Stock Exchange

Securities to be registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☒  (Do not check if a smaller reporting company)    Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


SPIRIT MTA REIT

INFORMATION REQUIRED IN REGISTRATION STATEMENT

CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10

Certain information required to be included in this Form 10 is incorporated by reference to specifically-identified portions of the body of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.

Item 1. Business.

The information required by this item is contained under the sections of the information statement entitled “Summary,” “Risk Factors,” “Forward-Looking Statements,” “Our Spin-Off from Spirit,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business and Properties,” “Certain Relationships and Related Transactions” and “Where You Can Find More Information.” Those sections are incorporated herein by reference.

Item 1A. Risk Factors.

The information required by this item is contained under the sections of the information statement entitled “Risk Factors” and “Forward-Looking Statements.” Those sections are incorporated herein by reference.

Item 2. Financial Information

The information required by this item is contained under the sections of the information statement entitled “Selected Pro Forma and Historical Combined Financial and Other Data,” “Unaudited Pro Forma Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Those sections are incorporated herein by reference.

Item 3. Properties.

The information required by this item is contained under the section of the information statement entitled “Business and Properties—Our Portfolio.” That section is incorporated herein by reference.

Item 4. Security Ownership of Certain Beneficial Owners and Management.

The information required by this item is contained under the section of the information statement entitled “Principal Shareholders.” That section is incorporated herein by reference.

Item 5. Directors and Executive Officers.

The information required by this item is contained under the sections of the information statement entitled “Management” and “Our Manager and Asset Management Agreement.” Those sections are incorporated herein by reference.

Item 6. Executive Compensation.

The information required by this item is contained under the sections of the information statement entitled “Management—Executive Compensation” and “Our Manager and Asset Management Agreement.” Those sections are incorporated herein by reference.

Item 7. Certain Relationships and Related Transactions.

The information required by this item is contained under the sections of the information statement entitled “Management,” “Our Manager and Asset Management Agreement” and “Certain Relationships and Related Transactions.” Those sections are incorporated herein by reference.


Item 8. Legal Proceedings.

The information required by this item is contained under the section of the information statement entitled “Business and Properties—Legal Proceedings.” That section is incorporated herein by reference.

Item 9. Market Price of, and Dividends on, the Registrant’s Common Equity and Related Stockholder Matters.

The information required by this item is contained under the section of the information statement entitled “Summary,” “Our Spin-Off from Spirit,” “Distribution Policy” and “Description of Shares.” Those sections are incorporated herein by reference.

Item 10. Recent Sales of Unregistered Securities.

Not applicable.

Item 11. Description of Registrant’s Securities to be Registered.

The information required by this item is contained under the section of the information statement entitled “Our Spin-Off from Spirit” and “Description of Shares.” Those sections are incorporated herein by reference.

Item 12. Indemnification of Directors and Officers.

The information required by this item is contained under the section of the information statement entitled “Certain Provisions of Maryland Law and Our Declaration of Trust and Bylaws—Limitation of Liability and Indemnification of Trustees and Officers.” That section is incorporated herein by reference.

Item 13. Financial Statements and Supplementary Data.

The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” (and the financial statements and related notes referenced therein). That section is incorporated herein by reference.

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 15. Financial Statements and Exhibits.

 

  (a) Financial Statements

The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” (and the financial statements and related noted referenced therein). That section is incorporated herein by reference.

 

  (b) Exhibits

See below.


The following documents are filed as exhibits hereto:

 

Exhibit

Number

  

Exhibit Description

  2.1    Form of Separation and Distribution Agreement between Spirit Realty Capital, Inc. and Spirit MTA REIT
  3.1    Form of Articles of Amendment and Restatement of Spirit MTA REIT
  3.2    Form of Amended and Restated Bylaws of Spirit MTA REIT
  3.3    Form of Articles Supplementary for 10.0% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest of Spirit MTA REIT
  4.1*    Second Amended and Restated Master Indenture among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., dated May 20, 2014
  4.2*    Amendment No.  1 to the Second Amended and Restated Master Indenture among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., dated November 26, 2014
  4.3*    Series 2014-1 Indenture Supplement among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., dated May 20, 2014
  4.4*    Series 2014-2 Indenture Supplement among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., dated May 20, 2014
  4.5*    Series 2014-3 Indenture Supplement among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., dated May 20, 2014
  4.6*    Series 2014-4 Indenture Supplement among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC, Spirit Master Funding VI, LLC, Spirit Master Funding VIII, LLC and Citibank, N.A., dated November 26, 2014
  4.7*    Omnibus Amendment to Certain Series Supplements among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC, Spirit Master Funding VI, LLC, Spirit Master Funding VIII, LLC and Citibank, N.A., dated December 14, 2017
  4.8*    Amendment No. 2 to Second Amended and Restated Master Indenture among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC, Spirit Master Funding VI, LLC, Spirit Master Funding VIII, LLC and Citibank, N.A., dated December 14, 2017
  4.9*    Amendment No. 3 to Second Amended and Restated Master Indenture among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC, Spirit Master Funding VI, LLC, Spirit Master Funding VIII, LLC and Citibank, N.A., dated January 29, 2018
  4.10*    Series 2017-1 Indenture Supplement among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC, Spirit Master Funding VI, LLC, Spirit Master Funding VIII, LLC and Citibank, N.A., dated December 14, 2017
  4.11*    Amendment No. 1 to Series 2017-1 Indenture Supplement among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC, Spirit Master Funding VI, LLC, Spirit Master Funding VIII, LLC and Citibank, N.A., dated January 30, 2018
10.1    Form of Indemnification Agreement
10.2    Form of Asset Management Agreement between Spirit Realty, L.P. and Spirit MTA REIT
10.3    Form of Tax Matters Agreement between Spirit Realty Capital, Inc. and Spirit MTA REIT
10.4    Form of Insurance Sharing Agreement between Spirit Realty, L.P., Spirit Realty Capital, Inc. and Spirit MTA REIT
10.5    Form of Registration Rights Agreement between Spirit Realty, L.P. and Spirit MTA REIT
10.6*    Second Amended and Restated Property Management and Servicing Agreement dated May 20, 2014, by and among Spirit Realty, L.P., Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Midland Loan Services, a division of PNC Bank, National Association


Exhibit

Number

  

Exhibit Description

10.7*    Amendment No. 1 to the Second Amended and Restated Property Management and Servicing Agreement dated November 26, 2014, by and among Spirit Realty, L.P., Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Midland Loan Services, a division of PNC Bank, National Association
10.8*    Amendment No. 2 to the Second Amended and Restated Property Management and Servicing Agreement among Spirit Realty, L.P., Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master funding III, LLC, Spirit Master Funding VI, LLC, and Spirit Master Funding VIII, LLC, dated December 14, 2017
10.9*    Amended and Restated Master Lease between Spirit SPE Portfolio 2006-1, LLC and Spirit SPE Portfolio 2006-2, LLC, and Shopko Stores Operating CO., LLC, dated December 15, 2014
10.10*    Amendment No. 1 to Amended and Restated Master Lease between Spirit SPE Portfolio 2006-1, LLC and Spirit SPE Portfolio 2006-2, LLC, and Shopko Stores Operating CO., LLC, dated January 16, 2018
10.11    Form of Spirit MTA REIT and Spirit MTA REIT, L.P. 2018 Incentive Award Plan
10.12    Spirit MTA REIT Non-Employee Trustee Compensation Program
10.13    Form of Restricted Share Award Agreement
21.1    List of Subsidiaries of Spirit MTA REIT
99.1    Preliminary Information Statement of Spirit MTA REIT, subject to completion, dated May 4, 2018

 

* Previously filed


SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Spirit MTA REIT
By:      

/s/ Jackson Hsieh

  Name:  Jackson Hsieh
  Title:    President

Date: May 4, 2018

Exhibit 2.1

 

 

SEPARATION AND DISTRIBUTION AGREEMENT

by and between

SPIRIT REALTY CAPITAL, INC.

and

SPIRIT MTA REIT

dated as of

[ 🌑 ], 2018

 

 


TABLE OF CONTENTS

 

         Page  
ARTICLE I DEFINITIONS      1

Section 1.1

  Definitions      1

Section 1.2

  Interpretation      8
ARTICLE II THE SEPARATION      9

Section 2.1

  Separation Transactions      9

Section 2.2

  Transfers of Assets and Assumptions of Liabilities      10

Section 2.3

  Termination of Intercompany Agreements      12

Section 2.4

  Settlement of Intercompany Account      13

Section 2.5

  Sales of Certain Assets; Certain Reimbursements      13

Section 2.6

  Cash Contribution; Cash Distribution      13
ARTICLE III CERTAIN ACTIONS PRIOR TO THE DISTRIBUTION      14

Section 3.1

  SEC and Other Securities Filings      14

Section 3.2

  NYSE Listing Application      14

Section 3.3

  Distribution Agent Agreement      14

Section 3.4

  SMTA Asset Management Agreement      14

Section 3.5

  Governmental Approvals and Consents      15

Section 3.6

  Ancillary Agreements      15

Section 3.7

  Governance Matters      15
ARTICLE IV THE DISTRIBUTION      15

Section 4.1

  Dividend to SRC      15

Section 4.2

  Delivery to Distribution Agent      15

Section 4.3

  Mechanics of the Distribution      15
ARTICLE V CONDITIONS      17

Section 5.1

  Conditions Precedent to Consummation of the Distribution      17

Section 5.2

  Right Not to Close      18
ARTICLE VI NO REPRESENTATIONS OR WARRANTIES      18

Section 6.1

  Disclaimer of Representations and Warranties      18

Section 6.2

  As Is, Where Is      19
ARTICLE VII CERTAIN COVENANTS AND ADDITIONAL AGREEMENTS      19

Section 7.1

  Insurance Matters      19

 

i


Section 7.2

  No Restrictions on Post-Closing Competitive Activities; Corporate Opportunities      19

Section 7.3

  Cooperation      21
ARTICLE VIII ACCESS TO INFORMATION; CONFIDENTIALITY; PRIVILEGE      21

Section 8.1

  Agreement for Exchange of Information      21

Section 8.2

  Ownership of Information      22

Section 8.3

  Compensation for Providing Information      22

Section 8.4

  Retention of Records      22

Section 8.5

  Limitation of Liability      22

Section 8.6

  Production of Witnesses      23

Section 8.7

  Confidentiality      23

Section 8.8

  Privileged Matters      24

Section 8.9

  Financial Information Certifications      26
ARTICLE IX MUTUAL RELEASES; INDEMNIFICATION      26

Section 9.1

  Release of Pre-Distribution Claims      26

Section 9.2

  Indemnification by SMTA      27

Section 9.3

  Indemnification by SRC      28

Section 9.4

  Procedures for Indemnification      29

Section 9.5

  Indemnification Obligations Net of Insurance Proceeds      31

Section 9.6

  Contribution      31

Section 9.7

  Remedies Cumulative      32

Section 9.8

  Survival of Indemnities      32

Section 9.9

  Limitation of Liability      32
ARTICLE X DISPUTE RESOLUTION      32

Section 10.1

  Appointed Representative      32

Section 10.2

  Negotiation and Dispute Resolution      32

Section 10.3

  Arbitration      33
ARTICLE XI TERMINATION      35

Section 11.1

  Termination      35

Section 11.2

  Effect of Termination      35
ARTICLE XII MISCELLANEOUS      35

Section 12.1

  Further Assurances      35

Section 12.2

  Payment of Expenses      35

Section 12.3

  Amendments and Waivers      35

Section 12.4

  Entire Agreement      36

Section 12.5

  Survival of Agreements      36

Section 12.6

  Third Party Beneficiaries      36

Section 12.7

  Notices      36

 

ii


Section 12.8

  Counterparts; Electronic Delivery      37

Section 12.9

  Severability      37

Section 12.10

  Assignability; Binding Effect      37

Section 12.11

  Governing Law      37

Section 12.12

  Construction      37

Section 12.13

  Performance      38

Section 12.14

  Title and Headings      38

Section 12.15

  Exhibits and Schedules      38

Section 12.16

  Exclusivity of Tax Matters      38

 

iii


SEPARATION AND DISTRIBUTION AGREEMENT

This SEPARATION AND DISTRIBUTION AGREEMENT (this “ Agreement ”) is entered into as of [ 🌑 ], 2018, by and between Spirit Realty Capital, Inc., a Maryland corporation (“ SRC ”), and Spirit MTA REIT, a Maryland real estate investment trust and an indirect, wholly owned subsidiary of SRC (“ SMTA ”). SRC and SMTA are sometimes referred to herein individually as a “ Party ,” and collectively as the “ Parties .” Capitalized terms used but not otherwise defined herein shall have the respective meanings set forth in Section  1.1 .

RECITALS

WHEREAS, SRC, through its Subsidiaries, has previously acquired the SMTA Assets;

WHEREAS, the board of directors of SRC has determined that it is advisable and in the best interests of SRC to cause the SMTA Assets to be owned by SMTA and its Subsidiaries and to establish SMTA as an independent publicly traded company; and

WHEREAS, pursuant to the terms of this Agreement, the Parties intend to effect the separation of SRC and SMTA by distributing to the holders of SRC’s outstanding shares of common stock, par value $0.01 per share (“ SRC Common Stock ”), on a pro rata basis, all of the common shares of beneficial interest, $0.01 par value per share, of SMTA (“ SMTA Common Shares ”), owned by SRC as of the Distribution Date (which shall represent 100% of the issued and outstanding SMTA Common Shares).

NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions . As used in this Agreement, the following terms shall have the meanings set forth in this Section  1.1 :

AAA ” has the meaning set forth in Section  10.3(a) .

Action ” means any demand, claim, action, suit, countersuit, arbitration, litigation, inquiry, proceeding or investigation by or before any Governmental Authority or any arbitration or mediation tribunal or authority.

Affiliate ” means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the specified Person. For this purpose “control” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through ownership of voting securities, by contract or otherwise.

 

1


Agreement ” has the meaning set forth in the preamble to this Agreement and includes all Exhibits and Schedules attached hereto or delivered pursuant hereto.

Agreement Dispute ” has the meaning set forth in Section  10.2(a) .

Ancillary Agreements ” has the meaning set forth in Section  3.6 .

Appellate Rules ” has the meaning set forth in Section  10.3(g) .

Appointed Representative ” has the meaning set forth in Section  10.1 .

Appropriate Member of the SMTA Group ” has the meaning set forth in Section  9.2 .

Appropriate Member of the SRC Group ” has the meaning set forth in Section  9.3 .

Asset ” means all rights, properties or other assets, whether real, personal or mixed, tangible or intangible, of any kind, nature and description, whether accrued, contingent or otherwise, and wheresoever situated and whether or not carried or reflected, or required to be carried or reflected, on the books of any Person.

Award ” has the meaning set forth in Section  10.3(e) .

Business Day ” means a day other than a Saturday, a Sunday or a day on which banking institutions located in the State of New York are authorized or obligated by applicable Law or executive order to close.

Code ” means the Internal Revenue Code of 1986, as amended.

Confidential Information ” means any and all information:

(a) that is required to be maintained in confidence by any Law or under any Contract;

(b) concerning market studies, business plans, computer hardware, computer software (including all versions, source and object codes and all related files and data), software and database technologies, systems, structures and architectures, and other similar technical or business information;

(c) concerning any business and its affairs, which includes earnings reports and forecasts, macro-economic reports and forecasts, business and strategic plans, general market evaluations and surveys, litigation presentations and risk assessments, financing and credit-related information, financial projections, tax returns and accountants’ materials, historical, business plans, strategic plans, Contracts, however documented, and other similar financial or business information;

(d) constituting communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), communications and materials otherwise related to or made or prepared in connection with or in preparation for any legal proceeding; or

 

2


(e) constituting notes, analyses, compilations, studies, summaries and other material that contain or are based, in whole or in part, upon any information included in the foregoing clauses (a) through (d).

Consent ” means any consent, waiver or approval from, or notification requirement to, any Person other than a member of either Group.

Contract ” means any written, oral, implied or other contract, agreement, covenant, lease, license, guaranty, indemnity, representation, warranty, assignment, sales order, purchase order, power of attorney, instrument or other commitment, assurance, undertaking or arrangement that is binding on any Person or entity or any part of its property under applicable Law.

Deferred Asset ” has the meaning set forth in Section  2.2(b) .

Deferred Asset or Liability ” has the meaning set forth in Section  2.2(b) .

Deferred Liability ” has the meaning set forth in Section  2.2(b) .

Distribution ” means the transactions contemplated by Section  4.3 .

Distribution Agent ” means American Stock Transfer & Trust Company, LLC.

Distribution Date ” means the date on which the Distribution occurs, such date to be determined by, or under the authority of, the board of directors of SRC, in its sole and absolute discretion.

Distribution Ratio ” has the meaning set forth in Section  4.3(a) .

Effective Time ” means the time at which the Distribution is effective on the Distribution Date.

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

Governmental Approval ” means any notice, report or other filing to be given to or made with, or any release, consent, substitution, approval, amendment, registration, permit or authorization from, any Governmental Authority.

Governmental Authority ” means any U.S. federal, state, local or non-U.S. court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority.

Group ” means either the SRC Group or the SMTA Group, as the context requires.

Guarantee ” means any guarantee (including guarantees of performance or payment under Contracts, commitments, Liabilities and permits), letter of credit or other credit or credit support arrangement or similar assurance, including surety bonds, bid bonds, advance payment bonds, performance bonds, payment bonds, retention and/or warranty bonds or other bonds or similar instruments.

 

3


Indebtedness ” of any specified Person means (a) all obligations of such specified Person for borrowed money or arising out of any extension of credit to or for the account of such specified Person (including reimbursement or payment obligations with respect to surety bonds, letters of credit, bankers’ acceptances and similar instruments), (b) all obligations of such specified Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such specified Person upon which interest charges are customarily paid, (d) all obligations of such specified Person under conditional sale or other title retention agreements relating to Assets purchased by such specified Person, (e) all obligations of such specified Person issued or assumed as the deferred purchase price of property or services, (f) all Liabilities secured by (or for which any Person to which any such Liability is owed has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge or other encumbrance on property owned or acquired by such specified Person (or upon any revenues, income or profits of such specified Person therefrom), whether or not the obligations secured thereby have been assumed by the specified Person or otherwise become Liabilities of the specified Person, (g) all capital lease obligations of such specified Person, (h) all securities or other similar instruments convertible or exchangeable into any of the foregoing, and (i) any Liability of others of a type described in any of the preceding clauses (a) through (h) in respect of which the specified Person has incurred, assumed or acquired a Liability by means of a Guarantee.

Indemnifiable Loss ” has the meaning set forth in Section  9.5 .

Indemnifying Party ” has the meaning set forth in Section  9.4(a) .

Indemnitee ” means any SRC Indemnitee or any SMTA Indemnitee.

Indemnity Payment ” has the meaning set forth in Section  9.5 .

Information Statement ” means the information statement, attached as an exhibit to the Registration Statement, and any related documentation to be provided to holders of SRC Common Stock in connection with the Distribution, including any amendments or supplements thereto.

Insurance Policy ” means any insurance policies and insurance Contracts, including, without limitation, general liability, property and casualty, environmental liability, umbrella, workers’ compensation, automobile, directors and officers liability, errors and omissions, employee dishonesty and fiduciary liability policies, whether, in each case, in the nature of primary, excess, umbrella or self-insurance overage, together with all rights, benefits and privileges thereunder.

Insurance Proceeds ” means those monies (in each case, net of any out-of-pocket costs or expenses incurred in the collection thereof):

(a) received by an insured Person from any insurer, insurance underwriter, mutual protection and indemnity club or other risk collective, excluding any proceeds received directly or indirectly (such as through reinsurance arrangements) from any captive insurance Subsidiary of the insured Person; or

 

4


(b) paid on behalf of an insured Person by any insurer, insurance underwriter, mutual protection and indemnity club or other risk collective, excluding any such payment made directly or indirectly (such as through reinsurance arrangements) from any captive insurance Subsidiary of the insured Person, on behalf of the insured.

Insurance-Sharing Agreement ” means the Insurance-Sharing Agreement to be entered into between SRC and SMTA, substantially in the form attached as Exhibit C hereto, as such agreement may be modified or amended from time to time in accordance with its terms.

Intercompany Account ” means any receivable, payable or loan between any member of the SRC Group, on the one hand, and any member of the SMTA Group, on the other hand, that exists prior to the Effective Time and is reflected in the records of the relevant members of the SRC Group and the SMTA Group, except for any such receivable, payable or loan that arises pursuant to this Agreement or any Ancillary Agreement.

Intercompany Agreement ” means any Contract, whether or not in writing, between or among any member of the SRC Group, on the one hand, and any member of the SMTA Group, on the other hand, entered into prior to the Distribution Date, but excluding any Contract to which a Person other than any member of the SRC Group or the SMTA Group is also a party.

Investment Company Act ” means the Investment Company Act of 1940, as amended.

IRS ” means the United States Internal Revenue Service or any successor agency.

Law ” means any law, statute, ordinance, code, rule, regulation, order, writ, proclamation, judgment, injunction or decree of any Governmental Authority.

Liabilities ” means any and all Indebtedness, liabilities and obligations, whether accrued, fixed or contingent, mature or inchoate, known or unknown, reflected on a balance sheet or otherwise, including those arising under any Law, Action or any judgment of any Governmental Authority or any award of any arbitrator of any kind, and those arising under any Contract.

Losses ” means any and all damages, losses, deficiencies, Liabilities, obligations, penalties, judgments, settlements, claims, payments, interest costs, Taxes, fines and expenses (including the costs and expenses of any and all Actions and demands, assessments, judgments, settlements and compromises relating thereto and attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder).

NYSE ” means the New York Stock Exchange, Inc.

NYSE Listing Application ” has the meaning set forth in Section  3.2(a) .

Party ” or “ Parties ” has the meaning set forth in the preamble to this Agreement.

Period ” has the meaning set forth in Section  8.1(a) .

 

5


Person ” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, a union, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof.

Record Date ” means the close of business on the date, to be determined by the board of directors of SRC, as the record date for determining holders of SRC Common Stock entitled to receive SMTA Common Shares in the Distribution.

Record Holders ” has the meaning set forth in Section  4.2 .

Registration Statement ” means the registration statement on Form 10 of SMTA with respect to the registration under the Exchange Act of the SMTA Common Shares to be distributed in the Distribution, including any amendments or supplements thereto.

Rules ” has the meaning set forth in Section  10.3(a) .

SEC ” means the United States Securities and Exchange Commission.

Security Interests ” means any mortgage, security interest, pledge, lien, charge, claim, option, indenture, right to acquire, right of first refusal, deed of trust, licenses to third parties, leases to third parties, security agreements, voting or other restriction, covenant, condition, restriction, encroachment, restriction on transfer, restrictions or limitations on use of real or personal property or any other encumbrance of any nature whatsoever, imperfections in or failure of title or defect of title.

Separation ” means the transactions contemplated by Article II .

SMTA ” has the meaning set forth in the preamble to this Agreement.

SMTA Asset Management Agreement ” has the meaning set forth in Section  3.4 .

SMTA Assets ” means, except as set forth in Sections 2.5 and 2.6 , all of the equity of the SMTA Subsidiaries and all of the other assets owned or to be owned by the SMTA Subsidiaries immediately following the transactions described in Section  2.1 , and all of the other Assets held or to be held by SMTA set forth on Section  1.1 of the Disclosure Schedule. For the avoidance of doubt, the SMTA Assets shall include, but not be limited to, all Assets recorded on the SMTA Balance Sheet; provided , that the amounts set forth on the SMTA Balance Sheet with respect to any Assets shall not be treated as minimum or maximum amounts or limitations on the amount of such Assets that are included in the definition of SMTA Assets.

SMTA Balance Sheet ” means the Unaudited Pro Forma Combined Balance Sheet as of December 31, 2017, as included in the Information Statement.

SMTA Common Shares ” has the meaning set forth in the recitals to this Agreement.

SMTA Group ” means SMTA and the SMTA Subsidiaries.

 

6


SMTA Indemnitees ” means each member of the SMTA Group and their Affiliates and each of their respective current or former stockholders, trustees, directors, officers, agents and employees (in each case, in such Person’s respective capacity as such) and their respective heirs, executors, administrators, successors and assigns.

SMTA Liabilities ” means, except as otherwise expressly provided in this Agreement or one or more of the Ancillary Agreements:

(a) all Liabilities relating to or arising out of the SMTA Assets whether arising prior to, at the time of, or after the Effective Time, including, without limitation, Indebtedness of SMTA or a SMTA Subsidiary that is outstanding at the Effective Time;

(b) all Liabilities recorded on the SMTA Balance Sheet, subject to the satisfaction of any Liabilities subsequent to the date of the SMTA Balance Sheet; provided that the amounts set forth on the SMTA Balance Sheet with respect to any Liabilities shall not be treated as minimum or maximum amounts or limitations on the amount of such Liabilities that are included in the definition of SMTA Liabilities pursuant to this clause (b);

(c) any potential Liabilities with respect to matters identified on, and subject to the limitations set forth on, Section  1.2 of the Disclosure Schedule;

(d) all Liabilities arising out of claims made by SMTA’s trustees, officers and Affiliates after the Effective Time against SRC or SMTA, to the extent relating to the SMTA Assets; and

(e) all Liabilities that are expressly created by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed or retained by SMTA or any other member of the SMTA Group, and all agreements, obligations and Liabilities of any member of the SMTA Group under this Agreement or any of the Ancillary Agreements.

Notwithstanding the foregoing, any Liabilities of the SRC Group relating to the SRC Performance Undertakings shall not be considered SMTA Liabilities and shall be considered SRC Liabilities.

SMTA Manager ” means Spirit Realty, L.P.

SMTA Subsidiaries ” means the Subsidiaries of SMTA as of the date of this Agreement, the Subsidiaries of SMTA listed on Exhibit  A hereto, and any Subsidiary of SMTA formed after the date of this Agreement and prior to the Distribution Date.

SRC ” has the meaning set forth in the preamble to this Agreement.

SRC Assets ” means all Assets owned, directly or indirectly, by SRC, other than any SMTA Assets.

SRC Common Stock ” has the meaning set forth in the recitals to this Agreement.

 

7


SRC Group ” means SRC and the Subsidiaries of SRC other than SMTA and the SMTA Subsidiaries.

SRC Indemnitees ” means each member of the SRC Group and its Affiliates (other than SMTA and the SMTA Subsidiaries) and each of their respective current or former stockholders, directors, officers, agents and employees (in each case, in such Person’s respective capacity as such) and their respective heirs, executors, administrators, successors and assigns.

SRC Liabilities ” means any Liabilities of SRC or any of its Subsidiaries, other than any SMTA Liabilities. For the avoidance of doubt, SRC Liabilities shall include any Liabilities of the SRC Group relating to the SRC Performance Undertakings.

SRC Performance Undertakings ” means (i) the Performance Undertaking, made as of May 20, 2014, by Spirit Realty, L.P. in favor of Spirit Master Funding, LLC, Spirit Master Funding II, LLC and Spirit Master Funding III, LLC, as amended by Amendment No. 1 to the Performance Undertaking entered into as of December 14, 2017 and (ii) the Performance Undertaking, made as of November 26, 2014, by Spirit Realty L.P. in favor of Spirit Master Funding VI, LLC and Spirit Master Funding VIII, LLC, as amended by Amendment No. 1 to Performance Undertaking entered into as of December 14, 2017.

Subsidiary ” means, with respect to any specified Person, any corporation, partnership, limited liability company, joint venture or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such specified Person or by any one or more of its subsidiaries, or by such specified Person and one or more of its subsidiaries.

Tax Matters Agreement ” means the Tax Matters Agreement to be entered into between SRC and SMTA, substantially in the form attached as Exhibit B hereto, as such agreement may be modified or amended from time to time in accordance with its terms.

Tax ” has the meaning set forth in the Tax Matters Agreement.

Tax Authority ” has the meaning set forth in the Tax Matters Agreement.

Third-Party Claim ” has the meaning set forth in Section  9.4(b) .

Transactions ” means the Separation, the Distribution and any other transactions contemplated by this Agreement or any Ancillary Agreement.

Treasury Regulations ” has the meaning set forth in the Tax Matters Agreement.

Section 1.2 Interpretation . In this Agreement and the Ancillary Agreements, unless the context clearly indicates otherwise:

(a) words used in the singular include the plural and words used in the plural include the singular;

 

8


(b) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”;

(c) the word “or” shall have the inclusive meaning represented by the phrase “and/or”;

(d) relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding” and “through” means “through and including”;

(e) accounting terms used herein shall have the meanings historically ascribed to them by SRC and its Subsidiaries in its and their internal accounting and financial policies and procedures in effect immediately prior to the date of this Agreement;

(f) reference to any agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement;

(g) reference to any Law means such Law (including any and all rules and regulations promulgated thereunder) as amended, modified, codified or reenacted, in whole or in part, and in effect at the time of determining compliance or applicability;

(h) references to any Person include such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement; a reference to such Person’s “Affiliates” shall be deemed to mean such Person’s Affiliates following the Distribution and any reference to a third party shall be deemed to mean a Person who is not a Party or an Affiliate of a Party;

(i) if there is any conflict between the provisions of the main body of this Agreement or an Ancillary Agreement and the Exhibits and Schedules hereto or thereto, the provisions of the main body of this Agreement or the Ancillary Agreement, as applicable, shall control unless explicitly stated otherwise in such Schedule;

(j) if there is any conflict between the provisions of this Agreement and any Ancillary Agreement, the provisions of such Ancillary Agreement shall control (but only with respect to the subject matter thereof) unless explicitly stated otherwise therein; and

(k) any portion of this Agreement or any Ancillary Agreement obligating a Party to take any action or refrain from taking any action, as the case may be, shall mean that such Party shall also be obligated to cause its relevant Subsidiaries to take such action or refrain from taking such action, as the case may be.

ARTICLE II

THE SEPARATION

Section 2.1 Separation Transactions . On or prior to the Distribution Date, SRC shall, and shall cause SMTA and each other Subsidiary and controlled Affiliate of SRC to, effect each of the transactions set forth in Section  2.1 of the Disclosure Schedule, which transactions shall be

 

9


accomplished in the order described on and subject to the limitations set forth in Section  2.1 of the Disclosure Schedule, in each case, with such modifications, if any, as SRC shall determine are necessary or desirable for efficiency or similar purposes.

Section 2.2 Transfers of Assets and Assumptions of Liabilities .

(a) Transfer of Assets and Assumption of Liabilities Prior to Effective Time . Subject to Section  2.1 and Section  2.2(b) , in accordance with Section  2.1 of the Disclosure Schedule and to the extent not previously effected prior to the date hereof pursuant to Section  2.1 of the Disclosure Schedule, SRC and SMTA agree to take all actions necessary so that, immediately prior to the Effective Time, (i) the SMTA Group will own, to the extent it does not already own, all of the SMTA Assets and none of the SRC Assets, and (ii) the SMTA Group will assume, to the extent it is not already liable for, all SMTA Liabilities. For the avoidance of doubt, Section  2.1 of the Disclosure Schedule shall take precedence in the event of any conflict between the terms of this Article II and Section  2.1 of the Disclosure Schedule, and any transfers of assets or liabilities made pursuant to this Agreement or any Ancillary Agreement after the Effective Time shall be deemed to have been made prior to the Effective Time consistent with Section  2.1 of the disclosure Schedule.

(b) Deferred Transfers and Assumptions .

(i) Nothing in this Agreement or in any Ancillary Agreement will be deemed to require the transfer of any Assets or the assumption of any Liabilities that by their terms or by operation of Law cannot be transferred or assumed.

(ii) To the extent that any transfer of Assets or assumption of Liabilities contemplated by this Agreement or any Ancillary Agreement is not consummated prior to the Effective Time as a result of an absence or non-satisfaction of any required Consent, Governmental Approval and/or other condition (such Assets or Liabilities, a “ Deferred Asset ” or a “ Deferred Liability ,” as applicable, and, collectively, a “ Deferred Asset or Liability ”), the Parties will use commercially reasonable efforts to effect such transfers or assumptions as promptly following the Effective Time as practicable. If and when the Consents, Governmental Approvals and/or other conditions, the absence or non-satisfaction of which gave rise to the Deferred Asset or Deferred Liability, are obtained or satisfied, the transfer or assumption of the Deferred Asset or Deferred Liability will be effected in accordance with and subject to the terms of this Agreement or the applicable Ancillary Agreement, if any.

(iii) From and after the Effective Time until such time as the Deferred Asset or Deferred Liability is transferred or assumed, as applicable, (A) the Party retaining such Deferred Asset will thereafter hold such Deferred Asset for the use and benefit of the Party entitled thereto (at the expense of the Party entitled thereto) and (B) the Party intended to assume such Deferred Liability will pay or reimburse the Party retaining such Deferred Liability for all amounts paid or incurred in connection with the retention of such Deferred Liability; it being agreed that the Party retaining such Deferred Asset or Deferred Liability will not be obligated, in connection with the foregoing clause (A) and clause (B), to expend any money unless the necessary funds are advanced or agreed in

 

10


writing to be reimbursed by the Party entitled to such Deferred Asset or intended to assume such Deferred Liability. The Party retaining the Deferred Asset or Deferred Liability will use its commercially reasonable efforts to notify the Party entitled to or intended to assume such Deferred Asset or Deferred Liability of the need for such expenditure. In addition, the Party retaining such Deferred Asset or Deferred Liability will, insofar as reasonably practicable and to the extent permitted by applicable Law, (A) treat such Deferred Asset or Deferred Liability in the ordinary course of business consistent with past practice, (B) promptly take such other actions as may be requested by the Party entitled to such Deferred Asset or by the Party intended to assume such Deferred Liability in order to place such Party in the same position as if the Deferred Asset or Deferred Liability had been transferred or assumed, as applicable, as contemplated hereby, and so that all the benefits and burdens relating to such Deferred Asset or Deferred Liability, including possession, use, risk of loss, potential for gain, and control over such Deferred Asset or Deferred Liability, are to inure from and after the Effective Time to such Party entitled to such Deferred Asset or intended to assume such Deferred Liability and (C) hold itself out (including by providing notice, as applicable) to third parties as agent or nominee on behalf of the Party entitled to such Deferred Asset or intended to assume such Deferred Liability.

(iv) In furtherance of the foregoing, the Parties agree that, as of the Effective Time, each Party will be deemed to have acquired beneficial ownership of all of the Assets, together with all rights and privileges incident thereto, and will be deemed to have assumed all of the Liabilities, and all duties, obligations and responsibilities incident thereto, that such Party is entitled to acquire or intended to assume pursuant to the terms of this Agreement or the applicable Ancillary Agreement, if any.

(v) The Parties agree to treat, for all Tax purposes, any Asset or Liability that is not transferred or assumed prior to the Effective Time and which is subject to the provisions of this Section  2.2(b) , as (A) owned by the Party to which such Asset was intended to be transferred or by the Party which was intended to assume such Liability, as the case may be, from and after the Effective Time, (B) having not been owned by the Party retaining such Asset or Liability, as the case may be, at any time from and after the Effective Time, and (C) having been held by the Party retaining such Asset or Liability, as the case may be, only as agent or nominee on behalf of the other Party from and after the Effective Time until the date such Asset or Liability, as the case may be, is transferred to or assumed by such other Party. The Parties will not take any position inconsistent with the foregoing unless otherwise required by applicable Law (in which case, the Parties will provide indemnification for any Taxes attributable to the Asset or Liability during the period beginning on the Distribution Date and ending on the date of the actual transfer).

(c) Misallocated Assets and Liabilities .

(i) In the event that, at any time from and after the Effective Time, either Party discovers that it or another member of its Group is the owner of, receives or otherwise comes to possess or benefit from any Asset (including the receipt of payments made pursuant to Contracts and proceeds from accounts receivable with respect to such

 

11


Asset) that should have been allocated to a member of the other Group pursuant to this Agreement or any Ancillary Agreement (except in the case of any deliberate acquisition of Assets from a member of the other Group for value subsequent to the Effective Time), such Party shall promptly transfer, or cause to be transferred, such Asset to such member of the other Group, and such member of the other Group shall accept such Asset for no further consideration other than that set forth in this Agreement and such Ancillary Agreement. Prior to any such transfer, such Asset shall be held in accordance with Section  2.2(b) .

(ii) In the event that, at any time from and after the Effective Time, either Party discovers that it or another member of its Group is liable for any Liability that should have been allocated to a member of the other Group pursuant to this Agreement or any Ancillary Agreement (except in the case of any deliberate assumption of Liabilities from a member of the other Group for value subsequent to the Effective Time), such Party shall promptly transfer, or cause to be transferred, such Liability to such member of the other Group and such member of the other Group shall assume such Liability for no further consideration than that set forth in this Agreement and such Ancillary Agreement. Prior to any such assumption, such Liabilities shall be held in accordance with Section  2.2(b) .

(d) Instruments of Transfer and Assumption . The Parties agree that (i) transfers of Assets that may be required by this Agreement or any Ancillary Agreement shall be effected by delivery by the transferor to the transferee of (A) with respect to those Assets that constitute stock or other equity interests, certificates endorsed in blank or evidenced or accompanied by stock powers or other instruments of transfer endorsed in blank, against receipt and (B) with respect to all other Assets, such good and sufficient instruments of contribution, conveyance, assignment and transfer, in form and substance reasonably satisfactory to the Parties, as shall be necessary, in each case, to vest in the designated transferee all of the title and ownership interest of the transferor in and to any such Asset, and (ii) the assumptions of Liabilities required by this Agreement or any Ancillary Agreement shall be effected by delivery by the transferee to the transferor of such good and sufficient instruments of assumption, in form and substance reasonably satisfactory to the Parties, as shall be necessary, in each case, for the assumption by the transferee of such Liabilities.

Section 2.3 Termination of Intercompany Agreements.

(a) Except as set forth in Section  2.3(b) , SRC, on behalf of itself and each of the other members of the SRC Group, and SMTA, on behalf of itself and each of the other members of the SMTA Group, hereby terminate, effective as of the Effective Time, any and all Intercompany Agreements. No such terminated Intercompany Agreement will be of any further force or effect from and after the Effective Time and all Parties shall be released from all Liabilities thereunder other than the Liability to settle any Intercompany Accounts as provided in Section  2.4 . Each Party shall take, or cause to be taken, any and all actions as may be reasonably necessary to effect the foregoing.

 

12


(b) The provisions of Section  2.3(a) shall not apply to any of the following agreements (which agreements shall continue to be outstanding after the Distribution Date and thereafter shall be deemed to be, for each relevant Party (or the member of such Party’s Group), an obligation to a third party and shall no longer be an Intercompany Agreement):

(i) this Agreement and the Ancillary Agreements (and each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement), if any;

(ii) any confidentiality or non-disclosure agreements among any members of either Group or employees of the SMTA Manager; and

(iii) any agreement listed or described on Section  2.3(b) of the Disclosure Schedule, if any.

Section 2.4 Settlement of Intercompany Account . Each Intercompany Account outstanding immediately prior to the Distribution Date (other than those set forth on Section  2.4 of the Disclosure Schedule, if any), will be satisfied and/or settled in full in cash or otherwise cancelled and terminated or extinguished by the relevant members of the SRC Group and the SMTA Group prior to the Effective Time, in each case, in the manner agreed to by the Parties. Each Intercompany Account outstanding immediately prior to the Distribution Date set forth on Section  2.4 of the Disclosure Schedule shall continue to be outstanding after the Distribution Date (unless previously satisfied in accordance with its terms) and thereafter shall be deemed to be, for each Party (or the relevant member of such Party’s Group), an obligation to a third party and shall no longer be an Intercompany Account.

Section 2.5 Sales of Certain Assets; Certain Reimbursements . The parties hereto agree that in connection with the sale by any member of the SMTA Group of any or all of the assets set forth on Section  2.5 of the Disclosure Schedule, SRC shall be reimbursed $82,500 per asset for prior fees paid. SMTA agrees that it will include, or will cause to be included, a line item on the closing statement for each such sale in the amount of the applicable reimbursement, and the escrow agent shall be instructed to direct such reimbursement to SRC when the purchase price is released from escrow. The parties hereto further agree that no later than 60 days from the Distribution Date, Spirit Realty, L.P. shall be reimbursed $2 million for certain estimated rent payable with respect to the SMTA Assets that relates to the period between May 1, 2018 and the Effective Time, which shall be paid by wire transfer to an account designated by Spirit Realty, L.P. in immediately available funds.

Section 2.6 Cash Contribution; Cash Distribution .

(a) At or prior to the Effective Time, Spirit Realty, L.P. shall have made a cash contribution of $3 million to SMTA.

(b) At or prior to the Effective Time, to the extent directed by SRC in its discretion, SMTA shall have distributed to SRC or Spirit Realty, L.P. all cash held by SMTA or any of its Subsidiaries, other than (i) the amount of the contribution in section (a) above and (ii) cash held in restricted escrows, which may be, or be based upon, estimates and shall be calculated by SRC in its sole discretion based on information available to it prior to the Effective Time.

 

13


ARTICLE III

CERTAIN ACTIONS PRIOR TO THE DISTRIBUTION

Section 3.1 SEC and Other Securities Filings .

(a) Prior to the date of this Agreement, the Parties caused the Registration Statement to be prepared and filed with the SEC.

(b) The Parties shall use their respective commercially reasonable efforts to cause the Registration Statement to become effective as soon as reasonably practicable following the date of this Agreement.

(c) As soon as practicable after the Registration Statement becomes effective, SRC shall cause the Information Statement to be mailed to the Record Holders.

(d) The Parties shall cooperate in preparing, filing with the SEC and causing to become effective any other registration statements or amendments or supplements thereto that are necessary or appropriate in order to effect the Transactions, or to reflect the establishment of, or amendments to, any employee benefit plans contemplated hereby.

(e) The Parties shall take all such action as may be necessary or appropriate under state and foreign securities or “blue sky” Laws in connection with the Transactions.

Section 3.2 NYSE Listing Application .

(a) Prior to the date of this Agreement, the Parties caused an application for the listing on the NYSE of SMTA Common Shares to be issued to the Record Holders in the Distribution (the “ NYSE Listing Application ”) to be prepared and filed.

(b) The Parties shall use commercially reasonable efforts to have the NYSE Listing Application approved, subject to official notice of issuance, as soon as reasonably practicable following the date of this Agreement.

(c) SRC shall give the NYSE notice of the Record Date in compliance with Rule 10b-17 under the Exchange Act.

Section 3.3 Distribution Agent Agreement . On or prior to the date of this Agreement, SRC shall, if requested by the Distribution Agent, enter into a distribution agent agreement with the Distribution Agent.

Section 3.4 SMTA Asset Management Agreement . On or prior to the Distribution Date, SMTA shall enter into a management agreement with the SMTA Manager (the “ SMTA Asset Management Agreement ”) substantially in the form filed by SMTA with the SEC as an exhibit to the Registration Statement.

 

14


Section 3.5 Governmental Approvals and Consents . To the extent that any of the Transactions require any Governmental Approval or Consent which has not been obtained prior to the date of this Agreement, the Parties will use commercially reasonable efforts to obtain, or cause to be obtained, such Governmental Approval or Consent prior to the Effective Time.

Section 3.6 Ancillary Agreements . Prior to the Effective Time, each Party shall execute and deliver, and shall cause each applicable member of its Group to execute and deliver, as applicable, the SMTA Asset Management Agreement, the Tax Matters Agreement, the Insurance-Sharing Agreement and the Registration Rights Agreement, each substantially in the form filed by SMTA with the SEC as an exhibit to the Registration Statement, as well as such other written agreements, documents or instruments (collectively, the “ Ancillary Agreements ”) as the Parties may agree are reasonably necessary or desirable and to the effect the Transactions.

Section 3.7 Governance Matters .

(a) Organizational Documents . On or prior to the Distribution Date, the Parties shall take all necessary actions to adopt each of the amended and restated declaration of trust, the amended and restated bylaws of SMTA and the amended and restated limited partnership agreement of Spirit MTA REIT, L.P., each substantially in the forms filed by SMTA with the SEC as exhibits to the Registration Statement.

(b) Officers and Trustees . On or prior to the Distribution Date, the Parties shall take all necessary action so that, as of the Distribution Date, the officers and trustees of SMTA will be as set forth in the Information Statement.

ARTICLE IV

THE DISTRIBUTION

Section 4.1 Dividend to SRC . Prior to the Distribution Date, SMTA shall issue to SRC as a stock dividend such number of SMTA Common Shares (or SRC and SMTA shall take or cause to be taken such other appropriate actions to ensure that SRC has the requisite number of SMTA Common Shares) as may be required to effect the Distribution.

Section 4.2 Delivery to Distribution Agent . Subject to Section  5.1 , on or prior to the Distribution Date, SRC will authorize the Distribution Agent, for the benefit of holders of record of SRC Common Stock at the close of business on the Record Date (the “ Record Holders ”), to effect the book-entry transfer of all outstanding SMTA Common Shares and will instruct the Distribution Agent to effect the Distribution at the Effective Time in the manner set forth in Section  4.3 .

Section 4.3 Mechanics of the Distribution .

(a) On the Distribution Date, SRC will direct the Distribution Agent to distribute, effective as of the Effective Time, to each Record Holder, one (1) SMTA Common Share for every ten (10) shares of SRC Common Stock held by such Record Holder on the Record Date (the “ Distribution Ratio ”), subject to Section 5.01(c). All such SMTA Common Shares to be so distributed shall be distributed as uncertificated shares registered in book-entry form through the

 

15


direct registration system. No certificates therefor shall be distributed. Following the Distribution, SRC shall cause the Distribution Agent to deliver an account statement to each holder of SMTA Common Shares reflecting such holder’s ownership thereof (including the amount of cash in lieu of fractional shares as provided in Section 5.01(c)). All of the SMTA Common Shares distributed in the Distribution will be validly issued, fully paid and non-assessable.

(b) Record Holders who, after aggregating the number of SMTA Common Shares (or fractions thereof) to which such Record Holder would be entitled on the Record Date, would be entitled to receive a fraction of a SMTA Common Share in the Distribution, will receive cash in lieu of fractional shares. Fractional SMTA Common Shares will not be distributed in the Distribution nor credited to book-entry accounts. The Distribution Agent shall, as soon as practicable after the Distribution Date (i) determine the number of whole shares and fractional shares of SMTA Common Shares allocable to each Record Holder, (ii) aggregate all such fractional shares into whole shares and sell the whole shares obtained thereby in open market transactions at then prevailing trading prices on behalf of holders who would otherwise be entitled to fractional share interests, and (iii) distribute to each such holder, or for the benefit of each such beneficial owner, such holder’s or owner’s ratable share of the net proceeds of such sale, based upon the average gross selling price per share of SMTA Common Shares after making appropriate deductions for any amount required to be withheld for United States federal income tax purposes. SRC shall bear the cost of brokerage fees and transfer taxes incurred in connection with these sales of fractional shares, which such sales shall occur as soon after the Distribution Date as practicable and as determined by the Distribution Agent. None of SRC, SMTA or the applicable Distribution Agent will guarantee any minimum sale price for the fractional SMTA Common Shares. Neither SRC nor SMTA will pay any interest on the proceeds from the sale of fractional shares. The Distribution Agent will have the sole discretion to select the broker-dealers through which to sell the aggregated fractional shares and to determine when, how and at what price to sell such shares. Neither the Distribution Agent nor the selected broker-dealers will be Affiliates of SRC or SMTA. Any SMTA Common Shares or cash in lieu of fractional shares with respect to SMTA Common Shares that remains unclaimed by any holder of record one hundred-eighty (180) days after the Distribution Date shall be delivered to SMTA. SMTA shall hold such SMTA Common Shares and/or cash for the account of such holder of record and any such holder of record shall look only to SMTA for such SMTA Common Shares and/or cash, if any, in lieu of fractional share interests, subject in each case to applicable escheat or other abandoned property laws.

(c) Notwithstanding any other provision of this Agreement, SRC, the Distribution Agent, or any Person that is a withholding agent under applicable Law shall be entitled to deduct and withhold from any consideration distributable or payable hereunder the amounts required to be deducted and withheld under the Code, or any provision of any U.S. federal, state, local or foreign Tax Law. Any amounts so withheld shall be paid over to the appropriate Tax Authority in the manner prescribed by Law. To the extent that amounts are so deducted and withheld, such deducted and withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Persons in respect of which such deduction and withholding was made. An applicable withholding agent may collect the deducted or withheld amounts by reducing to cash a sufficient portion of the SMTA Common Shares that a Person would otherwise receive, and may require that such Person bear the brokerage or other costs from this withholding procedure.

 

16


ARTICLE V

CONDITIONS

Section 5.1 Conditions Precedent to Consummation of the Distribution . The Distribution shall not be effected unless and until the following conditions have been satisfied or waived by SRC, in its sole and absolute discretion, at or before the Effective Time:

(a) the board of directors of SRC shall have declared the Distribution, which declaration may be made or withheld at its sole and absolute discretion;

(b) the Registration Statement shall have been declared effective by the SEC, with no stop order in effect with respect thereto, and no proceedings for such purpose shall be pending before, or threatened by, the SEC;

(c) SRC shall have mailed the Information Statement (and such other information concerning SMTA, the Distribution and such other matters as the Parties shall determine and as may otherwise be required by Law) to the Record Holders;

(d) all other actions and filings necessary or appropriate under applicable federal or state securities Laws and state blue sky Laws in connection with the Transactions shall have been taken;

(e) SMTA shall have obtained an opinion from Latham & Watkins LLP, in form and substance reasonably satisfactory to SMTA, to the effect that, commencing with SMTA’s initial taxable year ending on December 31, 2018, SMTA will be organized in conformity with the requirements for qualification as a REIT under the Code, and its proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT under the Code;

(f) SRC shall not be required to register as an investment company under the Investment Company Act;

(g) SMTA shall not be required to register as an investment company under the Investment Company Act;

(h) the NYSE shall have approved the NYSE Listing Application, subject to official notice of issuance;

(i) SMTA and the SMTA Manager shall have executed and delivered the SMTA Asset Management Agreement;

(j) the Ancillary Agreements shall have been executed and delivered by each of the parties thereto and no party to any of the Ancillary Agreements will be in material breach of any such agreement;

(k) any material Governmental Approvals and Consents necessary to consummate the Transactions or any portion thereof shall have been obtained and be in full force and effect;

 

17


(l) no preliminary or permanent injunction or other order, decree, or ruling issued by a Governmental Authority, and no Law shall be in effect preventing the consummation of, or materially limiting the benefits of, the Transactions;

(m) Spirit Realty, L.P. shall have entered into a purchase agreement with one or more third parties pursuant to which Spirit Realty, L.P. will sell to such third party or parties the shares of preferred stock of Spirit MTA SubREIT, Inc. that Spirit Realty, L.P. shall receive in connection with certain of the transactions set forth in Section  2.1 of the Disclosure Schedule; and

(n) no other event or development shall have occurred or failed to occur that, in the judgment of the board of directors of SRC, exercised in its sole discretion, prevents the consummation of the Transactions or any portion thereof or makes the consummation of the Transactions inadvisable.

Section 5.2 Right Not to Close . Each of the conditions set forth in Section  5.1 is for the benefit of SRC, and the board of directors of SRC may, in its sole and absolute discretion, determine whether to waive any condition, in whole or in part. Any determination made by the board of directors of SRC concerning the satisfaction or waiver of any or all of the conditions in Section  5.1 will be conclusive and binding on the Parties. The satisfaction of the conditions set forth in Section  5.1 will not create any obligation on the part of SRC to any other Person to effect any of the Transactions or in any way limit SRC’s right to terminate this Agreement and the Ancillary Agreements as set forth in Section  11.1 or alter the consequences of any termination from those specified in Section  11.2 .

ARTICLE VI

NO REPRESENTATIONS OR WARRANTIES

Section 6.1 Disclaimer of Representations and Warranties . EACH PARTY (ON BEHALF OF ITSELF AND EACH OTHER MEMBER OF ITS GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN, IN ANY ANCILLARY AGREEMENT OR IN ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, NO PARTY IS REPRESENTING OR WARRANTING IN ANY WAY AS TO (A) THE ASSETS, BUSINESSES OR LIABILITIES CONTRIBUTED, TRANSFERRED, DISTRIBUTED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, (B) ANY CONSENTS OR GOVERNMENTAL APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, (C) THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF ANY PARTY, (D) THE ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY ACTION OR OTHER ASSET, INCLUDING ACCOUNTS RECEIVABLE, OF ANY PARTY, OR (E) THE LEGAL SUFFICIENCY OF ANY CONTRIBUTION, DISTRIBUTION, ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER OR THEREUNDER TO CONVEY TITLE TO ANY ASSET UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF.

 

18


Section 6.2 As Is, Where Is . EACH PARTY (ON BEHALF OF ITSELF AND EACH OTHER MEMBER OF ITS GROUP) UNDERSTANDS AND AGREES THAT ALL ASSETS TRANSFERRED PURSUANT TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT ARE BEING TRANSFERRED “ AS IS, WHERE IS .”

ARTICLE VII

CERTAIN COVENANTS AND ADDITIONAL AGREEMENTS

Section 7.1 Insurance Matters .Prior to the Distribution Date, SRC and SMTA shall use commercially reasonable efforts to obtain separate Insurance Policies for SMTA related to all applicable currently existing SRC Insurance Policies not addressed under the Insurance-Sharing Agreement on commercially reasonable terms (it being understood that unless otherwise specified in the Insurance Sharing Agreement, SMTA shall be responsible for all premiums, costs and fees associated with any new insurance policies placed for the benefit of SMTA pursuant to this Section  7.1 ). Nothing in this Section  7.1 shall be deemed to affect or modify the terms of the Insurance-Sharing Agreement.

Section 7.2 No Restrictions on Post-Closing Competitive Activities; Corporate Opportunities .

(a) Each of the Parties agrees that this Agreement shall not include any non-competition or other similar restrictive arrangements with respect to the range of business activities that may be conducted, or investments that may be made, by the Groups. Accordingly, each of the Parties acknowledges and agrees that nothing set forth in this Agreement shall be construed to create any explicit or implied restriction or other limitation on the ability of any Group to engage in any business or other activity that overlaps or competes with the business of the other Group. Except as expressly provided herein, in SRC’s or SMTA’s conflicts of interest policies, or in the Ancillary Agreements, (x) each Group shall have the right to, and shall have no duty to abstain from exercising such right to, (i) engage or invest, directly or indirectly, in the same, similar or related business activities or lines of business as the other Group, (ii) make investments in the same or similar types of investments as the other Group, (iii) do business with any client, customer, vendor or lessor of any of the other Group or (iv) employ or otherwise engage any officer, trustee, director or employee of the other Group, and (y) neither Party or Group, nor any officer, trustee or director thereof, shall be liable to the other Party or Group or its stockholders for breach of any fiduciary duty by reason of any such activities of such Party or Group or of any such Person’s participation therein.

(b) Except as expressly provided herein, in SRC’s or SMTA’s conflicts of interest policies, or in the Ancillary Agreements and except as SRC and each other member of the SRC Group, on the one hand, and SMTA and each other member of the SMTA Group, on the other hand, may otherwise agree in writing, the Parties hereby acknowledge and agree that if any Person that is a member of a Group, including any officer, trustee or director thereof, acquires knowledge of a potential transaction or matter that may be a corporate opportunity for either or both Groups, neither the other Group nor its stockholders shall have an interest in, or expectation that, such corporate opportunity be offered to it or that it be offered an opportunity to participate therein, and any such interest, expectation, offer or opportunity to participate, and any other

 

19


interest or expectation otherwise due to such Group with respect to such corporate opportunity, is hereby renounced by such Group on its behalf and on behalf of its stockholders. Accordingly, subject to Section  7.2(c) and except as expressly provided herein, in SRC’s or SMTA’s conflicts of interest policies, or in the Ancillary Agreements, (i) neither Group nor any officer, trustee or director thereof will be under any obligation to present, communicate or offer any such corporate opportunity to the other Group and (ii) each Group has the right to hold any such corporate opportunity for their own account, or to direct, recommend, sell, assign or otherwise transfer such corporate opportunity to any Person or Persons other than the other Group, and, to the fullest extent permitted by Law, neither Group nor the officers, trustees or directors thereof shall have or be under any fiduciary duty, duty of loyalty or duty to act in good faith or in the best interests of the other Group and its stockholders and shall not be liable to the other Group and its stockholders for any breach or alleged breach thereof or for any derivation of personal economic gain by reason of the fact that such Group or any of its officers, trustees or directors pursues or acquires the corporate opportunity for itself, or directs, recommends, sells, assigns or otherwise transfers the corporate opportunity to another Person, or such Group and its officers, trustees or directors does not present, offer or communicate information regarding the corporate opportunity to the other Group.

(c) Except as expressly provided herein, in the Ancillary Agreements, or in SRC or SMTA’s conflicts of interest policies, and except as SRC and each other member of the SRC Group, on the one hand, and SMTA and each other member of the SMTA Group, on the other hand, may otherwise agree in writing, the Parties hereby acknowledge and agree that in the event that a trustee, director or officer of either Group who is also a trustee, director or officer of the other Group acquires knowledge of a potential transaction or matter that may be a corporate opportunity or is offered a corporate opportunity, if (i) such Person acts in good faith and (ii) such knowledge of such potential transaction or matter was not obtained solely in connection with, or such corporate opportunity was not offered to such Person solely in, such Person’s capacity as trustee, director or officer of either Group, then (A) such trustee, director or officer, to the fullest extent permitted by Law, (1) shall be deemed to have fully satisfied and fulfilled such Person’s fiduciary duty to each Group and their stockholders with respect to such corporate opportunity, (2) shall not have or be under any fiduciary duty to either Group or their stockholders and shall not be liable to either Group or their stockholders for any breach or alleged breach thereof by reason of the fact that the other Group pursues or acquires the corporate opportunity for itself, or directs, recommends, sells, assigns or otherwise transfers the corporate opportunity to another Person, or either Group or such trustee, director or officer does not present, offer or communicate information regarding the corporate opportunity to the other Group, (3) shall be deemed to have acted in good faith and in a manner such Person reasonably believes to be in, and not opposed to, the best interests of each Group and its stockholders and (4) shall not have any duty of loyalty to the other Group and its stockholders or any duty not to derive any personal benefit therefrom and shall not be liable to the other Group or its stockholders for any breach or alleged breach thereof and (B) such potential transaction or matter that may be a corporate opportunity, or the corporate opportunity, shall belong to the applicable Group (and not to the other Group).

(d) Except as expressly provided herein, in SRC’s or SMTA’s conflicts of interest policies, or in the Ancillary Agreements, if the SMTA Manager acquires knowledge of a potential transaction or matter that may be a corporate opportunity for either or both Groups,

 

20


neither the SMTA Manager, nor any agent or advisor thereof, shall have any duty to communicate or present such corporate opportunity to either Group and shall not be liable to either Group or to their stockholders for breach of any fiduciary duty by reason of the fact that the SMTA Manager pursues or acquires the corporate opportunity for itself, or directs, recommends, sells, assigns or otherwise transfers the corporate opportunity to either Group or another Person, or does not present such corporate opportunity to either Group.

(e) For the purposes of this Section  7.2 , “corporate opportunities” of a Group shall include business opportunities that such Group are financially able to undertake, that are, by their nature, in a line of business of such Group, are of practical advantage to it and are ones in which any member of the Group has an interest or a reasonable expectancy, and in which, by embracing the opportunities, the self-interest of a Person or any of its officers, trustees or directors will be brought into conflict with that of such Group.

Section 7.3 Cooperation . Each of the Parties shall establish an appropriate administration system in order to handle in an orderly manner the vesting of any restricted SMTA Common Shares received in the Distribution that relate to shares of restricted SRC Common Stock. The Parties shall work together to unify and consolidate all indicative data and payroll and employment information on regular timetables and make certain that each applicable entity’s data and records in respect of such awards are correct and updated on a timely basis. The foregoing shall include, as applicable, employment status and information required for tax withholding / remittance and reporting, compliance with trading windows and compliance with the requirements of the Exchange Act and other applicable laws.

ARTICLE VIII

ACCESS TO INFORMATION; CONFIDENTIALITY; PRIVILEGE

Section 8.1 Agreement for Exchange of Information .

(a) Subject to Section  8.1(b) , for a period (the “ Period ”) of three (3) years following the Distribution Date or until the termination of the SMTA Asset Management Agreement, whichever is longer, as soon as reasonably practicable after written request: (i) SRC shall afford to any member of the SMTA Group and their authorized accountants, counsel and other designated representatives reasonable access during normal business hours to, or, at the SMTA Group’s expense, provide copies of, all books, records, Contracts, instruments, data, documents and other information in the possession or under the control of any member of the SRC Group immediately following the Distribution Date that relates to any member of the SMTA Group or the SMTA Assets and (ii) SMTA shall afford to any member of the SRC Group and their authorized accountants, counsel and other designated representatives reasonable access during normal business hours to, or, at the SRC Group’s expense, provide copies of, all books, records, Contracts, instruments, data, documents and other information in the possession or under the control of any member of the SMTA Group immediately following the Distribution Date that relates to any member of the SRC Group or the SRC Assets; provided , however , that in the event that SMTA or SRC, as applicable, determine that any such provision of or access to any

 

21


information in response to a request under this Section  8.1(a) would be commercially detrimental in any material respect, violate any Law or agreement or waive any attorney-client privilege, the work product doctrine or other applicable privilege, the Parties shall take all reasonable measures to permit compliance with such request in a manner that avoids any such harm or consequence; provided , further , that to the extent specific information—or knowledge-sharing provisions are contained in any of the Ancillary Agreements, such other provisions (and not this Section  8.1(a) ) shall govern; provided , further , that the Period shall be extended with respect to requests related to any third party litigation or other dispute filed prior to the end of such period until such litigation or dispute is finally resolved.

(b) [Reserved]

(c) Without limiting the generality of Section  8.1(a) , until the end of the first full fiscal year following the Distribution Date (and for a reasonable period of time thereafter as required for any party to prepare consolidated financial statements or complete a financial statement audit for the fiscal year during which the Distribution Date occurs), SMTA shall use its commercially reasonable efforts to cooperate with any requests from any member of the SRC Group pursuant to Section  8.1(a) and SRC shall use its commercially reasonable efforts to cooperate with any requests from any member of the SMTA Group pursuant to Section 8.1(a) , in each case to enable the requesting Party to meet its timetable for dissemination of its earnings releases and financial statements and to enable such requesting party’s auditors to timely complete their audit of the annual financial statements and review of the quarterly financial statements.

Section 8.2 Ownership of Information . Any information owned by any Person as of the Effective Time that is provided pursuant to Section  8.1(a) shall be deemed to remain the property of the providing Person. Unless specifically set forth herein, nothing contained in this Agreement shall be construed to grant or confer rights of license or otherwise to the requesting Person with respect to any such information.

Section 8.3 Compensation for Providing Information . A Person requesting information pursuant to Section  8.1(a) agrees to reimburse the providing Person for the actual expenses, if any, of gathering and copying such information, to the extent that such expenses are incurred for the benefit of the requesting Person.

Section 8.4 Retention of Records . To facilitate the exchange of information pursuant to this Article VIII after the Distribution Date, for the duration of the Period, except as otherwise required or agreed in writing, the Parties agree to use commercially reasonable efforts to retain, or cause to be retained, all information in their, or any member of their Group’s, respective possession or control on the Distribution Date in accordance with the records retention policies and procedures of SRC as in effect on the Distribution Date or modified in good faith thereafter.

Section 8.5 Limitation of Liability . No Person required to provide information under this Article VIII shall have any Liability (a) if any historical information provided pursuant to this Article VIII is found to be inaccurate or incomplete, in the absence of gross negligence or willful misconduct by such Person, or (b) if any information is lost or destroyed despite using commercially reasonable efforts to comply with the provisions of Section  8.4 .

 

22


Section 8.6 Production of Witnesses . At all times from and after the Distribution Date, upon reasonable advance request:

(a) SMTA shall use commercially reasonable efforts to make available, or cause to be made available, to any member of the SRC Group, the trustees, the directors, officers, employees and agents of any member of the SMTA Group as witnesses to the extent that the same may reasonably be required by the requesting party (giving consideration to business demands of such trustees, directors, officers, employees and agents) in connection with any legal, administrative or other proceeding in which the requesting party may from time to time be involved, except in the case of any action, suit or proceeding in which any member of the SMTA Group is adverse to any member of the SRC Group; and

(b) SRC shall use commercially reasonable efforts to make available, or cause to be made available, to any member of the SMTA Group, the trustees, the directors, officers, employees and agents of any member of the SRC Group as witnesses to the extent that the same may reasonably be required by the requesting party (giving consideration to business demands of such trustees, directors, officers, employees and agents) in connection with any legal, administrative or other proceeding in which the requesting party may from time to time be involved, except in the case of any action, suit or proceeding in which any member of the SRC Group is adverse to any member of the SMTA Group.

Section 8.7 Confidentiality .

(a) SMTA (on behalf of itself and each other member of its Group) and SRC (on behalf of itself and each other member of its Group) shall hold, and shall cause each of their respective Affiliates to hold, and each of the foregoing shall cause their respective trustees, directors, officers, employees, agents, consultants and advisors to hold, in strict confidence, and not to disclose or release or use, for any purpose other than as expressly permitted pursuant to this Agreement or the Ancillary Agreements, any and all Confidential Information concerning any member of the other Group without the prior written consent of such member of the other Group; provided , that each Party and the members of its Group may disclose, or may permit disclosure of, such Confidential Information (i) to other members of their Group and their respective auditors, attorneys, financial advisors, bankers and other appropriate consultants and advisors (including the SMTA Manager, as applicable) who have a need to know such information for purposes of performing services for a member of such Group and who are informed of their obligation to hold such information confidential to the same extent as is applicable to the Parties and in respect of whose failure to comply with such obligations, such Party will be responsible, (ii) if it or any of its Affiliates are required or compelled to disclose any such Confidential Information by judicial or administrative process or by other requirements of Law or stock exchange rule, or (iii) as necessary in order to permit such Party to prepare and disclose its financial statements, or other disclosures required by Law or such applicable stock exchange. Notwithstanding the foregoing, in the event that any demand or request for disclosure of Confidential Information is made pursuant to the foregoing clause (ii) above, the Party requested to disclose Confidential Information concerning a member of the other Group, shall, to the extent legally permissible, promptly notify such member of the other Group of the existence of such request or demand and, to the extent commercially practicable and legally permissible, shall provide such member of the other Group thirty (30) days (or such lesser period as is

 

23


commercially practicable and legally permissible) to seek an appropriate protective order or other remedy, which the Parties will cooperate in obtaining at the sole cost of the Party seeking such protective order or remedy. In the event that such appropriate protective order or other remedy is not obtained, the Party that is required to disclose Confidential Information about a member of the Group shall furnish, or cause to be furnished, only that portion of the Confidential Information that is legally required to be disclosed and shall use commercially reasonable efforts to ensure that confidential treatment is accorded such information.

(b) Notwithstanding anything to the contrary set forth herein, the Parties shall be deemed to have satisfied their obligations hereunder with respect to Confidential Information of any member of the other Group if they exercise the same degree of care (but no less than a reasonable degree of care) as they exercise to preserve confidentiality for their own similar Confidential Information.

(c) Upon the written request of a Party or a member of its Group, the other Party shall take, and shall cause the applicable members of its Group to take, reasonable steps to promptly (i) deliver to the requesting Person all original copies of Confidential Information (whether written or electronic) concerning the requesting Person or any member of its Group that is in the possession of the other Party or any member of its Group and (ii) if specifically requested by the requesting Person, destroy (as to electronic Confidential Information, to the extent practical) any copies of such Confidential Information (including any extracts therefrom), unless such delivery or destruction would violate any Law; provided , that the other Party shall not be obligated to destroy Confidential Information that is required by or relates to the business of the other Party or any member of its Group and shall be permitted to retain copies of Confidential Information to the extent necessary to comply with legal, regulatory, audit or document retention policies. Upon the written request of the requesting Person, the other Party shall, or shall cause another member of its Group to cause, its duly authorized officers to certify in writing to the requesting party that the requirements of the preceding sentence have been satisfied in full.

Section 8.8 Privileged Matters .

(a) Pre-Distribution Services . The Parties recognize that legal and other professional services that have been and will be provided prior to the Effective Time have been and will be rendered for the collective benefit of the Parties and their Affiliates, and that each of the Parties should be deemed to be the client with respect to such pre-Distribution services for the purposes of asserting all privileges that may be asserted under applicable Law.

(b) Post-Distribution Services . The Parties recognize that legal and other professional services will be provided following the Effective Time that will be rendered solely for the benefit of SMTA and its Affiliates or SRC and its Affiliates, as the case may be. With respect to such post-Distribution services, the Parties agree as follows:

(i) SRC shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the SRC Assets, whether or not the privileged information is in the possession of or under the control of SRC or SMTA. SRC shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates

 

24


solely to the subject matter of any claims constituting SRC Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated by or against any member of the SRC Group, whether or not the privileged information is in the possession of or under the control of SRC or SMTA; and

(ii) SMTA shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the SMTA Assets, whether or not the privileged information is in the possession of or under the control of SRC or SMTA. SMTA shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the subject matter of any claims constituting SMTA Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated by or against any member of the SMTA Group, whether or not the privileged information is in the possession of or under the control of SRC or SMTA.

(c) The Parties agree that they shall have a shared privilege, with equal right to assert or waive, subject to the restrictions in this Section  8.8 , with respect to all privileges not allocated pursuant to the terms of Section  8.8(b) . SMTA may not waive, and shall cause each other member of the SMTA Group not to waive, any privilege that could be asserted by a member of the SRC Group under any applicable Law, and in which a member of the SRC Group has a shared privilege, without the consent of SRC, which consent shall not be unreasonably withheld, conditioned or delayed or as provided in Section  8.8(d) or Section  8.8(e) below. SRC may not waive, and shall cause each other member of the SRC Group not to waive, any privilege that could be asserted by a member of the SMTA Group under any applicable Law, and in which a member of the SMTA Group has a shared privilege, without the consent of SMTA, which consent shall not be unreasonably withheld, conditioned or delayed or as provided in Section  8.8(d) or Section  8.8(e) below.

(d) In the event of any litigation or dispute between or among SMTA and SRC, or any members of their respective Groups, the Parties may waive a privilege in which a member of the other Group has a shared privilege, without obtaining the consent from any other party; provided , that such waiver of a shared privilege shall be effective only as to the use of information with respect to the litigation or dispute between the relevant Parties and/or the applicable members of their respective Groups, and shall not operate as a waiver of the shared privilege with respect to third parties.

(e) If a dispute arises between or among SMTA and SRC, or any members of their respective Groups, regarding whether a privilege should be waived to protect or advance the interest of a party, each Party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of such party and shall not withhold consent to any request for waiver by such party except to protect its own legitimate interests or the legitimate interests of any other member of its Group.

(f) Upon receipt by either Party, or by any member of its Group, of any subpoena, discovery or other request which requires the production or disclosure of information which such Party knows is subject to a shared privilege or as to which a member of the other Group has the sole right hereunder to assert or waive a privilege, or if either Party obtains knowledge that any

 

25


of its or any other member of its Group’s current or former trustees, directors, officers, agents or employees have received any subpoena, discovery or other requests which requires the production or disclosure of such privileged information, such Party shall, to the extent legally permissible, promptly notify the other Party of the existence of the request and shall provide the other Party a reasonable opportunity to review the information and to assert any rights it or they may have under this Section  8.8 or otherwise to prevent the production or disclosure of such privileged information.

(g) The access to information being granted pursuant to Section  8.1 , the agreement to provide witnesses and individuals pursuant to Section  8.6 hereof, and the transfer of privileged information between and among the Parties and the members of their respective Groups pursuant to this Agreement shall not be deemed a waiver of any privilege that has been or may be asserted under this Agreement, any of the Ancillary Agreements or otherwise.

Section 8.9 Financial Information Certifications . The Parties agree to reasonably cooperate with each other in such manner as is necessary to enable the principal executive officer or officers, principal financial officer or officers and controller or controllers of each of the Parties to make the certifications required of them under Sections 302, 404 and 906 of the Sarbanes-Oxley Act of 2002.

ARTICLE IX

MUTUAL RELEASES; INDEMNIFICATION

Section 9.1 Release of Pre-Distribution Claims .

(a) Except as provided in Section  9.1(c) , effective as of the Effective Time, SMTA does hereby, for itself and each other member of the SMTA Group, release and forever discharge each SRC Indemnitee, from any and all Liabilities whatsoever to any member of the SMTA Group, whether at law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the Effective Time, including in connection with the Transactions.

(b) Except as provided in Section  9.1(c) , effective as of the Effective Time, SRC does hereby, for itself and each other member of the SRC Group, release and forever discharge each SMTA Indemnitee from any and all Liabilities whatsoever to any member of the SRC Group, whether at law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the Effective Time, including in connection with the Transactions.

 

26


(c) Nothing contained in Section  9.1(a) or Section  9.1(b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings that are specified in, or contemplated to continue pursuant to, this Agreement or any Ancillary Agreement. Without limiting the foregoing, nothing contained in Section  9.1(a) or Section  9.1(b) shall release any Person from:

(i) any Liability, contingent or otherwise, assumed by, or allocated to, such Person in accordance with this Agreement or any Ancillary Agreement;

(ii) any Liability that such Person may have with respect to indemnification or contribution pursuant to this Agreement or any Ancillary Agreement for claims brought by third Persons, which Liability shall be governed by the provisions of this Article IX and, if applicable, the appropriate provisions of the Ancillary Agreements;

(iii) any unpaid accounts payable or receivable arising from or relating to the sale, provision, or receipt of goods, payment for goods, property or services purchased, obtained or used in the ordinary course of business by any member of the SRC Group from any member of the SMTA Group, or by any member of the SMTA Group from any member of the SRC Group from and after the Effective Time; or

(iv) any Liability the release of which would result in the release of any Person other than an Indemnitee; provided, that the Parties agree not to bring suit, or permit any other member of their respective Group to bring suit, against any Indemnitee with respect to such Liability.

(d) SMTA shall not make, and shall not permit any other member of the SMTA Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or indemnification, against any SRC Indemnitee with respect to any Liabilities released pursuant to Section  9.1(a) . SRC shall not make, and shall not permit any member of the SRC Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against any SMTA Indemnitee with respect to any Liabilities released pursuant to Section  9.1(b) .

Section 9.2 Indemnification by SMTA . Except as provided in Section  9.4 and Section  9.5 , SMTA shall, and, in the case of Section  9.2(a) or Section  9.2(b) , shall in addition cause each Appropriate Member of the SMTA Group to, indemnify, defend and hold harmless, the SRC Indemnitees from and against any and all Losses of the SRC Indemnitees relating to, arising out of or resulting from any of the following (without duplication):

(a) any SMTA Liability, including the failure of any member of the SMTA Group or any other Person to pay, perform or otherwise promptly discharge any SMTA Liabilities in accordance with their respective terms, whether prior to, at or after the Effective Time;

(b) any breach by any member of the SMTA Group of any provision of this Agreement or of any of the Ancillary Agreements, subject to any limitations of liability provisions and other provisions applicable to any such breach set forth therein;

(c) any Liability related to the SRC Performance Undertakings; and

(d) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the

 

27


statements therein not misleading, with respect to all information contained in the Registration Statement or the Information Statement other than information that relates solely to the SRC Assets;

in each case, regardless of when or where the loss, claim, accident, occurrence, event or happening giving rise to the Loss took place, or whether any such loss, claim, accident, occurrence, event or happening is known or unknown, or reported or unreported and regardless of whether such loss, claim, accident, occurrence, event or happening giving rise to the Loss existed prior to, on or after the Distribution Date or relates to, arises out of or results from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to, on or after the Distribution Date; provided , however , that no member of the SMTA Group shall have any obligation under this Article IX to indemnify any member of the SRC Group against any Losses to the extent that such Losses arise by virtue of a breach of this Agreement by a member of the SRC Group or the gross negligence, willful misconduct or fraud of any member of the SRC Group. As used in this Section  9.2 , “ Appropriate Member of the SMTA Group ” means the member or members of the SMTA Group, if any, whose acts, conduct or omissions or failures to act caused, gave rise to or resulted in the Loss from and against which indemnity is provided.

Section 9.3 Indemnification by SRC . Except as provided in Section  9.4 and Section  9.5 , SRC shall, and, in the case of Section  9.3(a) or Section  9.3(b) , shall in addition cause each Appropriate Member of the SRC Group to, indemnify, defend and hold harmless the SMTA Indemnitees from and against any and all Losses of the SMTA Indemnitees relating to, arising out of or resulting from any of the following (without duplication):

(a) any SRC Liability, including the failure of any member of the SRC Group or any other Person to pay, perform or otherwise promptly discharge any SRC Liabilities in accordance with their respective terms, whether prior to, at or after the Effective Time;

(b) any breach by any member of the SRC Group of any provision of this Agreement or of any of the Ancillary Agreements, subject to any limitations of liability provisions and other provisions applicable to any such breach set forth therein; and

(c) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, solely with respect to information contained in the Registration Statement or the Information Statement that relates solely to the SRC Assets;

in each case, regardless of when or where the loss, claim, accident, occurrence, event or happening giving rise to the Loss took place, or whether any such loss, claim, accident, occurrence, event or happening is known or unknown, or reported or unreported and regardless of whether such loss, claim, accident, occurrence, event or happening giving rise to the Loss existed prior to, on or after the Distribution Date or relates to, arises out of or results from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to, on or after the Distribution Date; provided , however , that no member of the SRC Group shall have any obligation under this Article IX to indemnify any member of the SMTA Group against any Losses to the extent that such Losses arise by virtue of a breach of this Agreement by

 

28


a member of the SMTA Group or the gross negligence, willful misconduct or fraud of any member of the SMTA Group. As used in this Section  9.3 , “ Appropriate Member of the SRC Group ” means the member or members of the SRC Group, if any, whose acts, conduct or omissions or failures to act caused, gave rise to or resulted in the Loss from and against which indemnity is provided.

Section 9.4 Procedures for Indemnification .

(a) An Indemnitee shall give prompt notice of any matter that such Indemnitee has determined has given or would reasonably be expected to give rise to a right of indemnification under this Agreement or any Ancillary Agreement (other than a Third-Party Claim which shall be governed by Section  9.4(b) ) to any Party that is or may be required pursuant to this Agreement or any Ancillary Agreement to make such indemnification (the “ Indemnifying Party ”) promptly (and in any event within fifteen (15) days) after making such a determination. Such notice shall state the amount of the Loss claimed, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement or the applicable Ancillary Agreement in respect of which such right of indemnification is claimed by such Indemnitee; provided , however , that the failure to provide such notice shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying Party shall have been materially prejudiced as a result of such failure.

(b) If a claim or demand is made against an Indemnitee by any Person who is not a Party to this Agreement or an Affiliate of a Party (a “ Third-Party Claim ”) as to which such Indemnitee is or reasonably expects to be entitled to indemnification pursuant to this Agreement, such Indemnitee shall promptly notify the Indemnifying Party in writing, and in reasonable detail, of the Third-Party Claim (and in any event within thirty (30) days) after receipt by such Indemnitee of written notice of the Third-Party Claim; provided , however , that the failure to provide notice of any such Third-Party Claim pursuant to this sentence shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying Party shall have been materially prejudiced as a result of such failure (except that the Indemnifying Party or Parties shall not be liable for any expenses incurred by the Indemnitee in defending such Third-Party Claim during the period in which the Indemnitee failed to give such notice). Thereafter, the Indemnitee shall promptly deliver to the Indemnifying Party (and in any event within ten (10) days) after the Indemnitee’s receipt thereof, copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third-Party Claim.

(c) An Indemnifying Party shall be entitled (but shall not be required) to assume, control the defense of, and settle any Third-Party Claim, at such Indemnifying Party’s own cost and expense and by such Indemnifying Party’s own counsel, which counsel must be reasonably acceptable to the Indemnitee, if it gives written notice of its intention to do so (including a statement that the Indemnitee is entitled to indemnification under this Article IX ) to the applicable Indemnitees within thirty (30) days of the receipt of notice from such Indemnitees of the Third-Party Claim (failure of the Indemnifying Party to respond within such thirty (30) day period shall be deemed to be an election by the Indemnifying Party not to assume the defense for such Third-Party Claim). After a notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third-Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise or

 

29


settlement thereof, at its own expense and, in any event, shall reasonably cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party all witnesses and information in such Indemnitee’s possession or under such Indemnitee’s control relating thereto as are reasonably required by the Indemnifying Party; provided , however , that such access shall not require the Indemnitee to disclose any information the disclosure of which would, in the good faith judgment of the Indemnitee, result in the loss of any existing privilege with respect to such information or violate any applicable Law.

(d) Notwithstanding anything to the contrary in this Section  9.4 , in the event that (i) an Indemnifying Party elects not to assume the defense of a Third-Party Claim, (ii) there exists a conflict of interest or potential conflict of interest between the Indemnifying Party and the Indemnitee, (iii) any Third-Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against the Indemnitee, (iv) the Indemnitee’s exposure to Liability in connection with such Third-Party Claim is reasonably expected to exceed the Indemnifying Party’s exposure in respect of such Third-Party Claim taking into account the indemnification obligations hereunder, or (v) the Person making such Third-Party Claim is a Governmental Authority with regulatory authority over the Indemnitee or any of its material Assets, such Indemnitee shall be entitled to control the defense of such Third-Party Claim, at the Indemnifying Party’s expense, with counsel of such Indemnitee’s choosing (such counsel to be reasonably acceptable to the Indemnifying Party). If the Indemnitee is conducting the defense against any such Third-Party Claim, the Indemnifying Party shall reasonably cooperate with the Indemnitee in such defense and make available to the Indemnitee all witnesses and information in such Indemnifying Party’s possession or under such Indemnifying Party’s control relating thereto as are reasonably required by the Indemnitee; provided , however , that such access shall not require the Indemnifying Party to disclose any information the disclosure of which would, in the good faith judgment of the Indemnifying Party, result in the loss of any existing privilege with respect to such information or violate any applicable Law.

(e) Unless the Indemnifying Party has failed to assume the defense of the Third-Party Claim in accordance with the terms of this Agreement, no Indemnitee may settle or compromise any Third-Party Claim without the consent of the Indemnifying Party (not to be unreasonably withheld, conditioned or delayed). If an Indemnifying Party has failed to assume the defense of the Third-Party Claim, it shall not be a defense to any obligation to pay any amount in respect of such Third-Party Claim that the Indemnifying Party was not consulted in the defense thereof, that such Indemnifying Party’s views or opinions as to the conduct of such defense were not accepted or adopted, that such Indemnifying Party does not approve of the quality or manner of the defense thereof or that such Third-Party Claim was incurred by reason of a settlement rather than by a judgment or other determination of liability.

(f) In the case of a Third-Party Claim, no Indemnifying Party shall consent to entry of any judgment or enter into any settlement of the Third-Party Claim without the consent (not to be unreasonably withheld, conditioned or delayed) of the Indemnitee if the effect thereof is to permit any injunction, declaratory judgment, other order or other non-monetary relief to be entered, directly or indirectly, against any Indemnitee, does not release the Indemnitee from all liabilities and obligations with respect to such Third-Party Claim or includes an admission of guilt or liability on behalf of the Indemnitee.

 

30


(g) Absent fraud or intentional misconduct by an Indemnifying Party, the indemnification provisions of this Article IX shall be the sole and exclusive remedy of an Indemnitee for any monetary or compensatory damages or Losses resulting from any breach of this Agreement or any Ancillary Agreement, and each Indemnitee expressly waives and relinquishes any and all rights, claims or remedies such Person may have with respect to the foregoing other than under this Article IX against any Indemnifying Party.

Section 9.5 Indemnification Obligations Net of Insurance Proceeds . The Parties intend that any Loss subject to indemnification or reimbursement pursuant to this Article IX (an “ Indemnifiable Loss ”) will be net of Insurance Proceeds that actually reduce the amount of the Loss. Accordingly, the amount which an Indemnifying Party is required to pay to any Indemnitee will be reduced by any Insurance Proceeds actually recovered by or on behalf of the Indemnitee in reduction of the related Loss. If an Indemnitee receives a payment (an “ Indemnity Payment ”) required by this Agreement from an Indemnifying Party in respect of any Loss and subsequently receives Insurance Proceeds to which the Indemnitee is entitled, the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payments received over the amount of the Indemnity Payments that would have been due if the Insurance Proceeds recovery had been received, realized or recovered before the Indemnity Payments were made. The Indemnitee shall use and cause its Affiliates to use commercially reasonable efforts to recover any Insurance Proceeds to which the Indemnitee is entitled with respect to any Indemnifiable Loss. The existence of a claim by an Indemnitee for insurance proceeds or against a third party in respect of any Indemnifiable Loss shall not, however, delay any payment pursuant to the indemnification provisions contained in this Article IX and otherwise determined to be due and owing by an Indemnifying Party; rather, the Indemnifying Party shall make payment in full of such amount so determined to be due and owing by it against a concurrent written assignment by the Indemnitee to the Indemnifying Party of the portion of the claim of the Indemnitee for such insurance or against such third party equal to the amount of such payment. The Indemnitee shall use and cause its Affiliates to use commercially reasonable efforts to assist the Indemnifying Party in recovering or to recover on behalf of the Indemnifying Party, any Insurance Proceeds to which the Indemnifying Party is entitled with respect to any Indemnifiable Loss as a result of such assignment. The Indemnitee shall make available to the Indemnifying Party and its counsel all employees, books and records, communications, documents, items or matters within its knowledge, possession or control that are necessary, appropriate or reasonably deemed relevant by the Indemnifying Party with respect to the recovery of such Insurance Proceeds; provided, however, that nothing in this sentence shall be deemed to require a Party to make available books and records, communications, documents or items which (i) in such Party’s good faith judgment could result in a waiver of any privilege even if the Parties cooperated to protect such privilege as contemplated by this Agreement or (ii) such Party is not permitted to make available because of any Law or any confidentiality obligation to a third party, in which case such Party shall use commercially reasonable efforts to seek a waiver of or other relief from such confidentiality restriction. Unless the Indemnifying Party has made payment in full of any Indemnifiable Loss, such Indemnifying Party shall use and cause its Affiliates to use commercially reasonable efforts to recover any Insurance Proceeds to which it or such Affiliate is entitled with respect to any Indemnifiable Loss.

Section 9.6 Contribution . If the indemnification provided for in this Article IX is unavailable to an Indemnitee in respect of any Indemnifiable Loss, then the Indemnifying Party,

 

31


in lieu of indemnifying such Indemnitee, shall contribute to the Losses paid or payable by such Indemnitee as a result of such Indemnifiable Loss in such proportion as is appropriate to reflect the relative fault of SMTA and each other member of the SMTA Group, on the one hand, and SRC and each other member of the SRC Group, on the other hand, in connection with the circumstances which resulted in such Indemnifiable Loss.

Section 9.7 Remedies Cumulative . The remedies provided in this Article IX shall be cumulative and, subject to the provisions of Article X , shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.

Section 9.8 Survival of Indemnities . The rights and obligations of each of the Parties and their respective Indemnitees under this Article IX shall survive the Distribution Date indefinitely, unless a specific survival or other applicable period is expressly set forth herein, and shall survive the sale or other transfer by any Party or any of its Subsidiaries of any Assets or businesses or the assignment by it of any Liabilities.

Section 9.9 Limitation of Liability . EXCEPT TO THE EXTENT SPECIFICALLY PROVIDED IN ANY ANCILLARY AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT, CONSEQUENTIAL, REMOTE OR SPECULATIVE DAMAGES (INCLUDING IN RESPECT OF LOST PROFITS OR REVENUES), HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF ANY PROVISION OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

ARTICLE X

DISPUTE RESOLUTION

Section 10.1 Appointed Representative . Each Party shall appoint a representative who shall be responsible for administering the dispute resolution provisions in Section  10.2 (each, an “ Appointed Representative ”). Each Appointed Representative shall have the authority to resolve any Agreement Disputes on behalf of the Party appointing such representative.

Section 10.2 Negotiation and Dispute Resolution .

(a) Except as otherwise provided in this Agreement or in any Ancillary Agreement, in the event of a controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity, termination or breach of this Agreement or any Ancillary Agreement or otherwise arising out of, or in any way related to this Agreement or any Ancillary Agreement or any of the transactions contemplated hereby or thereby (each, an “ Agreement Dispute ”), the Appointed Representatives shall negotiate in good faith for thirty (30) days to settle any such Agreement Dispute.

(b) Nothing said or disclosed, nor any document produced, in the course of any negotiations, conferences and discussions in connection with efforts to settle an Agreement Dispute that is not otherwise independently discoverable shall be offered or received as evidence or used for impeachment or for any other purpose, but shall be considered as to have been disclosed for settlement purposes.

 

32


(c) If a satisfactory resolution of any Agreement Dispute is not achieved by the Appointed Representatives within thirty (30) days, each Party will be entitled to refer the dispute to arbitration in accordance with Section  10.3 .

Section 10.3 Arbitration .

(a) If a satisfactory resolution of any Agreement Dispute is not achieved by the Appointed Representatives within thirty (30) days, such Agreement Dispute shall, on the demand of either Party, be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “ Rules ”) of the American Arbitration Association (“ AAA ”) then in effect, except as those Rules may be modified in this Section  10.3 .

(b) There shall be three (3) arbitrators. Each Party shall select one (1) arbitrator within fifteen (15) days after receipt by respondent of a copy of the demand for arbitration. The arbitrators may be affiliated or interested persons of the Parties. If either Party fails to timely select an arbitrator then the Party who has selected an arbitrator may request AAA to provide a list of three (3) proposed arbitrators in accordance with the Rules (each of whom shall be neutral, impartial and unaffiliated with either Party) and the Party that failed to timely appoint an arbitrator shall have ten (10) days from the date AAA provides the list to select one (1) of the three (3) arbitrators proposed by AAA. If the Party fails to select the second (2 nd ) arbitrator by that time, the Party who has appointed the first (1 st ) arbitrator shall then have ten (10) days to select one (1) of the three (3) arbitrators proposed by AAA to be the second (2 nd ) arbitrator; and if such Party should fail to select the second (2 nd ) arbitrator by such time, AAA shall select, within fifteen (15) days thereafter, one (1) of the three (3) arbitrators it had proposed as the second (2 nd ) arbitrator. The two (2) arbitrators so appointed shall jointly appoint the third (3 rd ) and presiding arbitrator (who shall be neutral and impartial and unaffiliated with either Party) within fifteen (15) days of the appointment of the second (2 nd ) arbitrator. If the third (3 rd ) arbitrator has not been appointed within the time limit specified herein, then AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by AAA in accordance with a listing, striking and ranking procedure, with each Party having a limited number of strikes, excluding strikes for cause.

(c) The place of arbitration shall be Dallas, Texas unless otherwise agreed by the Parties.

(d) There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators. For the avoidance of doubt, it is intended that there shall be no depositions and no other discovery other than limited documentary discovery as described in the preceding sentence.

(e) In rendering an award or decision (the “ Award ”), the arbitrators shall be required to follow the laws of the State of Maryland. Any arbitration proceedings or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq. Any award shall be subject to the

 

33


provisions of Section  9.9 . The Award shall be in writing and shall state the findings of fact and conclusions of law on which it is based. Any monetary award shall be made and payable in U.S. dollars. Subject to 10.3(g), the Party against which the Award assesses a monetary obligation shall pay that obligation on or before the thirtieth (30 th ) day following the date of the Award or such other date as the Award may provide.

(f) Except to the extent expressly provided by this Agreement or as otherwise agreed by the Parties, each Party shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees). Each Party shall bear the costs and expenses of its selected arbitrator and the Parties shall equally bear the costs and expenses of the third (3 rd ) appointed arbitrator.

(g) Notwithstanding any language to the contrary in this Agreement, the Award, including but not limited to, any interim Award, may be appealed pursuant to the AAA’s Optional Appellate Arbitration Rules (“ Appellate Rules ”). The Award shall not be considered final until after the time for filing the notice of appeal pursuant to the Appellate Rules has expired. Appeals must be initiated within (30) days of receipt of the Award by filing a notice of appeal with any AAA office. Following the appeal process, the decision rendered by the appeal tribunal may be entered in any court having jurisdiction thereof. For the avoidance of doubt, and despite any contrary provision of the Appellate Rules, this Section 10.3(g) shall apply to any appeal pursuant to this Section and the appeal tribunal shall not render an award that would include shifting of any costs or expenses (including attorneys’ fees) of either Party.

(h) Following the expiration of the time for filing the notice of appeal, or the conclusion of the appeal process set forth in Section 10.3(g), the Award shall be final and binding upon the Parties and shall be the sole and exclusive remedy between the Parties relating to the Agreement Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators. Judgment upon the Award may be entered in any court having jurisdiction. To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(i) This Section 10.3 is intended to benefit and be enforceable by the Parties and their respective successors and assigns and shall be binding upon the Parties, and be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

(j) The arbitrators may consolidate arbitration under this Agreement with any arbitration arising under or relating to any of the Ancillary Agreements if the subjects of the Agreement Disputes thereunder arise out of or relate essentially to the same set of facts or transactions. Such consolidated arbitration will be determined by the arbitrators appointed for the arbitration proceeding that was commenced first in time.

 

34


(k) Unless otherwise agreed in writing, the Parties will continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article X with respect to all matters not subject to such dispute resolution.

ARTICLE XI

TERMINATION

Section 11.1 Termination . Upon written notice, this Agreement and each of the Ancillary Agreements, may be terminated at any time prior to the Effective Time by and in the sole discretion of SRC without the approval of any other Party.

Section 11.2 Effect of Termination . In the event of termination pursuant to Section  11.1 , neither Party shall have any Liability of any kind to the other Party.

ARTICLE XII

MISCELLANEOUS

Section 12.1 Further Assurances . Subject to the limitations or other provisions of this Agreement, (a) each Party shall, and shall cause the other members of its Group to, use commercially reasonable efforts (subject to, and in accordance with applicable Law) to take promptly, or cause to be taken promptly, all actions, and to do promptly, or cause to be done promptly, and to assist and cooperate with the other Party in doing, all things reasonably necessary, proper or advisable to consummate and make effective the Transactions and to carry out the intent and purposes of this Agreement, including using commercially reasonable efforts to obtain satisfaction of the conditions precedent in Article V within its reasonable control and to perform all covenants and agreements herein applicable to such Party or any member of its Group and (b) neither Party will, nor will either Party allow any other member of its Group to, without the prior written consent of the other Party, take any action which would reasonably be expected to prevent or materially impede, interfere with or delay any of the Transactions. Without limiting the generality of the foregoing, where the cooperation of third parties, such as insurers or trustees, would be necessary in order for a Party to completely fulfill its obligations under this Agreement, such Party shall use commercially reasonable efforts to cause such third parties to provide such cooperation.

Section 12.2 Payment of Expenses . All costs and expenses incurred and directly related to the Transactions shall: (a) to the extent incurred and payable on or prior to the Distribution Date, be paid by SRC; and (b) to the extent arising and payable following the Distribution Date, be paid according to the SMTA Asset Management Agreement. Notwithstanding any of the foregoing, SMTA shall also reimburse SRC for the costs and expenses set forth on Section  12.2 of the Disclosure Schedule within 30 days of the Distribution Date.

Section 12.3 Amendments and Waivers .

(a) Subject to Section  11.1 , this Agreement may not be amended except by an agreement in writing signed by both Parties.

 

35


(b) Any term or provision of this Agreement may be waived, or the time for its performance may be extended, by the Party entitled to the benefit thereof and any such waiver shall be validly and sufficiently given for the purposes of this Agreement if it is in writing signed by an authorized representative of such Party. No delay or failure in exercising any right, power or remedy hereunder shall affect or operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or remedy preclude any further exercise thereof or of any other right, power or remedy. The rights and remedies hereunder are cumulative and not exclusive of any rights or remedies that either Party would otherwise have.

Section 12.4 Entire Agreement . This Agreement, the Ancillary Agreements, and the Exhibits and Schedules referenced herein and therein and attached hereto or thereto, constitute the entire agreement and understanding between the Parties with respect to the subject matter hereof and supersede all prior negotiations, agreements, commitments, writings, courses of dealing and understandings with respect to the subject matter hereof.

Section 12.5 Survival of Agreements . Except as otherwise expressly contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Effective Time and remain in full force and effect in accordance with their applicable terms.

Section 12.6 Third Party Beneficiaries . Except (a) as provided in Article IX relating to Indemnitees and for the release of any Person provided under Section  9.1 , (b) as provided in Section  7.1 relating to insured persons and (c) as provided in Section  8.1(a) , this Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.

Section 12.7 Notices . All notices, requests, permissions, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given (a) five (5) Business Days following sending by registered or certified mail, postage prepaid, (b) when sent, if sent by facsimile, (c) when delivered, if delivered personally to the intended recipient, and (d) one (1) Business Day following sending by overnight delivery via a national courier service and, in each case, addressed to a Party at the following address for such Party:

 

  (a) If to SRC:

Spirit Realty Capital, Inc.

2727 North Harwood Street, Suite 300,

Dallas, Texas 75201

Attention: General Counsel

Facsimile No.: (800) 973-0850

 

  (b) If to SMTA:

Spirit MTA REIT

2727 North Harwood Street, Suite 300,

Dallas, Texas 75201

Attention: Chief Financial Officer

Facsimile No.: (800) 973-0850

 

36


Section 12.8 Counterparts; Electronic Delivery . This Agreement may be executed in multiple counterparts, each of which when executed shall be deemed to be an original, but all of which together shall constitute one and the same agreement. Execution and delivery of this Agreement or any other documents pursuant to this Agreement by facsimile or other electronic means shall be deemed to be, and shall have the same legal effect as, execution by an original signature and delivery in person.

Section 12.9 Severability . If any term or other provision of this Agreement or the Exhibits and Schedules attached hereto or thereto is determined by a nonappealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the court, administrative agency or arbitrator shall interpret this Agreement so as to affect the original intent of the Parties as closely as possible in an acceptable manner to the end that the Transactions are fulfilled to the fullest extent possible. If any sentence in this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only as broad as is enforceable.

Section 12.10 Assignability; Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns; provided, however, that the rights and obligations of each Party under this Agreement shall not be assignable, in whole or in part, directly or indirectly, whether by operation of law or otherwise, by such Party without the prior written consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed) and any attempt to assign any rights or obligations under this Agreement without such consent shall be null and void. Notwithstanding the foregoing, either Party may assign its rights and obligations under this Agreement to any of their respective Affiliates provided that no such assignment shall release such assigning Party from any liability or obligation under this Agreement.

Section 12.11 Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with, the substantive laws of the State of New York, without regard to any conflicts of law provisions thereof that would result in the application of the laws of any other jurisdiction.

Section 12.12 Construction . This Agreement shall be construed as if jointly drafted by the Parties and no rule of construction or strict interpretation shall be applied against either Party. The Parties represent that this Agreement is entered into with full consideration of any and all rights which the Parties may have. The Parties have relied upon their own knowledge and judgment. The Parties have had access to independent legal advice, have conducted such investigations they thought appropriate, and have consulted with such other independent advisors as they deemed appropriate regarding this Agreement and their rights and asserted rights in connection therewith. The Parties are not relying upon any representations or statements made

 

37


by the other Party, or such other Party’s employees, agents, representatives or attorneys, regarding this Agreement, except to the extent such representations are expressly set forth or incorporated in this Agreement. The Parties are not relying upon a legal duty, if one exists, on the part of the other Party (or such other Party’s employees, agents, representatives or attorneys) to disclose any information in connection with the execution of this Agreement or their preparation, it being expressly understood that neither Party shall ever assert any failure to disclose information on the part of the other Party as a ground for challenging this Agreement.

Section 12.13 Performance . Each Party shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary or Affiliate of such Party.

Section 12.14 Title and Headings . Titles and headings to Sections and Articles are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

Section 12.15 Exhibits and Schedules . The Exhibits and Schedules attached hereto are incorporated herein by reference and shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein.

Section 12.16 Exclusivity of Tax Matters . Notwithstanding any other provision of this Agreement (other than Sections 2.2(b)(v) , 4.3(b) , 4.3(c) , 7.3 and 12.2 ), the Tax Matters Agreement shall exclusively govern all matters related to Taxes (including allocations thereof) addressed therein.

[Signature Page Follows]

 

38


IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective officers as of the date first set forth above.

 

SPIRIT REALTY CAPITAL, INC.
By:  

 

  Name:
  Title:
SPIRIT MTA REIT
By:  

 

  Name:
  Title:

[ Signature page to Separation and Distribution Agreement ]


Exhibit A

SMTA Subsidiaries

 

Subsidiary

  

State/Country of Incorporation/Formation

SMTA Financing JV, LLC

  

Delaware

SMTA Shopko Holdings, LLC

  

Delaware

SMTA Shopko Portfolio I, LLC

  

Delaware

SMTA TN Property Holdings, LLC

  

Delaware

Spirit AS Katy TX, LP

  

Delaware

Spirit IM Katy TX, LLC

  

Delaware

Spirit Master Funding, LLC

  

Delaware

Spirit Master Funding II, LLC

  

Delaware

Spirit Master Funding III, LLC

  

Delaware

Spirit Master Funding VI, LLC

  

Delaware

Spirit Master Funding VII, LLC

  

Delaware

Spirit Master Funding XI, LLC

  

Delaware

Spirit MTA OP Holdings, LLC

  

Delaware

Spirit MTA REIT, L.P.

  

Delaware

Spirit MTA SubREIT, Inc.

  

Maryland

Spirit SPE Crown 2014-1, LLC

  

Delaware

Spirit SPE Portfolio 2006-1, LLC

  

Delaware

Spirit SPE Portfolio 2006-2, LLC

  

Delaware

Spirit SPE Portfolio 2006-3, LLC

  

Delaware

Spirit SPE Portfolio 2012-5, LLC

  

Delaware

Exhibit A-1


Exhibit B

Tax Matters Agreement

Exhibit B-1


Exhibit C

Insurance-Sharing Agreement

Exhibit C-1


Disclosure Schedule

 

Section 1.1

  

Assets of SMTA other than Equity of Subsidiaries

Section 1.2

  

Potential Liabilities

Section 2.1

  

Separation Transactions

Section 2.3(b)

  

Intercompany Agreements

Section 2.4

  

Intercompany Accounts

Section 2.5

  

Sale of Certain Assets

Section 12.2

  

Reimbursable Expenses

Exhibit 3.1

SPIRIT MTA REIT

ARTICLES OF AMENDMENT AND RESTATEMENT

SPIRIT MTA REIT, a Maryland real estate investment trust (the “Trust”), hereby certifies to the State Department of Assessments and Taxation of Maryland (the “SDAT”) that:

FIRST : The Trust desires to and does hereby amend and restate in its entirety the declaration of trust of the Trust (the “Declaration of Trust”) as currently in effect and as hereinafter amended.

SECOND : The following provisions are all the provisions of the Declaration of Trust currently in effect, as hereinafter amended:

ARTICLE I

FORMATION; ENTITY STATUS

The Trust is a real estate investment trust within the meaning of Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time (“Title 8”). The Trust shall not be deemed to be a general partnership, limited partnership, joint venture, joint stock company, limited liability company or corporation but nothing herein shall preclude the Trust from being treated for tax purposes as an entity that is disregarded as separate from its owner or an association under the Internal Revenue Code of 1986, as amended (the “Code”) and the applicable Treasury regulations.

ARTICLE II

NAME

The name of the Trust is:

Spirit MTA REIT

Under circumstances in which the Board of Trustees of the Trust (the “Board of Trustees” or “Board”) determines that the use of the name of the Trust is not practicable, the Trust may use any other designation or name for the Trust.


ARTICLE III

PURPOSES AND POWERS

Section 3.1 Purposes . The purposes for which the Trust is formed are to invest in and to acquire, hold, manage, administer, control and dispose of property and to engage in any other lawful act or activity. Such purposes may, without limitation or obligation, include, at such time as the Board of Trustees so determines, engaging in business as a real estate investment trust under Sections 856 through 860 of the Code (a “REIT”).

Section 3.2 Powers . The Trust shall have all of the powers granted to real estate investment trusts by Title 8 and any and all other powers which are not inconsistent with law and are appropriate to promote and attain the purposes set forth in the Declaration of Trust.

ARTICLE IV

RESIDENT AGENT

The name of the resident agent of the Trust in the State of Maryland is The Corporation Trust Incorporated, 2405 York Road, Suite 201, Lutherville-Timonium, Maryland 21093-2264. The resident agent is a Maryland corporation. The Trust may have such offices or places of business within or outside the State of Maryland as the Board of Trustees may from time to time determine.

ARTICLE V

BOARD OF TRUSTEES

Section 5.1 Powers . Subject to Article I hereof and any express limitations contained in the Declaration of Trust or in the Bylaws of the Trust, as amended (the “Bylaws”), (a) the business and affairs of the Trust shall be managed under the direction of the Board of Trustees and (b) the Board shall have full, exclusive and absolute power, control and authority over any and all property of the Trust. The Board may take any action as in its sole judgment and discretion is necessary or appropriate to conduct the business and affairs of the Trust. The Declaration of Trust shall be construed with the presumption in favor of the grant of power and authority to the Board. Any construction of the Declaration of Trust or determination made in good faith by the Board concerning its powers and authority hereunder shall be conclusive. The enumeration and definition of particular powers of the Trustees included in the Declaration of Trust or in the Bylaws shall in no way be construed or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Board or the Trustees under the general laws of the State of Maryland or any other applicable laws.

Subject to the provisions of any class of Shares (as defined herein) then outstanding, the Board, without any action by the shareholders of the Trust, shall have and may exercise, on behalf of the Trust, without limitation, the power to elect to cause the Trust to be a REIT; to elect to have the Trust treated as an association taxable as a corporation for U.S. federal income and other applicable tax purposes; to terminate the status of the Trust as a REIT (if the Trust becomes

 

2


qualified as a REIT); to determine that compliance with any restrictions or limitations on ownership and transfers of shares of the Trust’s beneficial interest set forth in Article VII of the Declaration of Trust is no longer required in order for the Trust to qualify as a REIT; to adopt, amend and repeal Bylaws to the extent provided therein; to elect officers in the manner prescribed in the Bylaws; to solicit proxies from holders of shares of beneficial interest of the Trust; and to do any other acts and deliver any other documents necessary or appropriate to the foregoing powers.

Notwithstanding any provision to the contrary in this Declaration of Trust or in the Bylaws, the Trust, the Board of Trustees and the officers of the Trust shall, and are authorized to, take such actions as in the Board of Trustees’ sole judgment and discretion are desirable to operate in a manner that would permit the Trust, if it so elects, to qualify as a REIT and maintain such qualification.

Section 5.2 Number . The number of Trustees of the Trust (hereinafter each a “Trustee” and together, the “Trustees”) initially shall be four (4), which number may be increased or decreased pursuant to the Bylaws of the Trust. The Trustees shall be elected at each annual meeting of shareholders in the manner provided in the Bylaws or, in order to fill any vacancy on the Board of Trustees, in the manner provided in the Bylaws. The names of the Trustees who shall serve until the first annual meeting of shareholders and until their successors are duly elected and qualify are:

 

 

 

 

 

 

 

 

 

 

 

These Trustees may increase the number of Trustees and fill any vacancy, whether resulting from an increase in the number of Trustees or otherwise, on the Board of Trustees prior to the first annual meeting of shareholders in the manner provided in the Bylaws. It shall not be necessary to list in the Declaration of Trust the names and addresses of any Trustees hereinafter elected.

The Trust elects, at such time as it becomes eligible under Section 3-802 of the Maryland General Corporation Law (the “MGCL”) to make the election provided for under Section 3-804(c) of the MGCL, that, except as may be provided by the Board of Trustees in setting the terms of any class or series of stock, any and all vacancies on the Board of Trustees may be filled only by the affirmative vote of a majority of the remaining Trustees in office, even if the remaining Trustees do not constitute a quorum, and any Trustee elected to fill a vacancy shall serve for the remainder of the full term of the trusteeship in which such vacancy occurred and until a successor is duly elected and qualifies.

Section 5.3 Term . The Trustees shall be elected at each annual meeting of the shareholders and shall serve until the next annual meeting of the shareholders and until their successors are duly elected and qualify, subject, however, in the case of Trustees to be elected by the holders of one or more classes or series of Shares, to the provisions of such classes or series. Trustees need not be shareholders.

 

3


Section 5.4 Removal . Subject to the rights of holders of one or more classes or series of Preferred Shares (as defined below) to elect or remove one or more Trustees, any Trustee, or the entire Board of Trustees, may be removed from office at any time, but only for cause and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of Trustees. For the purpose of this paragraph, “cause” shall mean, with respect to any particular Trustee, conviction of a felony or a final judgment of a court of competent jurisdiction holding that such Trustee caused demonstrable, material harm to the Trust through bad faith or active and deliberate dishonesty.

Section 5.5 Advisor Agreements . The Board of Trustees may authorize the execution and performance by the Trust of one or more agreements with any person, corporation, association, company, trust, partnership (limited or general) or other organization whereby, subject to the supervision and control of the Board of Trustees, any such other person, corporation, association, company, trust, partnership (limited or general) or other organization shall render or make available to the Trust managerial, investment, advisory and/or related services, office space and other services and facilities (including, if deemed advisable by the Board of Trustees, the management or supervision of the investments of the Trust) upon such terms and conditions as may be provided in such agreement or agreements (including, if deemed fair and equitable by the Board of Trustees, the compensation payable thereunder by the Trust).

Section 5.6 Determinations by Board of Trustees . The determination as to any of the following matters, made in good faith by or pursuant to the direction of the Board of Trustees consistent with the Declaration of Trust, shall be final and conclusive and shall be binding upon the Trust and every holder of Shares: the amount of the net income of the Trust for any period and the amount of assets at any time legally available for the payment of dividends, redemption of its Shares or the payment of other distributions on its Shares; the amount of paid-in surplus, net assets, other surplus, annual or other cash flow, funds from operations, net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); any interpretation of the terms, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of any class or series of Shares of the Trust; the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any asset owned or held by the Trust or of any Shares of the Trust; the number of Shares of any class of the Trust; any matter relating to the acquisition, holding and disposition of any assets by the Trust; or any other matter relating to the business and affairs of the Trust or required or permitted by applicable law, the Declaration of Trust or Bylaws or otherwise to be determined by the Board of Trustees.

ARTICLE VI

SHARES OF BENEFICIAL INTEREST

Section 6.1 Authorized Shares . The beneficial interest of the Trust shall be divided into shares of beneficial interest (the “Shares”). The Trust has authority to issue 750,000,000 common shares of beneficial interest, par value $0.01 per share (“Common Shares”),

 

4


and 20,000,000 preferred shares of beneficial interest, par value $0.01 per share (“Preferred Shares”). The aggregate par value of all the authorized Shares having par value is $7,700,000. If shares of one class are classified or reclassified into shares of another class pursuant to this Article VI, the number of authorized shares of the former class shall be automatically decreased and the number of shares of the latter class shall be automatically increased, in each case by the number of shares so classified or reclassified, so that the aggregate number of shares of all classes that the Trust has authority to issue shall not be more than the total number of shares set forth in the second sentence of this paragraph. The Board of Trustees, without any action by the shareholders of the Trust, may amend the Declaration of Trust from time to time to increase or decrease the aggregate number of Shares or the number of Shares of any class or series that the Trust has authority to issue.

Section 6.2 Common Shares . Subject to the provisions of Article VII and except as may otherwise be specified in the Declaration of Trust, the Common Shares shall be identical and shall entitle the holders thereof to the same rights and privileges with respect thereto. Each Common Share shall entitle the holder thereof to one vote on each matter upon which holders of Common Shares are entitled to vote. The Board of Trustees may reclassify any unissued Common Shares from time to time into one or more classes or series of Shares.

Section 6.3 Preferred Shares . The Board of Trustees may classify any unissued Preferred Shares and reclassify any previously classified but unissued Preferred Shares of any series from time to time, in one or more series of Shares.

Section 6.4 Classified or Reclassified Shares . Prior to issuance of classified or reclassified Shares of any class or series, the Board of Trustees by resolution shall (a) designate that class or series to distinguish it from all other classes and series of Shares; (b) specify the number of Shares to be included in the class or series; (c) set, subject to the provisions of Article VII and subject to the express terms of any class or series of Shares outstanding at the time, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each class or series; and (d) cause the Trust to file articles supplementary with the SDAT. Any of the terms of any class or series of Shares set pursuant to clause (c) of this Section 6.4 may be made dependent upon facts ascertainable outside the Declaration of Trust (including the occurrence of any event, including a determination or action by the Trust or any other person or body) and may vary among holders thereof, provided that the manner in which such facts or variations shall operate upon the terms of such class or series of Shares is clearly and expressly set forth in the articles supplementary filed with the SDAT.

Section 6.5 Authorization by Board of Share Issuance . The Board of Trustees, without approval of the shareholders of the Trust, may authorize the issuance from time to time of Shares of any class or series, whether now or hereafter authorized, or securities or rights convertible into Shares of any class or series, whether now or hereafter authorized, for such consideration (whether in cash, property, past or future services, obligation for future payment or otherwise) as the Board of Trustees may deem advisable (or without consideration in the case of a Share split or Share dividend), subject to such restrictions or limitations, if any, as may be set forth in the Declaration of Trust or the Bylaws of the Trust.

 

5


Section 6.6 Dividends and Distributions . The Board of Trustees may from time to time authorize and declare to shareholders such dividends or distributions, in cash or other assets of the Trust or in securities of the Trust or from any other source as the Board of Trustees in its discretion shall determine. If the Board of Trustees causes the Trust to elect to be a REIT, the Board of Trustees shall endeavor to declare and pay such dividends and distributions as shall be necessary for the Trust to qualify as a REIT; however, shareholders shall have no right to any dividend or distribution unless and until authorized and declared by the Board. The exercise of the powers and rights of the Board of Trustees pursuant to this Section 6.6 shall be subject to the provisions of any class or series of Shares at the time outstanding. Notwithstanding any other provision in the Declaration of Trust, if the Board of Trustees causes the Trust to elect to be a REIT, no determination shall be made by the Board of Trustees nor shall any transaction be entered into by the Trust which would cause any Shares or other beneficial interest in the Trust not to constitute “transferable shares” or “transferable certificates of beneficial interest” under Section 856(a)(2) of the Code or, unless the Trust is a “publicly offered REIT” within the meaning of Section 562(c)(2) of the Code, which would cause any distribution to constitute a preferential dividend as described in Section 562(c) of the Code.

Section 6.7 General Nature of Shares . All Shares shall be personal property entitling the shareholders only to those rights provided in the Declaration of Trust. The shareholders shall have no interest in the property of the Trust and shall have no right to compel any partition, division, dividend or distribution of the Trust or of the property of the Trust. The death of a shareholder shall not terminate the Trust. The Trust is entitled to treat as shareholders only those persons in whose names Shares are registered as holders of Shares on the beneficial interest ledger of the Trust.

Section 6.8 Consideration for the Issuance of Shares . The consideration for the issuance of Shares, and convertible securities, warrants, or options of the Trust, may consist in whole or in part of: (i) money; (ii) tangible or intangible property; (iii) labor or services actually performed for the Trust; (iv) a promissory note or other obligation for future payment in money; or (v) contracts for labor or services to be performed, including but not limited to, contracts or agreements providing management or administrative services to the Trust.

Section 6.9 Fractional Shares . The Trust may, without the consent or approval of any shareholder, issue fractional Shares, eliminate a fraction of a Share by rounding up or down to a full Share, arrange for the disposition of a fraction of a Share by the person entitled to it, or pay cash for the fair value of a fraction of a Share.

Section 6.10 Declaration and Bylaws . The rights of all shareholders and the terms of all Shares are subject to the provisions of the Declaration of Trust and the Bylaws of the Trust.

 

6


ARTICLE VII

RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES

Section 7.1 Definitions . For the purpose of this Article VII, the following terms shall have the following meanings:

Aggregate Share Ownership Limit . The term “Aggregate Share Ownership Limit” shall mean not more than 9.8% in value of the aggregate of the outstanding Equity Shares, subject to adjustment from time to time by the Board of Trustees in accordance with Section 7.2.8, excluding any such outstanding Equity Shares which are not treated as outstanding for federal income tax purposes. Notwithstanding the foregoing, for purposes of determining the percentage ownership of Equity Shares by any Person, Equity Shares that are treated as Beneficially Owned or Constructively Owned by such Person shall be deemed outstanding. The value of the outstanding Equity Shares shall be determined by the Board of Trustees in good faith, which determination shall be conclusive for all purposes hereof.

Beneficial Ownership . The term “Beneficial Ownership” shall mean ownership of Equity Shares by a Person, whether the interest in the Equity Shares is held directly or indirectly (including by a nominee), and shall include interests that are actually owned or would be treated as owned through the application of Section 544 of the Code, as modified by Sections 856(h)(1)(B) and 856(h)(3) of the Code. The terms “Beneficial Owner,” “Beneficially Own,” “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.

Business Day . The term “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York City are authorized or required by law, regulation or executive order to close.

Charitable Beneficiary . The term “Charitable Beneficiary” shall mean one or more beneficiaries of the Charitable Trust as determined pursuant to Section 7.3.6, provided that each such organization must be described in Section 501(c)(3) of the Code and contributions to each such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

Charitable Trust . The term “Charitable Trust” shall mean any trust provided for in Section 7.3.1.

Charitable Trustee . The term “Charitable Trustee” shall mean the Person unaffiliated with the Trust and any Prohibited Owner, that is appointed by the Trust to serve as trustee of the Charitable Trust.

Common Share Ownership Limit . The term “Common Share Ownership Limit” shall mean 9.8% (in value or in number of shares, whichever is more restrictive, and subject to adjustment from time to time by the Board of Trustees in accordance with Section 7.2.8) of the aggregate of the outstanding Common Shares of the Trust, excluding any such outstanding Common Shares which are not treated as outstanding for federal income tax purposes. Notwithstanding the foregoing, for purposes of determining the percentage ownership of Common Shares by any Person, Common Shares that are treated as Beneficially Owned or Constructively Owned by such Person shall be deemed to be outstanding. The number and value of outstanding Common Shares of the Trust shall be determined by the Board of Trustees in good faith, which determination shall be conclusive for all purposes hereof.

Constructive Ownership . The term “Constructive Ownership” shall mean ownership of Equity Shares by a Person, whether the interest in the Equity Shares is held directly

 

7


or indirectly (including by a nominee), and shall include interests that are actually owned or would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Own,” “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.

Equity Shares . The term “Equity Shares” shall mean all classes or series of shares of beneficial interest of the Trust, including, without limitation, Common Shares and Preferred Shares.

Excepted Holder . The term “Excepted Holder” shall mean a shareholder of the Trust for whom an Excepted Holder Limit is created by the Board of Trustees pursuant to Section 7.2.7.

Excepted Holder Limit . The term “Excepted Holder Limit” shall mean for each Excepted Holder, the percentage limit established by the Board of Trustees for such Excepted Holder pursuant to Section 7.2.7, which limit may be expressed, in the discretion of the Board of Trustees, as one or more percentages and/or numbers of Equity Shares, and may apply with respect to one or more classes of Equity Shares or to all classes of Equity Shares in the aggregate, provided that the affected Excepted Holder agrees to comply with any requirements established by the Board of Trustees pursuant to Section 7.2.7 and subject to adjustment pursuant to Section 7.2.8.

Individual . The term “Individual” means an individual, a trust qualified under Section 401(a) or 501(c)(17) of the Code, a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, or a private foundation within the meaning of Section 509(a) of the Code, provided that, except as set forth in Section 856(h)(3)(A)(ii) of the Code, a trust described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code shall be excluded from this definition.

Initial Date . The term “Initial Date” shall mean the earlier of (i) the close of business on the date on which Spirit Realty Capital, Inc., a Maryland corporation (“SRC”), distributes 100% of the Common Shares of the Trust held by SRC to the holders of shares of common stock, $0.01 par value per share, of SRC after such distribution is completed or (ii) such other date as determined by the Board of Trustees in its sole discretion.

Market Price . The term “Market Price” on any date shall mean, with respect to any class or series of outstanding Equity Shares, the Closing Price for such Equity Shares on such date. The “Closing Price” on any date shall mean the last sale price for such Equity Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such Equity Shares, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if such Equity Shares are not listed or admitted to trading on the NYSE, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such Equity Shares are listed or admitted to trading or, if such Equity Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the principal automated quotation system on which such Equity Shares are quoted, or if such Equity Shares are not quoted by any such organization, the average

 

8


of the closing bid and asked prices as furnished by a professional market maker making a market in such Equity Shares selected by the Board of Trustees or, in the event that no trading price is available for such Equity Shares, the fair market value of the Equity Shares, as determined in good faith by the Board of Trustees.

NYSE . The term “NYSE” shall mean the New York Stock Exchange.

Person . The term “Person” shall mean an Individual, corporation, partnership, limited liability company, estate, trust, association, joint stock company or other entity.

Prohibited Owner . The term “Prohibited Owner” shall mean, with respect to any purported Transfer, any Person who, but for the provisions of Section 7.2.1, would Beneficially Own or Constructively Own Equity Shares, and if appropriate in the context, shall also mean any Person who would have been the record owner of the shares that the Prohibited Owner would have so owned.

Restriction Termination Date . The term “Restriction Termination Date” shall mean the first day after the Initial Date on which the Board of Trustees determines pursuant to Section 5.1 of the Declaration of Trust that it is no longer in the best interests of the Trust to attempt to, or continue to, qualify as a REIT or that compliance with the restrictions and limitations on Beneficial Ownership, Constructive Ownership and Transfers of Equity Shares set forth herein is no longer required in order for the Trust to qualify as a REIT.

Transfer . The term “Transfer” shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event that causes any Person to acquire, or change its level of, Beneficial Ownership or Constructive Ownership, or any agreement to take any such actions or cause any such events, of Equity Shares or the right to vote or receive dividends on Equity Shares, including (a) the granting or exercise of any option (or any disposition of any option), (b) any disposition of any securities or rights convertible into or exchangeable for Equity Shares or any interest in Equity Shares or any exercise of any such conversion or exchange right and (c) Transfers of interests in other entities that result in changes in Beneficial Ownership or Constructive Ownership of Equity Shares; in each case, whether voluntary or involuntary, whether owned of record, Beneficially Owned or Constructively Owned and whether by operation of law or otherwise. The terms “Transferring” and “Transferred” shall have the correlative meanings.

Section 7.2 Equity Shares .

 

  7.2.1 Ownership Limitations . During the period commencing on the Initial Date and prior to the Restriction Termination Date, but subject to Section 7.4:

 

  (a) Basic Restrictions .

 

  (i)

(1) No Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own Equity Shares in excess of the Aggregate Share Ownership Limit, (2) no Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own Common Shares in excess of

 

9


  the Common Share Ownership Limit and (3) no Excepted Holder shall Beneficially Own or Constructively Own Equity Shares in excess of the Excepted Holder Limit for such Excepted Holder.

 

  (ii) No Person shall Beneficially or Constructively Own Equity Shares to the extent that such Beneficial or Constructive Ownership of Equity Shares could result in the Trust (or any direct or indirect subsidiary of the Trust that intends to qualify as a REIT) (A) being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or (B) otherwise failing to qualify as a REIT (including but not limited to Beneficial or Constructive Ownership that could result in the Trust Constructively Owning an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Trust from such tenant, taking into account any other income of the Trust that would not qualify under the gross income requirements of Section 856(c) of the Code, would cause the Trust to fail to satisfy any of such gross income requirements).

 

  (iii) Any Transfer of Equity Shares that, if effective, would result in the Equity Shares being beneficially owned by fewer than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio , and the intended transferee shall acquire no rights in such Equity Shares.

Without limitation of the application of any other provision of this Article VII, it is expressly intended that the restrictions on ownership and Transfer described in this Section 7.2.1 of Article VII shall apply to restrict the rights of any members or partners in limited liability companies or partnerships to exchange their interest in such entities for Equity Shares of the Trust.

 

  (b) Transfer in Trust . If any Transfer of Equity Shares (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system) occurs which, if effective, would result in any Person Beneficially Owning or Constructively Owning Equity Shares in violation of Section 7.2.1(a)(i) or (ii):

 

  (i)

then that number of Equity Shares, the Beneficial Ownership or Constructive Ownership of which otherwise would cause such Person to violate Section 7.2.1(a)(i) or (ii) (rounded up to the nearest whole share) shall be automatically transferred to a Charitable Trust for the benefit of a Charitable

 

10


  Beneficiary, as described in Section 7.3, effective as of the close of business on the Business Day prior to the date of such Transfer, and such Person shall acquire no rights in such shares; or

 

  (ii) if the transfer to the Charitable Trust described in clause (i) of this sentence would not be effective for any reason to prevent the violation of Section 7.2.1(a)(i) or (ii), then the Transfer of that number of Equity Shares that otherwise would cause any Person to violate Section 7.2.1(a)(i) or (ii) shall be void ab initio , and the intended transferee shall acquire no rights in such Equity Shares.

 

  (iii) In determining which Equity Shares are to be transferred to a Charitable Trust in accordance with this Section 7.2.1(b) and Section 7.3 hereof, shares shall be so transferred to a Charitable Trust in such manner as minimizes the aggregate value of the shares that are transferred to the Charitable Trust (except as provided in Section 7.2.6) and, to the extent not inconsistent therewith, on a pro rata basis (unless otherwise determined by the Board of Trustees in its sole and absolute discretion). To the extent that, upon a transfer of Equity Shares pursuant to this Section 7.2.1(b), a violation of any provision of Section 7.2.1(a) would nonetheless occur or be continuing (as, for example, where the ownership of Equity Shares by a single Charitable Trust would result in the Equity Shares being Beneficially Owned (determined under the principles of Section 856(a)(5) of the Code) by fewer than 100 Persons), then Equity Shares shall be transferred to that number of Charitable Trusts, each having a Charitable Trustee and a Charitable Beneficiary or Beneficiaries that are distinct from those of each other Charitable Trust, such that there is no violation of any provision of Section 7.2.1(a) hereof.

 

  7.2.2

Remedies for Breach . If the Board of Trustees shall at any time determine in good faith that a Transfer or other event has taken place that results in a violation of Section 7.2.1 or that a Person intends or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Equity Shares in violation of Section 7.2.1 (whether or not such violation is intended), the Board of Trustees or a committee thereof shall take such action as it deems advisable, in its sole and absolute discretion, to refuse to give effect to or to prevent such Transfer or other event, including, without limitation, causing the Trust to redeem shares, refusing to give effect to such Transfer on the books of the Trust or instituting proceedings to enjoin such Transfer or other event; provided, however, that any Transfer or attempted Transfer or other event in violation of Section 7.2.1 shall automatically

 

11


  result in the transfer to the Charitable Trust described above, or, where applicable, such Transfer (or other event) shall be void ab initio as provided above irrespective of any action (or non-action) by the Board of Trustees or a committee thereof.

 

  7.2.3 Notice of Restricted Transfer . Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of Equity Shares that will or may violate Section 7.2.1(a) or any Person who would have owned Equity Shares that resulted in a transfer to the Charitable Trust pursuant to the provisions of Section 7.2.1(b) shall immediately give written notice to the Trust of such event or, in the case of such a proposed or attempted transaction, give at least 15 days prior written notice, and shall provide to the Trust such other information as the Trust may request in order to determine the effect, if any, of such Transfer on the Trust’s status as a REIT.

 

  7.2.4 Owners Required To Provide Information . From the Initial Date and prior to the Restriction Termination Date, each Person who is a Beneficial Owner or Constructive Owner of Equity Shares and each Person (including the shareholder of record) who is holding Equity Shares for a Beneficial or Constructive Owner shall, on demand, provide to the Trust in writing such information as the Trust may request in order to determine the effect, if any, of such Beneficial Ownership or Constructive Ownership on the Trust’s status as a REIT and to ensure compliance with the Aggregate Share Ownership Limit, the Common Share Ownership Limit and the other restrictions set forth herein, and to comply with requirements of any taxing authority or governmental authority or to determine such compliance.

 

  7.2.5 Remedies Not Limited . Subject to Section 5.1 of the Declaration of Trust, nothing contained in this Section 7.2 shall limit the authority of the Board of Trustees to take such other action as it deems necessary or advisable to protect the Trust and the interests of its shareholders in preserving the Trust’s status as a REIT.

 

  7.2.6 Ambiguity . In the case of an ambiguity in the application of any of the provisions of this Article VII, including Section 7.2, Section 7.3, or any definition contained in Section 7.1 or any defined term used in this Article VII but defined elsewhere in the Declaration of Trust, the Board of Trustees shall have the power to determine the application of the provisions of this Article VII with respect to any situation based on the facts known to it. In the event Section 7.2 or Section 7.3 requires an action by the Board of Trustees and the Declaration of Trust fails to provide specific guidance with respect to such action, the Board of Trustees shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Section 7.1, Section 7.2 or Section 7.3.

 

12


  7.2.7 Exceptions .

 

  (a) Subject to Section 7.2.1(a)(ii), the Board of Trustees, subject to the Trustees’ duties under applicable law, may exempt (prospectively or retroactively) a Person from the Aggregate Share Ownership Limit and/or the Common Share Ownership Limit, as the case may be, and, if necessary, shall establish or increase an Excepted Holder Limit for such Person, if the Board of Trustees determines, based on such representations, covenants and undertakings from such Person to the extent required by the Board of Trustees, and as are necessary or prudent to ascertain, as determined by the Board of Trustees in its sole discretion, that such exemption could not cause or permit:

 

  (i) five or fewer Individuals to Beneficially Own more than 49% in value of the outstanding Equity Shares (taking into account the then current Common Share Ownership Limit and Aggregate Share Ownership Limit, any then existing Excepted Holder Limits, and the Excepted Holder Limit of such Person); or

 

  (ii) the Trust to Constructively Own an interest in any tenant of the Trust or any tenant of any entity directly or indirectly owned, in whole or in part, by the Trust (for this purpose, the Board of Trustees may determine in its sole and absolute discretion that a tenant shall not be treated as a tenant of the Trust if (a) the Trust could not Constructively Own more than a 9.9% interest (that is described in Section 856(d)(2)(B) of the Code) in any such tenant; or (b) the Trust (directly, or through an entity directly or indirectly owned, in whole or in part, by the Trust) derives (and is expected to continue to derive) a sufficiently small amount of revenue from such tenant such that, in the opinion of the Board of Trustees, rent from such tenant would not adversely affect the Trust’s ability to qualify as a REIT).

 

  (b) Prior to granting any exception pursuant to Section 7.2.7(a), the Board of Trustees may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Trustees in its sole and absolute discretion, as it may deem necessary or advisable in order to determine or ensure the Trust’s status as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board of Trustees may impose such conditions or restrictions as it deems appropriate in connection with granting such exception.

 

  (c)

Subject to Section 7.2.1(a)(ii), an underwriter which participates in a public offering or a private placement of Equity Shares (or securities convertible into or exchangeable for Equity Shares) may Beneficially Own or Constructively Own Equity Shares (or

 

13


  securities convertible into or exchangeable for Equity Shares) in excess of the Common Share Ownership Limit, the Aggregate Share Ownership Limit, or both such limits, but only to the extent necessary to facilitate such public offering or private placement.

 

  (d) The Board of Trustees may only reduce the Excepted Holder Limit for an Excepted Holder: (1) with the written consent of such Excepted Holder at any time, or (2) pursuant to the terms and conditions of the agreements and undertakings entered into with such Excepted Holder in connection with the establishment of the Excepted Holder Limit for that Excepted Holder. No Excepted Holder Limit shall be reduced to a percentage that is less than the Common Share Ownership Limit or the Aggregate Share Ownership Limit, as applicable.

 

  7.2.8 Increase or Decrease in Aggregate Share Ownership and Common Share Ownership Limits .    Subject to Section 7.2.1(a)(ii) and the rest of this Section 7.2.8, the Board of Trustees may, in its sole and absolute discretion, from time to time increase or decrease the Common Share Ownership Limit and/or the Aggregate Share Ownership Limit for one or more Persons; provided, however, that a decreased Common Share Ownership Limit and/or Aggregate Share Ownership Limit will not be effective for any Person who Beneficially Owns or Constructively Owns, as applicable, Equity Shares in excess of such decreased Common Share Ownership Limit and/or Aggregate Share Ownership Limit at the time such limit is decreased, until such time as such Person’s Beneficial Ownership or Constructive Ownership of Equity Shares, as applicable, equals or falls below the decreased Common Share Ownership Limit and/or Aggregate Share Ownership Limit, but any further acquisition of Equity Shares or increased Beneficial Ownership or Constructive Ownership of Equity Shares, during the period that such decreased Common Share Ownership Limit and/or Aggregate Share Ownership Limit is not effective with respect to such Person, will be in violation of the Common Share Ownership Limit and/or Aggregate Share Ownership Limit and, provided further, that the new Common Share Ownership Limit and/or Aggregate Share Ownership Limit (taking into account any then existing Excepted Holder Limits to the extent appropriate as determined by the Trust) would not allow five or fewer Persons to Beneficially Own more than 49% in value of the outstanding Equity Shares.

 

  7.2.9 Legend . Each certificate representing Equity Shares, if any, shall bear substantially the following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE TRUST’S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE

 

14


INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE TRUST’S DECLARATION OF TRUST, (I) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN THE TRUST’S COMMON SHARES IN EXCESS OF THE COMMON SHARE OWNERSHIP LIMIT UNLESS SUCH PERSON IS AN EXCEPTED HOLDER (IN WHICH CASE THE EXCEPTED HOLDER LIMIT SHALL BE APPLICABLE); (II) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN EQUITY SHARES OF THE TRUST IN EXCESS OF THE AGGREGATE SHARE OWNERSHIP LIMIT, UNLESS SUCH PERSON IS AN EXCEPTED HOLDER (IN WHICH CASE THE EXCEPTED HOLDER LIMIT SHALL BE APPLICABLE); (III) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN EQUITY SHARES THAT WOULD RESULT IN THE TRUST (OR ANY DIRECT OR INDIRECT SUBSIDIARY OF THE TRUST THAT INTENDS TO QUALIFY AS A REIT) BEING “CLOSELY HELD” UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE TRUST (OR ANY SUCH SUBSIDIARY) TO FAIL TO QUALIFY AS A REIT; AND (IV) NO PERSON MAY TRANSFER EQUITY SHARES IF SUCH TRANSFER WOULD RESULT IN THE EQUITY SHARES OF THE TRUST BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN EQUITY SHARES WHICH CAUSE OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN EQUITY SHARES IN EXCESS OR IN VIOLATION OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE TRUST. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP SET FORTH IN (I) THROUGH (III) ABOVE ARE VIOLATED, THE EQUITY SHARES REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A CHARITABLE TRUSTEE OF A CHARITABLE TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE TRUST MAY TAKE OTHER ACTIONS, INCLUDING REDEEMING SHARES UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF TRUSTEES IN ITS SOLE AND ABSOLUTE DISCRETION IF THE BOARD OF TRUSTEES DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO . ALL CAPITALIZED TERMS IN THIS LEGEND HAVE THE MEANINGS DEFINED IN THE DECLARATION OF TRUST OF THE TRUST, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF EQUITY SHARES OF THE TRUST ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF THE TRUST AT ITS PRINCIPAL OFFICE.

 

15


Instead of the foregoing legend, a certificate may state that the Trust will furnish a full statement about certain restrictions on ownership and transfer of the shares to a shareholder on request and without charge.

Section 7.3 Transfer of Equity Shares in Trust .

 

  7.3.1 Ownership in Trust . Upon any purported Transfer or other event described in Section 7.2.1(b) that would result in a transfer of Equity Shares to a Charitable Trust, such Equity Shares shall be deemed to have been transferred to the Charitable Trustee as trustee of a Charitable Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the Charitable Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in the transfer to the Charitable Trust pursuant to Section 7.2.1(b). The Charitable Trustee shall be appointed by the Trust and shall be a Person unaffiliated with the Trust and any Prohibited Owner. Each Charitable Beneficiary shall be designated by the Trust as provided in Section 7.3.6.

 

  7.3.2 Status of Shares Held by the Charitable Trustee . Equity Shares held by the Charitable Trustee shall be issued and outstanding Equity Shares of the Trust. The Prohibited Owner shall have no rights in the shares held by the Charitable Trustee. The Prohibited Owner shall not benefit economically from ownership of any shares held in trust by the Charitable Trustee, shall have no rights to dividends or other distributions and shall not possess any rights to vote or other rights attributable to the shares held in the Charitable Trust. The Prohibited Owner shall have no claim, cause of action, or any other recourse whatsoever against the purported transferor of such Equity Shares.

 

  7.3.3

Dividend and Voting Rights . The Charitable Trustee shall have all voting rights and rights to dividends or other distributions with respect to Equity Shares held in the Charitable Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or other distribution paid prior to the discovery by the Trust that the Equity Shares have been transferred to the Charitable Trustee shall be paid by the recipient of such dividend or other distribution to the Charitable Trustee upon demand and any dividend or other distribution authorized but unpaid shall be paid when due to the Charitable Trustee. Any dividend or distribution so paid to the Charitable Trustee shall be held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no voting rights with respect to shares held in the Charitable Trust and, subject to Maryland law, effective as of the date that the Equity Shares have been transferred to the Charitable Trustee, the Charitable Trustee shall have the authority (at the Charitable

 

16


  Trustee’s sole and absolute discretion) (i) to rescind as void any vote cast by a Prohibited Owner prior to the discovery by the Trust that the Equity Shares have been transferred to the Charitable Trustee and (ii) to recast such vote in accordance with the desires of the Charitable Trustee acting for the benefit of the Charitable Beneficiary; provided, however, that if the Trust has already taken irreversible corporate action, then the Charitable Trustee shall not have the authority to rescind and recast such vote. Notwithstanding the provisions of this Article VII, until the Trust has received notification that Equity Shares have been transferred into a Charitable Trust, the Trust shall be entitled to rely on its share transfer and other shareholder records for purposes of preparing lists of shareholders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes of shareholders.

 

  7.3.4 Sale of Shares by Charitable Trustee . Within 20 days of receiving notice from the Trust that Equity Shares have been transferred to the Charitable Trust, the Charitable Trustee of the Charitable Trust shall sell the shares held in the Charitable Trust to a Person or Persons, designated by the Charitable Trustee, whose ownership of the shares will not violate the ownership limitations set forth in Section 7.2.1(a). Upon such sale, the interest of the Charitable Beneficiary in the shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 7.3.4. The Prohibited Owner shall receive the lesser of (1) the price paid by the Prohibited Owner for the shares or, if the Prohibited Owner did not give value for the shares in connection with the event causing the shares to be held in the Charitable Trust (e.g., in the case of a gift, devise or other such transaction), the Market Price of the shares on the day of the event causing the shares to be held in the Charitable Trust and (2) the price per share received by the Charitable Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of the shares held in the Charitable Trust. The Charitable Trustee shall reduce the amount payable to the Prohibited Owner by the amount of dividends and other distributions which have been paid to the Prohibited Owner and are owed by the Prohibited Owner to the Charitable Trustee pursuant to Section 7.3.3 of this Article VII. Any net sales proceeds in excess of the amount payable to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary. If, prior to the discovery by the Trust that Equity Shares have been transferred to the Charitable Trustee, such shares are sold by a Prohibited Owner, then (i) such shares shall be deemed to have been sold on behalf of the Charitable Trust and (ii) to the extent that the Prohibited Owner received an amount for such shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 7.3.4, such excess shall be paid to the Charitable Trustee upon demand.

 

  7.3.5

Purchase Right in Equity Shares Transferred to the Charitable Trustee . Equity Shares transferred to the Charitable Trustee shall be deemed to have

 

17


  been offered for sale to the Trust, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in such transfer to the Charitable Trust (or, in the case of a gift, devise or other transaction, the Market Price at the time of such gift, devise or other transaction) and (ii) the Market Price on the date the Trust, or its designee, accepts such offer. The Trust shall reduce the amount payable to the Prohibited Owner by the amount of dividends and distributions which has been paid to the Prohibited Owner and are owed by the Prohibited Owner to the Charitable Trustee pursuant to Section 7.3.3 of this Article VII. The Trust shall pay the amount of such reduction to the Charitable Trustee for the benefit of the Charitable Beneficiary. The Trust shall have the right to accept such offer until the Charitable Trustee has sold the shares held in the Charitable Trust pursuant to Section 7.3.4. Upon such a sale to the Trust, the interest of the Charitable Beneficiary in the shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner.

 

  7.3.6 Designation of Charitable Beneficiaries . By written notice to the Charitable Trustee, the Trust shall designate one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Charitable Trust such that the Equity Shares held in the Charitable Trust would not violate the restrictions set forth in Section 7.2.1(a) in the hands of such Charitable Beneficiary. Neither the failure of the Trust to make such designation nor the failure of the Trust to appoint the Charitable Trustee before the automatic transfer provided for in Section 7.2.1(b)(i) shall make such transfer ineffective, provided that the Trust thereafter makes such designation and appointment. The designation of a nonprofit organization as a Charitable Beneficiary shall not entitle such nonprofit organization to continue to serve in such capacity and the Trust may, in its sole discretion, designate a different nonprofit organization as the Charitable Beneficiary at any time and for any or no reason, provided, however, that if a Charitable Beneficiary was designated at the time the Equity Shares were placed in the Charitable Trust, such Charitable Beneficiary shall be entitled to the rights set forth in herein with respect to such Equity Shares, unless and until the Trust opts to purchase such shares.

Section 7.4 NYSE Transactions . Nothing in this Article VII shall preclude the settlement of any transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system. The fact that the settlement of any transaction occurs shall not negate the effect of any other provision of this Article VII and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article VII.

Section 7.5 Enforcement . The Trust is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this Article VII.

 

18


Section 7.6 Non-Waiver . No delay or failure on the part of the Trust or the Board of Trustees in exercising any right hereunder shall operate as a waiver of any right of the Trust or the Board of Trustees, as the case may be, except to the extent specifically waived in writing.

Section 7.7 Severability . If any provision of this Article VII or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provisions shall be affected only to the extent necessary to comply with the determination of such court.

ARTICLE VIII

SHAREHOLDERS

Section 8.1 Meetings . There shall be an annual meeting of the shareholders, to be held on proper notice at such time and convenient location as shall be determined by or in the manner prescribed in the Bylaws, for the election of the Trustees, if required, and for the transaction of any other business within the powers of the Trust. Except as otherwise provided in the Declaration of Trust, special meetings of shareholders may be called in the manner provided in the Bylaws. If there are no Trustees, the officers of the Trust shall promptly call a special meeting of the shareholders entitled to vote for the election of successor Trustees. Any meeting may be adjourned and reconvened as the Trustees determine or as provided in the Bylaws.

Section 8.2 Voting Rights . Subject to the provisions of any class or series of Shares then outstanding, the shareholders shall be entitled to vote only on the following matters: (a) election of Trustees as provided in Section 5.3 and the removal of Trustees as provided in Section 5.4; (b) amendment of the Declaration of Trust as provided in Section 10.3 or amendment of the Bylaws to the extent provided therein; (c) termination of the Trust as provided in Section 12.2; (d) merger or consolidation of the Trust, or the sale or disposition of substantially all of the assets of the Trust (the “Trust Property”), as provided in Article XI; and (e) such other matters with respect to which the Board of Trustees has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the shareholders for approval or ratification. Except with respect to the foregoing matters, no action taken by the shareholders at any meeting shall in any way bind the Board of Trustees.

Section 8.3 Preemptive and Appraisal Rights . Except as may be provided by the Board of Trustees in setting the terms of classified or reclassified Shares pursuant to Section 6.4, or as may otherwise be provided by contract, no holder of Shares shall, as such holder, (a) have any preemptive right to purchase or subscribe for any additional Shares of the Trust or any other security of the Trust which it may issue or sell or (b) have any right to require the Trust to pay him the fair value of his Shares in an appraisal or similar proceeding.

Section 8.4 Extraordinary Actions . Except as specifically provided in Section 5.4 (relating to removal of Trustees) and in Article X (relating to certain amendments of the Declaration of Trust of the Trust), notwithstanding any provision of law permitting or requiring any action to be taken or approved by the affirmative vote of the holders of a greater number of

 

19


votes, any such action shall be effective and valid if declared advisable by the Board of Trustees and taken or approved by the affirmative vote of holders of Shares entitled to cast a majority of all the votes entitled to be cast on the matter.

ARTICLE IX

LIABILITY LIMITATION, INDEMNIFICATION

AND TRANSACTIONS WITH THE TRUST

Section 9.1 Limitation of Shareholder Liability . No shareholder shall be liable for any debt, claim, demand, judgment or obligation of any kind of, against or with respect to the Trust by reason of his being a shareholder, nor shall any shareholder be subject to any personal liability whatsoever, in tort, contract or otherwise, to any person in connection with the property or the affairs of the Trust by reason of his being a shareholder.

Section 9.2 Limitation of Trustee and Officer Liability . To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of trustees and officers of a real estate investment trust, no Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages. Neither the amendment nor repeal of this Section 9.2, nor the adoption or amendment of any other provision of the Declaration of Trust inconsistent with this Section 9.2, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. In the absence of any Maryland statute limiting the liability of trustees and officers of a Maryland real estate investment trust for money damages in a suit by or on behalf of the Trust or by any shareholder, no Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages except to the extent that (a) the Trustee or officer actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received; or (b) a judgment or other final adjudication adverse to the Trustee or officer is entered in a proceeding based on a finding in the proceeding that the Trustee’s or officer’s action or failure to act was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.

Section 9.3 Indemnification . The Trust shall have the power, to the maximum extent permitted by Maryland law in effect from time to time, to obligate itself to indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, (a) any individual who is a present or former Trustee or officer of the Trust and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or (b) any individual who, while a Trustee or officer of the Trust and at the request of the Trust, serves or has served as a director, officer, partner, member, manager, trustee, employee or agent of another corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his or her service in such capacity. The Trust shall have the power, with the approval of the Board of Trustees, to provide such indemnification and advancement of expenses to a person who served a predecessor of the Trust in any of the capacities described in (a) or (b) above and to any employee or agent of the Trust or a predecessor of the Trust.

 

20


Section 9.4 Transactions Between the Trust and its Trustees, Officers, Employees and Agents . Subject to any express restrictions in the Declaration of Trust or adopted by the Trustees in the Bylaws or by resolution, the Trust may enter into any contract or transaction of any kind with any person, including any Trustee, officer, employee or agent of the Trust or any person affiliated with a Trustee, officer, employee or agent of the Trust, whether or not any of them has a financial interest in such transaction.

ARTICLE X

AMENDMENTS

Section 10.1 General . The Trust reserves the right from time to time to make any amendment to the Declaration of Trust, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in the Declaration of Trust, of any Shares. All rights and powers conferred by the Declaration of Trust on shareholders, Trustees and officers are granted subject to this reservation. An amendment to the Declaration of Trust (a) shall be signed and acknowledged by at least a majority of the Trustees, or an officer duly authorized by at least a majority of the Trustees, (b) shall be filed for record as provided in Section 13.5 and (c) shall become effective as of the later of the time the SDAT accepts the amendment for record or the time established in the amendment, not to exceed 30 days after the amendment is accepted for record. All references to the Declaration of Trust shall include all amendments thereto.

Section 10.2 By Trustees . The Trustees may amend the Declaration of Trust from time to time, in the manner provided by Title 8, without any action by the shareholders, to qualify as a REIT under the Code or as a real estate investment trust under Title 8 and as otherwise provided in the Declaration of Trust.

Section 10.3 By Shareholders . Subject to the provisions of any class or series of Shares then outstanding, except (a) as provided in Section 10.2, (b) for amendments to Section 5.4 or the next sentence of the Declaration of Trust or (c) where approval of the shareholders is not required by Title 8 or by a specific provision of the Declaration of Trust or would not be required if the Trust were a Maryland corporation, any amendment to the Declaration of Trust shall be valid only if declared advisable by the Board of Trustees and approved by the affirmative vote of holders of shares entitled to cast a majority of all the votes entitled to be cast on the matter. However, any amendment to Section 5.4 or to this sentence of the Declaration of Trust shall be valid only if declared advisable by the Board of Trustees and approved by the affirmative vote of holders of shares entitled to cast at least of two-thirds of all the votes entitled to be cast on the matter.

ARTICLE XI

MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY

Subject to the provisions of any class or series of Shares at the time outstanding, the Trust may (a) merge the Trust with or into another entity, (b) consolidate the Trust with one or more other entities into a new entity or (c) sell, lease, exchange or otherwise transfer all or substantially all of the Trust Property.

 

21


ARTICLE XII

DURATION AND TERMINATION OF TRUST

Section 12.1 Duration . The Trust shall continue perpetually unless terminated pursuant to Section 12.2 or pursuant to any applicable provision of Title 8.

Section 12.2 Termination .

Section 12.2.1 Subject to the provisions of any class or series of Shares at the time outstanding, after approval by a majority of the entire Board of Trustees, the Trust may be terminated at any meeting of shareholders by the affirmative vote of a majority of all the votes entitled to be cast on the matter. Upon the termination of the Trust:

(a) The Trust shall carry on no business except for the purpose of winding up its affairs.

(b) The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under the Declaration of Trust shall continue, including the powers to fulfill or discharge the Trust’s contracts, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining property of the Trust to one or more persons at public or private sale for consideration which may consist in whole or in part of cash, securities, or other property of any kind, discharge or pay its liabilities, and do all other acts appropriate to liquidate its business.

(c) After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and agreements as the Trustees deem necessary for their protection, the Trust may distribute the remaining property of the Trust among the shareholders of the Trust so that, after payment in full or the setting apart for payment of such preferential amounts, if any, to which the holders of any Shares at the time outstanding shall be entitled, the remaining property of the Trust shall, subject to any participating or similar rights of Shares at the time outstanding, be distributed ratably among the holders of Common Shares at the time outstanding.

Section 12.2.2 After termination of the Trust, the liquidation of its business and the distribution to the shareholders of the Trust as herein provided, a majority of the Trustees shall execute and file with the Trust’s records a document certifying that the Trust has been duly terminated, and the Trustees shall be discharged from all liabilities and duties hereunder, and the rights and interests of all shareholders of the Trust shall cease.

ARTICLE XIII

MISCELLANEOUS

Section 13.1 Governing Law . The Declaration of Trust is executed by the undersigned Trustees and delivered in the State of Maryland with reference to the laws thereof, and the rights of all parties and the validity, construction and effect of every provision hereof shall be subject to and construed according to the laws of the State of Maryland without regard to conflicts of laws provisions thereof.

 

22


Section 13.2 Reliance by Third Parties . Any certificate shall be final and conclusive as to any person dealing with the Trust if executed by the Secretary or an Assistant Secretary of the Trust or a Trustee, and if certifying to: (a) the number or identity of Trustees, officers of the Trust or shareholders; (b) the due authorization of the execution of any document; (c) the action or vote taken, and the existence of a quorum, at a meeting of the Board of Trustees or shareholders; (d) a copy of the Declaration of Trust or of the Bylaws as a true and complete copy as then in force; (e) an amendment to the Declaration of Trust; (f) the termination of the Trust; or (g) the existence of any fact relating to the affairs of the Trust. No purchaser, lender, transfer agent or other person shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trust on its behalf or by any officer, employee or agent of the Trust.

Section 13.3 Severability .

Section 13.3.1 The provisions of the Declaration of Trust are severable, and if the Board of Trustees shall determine, with the advice of counsel, that any one or more of such provisions (the “Conflicting Provisions”) are in conflict with the Code, Title 8 or other applicable federal or state laws, the Conflicting Provisions, to the extent of the conflict, shall be deemed never to have constituted a part of the Declaration of Trust, even without any amendment of the Declaration of Trust pursuant to Article X and without affecting or impairing any of the remaining provisions of the Declaration of Trust or rendering invalid or improper any action taken or omitted prior to such determination. No Trustee shall be liable for making or failing to make such a determination. In the event of any such determination by the Board of Trustees, the Board shall amend the Declaration of Trust in the manner provided in Section 10.2.

Section 13.3.2 If any provision of the Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such holding shall apply only to the extent of any such invalidity or unenforceability and shall not in any manner affect, impair or render invalid or unenforceable such provision in any other jurisdiction or any other provision of the Declaration of Trust in any jurisdiction.

Section 13.4 Construction . In the Declaration of Trust, unless the context otherwise requires, words used in the singular or in the plural include both the plural and singular and words denoting any gender include all genders. The title and headings of different parts are inserted for convenience and shall not affect the meaning, construction or effect of the Declaration of Trust. In defining or interpreting the powers and duties of the Trust and its Trustees and officers, reference may be made by the Trustees or officers, to the extent appropriate and not inconsistent with the Code or Title 8, to Titles 1 through 3 of the Corporations and Associations Article of the Annotated Code of Maryland. In furtherance and not in limitation of the foregoing, in accordance with the provisions of Title 3, Subtitles 6 and 7, of the Corporations and Associations Article of the Annotated Code of Maryland, the Trust shall be included within the definition of “corporation” for purposes of such provisions.

 

23


Section 13.5 Recordation . The Declaration of Trust and any amendment hereto shall be filed for record with the SDAT and may also be filed or recorded in such other places as the Trustees deem appropriate, but failure to file for record the Declaration of Trust or any amendment hereto in any office other than in the State of Maryland shall not affect or impair the validity or effectiveness of the Declaration of Trust or any amendment hereto. A restated Declaration of Trust shall, upon filing, be conclusive evidence of all amendments contained therein and may thereafter be referred to in lieu of the original Declaration of Trust and the various amendments thereto.

Section 13.6 Maryland Anti-Takeover Statutes . Notwithstanding any other provision of the Declaration of Trust or the Bylaws: (i) the Trust expressly elects not to be governed by the provisions of Section 3-602 of the MGCL, in whole or in part, as to any Business Combination between the Trust and any Interested Stockholder or any Affiliate of an Interested Stockholder (as such terms are defined in Section 3-601 of the MGCL) of the Trust, and any such Business Combination shall be exempted from the provisions of Section 3-602 of the MGCL; and (ii) the Trust is prohibited from electing to be subject to Section 3-803 of the MGCL unless such election is first approved by the shareholders of the Trust by the affirmative vote of a majority of all the votes entitled to be cast on the matter.

THIRD : The foregoing amendment to, and restatement of, the Declaration of Trust has been duly advised by the Board of Trustees and approved by the shareholders of the Trust as required by law.

FOURTH : The name and address of the Trust’s current resident agent is as set forth in Article IV of the foregoing amendment and restatement of the Declaration of Trust.

FIFTH : The number of Trustees of the Trust and the names of those Trustees currently in office are set forth in Section 5.2 of Article V of the foregoing amendment and restatement of the Declaration of Trust.

SIXTH : The undersigned President of the Trust acknowledges these Articles of Amendment and Restatement to be the trust act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President of the Trust acknowledges that to the best of his knowledge, information, and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

 

24


 

 

[SIGNATURE PAGE FOLLOWS]

 

25


IN WITNESS WHEREOF, the Trust has caused these Articles of Amendment and Restatement to be signed in its name and on its behalf by its President and attested to by its Secretary as of the      day of         , 2018.

 

ATTEST:

    SPIRIT MTA REIT

 

      By:  

 

Name: Jay Young       Name: Jackson Hsieh
Title: Secretary       Title: President

Exhibit 3.2

SPIRIT MTA REIT

AMENDED AND RESTATED BYLAWS

ARTICLE I

OFFICES

Section 1. PRINCIPAL OFFICE . The principal office of Spirit MTA REIT (the “ Trust ”) in the State of Maryland shall be located at such place as the Board of Trustees may designate.

Section 2. ADDITIONAL OFFICES . The Trust may have additional offices, including a principal executive office, at such places as the Board of Trustees may from time to time determine or the business of the Trust may require.

ARTICLE II

MEETINGS OF SHAREHOLDERS

Section 1. PLACE . All meetings of shareholders shall be held at the principal executive office of the Trust or at such other place as shall be set in accordance with these Bylaws and stated in the notice of the meeting.

Section 2. ANNUAL MEETING . An annual meeting of shareholders for the election of trustees and the transaction of any business within the powers of the Trust shall be held on the date and at the time and place set by the Board of Trustees. Failure to hold an annual meeting does not invalidate the Trust’s existence or affect any otherwise valid acts of the Trust.

Section 3. SPECIAL MEETINGS .

 

  (a) General . Each of the chairman of the board, chief executive officer, president and Board of Trustees may call a special meeting of shareholders. Except as provided in subsection (b)(4) of this Section 3, a special meeting of shareholders shall be held on the date and at the time and place set by the chairman of the board, chief executive officer, president or Board of Trustees, whoever has called the meeting. Subject to subsection (b) of this Section 3, a special meeting of shareholders shall also be called by the secretary of the Trust to act on any matter that may properly be considered at a meeting of shareholders upon the written request of shareholders entitled to cast not less than a majority of all the votes entitled to be cast on such matter at such meeting.

 

  (b) Shareholder-Requested Special Meetings .

 

  (1)

Any shareholder of record seeking to have shareholders request a special meeting shall, by sending written notice to the secretary (the “ Record Date Request Notice ”) by registered mail, return receipt requested, request the Board of Trustees to fix a record date to determine the shareholders entitled to request a special meeting (the “ Request Record Date ”). The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at it, shall be signed by one or more


  shareholders of record as of the date of signature (or their agents duly authorized in a writing accompanying the Record Date Request Notice), shall bear the date of signature of each such shareholder (or such agent) and shall set forth all information relating to each such shareholder and each matter proposed to be acted on at the meeting that would be required to be disclosed in connection with the solicitation of proxies for the election of trustees in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such a solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “ Exchange Act ”). Upon receiving the Record Date Request Notice, the Board of Trustees may fix a Request Record Date. The Request Record Date shall not precede and shall not be more than ten days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board of Trustees. If the Board of Trustees, within ten days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date, the Request Record Date shall be the close of business on the tenth day after the first date on which a Record Date Request Notice is received by the secretary.

 

  (2) In order for any shareholder to request a special meeting to act on any matter that may properly be considered at a meeting of shareholders, one or more written requests for a special meeting (collectively, the “ Special Meeting Request ”) signed by shareholders of record (or their agents duly authorized in a writing accompanying the request) as of the Request Record Date entitled to cast not less than a majority of all of the votes entitled to be cast on such matter at such meeting (the “ Special Meeting Percentage ”) shall be delivered to the secretary. In addition, the Special Meeting Request shall (a) set forth the purpose of the meeting and the matters proposed to be acted on at it (which shall be limited to those lawful matters set forth in the Record Date Request Notice received by the secretary), (b) bear the date of signature of each such shareholder (or such agent) signing the Special Meeting Request, (c) set forth (i) the name and address, as they appear in the Trust’s books, of each shareholder signing such request (or on whose behalf the Special Meeting Request is signed), (ii) the class, series and number of all shares of beneficial interest of the Trust which are owned (beneficially or of record) by each such shareholder and (iii) the nominee holder for, and number of, shares of beneficial interest of the Trust owned beneficially but not of record by such shareholder, (d) be sent to the secretary by registered mail, return receipt requested, and (e) be received by the secretary within 60 days after the Request Record Date. Any requesting shareholder (or agent duly authorized in a writing accompanying the revocation of the Special Meeting Request) may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary.

 

2


  (3) The secretary shall inform the requesting shareholders of the reasonably estimated cost of preparing and mailing or delivering the notice of the meeting (including the Trust’s proxy materials). The secretary shall not be required to call a special meeting upon shareholder request and such meeting shall not be held unless, in addition to the documents required by paragraph (2) of this Section 3(b), the secretary receives payment of such reasonably estimated cost prior to the preparation and mailing or delivery of such notice of the meeting.

 

  (4) In the case of any special meeting called by the secretary upon the request of shareholders (a “ Shareholder-Requested Meeting ”), such meeting shall be held at such place, date and time as may be designated by the Board of Trustees; provided, however, that the date of any Shareholder-Requested Meeting shall be not more than 90 days after the record date for such meeting (the “ Meeting Record Date ”); and provided further that if the Board of Trustees fails to designate, within ten days after the date that a valid Special Meeting Request is actually received by the secretary (the “ Delivery Date ”), a date and time for a Shareholder-Requested Meeting, then such meeting shall be held at 2:00 p.m., local time, on the 90th day after the Meeting Record Date or, if such 90th day is not a Business Day (as defined below), on the first preceding Business Day; and provided further that in the event that the Board of Trustees fails to designate a place for a Shareholder-Requested Meeting within ten days after the Delivery Date, then such meeting shall be held at the principal executive office of the Trust. In fixing a date for a Shareholder-Requested Meeting, the Board of Trustees may consider such factors as it deems relevant, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for the meeting and any plan of the Board of Trustees to call an annual meeting or a special meeting. In the case of any Shareholder-Requested Meeting, if the Board of Trustees fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date. The Board of Trustees may revoke the notice for any Shareholder-Requested Meeting in the event that the requesting shareholders fail to comply with the provisions of paragraph (3) of this Section 3(b).

 

  (5)

If written revocations of the Special Meeting Request have been delivered to the secretary and the result is that shareholders of record (or their agents duly authorized in writing), as of the Request Record Date, entitled to cast less than the Special Meeting Percentage have delivered, and not revoked, requests for a special meeting on the matter to the secretary: (i) if the notice of meeting has not already been delivered, the secretary shall refrain from delivering the notice of the meeting and send to all requesting shareholders who have not revoked such requests written notice of any revocation of a request for a special meeting on the matter, or (ii) if the notice of meeting has been delivered and if the secretary first sends to all

 

3


  requesting shareholders who have not revoked requests for a special meeting on the matter written notice of any revocation of a request for the special meeting and written notice of the Trust’s intention to revoke the notice of the meeting or for the chairman of the meeting to adjourn the meeting without action on the matter, (A) the secretary may revoke the notice of the meeting at any time before ten days before the commencement of the meeting or (B) the chairman of the meeting may call the meeting to order and adjourn the meeting without acting on the matter. Any request for a special meeting received after a revocation by the secretary of a notice of a meeting shall be considered a request for a new special meeting.

 

  (6) The chairman of the board, chief executive officer, president or Board of Trustees may appoint regionally or nationally recognized independent inspectors of elections to act as the agent of the Trust for the purpose of promptly performing a ministerial review of the validity of any purported Special Meeting Request received by the secretary. For the purpose of permitting the inspectors to perform such review, no such purported Special Meeting Request shall be deemed to have been received by the secretary until the earlier of (i) five Business Days after actual receipt by the secretary of such purported request and (ii) such date as the independent inspectors certify to the Trust that the valid requests received by the secretary represent, as of the Request Record Date, shareholders of record entitled to cast not less than the Special Meeting Percentage. Nothing contained in this paragraph (6) shall in any way be construed to suggest or imply that the Trust or any shareholder shall not be entitled to contest the validity of any request, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).

 

  (7) For purposes of these Bylaws, “ Business Day ” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

Section 4. NOTICE . Not less than ten nor more than 90 days before each meeting of shareholders, the secretary shall give notice of such meeting to each shareholder entitled to vote at such meeting and to each shareholder not entitled to vote who is entitled to notice of the meeting, notice in writing or by electronic transmission stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called. Such notice may be delivered by mail, by presenting it to such shareholder personally, by leaving it at the shareholder’s residence or usual place of business, by electronic transmission or by any other means permitted by Maryland law. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder at the shareholder’s address as it appears on the records of the Trust, with postage thereon prepaid. If transmitted electronically, such notice shall be deemed to be given when

 

4


transmitted to the shareholder by an electronic transmission to any address or number of the shareholder at which the shareholder receives electronic transmissions. The Trust may give a single notice to all shareholders who share an address, which single notice shall be effective as to any shareholder at such address, unless a shareholder objects to receiving such single notice or revokes a prior consent to receiving such single notice. Failure to give notice of any meeting to one or more shareholders, or any irregularity in such notice, shall not affect the validity of any meeting fixed in accordance with this Article II or the validity of any proceedings at any such meeting.

Subject to Section 11(a) of this Article II, any business of the Trust may be transacted at an annual meeting of shareholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of shareholders except as specifically designated in the notice. The Trust may postpone or cancel a meeting of shareholders by making a Public Announcement (as defined in Section 11(c)(3) of this Article II) of such postponement or cancellation prior to the meeting. Notice of the date, time and place to which the meeting is postponed shall be given not less than ten days prior to such date and otherwise in the manner set forth in this section.

Section 5. ORGANIZATION AND CONDUCT . Every meeting of shareholders shall be conducted by an individual appointed by the Board of Trustees to be chairman of the meeting or, in the absence of such appointment or appointed individual, by the chairman of the board or, in the case of a vacancy in the office or absence of the chairman of the board, by one of the following officers present at the meeting in the following order: the vice chairman of the board, if there is one, the chief executive officer, the president, the vice presidents in their order of rank and seniority, the secretary or, in the absence of such officers, a chairman chosen by the shareholders by the vote of a majority of the votes cast by shareholders present in person or by proxy. The secretary, or, in the secretary’s absence, an assistant secretary, or, in the absence of both the secretary and assistant secretaries, an individual appointed by the Board of Trustees or, in the absence of such appointment, an individual appointed by the chairman of the meeting shall act as secretary. In the event that the secretary presides at a meeting of shareholders, an assistant secretary, or, in the absence of all assistant secretaries, an individual appointed by the Board of Trustees or the chairman of the meeting, shall record the minutes of the meeting. The order of business and all other matters of procedure at any meeting of shareholders shall be determined by the chairman of the meeting. The chairman of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of the chairman and without any action by the shareholders, are appropriate for the proper conduct of the meeting, including, without limitation, (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to shareholders of record of the Trust, their duly authorized proxies and such other individuals as the chairman of the meeting may determine; (c) limiting participation at the meeting on any matter to shareholders of record of the Trust entitled to vote on such matter, their duly authorized proxies and other such individuals as the chairman of the meeting may determine; (d) limiting the time allotted to questions or comments; (e) determining when and for how long the polls should be opened and when the polls should be closed; (f) maintaining order and security at the meeting; (g) removing any shareholder or any other individual who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairman of the meeting; (h) concluding a meeting or recessing or adjourning the meeting to a later date and time and at a place announced at the meeting; and complying with any state

 

5


and local laws and regulations concerning safety and security. Unless otherwise determined by the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with the rules of parliamentary procedure.

Section 6. QUORUM; ADJOURNMENTS . At any meeting of shareholders, the presence in person or by proxy of shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting on any matter shall constitute a quorum; but this section shall not affect any requirement under any statute or the declaration of trust of the Trust (the “ Declaration of Trust ”) for the vote necessary for the approval of any matter. If, however, such quorum is not established at any meeting of the shareholders, the chairman of the meeting may adjourn the meeting sine die or from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.

The shareholders present either in person or by proxy, at a meeting which has been duly called and at which a quorum has been established, may continue to transact business until adjournment, notwithstanding the withdrawal from the meeting of enough shareholders to leave fewer than would be required to establish a quorum.

Section 7. VOTING .

 

  (a) A majority of the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to take or authorize action upon any matter which may properly come before the meeting, except as otherwise provided in this Section 7 with respect to the election of trustees, unless more than a majority of the votes cast is specifically required by statute, by the Declaration of Trust or by these Bylaws. Unless otherwise provided by statute or by the Declaration of Trust, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Voting on any question or in any election may be via voice unless the Chairman of the meeting shall order that voting be by ballot or otherwise.

 

  (b)

Except as otherwise provided in the Declaration of Trust with respect to trustees to be elected by the holders of any class or series of preferred shares of the Trust and in the Declaration of Trust or these Bylaws with respect to the filling of vacancies on the Board of Trustees, each trustee shall be elected by a majority of the votes cast with respect to such trustee at any meeting of shareholders duly called and at which a quorum is present and trustees are to be elected; provided, however, that the trustees shall be elected by a plurality of the votes cast at a meeting of the shareholders duly called and at which a quorum is present and trustees are to be elected if, in connection with such meeting (i) the Secretary of the Trust shall have received one or more notices that a shareholder has nominated or proposes to nominate a person or persons for election as a trustee, which notice(s) purports to be in compliance with the advance notice requirements set forth in Section 11 of Article II of these Bylaws, irrespective of whether the Board of Trustees thereafter determines that any such notice(s) is not in compliance with such requirements, and (ii) as of the fourteenth (14th) day

 

6


  preceding the date on which notice of such meeting of the shareholders is first mailed or otherwise given in accordance with applicable law to the shareholders of the Trust, such nomination or proposed nomination has not been withdrawn by such shareholder and would thereby cause the number of nominees and proposed nominees to exceed the number of trustees to be elected at such meeting, as determined by the Secretary of the Trust, irrespective of whether such nomination or proposed nomination is thereafter withdrawn by such shareholder (a “ Contested Election ”). If the trustees are to be elected by a plurality of the votes cast pursuant to the provisions of the immediately preceding sentence, shareholders shall not be permitted to vote “against” any one or more nominees but shall only be permitted to vote “for” one or more nominees or withhold their votes with respect to one or more nominees. For purposes hereof, a majority of the votes cast means the number of votes cast “for” a trustee nominee must exceed the number of votes cast “against” that trustee nominee, with abstentions and broker non-votes not counted as a vote cast either “for” or “against” that trustee nominee.

 

  (c) In the election of trustees, each share may be voted for as many individuals as there are trustees to be elected and for whose election the shares are entitled to vote, without any right to cumulative voting.

 

  (d)

If, in any election of trustees of the Trust which is not a Contested Election, an incumbent trustee does not receive a majority of the votes cast and therefore is not re-elected, such incumbent trustee shall promptly tender his or her resignation as a trustee, subject to acceptance thereof by the Board, for consideration by the Nominating and Corporate Governance Committee of the Board of Trustees. The Nominating and Corporate Governance Committee will promptly consider any such tendered resignation and will make a recommendation to the Board of Trustees as to whether such tendered resignation should be accepted or rejected, or whether other action should be taken with respect to such offer to resign. Any incumbent trustee whose tendered resignation is under consideration may not participate in any deliberation or vote of the Nominating and Corporate Governance Committee or the Board of Trustees regarding such tendered resignation. The Nominating and Corporate Governance Committee and the Board of Trustees may consider any factors they deem relevant in deciding whether to accept, reject or take other action with respect to any such tendered resignation. Within ninety (90) days after the date on which certification of the shareholder vote on the election of trustees is made, the Board of Trustees will publicly disclose its decision and rationale regarding whether to accept, reject or take other action with respect to the tendered resignation in a press release, a periodic or current report filed with the Securities and Exchange Commission or by other public announcement. If any trustee’s tendered resignation is not accepted by the Board of Trustees, such trustee will continue to serve until the next annual meeting of shareholders and until his or her successor is elected and qualified or his or her earlier death, retirement, resignation or removal. If any trustee’s tendered resignation is accepted by the Board of Trustees, then such trustee will thereupon cease to be a trustee of the Trust, and the Board of Trustees,

 

7


  in its sole discretion, may fill the resulting vacancy under the provisions of the Declaration of Trust, Article III, Section 11 of these Bylaws and applicable law or may decrease the size of the Board of Trustees pursuant to the provisions of Article III, Section 2 of these Bylaws.

Section 8. PROXIES . A holder of record of shares of beneficial interest of the Trust may cast votes in person or by proxy executed by the shareholder or by the shareholder’s duly authorized agent in any manner permitted by law. Such proxy or evidence of authorization of such proxy shall be filed with the secretary before or at the meeting. No proxy shall be valid more than eleven months after its date unless otherwise provided in the proxy.

Section 9. VOTING OF SHARES BY CERTAIN HOLDERS . Shares of the Trust registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, general partner, managing member or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such shares pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such shares. Any trustee or fiduciary may vote shares registered in the name of such person in the capacity of such trustee or fiduciary, either in person or by proxy.

Shares of beneficial interest of the Trust directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.

The Board of Trustees may adopt by resolution a procedure by which a shareholder may certify in writing to the Trust that any shares of beneficial interest registered in the name of the shareholder are held for the account of a specified person other than the shareholder. The resolution shall set forth the class of shareholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date, the time after the record date within which the certification must be received by the Trust; and any other provisions with respect to the procedure which the Board of Trustees considers necessary or desirable. On receipt by the Trust of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the holder of record of the specified shares in place of the shareholder who makes the certification.

Section 10. INSPECTORS . The Board of Trustees or the chairman of the meeting, in advance of or at any meeting, may, but need not, appoint one or more inspectors for the meeting and any successor to an inspector. The inspectors, if any, shall (a) determine the number of shares of beneficial interest represented at the meeting, in person or by proxy, and the validity and effect of proxies, (b) receive and tabulate all votes, ballots or consents, (c) report such tabulation to the chairman of the meeting, (d) hear and determine all challenges and questions arising in connection with the right to vote and (e) do such acts as are proper to fairly conduct the election or vote. Each such report shall be in writing and signed by the inspector or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one

 

8


inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.

Section 11. ADVANCE NOTICE OF SHAREHOLDER NOMINEES FOR TRUSTEE AND OTHER SHAREHOLDER PROPOSALS .

 

  (a) Annual Meetings of Shareholders .

 

  (1) At an annual meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be brought pursuant to the Trust’s notice of meeting, (ii) by or at the direction of the Board of Trustees or (iii) by any shareholder of the Trust who (A) was a shareholder of record (and, if such nomination or other business is proposed at the request of any beneficial owner, at the request of a beneficial owner who was the beneficial owner of shares of beneficial interest of the Trust) both at the time of giving of notice by the shareholder as provided for in this Section 11(a) of this Article II and at the time of the annual meeting, (B) is entitled to vote at the meeting in the election of each individual so nominated or on any such other business and (C) has complied with this Section 11(a) of this Article II. Except for proposals properly made pursuant to, and in accordance with, Rule 14a-8 of the Exchange Act, and included in the notice of meeting given by or at the direction of the Board of Trustees, the foregoing clause (iii) shall be the exclusive means for a shareholder to propose business to be brought before an annual meeting of shareholders.

 

  (2)

For any nomination or other business to be properly brought before an annual meeting by a shareholder pursuant to Section 11(a)(1)(iii) of this Article II, (i) the shareholder must have (A) given timely notice (as defined below) thereof in writing and in proper form to the secretary, (B) provided any updates or supplements to such notice at the times and in the forms required by this Section 11 of this Article II and (ii) such other business must otherwise be a proper matter for action by the shareholders. To be timely, a shareholder’s notice shall set forth all information required under this Section 11 of this Article II and shall be delivered to the secretary at the principal executive office of the Trust not earlier than the 150th day nor later than 5:00 p.m., Texas local time, on the 120th day prior to the first anniversary of the date of the proxy statement (as defined in Section 11(c)(3) of this Article II) for the preceding year’s annual meeting; provided, however, that in connection with the Trust’s first annual meeting or in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting, notice by the shareholder to be timely must be so delivered not earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Eastern Time, on the later of the 120th day prior to the date of such annual meeting, as

 

9


  originally convened, or the tenth day following the day on which Public Announcement of the date of such meeting is first made. The Public Announcement of a postponement or adjournment of an annual meeting shall not commence a new time period for the giving of a shareholder’s notice as described above.

 

  (3) To be in proper form, such shareholder’s notice to the secretary shall set forth:

 

  (i) as to each individual whom the shareholder proposes to nominate for election or reelection as a trustee (each, a “ Proposed Nominee ”), all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a trustee in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to, and in accordance with, Regulation 14A (or any successor provision) under the Exchange Act and the rules thereunder (including the Proposed Nominee’s written consent to being named in the proxy statement as a nominee and to serving as a trustee if elected);

 

  (ii) as to any business that the shareholder proposes to bring before the meeting, (A) a reasonably detailed description of such business, the shareholder’s reasons for proposing such business at the meeting and any material interest in such business of such shareholder or any Shareholder Associated Person (as defined below), individually or in the aggregate, including any anticipated benefit to the shareholder or the Shareholder Associated Person therefrom, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration) and (C) a reasonably detailed description of all agreements, arrangements and understandings (I) between or among the shareholder and/or any of the Shareholder Associated Persons or (II) between or among the shareholder and/or any of the Shareholder Associated Persons, on the one hand, and any other person or entity (including their names), on the other hand, in connection with the proposal of such business by such shareholder;

 

  (iii) as to the shareholder giving the notice, any Proposed Nominee and any Shareholder Associated Person,

 

  (A)

the class, series and number of all shares of beneficial interest or other securities of the Trust or any affiliate thereof (collectively, the “Trust securities”), if any, which are owned (beneficially or of record) by such shareholder, Proposed Nominee or Shareholder Associated Person, the date on which each such Company security was acquired

 

10


  and the investment intent of such acquisition, and any short interest (including any opportunity to profit or share in any benefit from any decrease in the price of such shares or other security) in any Trust securities of any such person,

 

  (B) the nominee holder for, and number of, any Trust securities owned beneficially but not of record by such shareholder, Proposed Nominee or Shareholder Associated Person,

 

  (C)

(I) any derivative, swap or other transaction or series of transactions engaged in, directly or indirectly, by such shareholder, Proposed Nominee or Shareholder Associated Person, the purpose or effect of which is to give such shareholder, Proposed Nominee or Shareholder Associated Person economic risk similar to ownership of shares or units of any Trust securities, including due to the fact that the value of such derivative, swap or other transactions are determined by reference to the price, value or volatility of any shares or units of any Trust securities, or which derivative, swap or other transactions provide, directly or indirectly, the opportunity to profit from any increase in the price or value of shares or units of any Trust securities (“ Synthetic Equity Interests ”), which Synthetic Equity Interests shall be disclosed without regard to whether (x) the derivative, swap or other transactions convey any voting rights in such shares or units to such shareholder, Proposed Nominee or Shareholder Associated Person, (y) the derivative, swap or other transactions are required to be, or are capable of being, settled through delivery of such shares or units or (z) such shareholder, Proposed Nominee or Shareholder Associated Person may have entered into other transactions that hedge or mitigate the economic effect of such derivative, swap or other transactions, (II) any proxy (other than a revocable proxy or consent given in response to a solicitation made pursuant to, and in accordance with, Regulation 14A under the Exchange Act by way of a solicitation statement filed on Schedule 14A), agreement, arrangement, understanding or relationship pursuant to which such shareholder, Proposed Nominee or Shareholder Associated Person has or shares a right to vote any shares or units of any Trust securities, (III) any agreement, arrangement, understanding or relationship, including any repurchase or similar so- called “share borrowing” agreement or arrangement, engaged in, directly or indirectly, by such shareholder, Proposed Nominee or Shareholder Associated Person, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of

 

11


  ownership or otherwise) of shares or units of any Trust securities by, manage the risk of price changes for, or increase or decrease the voting power of, such shareholder, Proposed Nominee or Shareholder Associated Person with respect to the shares or units of any Trust securities, or which provides, directly or indirectly, the opportunity to profit from any decrease in the price or value of the shares or units of any Trust securities (“ Short Interests ”), (IV) any rights to dividends on the shares or units of any Trust securities owned beneficially by such shareholder, Proposed Nominee or Shareholder Associated Person that are separated or separable from the underlying Trust securities, (V) any performance-related fees (other than an asset based fee) that such shareholder, Proposed Nominee or Shareholder Associated Person is entitled to based on any increase or decrease in the price or value of shares or units of any Trust securities, or any Synthetic Equity Interests or Short Interests, if any, (VI) (x) if such shareholder is not a natural person, the identity of the natural person or persons associated with such shareholder responsible for the formulation of and decision to propose the business to be brought before the meeting or nominate any such Proposed Nominee (such person or persons, the “ Responsible Person ”), the manner in which such Responsible Person was selected, any fiduciary duties owed by such Responsible Person to the equity holders or other beneficiaries of such shareholder and any Shareholder Associated Person, the qualifications and background of such Responsible Person and any material interests or relationships of such Responsible Person that are not shared generally by any other record or beneficial holder of the shares or units of any Trust securities and that reasonably could have influenced the decision of such shareholder to propose such business to be brought before the meeting or nominate any such Proposed Nominee, and (y) if such shareholder or any Shareholder Associated Person is a natural person, the qualifications and background of such natural person and any material interests or relationships of such natural person that are not shared generally by any other record or beneficial holder of the shares or units of any Trust securities and that reasonably could have influenced the decision of such shareholder to propose such business to be brought before the meeting or nominate any such Proposed Nominee, (VII) any significant equity interests or any Synthetic Equity Interests or Short Interests in any principal competitor of the Trust held by such

 

12


  shareholder, Proposed Nominee or Shareholder Associated Person, (VIII) any direct or indirect interest of such shareholder, Proposed Nominee or Shareholder Associated Person in any contract with the Trust, any affiliate of the Trust or any principal competitor of the Trust (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), (IX) any pending or threatened litigation in which such shareholder, Proposed Nominee or Shareholder Associated Person is a party or material participant involving the Trust or any of its trustees or officers, or any affiliate of the Trust, (X) any material transaction occurring during the prior twelve months between such shareholder, Proposed Nominee or Shareholder Associated Person, on the one hand, and the Trust, any affiliate of the Trust or any principal competitor of the Trust, on the other hand, (XI) a summary of any material discussions regarding the business proposed to be brought before the meeting or the nomination or identify of the Proposed Nominee (x) between or among any shareholder, any Proposed Nominee and any Shareholder Associated Person or (y) between or among any shareholder, any Proposed Nominee or any Shareholder Associated Person and any other record or beneficial holder of the shares or units of any Trust securities (including their names) and (XII) any other information relating to such shareholder and any Shareholder Associated Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such shareholder and any Shareholder Associated Person in support of the business proposed to be brought before the meeting or the election of any Proposed Nominee pursuant to, and in accordance with, Regulation 14A under the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (I) and (XII) are referred to as “ Disclosable Interests ”); provided, however, that the Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee solely as a result of being the shareholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner,

 

  (D)

Without limiting the foregoing, any other substantial interest, direct or indirect (including, without limitation, any existing or prospective commercial, business or contractual relationship with the Trust), by security

 

13


  holdings or otherwise, of such shareholder, Proposed Nominee or Shareholder Associated Person, in the Trust or any affiliate thereof, other than an interest arising from the ownership of Trust securities where such shareholder, Proposed Nominee or Shareholder Associated Person receives no extra or special benefit not shared on a pro rata basis by all other holders of the same class or series, provided, however, that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee solely as a result of being the shareholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner, and

 

  (E) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among the shareholder and/or any Shareholder Associated Person, on the one hand, and each Proposed Nominee, his or her respective affiliates and associates and any other persons with whom such Proposed Nominee (or any of his or her respective affiliates and associates) is Acting in Concert, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K if such shareholder and any Shareholder Associated Person were the “registrant” for purposes of such rule and the Proposed Nominee were a trustee or executive officer of such registrant (the disclosures to be made pursuant to this paragraph are referred to as “ Nominee Information ”);

 

  (iv) as to the shareholder giving the notice, any Shareholder Associated Person with an interest or ownership referred to in Sections 11(a)(3)(ii) or (iii) of this Article II and any Proposed Nominee,

 

  (A) the name and address of such shareholder, as they appear on the Trust’s share ledger, and the current name and business address, if different, of each such Shareholder Associated Person and any Proposed Nominee, and

 

  (B) the investment strategy or objective, if any, of such shareholder and each such Shareholder Associated Person who is not an individual and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in such shareholder and each such Shareholder Associated Person;

 

14


  (v) the name and address of any person who contacted or was contacted by the shareholder giving the notice or any Shareholder Associated Person about the Proposed Nominee or other business proposal prior to the date of such shareholder’s notice; and

 

  (vi) to the extent known by the shareholder giving the notice, the name and address of any other shareholder supporting the nominee for election or reelection as a trustee or the proposal of other business on the date of such shareholder’s notice.

 

  (4) Such shareholder’s notice shall, with respect to any Proposed Nominee, be accompanied by (i) a certificate executed by the Proposed Nominee certifying that such Proposed Nominee (A) will serve as a trustee of the Trust if elected, (B) is not and will not become a party to (I) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such Proposed Nominee, if elected as a trustee of the Trust, will act or vote on any issue or question (a “ Voting Commitment ”) that has not been disclosed to the Trust or (II) any Voting Commitment that could limit or interfere with such Proposed Nominee’s ability to comply, if elected as a trustee of the Trust, with such Proposed Nominee’s duties under applicable law, (C) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Trust with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a trustee that has not been disclosed to the Trust and (D) would be in compliance, if elected as a trustee of the Trust, and will comply with applicable publicly disclosed corporate governance, conflict of interest, confidentiality, share ownership and trading policies and guidelines of the Trust; and (ii) an attached completed Proposed Nominee questionnaire (which questionnaire shall be provided by the Trust, upon request, to the shareholder providing the notice and shall include all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a trustee in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to, and in accordance with, Regulation 14A (or any successor provision) under the Exchange Act and the rules thereunder, or would be required pursuant to the rules of any national securities exchange on which any securities of the Trust are listed or over-the-counter market on which any securities of the Trust are traded).

 

  (5)

Notwithstanding anything in this Section 11(a) of this Article II to the contrary, in the event that the number of trustees to be elected to the Board of Trustees is increased, and there is no Public Announcement of such action at least 130 days prior to the first anniversary of the date of the proxy statement (as defined in Section 11(c)(3) of this Article II) for the

 

15


  preceding year’s annual meeting, a shareholder’s notice required by this Section 11(a) of this Article II shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive office of the Trust not later than 5:00 p.m., Eastern Time, on the tenth day following the day on which such Public Announcement is first made by the Trust.

 

  (6) For purposes of this Section 11, “ Shareholder Associated Person ” of any shareholder shall mean (i) any person acting in concert with such shareholder, (ii) any beneficial owner of shares of beneficial interest of the Trust owned of record or beneficially by such shareholder (other than a shareholder that is a depositary) and (iii) any person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such shareholder or such Shareholder Associated Person.

 

  (b) Special Meetings of Shareholders . Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Trust’s notice of meeting. Nominations of individuals for election to the Board of Trustees may be made at a special meeting of shareholders at which trustees are to be elected only (i) by or at the direction of the Board of Trustees, or (ii) provided that the special meeting has been called in accordance with Section 3(a) of this Article II for the purpose of electing trustees, by any shareholder of the Trust who is a shareholder of record (and, if such nomination is proposed at the request of any beneficial owner, at the request of a beneficial owner who was the beneficial owner of shares of beneficial interest of the Trust) both at the time of giving of notice provided for in this Section 11 of this Article II and at the time of the special meeting, who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the notice procedures set forth in this Section 11 of this Article II. In the event the Trust calls a special meeting of shareholders for the purpose of electing one or more individuals to the Board of Trustees, any shareholder may nominate an individual or individuals (as the case may be) for election as a trustee as specified in the Trust’s notice of meeting, if the shareholder’s notice, containing the information required by Section 11(a)(3) of this Article II, shall be delivered to the secretary at the principal executive office of the Trust not earlier than the 120th day prior to such special meeting and not later than 5:00 p.m., Eastern Time on the later of the 90th day prior to such special meeting or the tenth day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Trustees to be elected at such meeting. The Public Announcement of a postponement or adjournment of a special meeting shall not commence a new time period for the giving of a shareholder’s notice as described above.

 

  (c) General .

 

  (1)

If information submitted pursuant to this Section 11 of this Article II by any shareholder proposing a nominee for election as a trustee

 

16


  or any proposal for other business at a meeting of shareholders shall be inaccurate in any material respect, such information may be deemed not to have been provided in accordance with this Section 11 of this Article II. Any such shareholder shall notify the Trust of any inaccuracy or change (within two Business Days of becoming aware of such inaccuracy or change) in any such information. Upon written request by the secretary or the Board of Trustees, any such shareholder shall provide, within five Business Days of delivery of such request (or such other period as may be specified in such request), (A) written verification, satisfactory, in the discretion of the Board of Trustees or any authorized officer of the Trust, to demonstrate the accuracy of any information submitted by the shareholder pursuant to this Section 11 of this Article II, and (B) a written update of any information submitted by the shareholder pursuant to this Section 11 of this Article II as of an earlier date. If a shareholder fails to provide such written verification or written update within such period, the information as to which written verification or a written update was requested may be deemed not to have been provided in accordance with this Section 11 of this Article II.

 

  (2) Only such individuals who are nominated in accordance with this Section 11 of this Article II shall be eligible for election by shareholders as trustees, and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with this Section 11 of this Article II. The chairman of the meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with this Section 11 of this Article II.

 

  (3) For purposes of this Section 11, “the date of the proxy statement” shall have the same meaning as “the date of the company’s proxy statement released to shareholders” as used in Rule 14a-8(e) promulgated under the Exchange Act, as interpreted by the Securities and Exchange Commission from time to time. “ Public Announcement ” shall mean disclosure (i) in a press release reported by the Dow Jones News Service, Associated Press, Business Wire, PR Newswire or other widely circulated news or wire service or (ii) in a document publicly filed by the Trust with the Securities and Exchange Commission pursuant to the Exchange Act.

 

  (4)

Notwithstanding the foregoing provisions of this Section 11 of this Article II, a shareholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in

 

17


  this Section 11 of this Article II. Nothing in this Section 11 of this Article II shall be deemed to affect any right of a shareholder to request inclusion of a proposal in, or the right of the Trust to omit a proposal from, the Trust’s proxy statement pursuant to, and in accordance with, Rule 14a-8 (or any successor provision) under the Exchange Act. Nothing in this Section 11 of this Article II shall require disclosure of revocable proxies received by the shareholder or Shareholder Associated Person pursuant to a solicitation of proxies after the filing of an effective Schedule 14A by such shareholder or Shareholder Associated Person pursuant to, and in accordance with, Regulation 14A under the Exchange Act.

Section 12. CONTROL SHARE ACQUISITION ACT . Notwithstanding any other provision of the Declaration of Trust or these Bylaws, Title 3, Subtitle 7 of the Maryland General Corporation Law, or any successor statute (the “ MGCL ”), shall not apply to any acquisition by any person of shares of beneficial interest of the Trust. This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent control share acquisition.

Section 13. TELEPHONIC MEETINGS . The Board of Trustees or chairman of the meeting may permit one or more shareholders to participate in a meeting of shareholders by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means constitutes presence in person at the meeting.

ARTICLE III

TRUSTEES

Section 1. GENERAL POWERS . The business and affairs of the Trust shall be managed under the direction of its Board of Trustees.

Section 2. NUMBER, TENURE AND RESIGNATIONS . At any regular meeting or at any special meeting called for that purpose, a majority of the entire Board of Trustees may establish, increase or decrease the number of trustees, provided that the number thereof shall never be less than one nor more than 15, and further provided that the tenure of office of a trustee shall not be affected by any decrease in the number of trustees. Any trustee of the Trust may resign at any time by delivering his or her resignation to the Board of Trustees, the chairman of the board or the secretary. Any resignation shall take effect immediately upon its receipt or at such later time specified in the resignation. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation.

Section 3. ANNUAL AND REGULAR MEETINGS . An annual meeting of the Board of Trustees shall be held immediately after and at the same place as the annual meeting of shareholders, no notice other than this Bylaw being necessary. In the event such meeting is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Trustees. The Board of Trustees may provide, by resolution, the time and place for the holding of regular meetings of the Board of Trustees without other notice than such resolution.

 

18


Section 4. SPECIAL MEETINGS . Special meetings of the Board of Trustees may be called by or at the request of the chairman of the board, the chief executive officer, the president or a majority of the trustees then in office. The person or persons authorized to call special meetings of the Board of Trustees may fix any place as the place for holding any special meeting of the Board of Trustees called by them. The Board of Trustees may provide, by resolution, the time and place for the holding of special meetings of the Board of Trustees without other notice than such resolution.

Section 5. NOTICE . Notice of any special meeting of the Board of Trustees shall be delivered personally or by telephone, electronic mail, facsimile transmission, courier or United States mail to each trustee at his or her business or residence address. Notice by personal delivery, telephone, electronic mail or facsimile transmission shall be given at least 24 hours prior to the meeting. Notice by United States mail shall be given at least three days prior to the meeting. Notice by courier shall be given at least two days prior to the meeting. Telephone notice shall be deemed to be given when the trustee or his or her agent is personally given such notice in a telephone call to which the trustee or his or her agent is a party. Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Trust by the trustee. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Trust by the trustee and receipt of a completed answer-back indicating receipt. Notice by United States mail shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Notice by courier shall be deemed to be given when deposited with or delivered to a courier properly addressed. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Trustees need be stated in the notice, unless specifically required by statute or these Bylaws.

Section 6. QUORUM . A majority of the trustees shall constitute a quorum for transaction of business at any meeting of the Board of Trustees, provided that, if less than a majority of such trustees is present at such meeting, a majority of the trustees present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to applicable law, the Declaration of Trust or these Bylaws, the vote of a majority or other percentage of a particular group of trustees is required for action, a quorum must also include a majority or such other percentage of such group.

The trustees present at a meeting which has been duly called and at which a quorum has been established may continue to transact business until adjournment, notwithstanding the withdrawal from the meeting of enough trustees to leave fewer than required to establish a quorum.

Section 7. VOTING . The action of a majority of the trustees present at a meeting at which a quorum is present shall be the action of the Board of Trustees, unless the concurrence of a greater proportion is required for such action by applicable law, the Declaration of Trust or these Bylaws. If enough trustees have withdrawn from a meeting to leave fewer than required to establish a quorum, but the meeting is not adjourned, the action of the majority of that number of trustees necessary to constitute a quorum at such meeting shall be the action of the Board of Trustees, unless the concurrence of a greater proportion is required for such action by applicable law, the Declaration of Trust or these Bylaws.

 

19


Section 8. ORGANIZATION . At each meeting of the Board of Trustees, the chairman of the board or, in the absence of the chairman, the vice chairman of the board, if any, shall act as chairman of the meeting. In the absence of both the chairman and vice chairman of the board, the chief executive officer or, in the absence of the chief executive officer, the president or, in the absence of the president, a trustee chosen by a majority of the trustees present, shall act as chairman of the meeting. The secretary or, in his or her absence, an assistant secretary, or, in the absence of the secretary and all assistant secretaries, an individual appointed by the chairman of the meeting, shall act as secretary of the meeting.

Section 9. TELEPHONE MEETINGS . Trustees may participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 10. CONSENT BY TRUSTEES WITHOUT A MEETING . Any action required or permitted to be taken at any meeting of the Board of Trustees may be taken without a meeting, if a consent in writing or by electronic transmission to such action is given by each trustee and is filed with the minutes of proceedings of the Board of Trustees.

Section 11. VACANCIES . If for any reason any or all of the trustees cease to be trustees, such event shall not terminate the Trust or affect these Bylaws or the powers of the remaining trustees hereunder. Until such time as the Trust becomes subject to Section 3-804(c) of the MGCL, any vacancy on the Board of Trustees for any cause other than an increase in the number of trustees may be filled by a majority of the remaining trustees, even if such majority is less than a quorum; any vacancy in the number of trustees created by an increase in the number of trustees may be filled by a majority vote of the entire Board of Trustees; and any individual so elected as trustee shall serve until the next annual meeting of shareholders and until his or her successor is elected and qualifies. At such time as the Trust becomes subject to Section 3-804(c) of the MGCL and except as may be provided by the Board of Trustees in setting the terms of any class or series of preferred shares, any vacancy on the Board of Trustees may be filled only by a majority of the remaining trustees, even if the remaining trustees do not constitute a quorum. Any trustee elected to fill a vacancy shall serve for the remainder of the full term of the trusteeship in which the vacancy occurred and until a successor is elected and qualifies.

Section 12. COMPENSATION . Trustees shall not receive any stated salary for their services as trustees but, by resolution of the Board of Trustees, may receive compensation per year and/or per meeting and/or per visit to real property or other facilities owned or leased by the Trust and for any service or activity they performed or engaged in as trustees. Trustees may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Trustees or of any committee thereof and for their expenses, if any, in connection with each property visit and any other service or activity they perform or engage in as trustees; but nothing herein contained shall be construed to preclude any trustees from serving the Trust in any other capacity and receiving compensation therefor.

 

20


Section 13. RELIANCE . Each trustee and officer of the Trust shall, in the performance of his or her duties with respect to the Trust, be entitled to rely on any information, opinion, report or statement, including any financial statement or other financial data, prepared or presented by an officer or employee of the Trust whom the trustee or officer reasonably believes to be reliable and competent in the matters presented, by a lawyer, certified public accountant or other person, as to a matter which the trustee or officer reasonably believes to be within the person’s professional or expert competence, or, with respect to a trustee, by a committee of the Board of Trustees on which the trustee does not serve, as to a matter within its designated authority, if the trustee reasonably believes the committee to merit confidence.

Section 14. RATIFICATION . The Board of Trustees or the shareholders may ratify and make binding on the Trust any action or inaction by the Trust or its officers to the extent that the Board of Trustees or the shareholders could have originally authorized the matter. Moreover, any action or inaction questioned in any shareholders’ derivative proceeding or any other proceeding on the ground of lack of authority, defective or irregular execution, adverse interest of a trustee, officer or shareholder, non-disclosure, miscomputation, the application of improper principles or practices of accounting or otherwise, may be ratified, before or after judgment, by the Board of Trustees or by the shareholders, and if so ratified, shall have the same force and effect as if the questioned action or inaction had been originally duly authorized, and such ratification shall be binding upon the Trust and its shareholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned action or inaction.

Section 15. CERTAIN RIGHTS OF TRUSTEES AND OFFICERS . A trustee who is not also an officer of the Trust shall have no responsibility to devote his or her full time to the affairs of the Trust. Any trustee or officer, in his or her personal capacity or in a capacity as an affiliate, employee, or agent of any other person, or otherwise, may have business interests and engage in business activities similar to, in addition to or in competition with those of or relating to the Trust.

ARTICLE IV

COMMITTEES

Section 1. NUMBER, TENURE AND QUALIFICATIONS . The Board of Trustees may appoint from among its members an Executive Committee, an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee and one or more other committees, composed of one or more trustees, to serve at the pleasure of the Board of Trustees. The exact composition of each committee, including the total number of trustees and the number of Independent Trustees on each such committee, shall at all times comply with the listing requirements and rules and regulations of the New York Stock Exchange, as modified or amended from time to time, and the rules and regulations of the Securities and Exchange Commission, as modified or amended from time to time. For purposes of this section, “Independent Trustee” shall have the definition set forth in Section 303A.01 of the New York Stock Exchange Listed Company Manual, as amended from time to time, or such superseding definition as is hereafter promulgated by the New York Stock Exchange.

Section 2. POWERS . The Board of Trustees may delegate to committees appointed under Section 1 of this Article IV any of the powers of the Board of Trustees, except as prohibited by law.

 

21


Section 3. MEETINGS . Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Trustees. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee. The act of a majority of the committee members present at a meeting shall be the act of such committee. The Board of Trustees may designate a chairman of any committee, and such chairman or, in the absence of a chairman, any two members of any committee (if there are at least two members of the committee) may fix the time and place of its meeting unless the Board shall otherwise provide. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another trustee to act in the place of such absent member.

Section 4. TELEPHONE MEETINGS . Members of a committee of the Board of Trustees may participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 5. CONSENT BY COMMITTEES WITHOUT A MEETING . Any action required or permitted to be taken at any meeting of a committee of the Board of Trustees may be taken without a meeting, if a consent in writing or by electronic transmission to such action is given by each member of the committee and is filed with the minutes of proceedings of such committee.

Section 6. VACANCIES . Subject to the provisions hereof, the Board of Trustees shall have the power at any time to change the membership of any committee, to fill any vacancy, to designate an alternate member to replace any absent or disqualified member or to dissolve any such committee.

ARTICLE V

OFFICERS

Section 1. GENERAL PROVISIONS . The officers of the Trust shall include a president, a secretary and a treasurer and may include a chairman of the board, a vice chairman of the board, a chief executive officer, one or more vice presidents, a chief operating officer, a chief financial officer, one or more assistant secretaries and one or more assistant treasurers. In addition, the Board of Trustees may from time to time elect such other officers with such powers and duties as it shall deem necessary or desirable. The officers of the Trust shall be elected annually by the Board of Trustees, except that the chief executive officer or president may from time to time appoint one or more vice presidents, assistant secretaries and assistant treasurers or other officers. Each officer shall serve until his or her successor is elected and qualifies or until his or her death, or his or her resignation or removal in the manner hereinafter provided. Any two or more offices except president and vice president may be held by the same person. Election of an officer or agent shall not of itself create contract rights between the Trust and such officer or agent.

Section 2. REMOVAL AND RESIGNATION . Any officer or agent of the Trust may be removed, with or without cause, by the Board of Trustees if in its judgment the best interests of the Trust would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Trust may resign at any time by delivering his or her resignation to the Board of Trustees, the chairman of the board, the chief

 

22


executive officer, the president or the secretary. Any resignation shall take effect immediately upon its receipt or at such later time specified in the resignation. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Trust.

Section 3. VACANCIES . A vacancy in any office may be filled by the Board of Trustees for the balance of the term.

Section 4. CHIEF EXECUTIVE OFFICER . The Board of Trustees may designate a chief executive officer. In the absence of such designation, the chairman of the board shall be the chief executive officer of the Trust. The chief executive officer shall have general responsibility for implementation of the policies of the Trust, as determined by the Board of Trustees, and for the management of the business and affairs of the Trust. He or she may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Trustees or by these Bylaws to some other officer or agent of the Trust or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of chief executive officer and such other duties as may be prescribed by the Board of Trustees from time to time.

Section 5. CHIEF OPERATING OFFICER . The Board of Trustees may designate a chief operating officer. The chief operating officer shall have the responsibilities and duties as determined by the Board of Trustees or the chief executive officer.

Section 6. CHIEF FINANCIAL OFFICER . The Board of Trustees may designate a chief financial officer. The chief financial officer shall have the responsibilities and duties as determined by the Board of Trustees or the chief executive officer.

Section 7. CHAIRMAN OF THE BOARD . The Board of Trustees may designate from among its members a chairman of the board, who shall not, solely by reason of these Bylaws, be an officer of the Trust. The Board of Trustees may designate the chairman of the board as an executive or non-executive chairman. The chairman of the board shall preside over the meetings of the Board of Trustees. The chairman of the board shall perform such other duties as may be assigned to him or her by the Board of Trustees.

Section 8. PRESIDENT . In the absence of a chief executive officer, the president shall in general supervise and control all of the business and affairs of the Trust. In the absence of a designation of a chief operating officer by the Board of Trustees, the president shall be the chief operating officer. He or she may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Trustees or by these Bylaws to some other officer or agent of the Trust or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Trustees from time to time.

Section 9. VICE PRESIDENTS . In the absence of the president or in the event of a vacancy in such office, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president; and

 

23


shall perform such other duties as from time to time may be assigned to such vice president by the chief executive officer, the president or the Board of Trustees. The Board of Trustees may designate one or more vice presidents as executive vice president, senior vice president, or vice president for particular areas of responsibility.

Section 10. SECRETARY . The secretary shall (a) keep the minutes of the proceedings of the shareholders, the Board of Trustees and committees of the Board of Trustees in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Trust; (d) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (e) have general charge of the share transfer books of the Trust; and (f) in general perform such other duties as from time to time may be assigned to him or her by the chief executive officer, the president or the Board of Trustees.

Section 11. TREASURER . The treasurer shall have the custody of the funds and securities of the Trust, shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust, shall deposit all moneys and other valuable effects in the name and to the credit of the Trust in such depositories as may be designated by the Board of Trustees and in general perform such other duties as from time to time may be assigned to him or her by the chief executive officer, the president or the Board of Trustees. In the absence of a designation of a chief financial officer by the Board of Trustees, the treasurer shall be the chief financial officer of the Trust.

The treasurer shall disburse the funds of the Trust as may be ordered by the Board of Trustees, taking proper vouchers for such disbursements, and shall render to the president and Board of Trustees, at the regular meetings of the Board of Trustees or whenever it may so require, an account of all his or her transactions as treasurer and of the financial condition of the Trust.

Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS . The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the chief executive officer, the president or the Board of Trustees.

Section 13. COMPENSATION . The cash compensation and cash incentive compensation of the officers shall be fixed from time to time by Spirit Realty, L.P. (together with its permitted assignees, the “ Manager ”), the Trust’s manager under the asset management agreement, dated [ 🌑 ], 2018, by and between the Trust and the Manager, as amended from time to time. The equity compensation of the officers shall be fixed from time to time under the authority of the Board of Trustees and no officer shall be prevented from receiving such compensation by reason of the fact that he or she is also a trustee.

ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 1. CONTRACTS . The Board of Trustees may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Trust and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document shall be valid and binding upon the Trust when duly authorized or ratified by action of the Board of Trustees and executed by an authorized person.

 

24


Section 2. CHECKS AND DRAFTS . All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Trust shall be signed by such officer or agent of the Trust in such manner as shall from time to time be determined by the Board of Trustees.

Section 3. DEPOSITS . All funds of the Trust not otherwise employed shall be deposited or invested from time to time to the credit of the Trust in such banks, trust companies or other depositories as the Board of Trustees, the chief executive officer, the president, the chief financial officer, or any other officer designated by the Board of Trustees may determine.

ARTICLE VII

SHARES

Section 1. CERTIFICATES . Except as may be otherwise provided by the Board of Trustees, shareholders of the Trust are not entitled to certificates representing the shares of beneficial interest held by them. In the event that the Trust issues shares of beneficial interest represented by certificates, such certificates shall be in such form as prescribed by the Board of Trustees or a duly authorized officer, shall contain any statements and information required by Maryland law and shall be signed by the officers of the Trust in any manner permitted by Maryland law. In the event that the Trust issues shares of beneficial interest without certificates, to the extent then required by Maryland law, the Trust shall provide to the record holders of such shares a written statement of the information required by Maryland law to be included on share certificates. There shall be no differences in the rights and obligations of shareholders based on whether or not their shares are represented by certificates.

Section 2. TRANSFERS . All transfers of shares of beneficial interest shall be made on the books of the Trust, by the holder of the shares, in person or by his or her attorney, in such manner as the Board of Trustees or any officer of the Trust may prescribe and, if such shares are certificated, upon surrender of certificates duly endorsed. The issuance of a new certificate upon the transfer of certificated shares is subject to the determination of the Board of Trustees that such shares shall no longer be represented by certificates. Upon the transfer of any uncertificated shares, to the extent then required by Maryland law, the Trust shall provide to the record holders of such shares a written statement of the information required by Maryland law to be included on share certificates.

The Trust shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by the laws of the State of Maryland.

Notwithstanding the foregoing, transfers of shares of any class or series of shares will be subject in all respects to the Declaration of Trust and all of the terms and conditions contained therein.

 

25


Section 3. REPLACEMENT CERTIFICATE . Any officer of the Trust may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Trust alleged to have been lost, destroyed, stolen or mutilated, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, destroyed, stolen or mutilated; provided, however, if such shares have ceased to be certificated, no new certificate shall be issued unless requested in writing by such shareholder and the Board of Trustees has determined that such certificates may be issued. Unless otherwise determined by an officer of the Trust, the owner of such lost, destroyed, stolen or mutilated certificate or certificates, or his or her legal representative, shall be required, as a condition precedent to the issuance of a new certificate or certificates, to give the Trust a bond in such sums as it may direct as indemnity against any claim that may be made against the Trust.

Section 4. FIXING OF RECORD DATE . The Board of Trustees may set, in advance, a record date for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or determining shareholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of shareholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of shareholders, not less than ten days, before the date on which the meeting or particular action requiring such determination of shareholders of record is to be held or taken.

When a record date for the determination of shareholders entitled to notice of and to vote at any meeting of shareholders has been set as provided in this section, such record date shall continue to apply to the meeting if adjourned or postponed, except if the meeting is adjourned or postponed to a date more than 120 days after the record date originally fixed for the meeting, in which case a new record date for such meeting may be determined as set forth herein.

Section 5. SHARE LEDGER . The Trust shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger containing the name and address of each shareholder and the number of shares of each class held by such shareholder.

Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS . The Board of Trustees may authorize the Trust to issue fractional shares or authorize the issuance of scrip, all on such terms and under such conditions as it may determine. Notwithstanding any other provision of the Declaration of Trust or these Bylaws, the Board of Trustees may issue units consisting of different securities of the Trust. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Trust, except that the Board of Trustees may provide that for a specified period securities of the Trust issued in such unit may be transferred on the books of the Trust only in such unit.

ARTICLE VIII

ACCOUNTING YEAR

The Board of Trustees shall have the power, from time to time, to fix the fiscal year of the Trust by a duly adopted resolution.

 

26


ARTICLE IX

DISTRIBUTIONS

Section 1. AUTHORIZATION . Dividends and other distributions upon the shares of the Trust may be authorized by the Board of Trustees, subject to the provisions of law and the Declaration of Trust. Dividends and other distributions may be paid in cash, property or shares of the Trust, subject to the provisions of law and the Declaration of Trust.

Section 2. CONTINGENCIES . Before payment of any dividends or other distributions, there may be set aside out of any assets of the Trust available for dividends or other distributions such sum or sums as the Board of Trustees may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends or other distributions, for repairing or maintaining any property of the Trust or for such other purpose as the Board of Trustees shall determine, and the Board of Trustees may modify or abolish any such reserve.

ARTICLE X

INVESTMENT POLICY

Subject to the provisions of the Declaration of Trust, the Board of Trustees may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Trust as it shall deem appropriate in its sole discretion.

ARTICLE XI

SEAL

Section 1. SEAL . The Board of Trustees may authorize the adoption of a seal by the Trust. The seal shall contain the name of the Trust and the year of its formation and the words “Formed Maryland.” The Board of Trustees may authorize one or more duplicate seals and provide for the custody thereof.

Section 2. AFFIXING SEAL . Whenever the Trust is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word “(SEAL)” adjacent to the signature of the person authorized to execute the document on behalf of the Trust.

ARTICLE XII

INDEMNIFICATION AND ADVANCE OF EXPENSES

To the maximum extent permitted by Maryland law in effect from time to time, the Trust shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former trustee or officer of the Trust and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or (b) any individual who, while a trustee or officer of the Trust and at the request of the Trust, serves or has served as a director, officer, partner, member, manager, trustee, employee or agent of another corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity. The rights to indemnification and advance of expenses provided by the Declaration of Trust and

 

27


these Bylaws shall vest immediately upon election of a trustee or officer. The Trust may, with the approval of its Board of Trustees, provide such indemnification and advance for expenses to an individual who served a predecessor of the Trust in any of the capacities described in (a) or (b) above and to any employee or agent of the Trust or a predecessor of the Trust. The indemnification and payment or reimbursement of expenses provided in these Bylaws shall not be deemed exclusive of or limit in any way other rights to which any person seeking indemnification or payment or reimbursement of expenses may be or may become entitled under any bylaw, resolution, insurance, agreement or otherwise.

Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Declaration of Trust or these Bylaws inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding paragraph of this Article XII with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

ARTICLE XIII

FORUM FOR ADJUDICATION OF DISPUTES

Unless the Trust consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Trust, (ii) any action asserting a claim of breach of any duty owed by any present or former trustee or officer or other employee or shareholder of the Trust to the Trust or the Trust’s shareholders or any standard of conduct applicable to the trustees of the Trust, (iii) any action asserting a claim arising pursuant to any provision of the Maryland REIT Law, the MGCL, the Declaration of Trust or these Bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be the Circuit Court for Baltimore City, Maryland or, if that Court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, in all cases subject to the court’s having personal jurisdiction over the indispensible parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of beneficial interest of the Trust shall be deemed to have notice of and consented to the provisions of this Article XIII.

ARTICLE XIV

WAIVER OF NOTICE

Whenever any notice of a meeting is required to be given pursuant to the Declaration of Trust or these Bylaws or pursuant to applicable law, a waiver thereof in writing or by electronic transmission, given by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice of such meeting, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened.

 

28


ARTICLE XV

AMENDMENT OF BYLAWS

The Board of Trustees shall have the power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws. In addition, the shareholders of the Trust may alter or repeal any provision of these Bylaws and adopt new Bylaws if any such alteration, repeal or adoption is approved by the affirmative vote of a majority of all the votes entitled to be cast on the matter.

ARTICLE XVI

MISCELLANEOUS

Section 1. SEVERABILITY . If any provision of the Bylaws shall be held invalid or unenforceable in any respect, such holding shall apply only to the extent of any such invalidity or unenforceability and shall not in any manner affect, impair or render invalid or unenforceable any other provision of the Bylaws in any jurisdiction.

Section 2. VOTING STOCK IN OTHER COMPANIES . Stock of other corporations or associations, registered in the name of the Trust, may be voted by the chief executive officer, the president, a vice-president, or a proxy appointed by any of them. The Board of Trustees, however, may by resolution appoint some other person to vote such shares, in which case such person shall be entitled to vote such shares upon the production of a certified copy of such resolution.

Section 3. EXECUTION OF DOCUMENTS . A person who holds more than one office in the Trust may not act in more than one capacity to execute, acknowledge, or verify an instrument required by law to be executed, acknowledged, or verified by more than one officer.

Section 4. SHAREHOLDER RIGHTS PLAN . The Trust shall seek shareholder approval prior to its adoption of a Rights Plan unless the Board of Trustees determines that, under the circumstances existing at the time, it is in the best interests of the shareholders to adopt a Rights Plan without delay. If a Rights Plan is adopted or extended by the Board of Trustees without prior stockholder approval, such plan must provide that it will expire unless ratified by the shareholders within 12 months of adoption or extension. As used in this section, the term “Rights Plan” refers generally to any plan providing for the distribution of preferred shares, rights, warrants, options or debt instruments to the shareholders of the Trust, designed to assist the Board of Trustees in the exercise of its duties in connection with actual or potential unsolicited takeover proposals or significant share accumulations by conferring certain rights to shareholders upon the occurrence of a “triggering event” such as a tender offer or third-party acquisition of a specified percentage of shares. Notwithstanding anything to the contrary in these Bylaws, this Section 4 may not be altered, amended or repealed except by the shareholders of the Trust by the affirmative vote of a majority of all the votes entitled to be cast on the matter.

 

29

Exhibit 3.3

SPIRIT MTA REIT

ARTICLES SUPPLEMENTARY

6,000,000

10.0% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL

INTEREST

            , 2018

Spirit MTA REIT, a Maryland real estate investment trust (the “ Company ”), hereby certifies to the State Department of Assessments and Taxation of Maryland (the “ Department ”) that:

FIRST: Pursuant to the authority expressly vested in the Board of Trustees of the Company (the “ Board of Trustees ”) by Article VI of the declaration of trust of the Company (as amended and supplemented to date and as may be amended and supplemented from time to time, the “ Declaration of Trust ”) and Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland (the “ Maryland REIT Law ”), the Board of Trustees, by resolutions duly adopted on or as of                 , 2018, has authorized the classification and designation of up to 6,000,000 authorized but unissued preferred shares of beneficial interest, par value $0.01 per share, of the Company (“ Preferred Shares ”) as a separate series of Preferred Shares to be known as the “10.0% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest” and has set the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, transfers, qualifications, terms and conditions of redemption and other terms and conditions of such 10.0% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, and has authorized the issuance of up to 6,000,000 10.0% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest.

SECOND: The designation, number of shares, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, transfers, qualifications, terms and conditions of redemption and other terms and conditions of the separate series of Preferred Shares of the Company designated as the 10.0% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest are as follows, which upon any restatement of the Declaration of Trust shall be made a part of or incorporated by reference into the Declaration of Trust with any necessary or appropriate changes to the enumeration or lettering of sections or subsections thereof:

Section 1. Designation and Number . A series of Preferred Shares, designated the “10.0% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest” (the “ Series A Preferred Shares ”), is hereby established. The number of Series A Preferred Shares initially shall be 6,000,000.

Section 2. Rank . The Series A Preferred Shares will, with respect to dividend rights and rights upon voluntary or involuntary liquidation, dissolution or winding up of the Company, rank: (a) senior to all classes or series of the Company’s common shares of beneficial interest, par value $0.01 per share (“ Common Shares ”), and all classes or series of shares of beneficial interest of the Company now or hereafter authorized, issued or outstanding expressly designated as ranking junior to the Series A Preferred Shares as to dividend rights and rights upon voluntary or involuntary liquidation, dissolution or winding up of the Company; (b) on parity with any class or series of shares of beneficial interest of the Company expressly designated as ranking on parity with the Series A Preferred Shares as to dividend rights and rights upon voluntary or involuntary liquidation, dissolution or winding up of the Company; and (c) junior

 

1


to any class or series of shares of beneficial interest of the Company expressly designated as ranking senior to the Series A Preferred Shares as to dividend rights and rights upon voluntary or involuntary liquidation, dissolution or winding up of the Company. The term “shares of beneficial interest” does not include convertible or exchangeable debt securities, which will rank senior to the Series A Preferred Shares prior to conversion or exchange. The Series A Preferred Shares will also rank junior in right of payment to the Company’s existing and future debt obligations.

Section 3. Dividends .

(a) Subject to the preferential rights of the holders of any class or series of shares of beneficial interest of the Company ranking senior to the Series A Preferred Shares as to dividends, the holders of shares of the Series A Preferred Shares shall be entitled to receive, when, as and if authorized by the Board of Trustees and declared by the Company, out of funds legally available for the payment of dividends, cumulative cash dividends at the rate of 10.0% per annum of the $25.00 liquidation preference per Series A Preferred Share (equivalent to a fixed annual amount of $2.50 per Series A Preferred Share). Such dividends shall accrue and be cumulative from and including the first date on which any Series A Preferred Shares are issued (the “ Original Issue Date ”) and shall be payable quarterly in arrears on each Dividend Payment Date (as defined below), commencing June 30, 2018; provided, however, that if any Dividend Payment Date is not a Business Day (as defined below), then the dividend which would otherwise have been payable on such Dividend Payment Date may be paid, at the Company’s option, on either the immediately preceding Business Day or the next succeeding Business Day, except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if paid on such Dividend Payment Date, and no interest or additional dividends or other sums shall accrue on the amount so payable from such Dividend Payment Date to such next succeeding Business Day. The amount of any dividend payable on the Series A Preferred Shares for any partial Dividend Period (as defined below) shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they appear in the shareholder records of the Company at the close of business on the applicable Dividend Record Date (as defined below). Notwithstanding any provision to the contrary contained herein, each outstanding Series A Preferred Share shall be entitled to receive a dividend with respect to any Dividend Record Date equal to the dividend paid with respect to each other Series A Preferred Share that is outstanding on such date. “ Dividend Record Date ” shall mean the date designated by the Board of Trustees for the payment of dividends that is not more than 35 or fewer than 10 days prior to the applicable Dividend Payment Date. “ Dividend Payment Date ” shall mean the last calendar day of each March, June, September and December, commencing on June 30, 2018. “ Dividend Period ” shall mean the respective periods commencing on and including the first day of January, April, July and October of each year and ending on, and including, the last day of March, June, September and December (other than the initial Dividend Period, which shall commence on the Original Issue Date and end on and include June 30, 2018, and other than the Dividend Period during which any Series A Preferred Shares shall be redeemed pursuant to Section 5 or Section 6 hereof, which shall end on and include the day preceding the redemption date with respect to the Series A Preferred Shares being redeemed).

The term “ Business Day ” shall mean each day, other than a Saturday or a Sunday, which is not a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close.

(b) Notwithstanding anything contained herein to the contrary, dividends on the Series A Preferred Shares shall accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends, and whether or not such dividends are authorized or declared.

 

2


(c) Except as provided in Section 3(d) below, no dividends shall be declared and paid or declared and set apart for payment, and no other distribution of cash or other property may be declared and made, directly or indirectly, on or with respect to, any Common Shares or any other class or series of shares of beneficial interest of the Company ranking, as to dividends, on parity with or junior to the Series A Preferred Shares (other than a dividend paid in Common Shares or in any other class or series of shares of beneficial interest ranking junior to the Series A Preferred Shares as to payment of dividends and the distribution of assets upon the Company’s liquidation, dissolution or winding up) for any period, nor shall any Common Shares or any other class or series of shares of beneficial interest of the Company ranking, as to payment of dividends and the distribution of assets upon the Company’s liquidation, dissolution or winding up, on parity with or junior to the Series A Preferred Shares be redeemed, purchased or otherwise acquired for any consideration, nor shall any funds be paid or made available for a sinking fund for the redemption of such shares, and no other distribution of cash or other property may be made, directly or indirectly, on or with respect thereto by the Company (except by conversion into or exchange for other class or series of shares of beneficial interest of the Company ranking junior to the Series A Preferred Shares as to payment of dividends and the distribution of assets upon the Company’s liquidation, dissolution or winding up, and except for the acquisition of shares made pursuant to the provisions of Article VII of the Declaration of Trust or Section 9 hereof), unless full cumulative dividends on the Series A Preferred Shares for all past Dividend Periods shall have been or contemporaneously are (i) declared and paid in cash or (ii) declared and a sum sufficient for the payment thereof in cash is set apart for such payment.

(d) When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) on the Series A Preferred Shares and any other class or series of shares of beneficial interest ranking, as to dividends, on parity with the Series A Preferred Shares, all dividends declared upon the Series A Preferred Shares and each such other class or series of shares of beneficial interest ranking, as to dividends, on parity with the Series A Preferred Shares shall be declared pro rata so that the amount of dividends declared per Series A Preferred Share and such other class or series of shares of beneficial interest shall in all cases bear to each other the same ratio that accrued dividends per share on the Series A Preferred Shares and such other class or series of shares of beneficial interest (which shall not include any accrual in respect of unpaid dividends on such other class or series of shares of beneficial interest for prior Dividend Periods if such other class or series of shares of beneficial interest does not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A Preferred Shares which may be in arrears.

(e) Holders of Series A Preferred Shares shall not be entitled to any dividend, whether payable in cash, property or shares of beneficial interest, in excess of full cumulative dividends on the Series A Preferred Shares as provided herein. Any dividend payment made on the Series A Preferred Shares shall first be credited against the earliest accrued but unpaid dividends due with respect to such shares which remain payable. Accrued but unpaid dividends on the Series A Preferred Shares will accumulate as of the Dividend Payment Date on which they first become payable.

 

3


Section 4. Liquidation Preference .

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, before any distribution or payment shall be made to holders of Common Shares or any other class or series of shares of beneficial interest of the Company ranking, as to rights upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, junior to the Series A Preferred Shares, the holders of Series A Preferred Shares shall be entitled to be paid out of the assets of the Company legally available for distribution to its shareholders, after payment of or provision for the debts and other liabilities of the Company and, subject to compliance with section 7(f)(i) of these Articles Supplementary, any class or series of shares of beneficial interest of the Company ranking, as to rights upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, senior to the Series A Preferred Shares, a liquidation preference of $25.00 per share, plus an amount equal to any accrued and unpaid dividends (whether or not authorized or declared) up to but excluding the date of payment. In the event that, upon such voluntary or involuntary liquidation, dissolution or winding up, the available assets of the Company are insufficient to pay the full amount of the liquidating distributions on all outstanding Series A Preferred Shares and the corresponding amounts payable on all shares of other classes or series of shares of beneficial interest of the Company ranking, as to rights upon the Company’s liquidation, dissolution or winding up, on parity with the Series A Preferred Shares in the distribution of assets, then the holders of the Series A Preferred Shares and each such other class or series of shares of beneficial interest ranking, as to rights upon any voluntary or involuntary liquidation, dissolution or winding up, on parity with the Series A Preferred Shares shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. Written notice of any such voluntary or involuntary liquidation, dissolution or winding up of the Company, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not fewer than 30 or more than 60 days prior to the payment date stated therein, to each record holder of Series A Preferred Shares at the respective addresses of such holders as the same shall appear on the share transfer records of the Company. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series A Preferred Shares will have no right or claim to any of the remaining assets of the Company. The consolidation or merger of the Company with or into any other corporation, trust or entity, or the voluntary sale, lease, transfer or conveyance of all or substantially all of the property or business of the Company, shall not be deemed to constitute a liquidation, dissolution or winding up of the Company.

(b) In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition of shares of beneficial interest of the Company or otherwise, is permitted under Maryland law, amounts that would be needed, if the Company were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of Series A Preferred Shares shall not be added to the Company’s total liabilities.

Section 5. Redemption .

(a) Series A Preferred Shares shall not be redeemable prior to May 31, 2023 except as set forth in Section 6 hereof or to preserve the status of the Company as a REIT (as defined in Section 9(a) hereof) for United States federal income tax purposes. In addition, the Series A Preferred Shares shall be subject to the provisions of Section 9 hereof pursuant to which Series A Preferred Shares owned by a shareholder in excess of the Series A Ownership Limit (as defined in Section 9(a) hereof) shall automatically be transferred to a Trust (as defined in Section 9(a) hereof) for the exclusive benefit of a Charitable Beneficiary (as defined in Section 9(a) hereof).

 

4


(b) On and after May 31, 2023, the Company, at its option, upon not fewer than 30 or more than 60 days’ written notice, may redeem the Series A Preferred Shares, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends (whether or not authorized or declared) thereon up to but not including the date fixed for redemption, without interest, to the extent the Company has funds legally available therefor (the “ Redemption Right ”). If fewer than all of the outstanding Series A Preferred Shares are to be redeemed, the Series A Preferred Shares to be redeemed shall be redeemed pro rata (as nearly as may be practicable without creating fractional shares) or by lot as determined by the Company. If redemption is to be by lot and, as a result, any holder of Series A Preferred Shares would have actual ownership, Beneficial Ownership or Constructive Ownership (each as defined in Section 9(a) hereof) in excess of the Series A Ownership Limit, the Aggregate Share Ownership Limit (as defined in Section 9(a) hereof), or such other limit as permitted by the Board of Trustees or a committee thereof pursuant to Section 9(b)(vii) hereof, because such holder’s Series A Preferred Shares were not redeemed, or were only redeemed in part, then, except as otherwise provided in the Declaration of Trust, the Company shall redeem the requisite number of Series A Preferred Shares of such holder such that no holder will hold an amount of Series A Preferred Shares in excess of the applicable ownership limit, subsequent to such redemption. Holders of Series A Preferred Shares to be redeemed shall surrender such Series A Preferred Shares at the place, or in accordance with the book-entry procedures, designated in such notice and shall be entitled to the redemption price of $25.00 per share and any accrued and unpaid dividends payable upon such redemption following such surrender. If (i) notice of redemption of any Series A Preferred Shares has been given (in the case of a redemption of the Series A Preferred Shares other than to preserve the status of the Company as a REIT), (ii) the funds necessary for such redemption have been set aside by the Company in trust for the benefit of the holders of any Series A Preferred Shares so called for redemption, and (iii) irrevocable instructions have been given to pay the redemption price and all accrued and unpaid dividends, then from and after the redemption date, dividends shall cease to accrue on such Series A Preferred Shares, such Series A Preferred Shares shall no longer be deemed outstanding, and all rights of the holders of such shares shall terminate, except the right to receive the redemption price plus any accrued and unpaid dividends payable upon such redemption, without interest. So long as full cumulative dividends on the Series A Preferred Shares for all past Dividend Periods shall have been or contemporaneously are (i) declared and paid in cash, or (ii) declared and a sum sufficient for the payment thereof in cash is set apart for payment, nothing herein shall prevent or restrict the Company’s right or ability to purchase, from time to time, either at a public or a private sale, all or any part of the Series A Preferred Shares at such price or prices as the Company may determine, subject to the provisions of applicable law, including the repurchase of Series A Preferred Shares in open-market transactions duly authorized by the Board of Trustees.

(c) The Company may, at any time, redeem any or all of the Series A Preferred Shares to preserve the status of the Company as a REIT for U.S. federal income tax purposes, in which case such redemption shall be made in accordance with the terms and conditions set forth in this Section 5 of these Articles Supplementary. If the Company calls for redemption of any Series A Preferred Shares pursuant to and in accordance with this Section 5(c), then the redemption price for such shares will be an amount in cash equal to $25.00 per share together with all accrued and unpaid dividends to but excluding the dated fixed for redemption.

(d) Unless full cumulative dividends on the Series A Preferred Shares for all past Dividend Periods shall have been or contemporaneously are (i) declared and paid in cash, or (ii) declared and a sum sufficient for the payment thereof in cash is set apart for payment, no Series A Preferred Shares shall be redeemed pursuant to the Redemption Right or Special Optional Redemption Right (defined below) unless all outstanding Series A Preferred Shares are simultaneously redeemed, and the Company shall not purchase or otherwise acquire directly or indirectly any Series A Preferred Shares or any class or series of shares of beneficial interest of the Company ranking, as to payment of dividends and the distribution of

 

5


assets upon liquidation, dissolution or winding up of the Company, on parity with or junior to the Series A Preferred Shares (except by conversion into or exchange for shares of beneficial interest of the Company ranking, as to payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Company, junior to the Series A Preferred Shares); provided , however , that the foregoing shall not prevent the purchase of Series A Preferred Shares, or any other class or series of shares of beneficial interest of the Company ranking, as to payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Company, on parity with or junior to the Series A Preferred Shares, by the Company in accordance with the terms of Sections 5(c) and 9 of these Articles Supplementary or otherwise, in order to ensure that the Company remains qualified as a REIT for United States federal income tax purposes, or the purchase or acquisition of Series A Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Preferred Shares.

(e) Notice of redemption pursuant to the Redemption Right will be mailed by the Company, postage prepaid, not fewer than 30 or more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series A Preferred Shares to be redeemed at their respective addresses as they appear on the transfer records of the Company. No failure to give or defect in such notice shall affect the validity of the proceedings for the redemption of any Series A Preferred Shares except as to the holder to whom such notice was defective or not given. In addition to any information required by law or by the applicable rules of any exchange upon which the Series A Preferred Shares may be listed or admitted to trading, each such notice shall state: (i) the redemption date; (ii) the redemption price; (iii) the number of Series A Preferred Shares to be redeemed; (iv) the place or places where the certificates, if any, representing Series A Preferred Shares are to be surrendered for payment of the redemption price; (v) procedures for surrendering noncertificated Series A Preferred Shares for payment of the redemption price; (vi) that dividends on the Series A Preferred Shares to be redeemed will cease to accumulate on such redemption date; and (vii) that payment of the redemption price and any accumulated and unpaid dividends will be made upon presentation and surrender of such Series A Preferred Shares. If fewer than all of the Series A Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series A Preferred Shares held by such holder to be redeemed. Notwithstanding anything else to the contrary in these Articles Supplementary, the Company shall not be required to provide notice to the holder of Series A Preferred Shares in the event such holder’s Series A Preferred Shares are redeemed in accordance with Sections 5(c) and 9 of these Articles Supplementary to preserve the Company’s status as a REIT.

(f) If a redemption date falls after a Dividend Record Date and on or prior to the corresponding Dividend Payment Date, each holder of Series A Preferred Shares at the close of business of such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares on or prior to such Dividend Payment Date, and each holder of Series A Preferred Shares that surrenders its shares on such redemption date will be entitled to the dividends accruing after the end of the Dividend Period to which such Dividend Payment Date relates up to but excluding the redemption date. Except as provided herein, the Company shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series A Preferred Shares for which a notice of redemption has been given.

(g) All Series A Preferred Shares redeemed or repurchased pursuant to this Section 5, or otherwise acquired in any other manner by the Company, shall be retired and shall be restored to the status of authorized but unissued Preferred Shares, without designation as to series or class.

(h) The Series A Preferred Shares shall have no stated maturity and shall not be subject to any sinking fund or mandatory redemption; provided , however , that the Series A Preferred Shares owned by a shareholder in excess of the applicable ownership limit shall be subject to the provisions of this Section 5 and Section 9 of these Articles Supplementary.

 

6


Section 6. Special Optional Redemption by the Company .

(a) Upon the occurrence of a Change of Control (as defined below), the Company will have the option upon written notice mailed by the Company, postage pre-paid, no fewer than 30 nor more than 60 days prior to the redemption date and addressed to the holders of record of the Series A Preferred Shares to be redeemed at their respective addresses as they appear on the share transfer records of the Company, to redeem the Series A Preferred Shares, in whole or in part within 120 days after the first date on which such Change of Control occurred, for cash at $25.00 per share plus accrued and unpaid dividends, if any, to, but not including, the redemption date (“ Special Optional Redemption Right ”). No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series A Preferred Shares except as to the holder to whom notice was defective or not given. If, prior to the Change of Control Conversion Date (as defined below), the Company has provided or provides notice of redemption with respect to the Series A Preferred Shares (whether pursuant to the Redemption Right or the Special Optional Redemption Right), the holders of Series A Preferred Shares will not have the conversion right described below in Section 8 of these Articles Supplementary.

A “ Change of Control ” is when, after the original issuance of the Series A Preferred Shares, the following have occurred and are continuing:

(i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of shares of the Company entitling that person to exercise more than 50% of the total voting power of all shares of beneficial interest of the Company entitled to vote generally in the election of the Company’s trustees (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and

(ii) following the closing of any transaction referred to in (i) above, neither the Company nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the New York Stock Exchange (the “ NYSE ”), the NYSE American (the “ NYSE American ”), or the NASDAQ Stock Market (“ NASDAQ ”), or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American or NASDAQ.

(b) In addition to any information required by law or by the applicable rules of any exchange upon which the Series A Preferred Shares may be listed or admitted to trading, such notice shall state: (i) the redemption date; (ii) the redemption price; (iii) the number of Series A Preferred Shares to be redeemed; (iv) the place or places where the certificates, if any, representing Series A Preferred Shares are to be surrendered for payment of the redemption price; (v) procedures for surrendering noncertificated Series A Preferred Shares for payment of the redemption price; (vi) that dividends on the Series A Preferred Shares to be redeemed will cease to accumulate on the redemption date; (vii) that payment of the redemption price and any accumulated and unpaid dividends will be made upon presentation and surrender of such Series A Preferred Shares; (viii) that the Series A Preferred Shares are being redeemed

 

7


pursuant to the Special Optional Redemption Right in connection with the occurrence of a Change of Control and a brief description of the transaction or transactions constituting such Change of Control; and (ix) that holders of the Series A Preferred Shares to which the notice relates will not be able to tender such Series A Preferred Shares for conversion in connection with the Change of Control and each Series A Preferred Share tendered for conversion that is selected, prior to the Change of Control Conversion Date, for redemption will be redeemed on the related redemption date instead of converted on the Change of Control Conversion Date. If fewer than all of the Series A Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series A Preferred Shares held by such holder to be redeemed.

If fewer than all of the outstanding Series A Preferred Shares are to be redeemed, the Series A Preferred Shares to be redeemed shall be redeemed pro rata (as nearly as may be practicable without creating fractional shares) or by lot as determined by the Company. If such redemption pursuant to the Special Optional Redemption Right is to be by lot and, as a result, any holder of Series A Preferred Shares would have actual ownership, Beneficial Ownership or Constructive Ownership in excess of the Series A Ownership Limit, the Aggregate Share Ownership Limit, or such limit as permitted by the Board of Trustees or a committee thereof pursuant to Section 9(b)(vii) hereof, because such holder’s Series A Preferred Shares were not redeemed, or were only redeemed in part then, except as otherwise provided in the Declaration of Trust, the Company shall redeem the requisite number of Series A Preferred Shares of such holder such that no holder will hold an amount of Series A Preferred Shares in excess of the applicable ownership limit, subsequent to such redemption.

(c) If the Company has given a notice of redemption pursuant to the Special Optional Redemption Right and has set aside sufficient funds for the redemption in trust for the benefit of the holders of the Series A Preferred Shares called for redemption, then from and after the redemption date, those Series A Preferred Shares will be treated as no longer being outstanding, no further dividends will accrue and all other rights of the holders of those Series A Preferred Shares will terminate. The holders of those Series A Preferred Shares will retain their right to receive the redemption price for their shares and any accrued and unpaid dividends to, but not including, the redemption date, without interest. So long as full cumulative dividends on the Series A Preferred Shares for all past Dividend Periods shall have been or contemporaneously are (i) declared and paid in cash, or (ii) declared and a sum sufficient for the payment thereof in cash is set apart for payment, nothing herein shall prevent or restrict the Company’s right or ability to purchase, from time to time, either at a public or a private sale, all or any part of the Series A Preferred Shares at such price or prices as the Company may determine, subject to the provisions of applicable law, including the repurchase of Series A Preferred Shares in open-market transactions duly authorized by the Board of Trustees.

(d) The holders of Series A Preferred Shares at the close of business on a Dividend Record Date will be entitled to receive the dividend payable with respect to the Series A Preferred Shares on the corresponding Dividend Payment Date notwithstanding the redemption of the Series A Preferred Shares pursuant to the Special Optional Redemption Right between such Dividend Record Date and the corresponding Dividend Payment Date or the Company’s default in the payment of the dividend due. Except as provided herein, the Company shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series A Preferred Shares for which a notice of redemption pursuant to the Special Optional Redemption Right has been given.

(e) All Series A Preferred Shares redeemed or repurchased pursuant to this Section 6, or otherwise acquired in any other manner by the Company, shall be retired and shall be restored to the status of authorized but unissued Preferred Shares, without designation as to series or class.

 

8


Section 7. Voting Rights .

(a) Holders of the Series A Preferred Shares shall not have any voting rights, except as set forth in this Section 7.

(b) Whenever dividends on any Series A Preferred Shares shall be in arrears for six or more consecutive or non-consecutive quarterly periods (a “ Preferred Dividend Default ”), the holders of such Series A Preferred Shares (voting separately as a class together with holders of all other classes or series of Preferred Shares of the Company ranking on parity with the Series A Preferred Shares with respect to payment of dividends and the distribution of assets upon the Company’s liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable (“ Parity Preferred ”)) shall be entitled to vote for the election of a total of two additional trustees of the Company (the “ Preferred Trustees ”) until all dividends accumulated on such Series A Preferred Shares and Parity Preferred for the past Dividend Periods shall have been fully paid. In such case, the entire Board of Trustees will be increased by two trustees.

(c) The Preferred Trustees will be elected by a plurality of the votes cast in the election for a one-year term and each Preferred Trustee will serve until his or her successor is duly elected and qualifies or until such Preferred Trustee’s right to hold the office terminates, whichever occurs earlier, subject to such Preferred Trustee’s earlier death, disqualification, resignation or removal. The election will take place at (i) either (A) a special meeting called in accordance with Section 7(d) below if the request is received more than 90 days before the date fixed for the Company’s next annual or special meeting of shareholders or (B) the next annual or special meeting of shareholders if the request is received within 90 days of the date fixed for the Company’s next annual or special meeting of shareholders, and (ii) at each subsequent annual meeting of shareholders, or special meeting held in place thereof, until all such dividends in arrears on the Series A Preferred Shares and each such class or series of outstanding Parity Preferred have been paid in full. A dividend in respect of Series A Preferred Shares shall be considered timely made if made within two Business Days after the applicable Dividend Payment Date if at the time of such late payment date there shall not be any prior quarterly Dividend Periods in respect of which full dividends were not timely made at the applicable Dividend Payment Date.

(d) At any time when such voting rights shall have vested, a proper officer of the Company shall call or cause to be called, upon written request of holders of record of at least 10% of the outstanding Series A Preferred Shares and Parity Preferred, a special meeting of the holders of Series A Preferred Shares and each class or series of Parity Preferred by mailing or causing to be mailed to such holders a notice of such special meeting to be held not fewer than ten or more than 45 days after the date such notice is given. The record date for determining holders of the Series A Preferred Shares and Parity Preferred entitled to notice of and to vote at such special meeting will be the close of business on the third Business Day preceding the day on which such notice is mailed. At any such annual or special meeting, all of the holders of the Series A Preferred Shares and Parity Preferred, by plurality vote, voting together as a single class without regard to class or series will be entitled to elect two trustees on the basis of one vote per $25.00 of liquidation preference to which such Series A Preferred Shares and Parity Preferred are entitled by their terms (excluding amounts in respect of accumulated and unpaid dividends) and not cumulatively. The holder or holders of one-third of the Series A Preferred Shares and Parity Preferred voting as a single class then outstanding, present in person or by proxy, will constitute a quorum for the election of the Preferred Trustees except as otherwise provided by law. Notice of all meetings at which holders of the

 

9


Series A Preferred Shares and the Parity Preferred shall be entitled to vote will be given to such holders at their addresses as they appear in the transfer records. At any such meeting or adjournment thereof in the absence of a quorum, subject to the provisions of any applicable law, a majority of the holders of the Series A Preferred Shares and Parity Preferred voting as a single class present in person or by proxy shall have the power to adjourn the meeting for the election of the Preferred Trustees, without notice other than an announcement at the meeting, until a quorum is present. If a Preferred Dividend Default shall terminate after the notice of a special meeting has been given but before such special meeting has been held, the Company shall, as soon as practicable after such termination, mail or cause to be mailed notice of such termination to holders of the Series A Preferred Shares and the Parity Preferred that would have been entitled to vote at such special meeting.

(e) If and when all accumulated dividends on such Series A Preferred Shares and all classes or series of Parity Preferred for the past Dividend Periods shall have been fully paid, the right of the holders of Series A Preferred Shares and the Parity Preferred to elect such additional two trustees shall immediately cease (subject to revesting in the event of each and every Preferred Dividend Default), and the term of office of each Preferred Trustee so elected shall terminate and the entire Board of Trustees shall be reduced accordingly. Any Preferred Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series A Preferred Shares and the Parity Preferred entitled to vote thereon when they have the voting rights set forth in Section 7(b) hereof (voting as a single class). So long as a Preferred Dividend Default shall continue, any vacancy in the office of a Preferred Trustee may be filled by written consent of the Preferred Trustee remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding Series A Preferred Shares when they have the voting rights described above (voting as a single class with all other classes or series of Parity Preferred). Each of the Preferred Trustees shall be entitled to one vote on any matter.

(f) So long as any Series A Preferred Shares remain outstanding, the affirmative vote or consent of the holders of two-thirds of the Series A Preferred Shares and each other class or series of Parity Preferred outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting together as a single class) will be required to: (i) authorize, create or issue, or increase the number of authorized or issued shares of, any class or series of shares of beneficial interest ranking senior to the Series A Preferred Shares with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Company (collectively, “ Senior Shares of Beneficial Interest ”) or reclassify any authorized shares of beneficial interest of the Company into such shares of beneficial interest, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such Senior Shares of Beneficial Interest; or (ii) amend, alter or repeal the provisions of the Declaration of Trust, including the terms of the Series A Preferred Shares, whether by merger, consolidation, transfer or conveyance of all or substantially all of its assets or otherwise (an “ Event ”), so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Shares; provided however , with respect to the occurrence of any of the Events set forth in (ii) above, so long as the Series A Preferred Shares remain outstanding with the terms thereof materially unchanged, taking into account that, upon the occurrence of an Event set forth in (ii) above, the Company may not be the surviving entity, the occurrence of such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of Series A Preferred Shares, and in such case such holders shall not have any voting rights with respect to the occurrence of any of the Events set forth in (ii) above. In addition, if the holders of the Series A Preferred Shares receive the greater of the full trading price of the Series A Preferred Shares on the date of an Event set forth in (ii) above or the $25.00 liquidation preference per share of the Series A Preferred Shares pursuant to the occurrence of any

 

10


of the Events set forth in (ii) above, then such holders shall not have any voting rights with respect to the Events set forth in (ii) above. If any Event set forth in (ii) above would materially and adversely affect the rights, preferences, privileges or voting powers of the Series A Preferred Shares disproportionately relative to other classes or series of Parity Preferred, the affirmative vote of the holders of at least two-thirds of the outstanding shares of the Series A Preferred Shares, voting separately as a class, will also be required. Holders of Series A Preferred Shares shall not be entitled to vote with respect to (A) any increase in the total number of authorized Common Shares or Preferred Shares of the Company, or (B) any increase in the number of authorized Series A Preferred Shares or the creation or issuance of any other class or series of shares of beneficial interest, or (C) any increase in the number of authorized shares of any other class or series of shares of beneficial interest, in each case referred to in clause (A), (B) or (C) above ranking on parity with or junior to the Series A Preferred Shares with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Company. Except as set forth herein, holders of the Series A Preferred Shares shall not have any voting rights with respect to, and the consent of the holders of the Series A Preferred Shares shall not be required for, the taking of any corporate action, including an Event, regardless of the effect that such corporate action or Event may have upon the powers, preferences, voting power or other rights or privileges of the Series A Preferred Shares.

(g) The foregoing voting provisions of this Section 7 shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series A Preferred Shares shall have been redeemed or called for redemption upon proper notice pursuant to these Articles Supplementary, and sufficient funds, in cash, shall have been deposited in trust to effect such redemption.

(h) In any matter in which the Series A Preferred Shares may vote (as expressly provided herein), each Series A Preferred Share shall be entitled to one vote per $25.00 of liquidation preference.

Section 8. Conversion . The Series A Preferred Shares are not convertible into or exchangeable for any other property or securities of the Company, except as provided in this Section 8.

(a) Upon the occurrence of a Change of Control, each holder of Series A Preferred Shares (other than Spirit Realty Capital, Inc. or one or more of its affiliates, collectively, the “ Specified Holder ”) shall have the right, unless, prior to the Change of Control Conversion Date, the Company has provided or provides notice of its election to redeem the Series A Preferred Shares pursuant to the Redemption Right or Special Optional Redemption Right, to convert some or all of the Series A Preferred Shares held by such holder (the “ Change of Control Conversion Right ”) on the Change of Control Conversion Date into a number of Common Shares per Series A Preferred Share to be converted (the “ Common Shares Conversion Consideration ”) equal to the lesser of (A) the quotient obtained by dividing (i) the sum of (x) the $25.00 liquidation preference per Series A Preferred Share to be converted plus (y) the amount of any accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case no additional amount for such accrued and unpaid dividends will be included in such sum) by (ii) the Common Share Price (as defined herein) and (B) 3.3333 (the “ Share Cap ”), subject to the immediately succeeding paragraph.

The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a distribution of the Common Shares), subdivisions or combinations (in each case, a “ Share Split ”) with respect to the Common Shares as follows: the adjusted Share Cap as the result of a Share Split shall be the number of Common Shares that is equivalent to the product obtained by multiplying (i) the Share Cap in effect immediately prior to such Share Split by (ii) a fraction, the numerator of which is the number of Common Shares outstanding after giving effect to such Share Split and the denominator of which is the number of Common Shares outstanding immediately prior to such Share Split.

 

11


For the avoidance of doubt, subject to the immediately succeeding sentence, the aggregate number of Common Shares (or equivalent Alternative Conversion Consideration (as defined below), as applicable) issuable in connection with the exercise of the Change of Control Conversion Right shall not exceed 19,999,800 Common Shares (or equivalent Alternative Conversion Consideration, as applicable) (the “ Exchange Cap ”). The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share Cap.

In the case of a Change of Control pursuant to which Common Shares shall be converted into cash, securities or other property or assets (including any combination thereof) (the “ Alternative Form Consideration ”), a holder of Series A Preferred Shares shall receive upon conversion of such Series A Preferred Shares the kind and amount of Alternative Form Consideration which such holder would have owned or been entitled to receive upon the Change of Control had such holder held a number of Common Shares equal to the Common Shares Conversion Consideration immediately prior to the effective time of the Change of Control (the “ Alternative Conversion Consideration ”; and the Common Shares Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control, shall be referred to herein as the “ Conversion Consideration ”).

In the event that holders of Common Shares have the opportunity to elect the form of consideration to be received in the Change of Control, the Conversion Consideration will be deemed to be the kind and amount of consideration actually received by holders of a majority of the Common Shares that voted for such an election (if electing between two types of consideration) or holders of a plurality of the Common Shares that voted for such an election (if electing between more than two types of consideration), as the case may be, and will be subject to any limitations to which all holders of Common Shares are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control.

The “ Change of Control Conversion Date ” shall be a Business Day set forth in the notice of Change of Control provided in accordance with Section 8(c) below that is no less than 20 days nor more than 35 days after the date on which the Company provides such notice pursuant to Section 8(c).

The “ Common Shares Price ” shall be (i) if the consideration to be received in the Change of Control by the holders of Common Shares is solely cash, the amount of cash consideration per Common Share or (ii) if the consideration to be received in the Change of Control by holders of Common Shares is other than solely cash (x) the average of the closing sale prices per Common Share (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control as reported on the principal U.S. securities exchange on which the Common Shares are then traded, or (y) the average of the last quoted bid prices for the Common Shares in the over-the-counter market as reported by Pink Sheets LLC or similar organization for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control, if the Common Shares are not then listed for trading on a U.S. securities exchange.

 

12


(b) No fractional Common Shares shall be issued upon the conversion of Series A Preferred Shares. In lieu of fractional shares, holders shall be entitled to receive the cash value of such fractional shares based on the Common Shares Price.

(c) Within 15 days following the occurrence of a Change of Control, a notice of occurrence of the Change of Control, describing the resulting Change of Control Conversion Right, shall be delivered to the holders of record of the Series A Preferred Shares at their addresses as they appear on the Company’s share transfer records and notice shall be provided to the Company’s transfer agent. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the conversion of any Series A Preferred Shares except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the events constituting the Change of Control; (ii) the date of the Change of Control; (iii) the last date on which the holders of Series A Preferred Shares may exercise their Change of Control Conversion Right; (iv) the method and period for calculating the Common Shares Price; (v) the Change of Control Conversion Date; (vi) that if, prior to the Change of Control Conversion Date, the Company has provided or provides notice of its election to redeem all or any portion of the Series A Preferred Shares, the holder will not be able to convert Series A Preferred Shares designated for redemption and such Series A Preferred Shares shall be redeemed on the related redemption date, even if they have already been tendered for conversion pursuant to the Change of Control Conversion Right; (vii) if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per Series A Preferred Share; (viii) the name and address of the paying agent and the conversion agent; and (ix) the procedures that the holders of Series A Preferred Shares must follow to exercise the Change of Control Conversion Right.

(d) The Company shall issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), or post notice on the Company’s website, in any event prior to the opening of business on the first Business Day following any date on which the Company provides notice pursuant to Section 8(c) above to the holders of Series A Preferred Shares.

(e) In order to exercise the Change of Control Conversion Right, a holder of Series A Preferred Shares shall be required to deliver, on or before the close of business on the Change of Control Conversion Date, the certificates (if any) representing the Series A Preferred Shares to be converted, duly endorsed for transfer, together with a written conversion notice completed, to the Company’s transfer agent. Such notice shall state: (i) the relevant Change of Control Conversion Date; (ii) the number of Series A Preferred Shares to be converted; and (iii) that the Series A Preferred Shares are to be converted pursuant to the applicable provisions of these Articles Supplementary. Notwithstanding the foregoing, if the Series A Preferred Shares are held in global form, such notice shall comply with applicable procedures of The Depository Trust Company (“ DTC ”).

(f) Holders of Series A Preferred Shares may withdraw any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to the Company’s transfer agent prior to the close of business on the Business Day prior to the Change of Control Conversion Date. The notice of withdrawal must state: (i) the number of withdrawn Series A Preferred Shares; (ii) if certificated Series A Preferred Shares have been issued, the certificate numbers of the shares of withdrawn Series A Preferred Shares; and (iii) the number of Series A Preferred Shares, if any, which remain subject to the conversion notice. Notwithstanding the foregoing, if the Series A Preferred Shares are held in global form, the notice of withdrawal shall comply with applicable procedures of DTC.

 

13


(g) Series A Preferred Shares as to which the Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn shall be converted into the applicable Conversion Consideration in accordance with the Change of Control Conversion Right on the Change of Control Conversion Date, unless, prior to the Change of Control Conversion Date, the Company has provided or provides notice of its election to redeem such Series A Preferred Shares, whether pursuant to its Redemption Right or Special Optional Redemption Right. If the Company elects to redeem Series A Preferred Shares that would otherwise be converted into the applicable Conversion Consideration on a Change of Control Conversion Date, such Series A Preferred Shares shall not be so converted and the holders of such shares shall be entitled to receive on the applicable redemption date $25.00 per share, plus any accrued and unpaid dividends thereon to, but not including, the redemption date.

(h) The Company shall deliver the applicable Conversion Consideration no later than the third Business Day following the Change of Control Conversion Date.

(i) Notwithstanding anything to the contrary contained herein, no holder of Series A Preferred Shares will be entitled to convert such Series A Preferred Shares into Common Shares to the extent that receipt of such Common Shares would cause the holder of such Common Shares (or any other person) to have actual ownership, Beneficial Ownership or Constructive Ownership (each as defined in Article VII of the Declaration of Trust) of Common Shares of the Company in excess of the Common Share Ownership Limit (as defined in Article VII of the Declaration of Trust), the Aggregate Share Ownership Limit (as defined in Article VII of the Declaration of Trust), or such other limit as permitted by the Board of Trustees or a committee thereof pursuant to Section 7.2.7 of the Declaration of Trust.

Section 9. Restrictions on Transfer and Ownership of Shares .

(a) Definitions . For the purposes of Section 5 and this Section 9 of these Articles Supplementary, the following terms shall have the following meanings:

Aggregate Share Ownership Limit ” has the meaning set forth in Article VII of the Declaration of Trust.

Beneficial Ownership ” shall mean ownership of Series A Preferred Shares by a Person, whether the interest in the Series A Preferred Shares is held directly or indirectly (including by a nominee), and shall include interests that are actually owned or would be treated as owned through the application of Section 544 of the Code, as modified by Sections 856(h)(1)(B) and 856(h)(3) of the Code. The terms “Beneficial Owner,” “Beneficially Own,” “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.

Business Day ” has the meaning set forth in Article VII of the Declaration of Trust.

Charitable Beneficiary ” shall mean one or more beneficiaries of the Charitable Trust as determined pursuant to Section 9(c)(vi), provided that each such organization must be described in Section 501(c)(3) of the Code and contributions to each such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

Charitable Trust ” shall mean any trust provided for in Section 9(c)(i).

Charitable Trustee ” shall mean the Person unaffiliated with the Company and any Prohibited Owner, that is appointed by the Company to serve as trustee of the Charitable Trust.

 

14


Code ” shall mean the Internal Revenue Code of 1986, as amended, or any successor statute.

Constructive Ownership ” shall mean ownership of Series A Preferred Shares by a Person, whether the interest in the Series A Preferred Shares is held directly or indirectly (including by a nominee), and shall include interests that are actually owned or would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Own,” “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.

Equity Shares ” has the meaning set forth in Article VII of the Declaration of Trust.

Excepted Holder ” shall mean a shareholder of the Company for whom an Excepted Holder Limit is created by the Board of Trustees pursuant to Section 9(b)(vii).

Excepted Holder Limit ” shall mean for each Excepted Holder, the percentage limit established by the Board of Trustees for such Excepted Holder pursuant to Section 9(b)(vii), which limit may be expressed, in the discretion of the Board of Trustees, as one or more percentages and/or numbers of Equity Shares, and may apply with respect to one or more classes of Equity Shares or to all classes of Equity Shares in the aggregate, provided that the affected Excepted Holder agrees to comply with any requirements established by the Board of Trustees pursuant to Section 9(b)(vii) and subject to adjustment pursuant to Section 9(b)(viii).

Individual ” means an individual, a trust qualified under Section 401(a) or 501(c)(17) of the Code, a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, or a private foundation within the meaning of Section 509(a) of the Code, provided that, except as set forth in Section 856(h)(3)(A)(ii) of the Code, a trust described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code shall be excluded from this definition.

Initial Date ” has the meaning set forth in Article VII of the Declaration of Trust.

Market Price ” on any date shall mean, with respect to the Series A Preferred Shares, the Closing Price for the Series A Preferred Shares on such date. The “ Closing Price ” on any date shall mean the last sale price for the Series A Preferred Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for the Series A Preferred Shares, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if the Series A Preferred Shares is not listed or admitted to trading on the NYSE, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Series A Preferred Shares is listed or admitted to trading or, if the Series A Preferred Shares is not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the principal automated quotation system on which the Series A Preferred Shares is quoted, or if the Series A Preferred Shares is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Series A Preferred Shares selected by the Board of Trustees or, in the event that no trading price is available for the Series A Preferred Shares, the fair market value of the Series A Preferred Shares, as determined in good faith by the Board of Trustees.

 

15


NYSE ” shall mean the New York Stock Exchange.

Person ” shall mean an Individual, corporation, partnership, limited liability company, estate, trust, association, joint stock company or other entity.

Prohibited Owner ” shall mean, with respect to any purported Transfer, any Person who, but for the provisions of Section 9(b)(i), would Beneficially Own or Constructively Own Series A Preferred Shares, and if appropriate in the context, shall also mean any Person who would have been the record owner of the shares that the Prohibited Owner would have so owned.

REIT ” shall mean a real estate investment trust under Sections 856 through 860 of the Code.

Restriction Termination Date ” shall mean the first day after the Initial Date on which the Board of Trustees determines pursuant to Section 5.1 of the Declaration of Trust that it is no longer in the best interests of the Company to attempt to, or continue to, qualify as a REIT or that compliance with the restrictions and limitations on Beneficial Ownership, Constructive Ownership and Transfers of Series A Preferred Shares set forth herein is no longer required in order for the Company to qualify as a REIT.

Series A Ownership Limit ” shall mean 9.8% (in value or in number of shares, whichever is more restrictive, and subject to adjustment from time to time by the Board of Trustees in accordance with Section 9(b)(viii)) of the aggregate of the outstanding Series A Preferred Shares, excluding any such outstanding Series A Preferred Shares which are not treated as outstanding for federal income tax purposes. Notwithstanding the foregoing, for purposes of determining the percentage ownership of Series A Preferred Shares by any Person, Series A Preferred Shares that are treated as Beneficially Owned or Constructively Owned by such Person shall be deemed to be outstanding. The number and value of outstanding Series A Preferred Shares of the Company shall be determined by the Board of Trustees in good faith, which determination shall be conclusive for all purposes hereof.

Transfer ” shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event that causes any Person to acquire, or change its level of, Beneficial Ownership or Constructive Ownership, or any agreement to take any such actions or cause any such events, of Series A Preferred Shares or the right to vote or receive dividends on Series A Preferred Shares, including (a) the granting or exercise of any option (or any disposition of any option), (b) any disposition of any securities or rights convertible into or exchangeable for Series A Preferred Shares or any interest in Series A Preferred Shares or any exercise of any such conversion or exchange right and (c) Transfers of interests in other entities that result in changes in Beneficial Ownership or Constructive Ownership of Series A Preferred Shares; in each case, whether voluntary or involuntary, whether owned of record, Beneficially Owned or Constructively Owned and whether by operation of law or otherwise. The terms “Transferring” and “Transferred” shall have the correlative meanings.

(b) Series A Preferred Shares .

(i) Ownership Limitations . During the period commencing on the Initial Date and prior to the Restriction Termination Date, but subject to Section 9(d):

(A) Basic Restrictions .

 

16


(i) The Series A Preferred Shares constitute a class or series of Preferred Shares, and Preferred Shares constitute Equity Shares of the Company. Therefore, the Series A Preferred Shares, being Equity Shares, shall be subject to the Aggregate Share Ownership Limit applicable with respect to Equity Shares generally and all other restrictions and limitations on the Transfer and ownership of Equity Shares set forth in the Declaration of Trust and applicable to Equity Shares. In addition, (1) no Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own Series A Preferred Shares in excess of the Series A Ownership Limit and (2) no Excepted Holder shall Beneficially Own or Constructively Own Series A Preferred Shares in excess of the Excepted Holder Limit for such Excepted Holder.

(ii) No Person shall Beneficially or Constructively Own Series A Preferred Shares to the extent that, taking into account other Equity Shares of the Company Beneficially or Constructively Owned by such Person, such Beneficial or Constructive Ownership of Series A Preferred Shares could result in the Company (or any direct or indirect subsidiary of the Company that intends to qualify as a REIT) (A) being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or (B) otherwise failing to qualify as a REIT (including but not limited to Beneficial or Constructive Ownership that could result in the Company Constructively Owning an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Company from such tenant, taking into account any other income of the Company that would not qualify under the gross income requirements of Section 856(c) of the Code, would cause the Company to fail to satisfy any of such gross income requirements).

(iii) Any Transfer of Series A Preferred Shares that, if effective, would result in the Equity Shares being beneficially owned by fewer than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio , and the intended transferee shall acquire no rights in such Series A Preferred Shares.

Without limitation of the application of any other provision of this Section 9, it is expressly intended that the restrictions on ownership and Transfer described in this Section 9(b)(i) shall apply to restrict the rights of any members or partners in limited liability companies or partnerships to exchange their interest in such entities for Equity Shares of the Company.

(B) Transfer in Trust . If any Transfer of Series A Preferred Shares (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system) occurs which, if effective, would result in any Person Beneficially Owning or Constructively Owning Series A Preferred Shares in violation of Section 9(b)(i)(A)(i) or (ii):

(i) then that number of shares of the Series A Preferred Shares, the Beneficial Ownership or Constructive Ownership of which otherwise would cause such Person to violate Section 9(b)(i)(A)(i) or (ii) (rounded up to the nearest whole share) shall be automatically transferred to a Charitable Trust for the benefit of a Charitable Beneficiary, as described in Section 9(c), effective as of the close of business on the Business Day prior to the date of such Transfer, and such Person shall acquire no rights in such shares; or

(ii) if the transfer to the Charitable Trust described in clause (i) of this sentence would not be effective for any reason to prevent the violation of Section 9(b)(i)(A)(i) or (ii), then the Transfer of that number of Series A Preferred Shares that otherwise would cause any Person to violate Section 9(b)(i)(A)(i) or (ii) shall be void ab initio , and the intended transferee shall acquire no rights in such Series A Preferred Shares.

 

17


(iii) In determining which Series A Preferred Shares are to be transferred to a Charitable Trust in accordance with this Section 9(b)(i)(B) and Section 9(c) hereof, shares shall be so transferred to a Charitable Trust in such manner as minimizes the aggregate value of the shares that are transferred to the Charitable Trust (except as provided in Section 9(b)(vi) and, to the extent not inconsistent therewith, on a pro rata basis (unless otherwise determined by the Board of Trustees in its sole and absolute discretion). To the extent that, upon a transfer of Series A Preferred Shares pursuant to this Section 9(b)(i)(B), a violation of any provision of Section 9(b)(i)(A) would nonetheless occur or be continuing (as, for example, where the ownership of Series A Preferred Shares by a single Charitable Trust would result in the Equity Shares being Beneficially Owned (determined under the principles of Section 856(a)(5) of the Code) by fewer than 100 Persons), then Series A Preferred Shares shall be transferred to that number of Charitable Trust, each having a Charitable Trustee and a Charitable Beneficiary or Beneficiaries that are distinct from those of each other Charitable Trust, such that there is no violation of any provision of Section 9(b)(i)(A) hereof.

(ii) Remedies for Breach . If the Board of Trustees shall at any time determine in good faith that a Transfer or other event has taken place that results in a violation of Section 9(b)(i) or that a Person intends or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Series A Preferred Shares in violation of Section 9(b)(i) (whether or not such violation is intended), the Board of Trustees or a committee thereof shall take such action as it deems advisable, in its sole and absolute discretion, to refuse to give effect to or to prevent such Transfer or other event, including, without limitation, causing the Company to redeem shares, refusing to give effect to such Transfer on the books of the Company or instituting proceedings to enjoin such Transfer or other event; provided, however , that any Transfer or attempted Transfer or other event in violation of Section 9(b)(i) shall automatically result in the transfer to the Charitable Trust described above, or, where applicable, such Transfer (or other event) shall be void ab initio as provided above irrespective of any action (or non-action) by the Board of Trustees or a committee thereof.

(iii) Notice of Restricted Transfer . Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of Series A Preferred Shares that will or may violate Section 9(b)(i)(A) or any Person who would have owned Series A Preferred Shares that resulted in a transfer to the Charitable Trust pursuant to the provisions of Section 9(b)(i)(B) shall immediately give written notice to the Company of such event or, in the case of such a proposed or attempted transaction, give at least 15 days prior written notice, and shall provide to the Company such other information as the Company may request in order to determine the effect, if any, of such Transfer on the Company’s status as a REIT.

(iv) Owners Required To Provide Information . From the Initial Date and prior to the Restriction Termination Date, each Person who is a Beneficial Owner or Constructive Owner of Series A Preferred Shares and each Person (including the shareholder of record) who is holding Series A Preferred Shares for a Beneficial or Constructive Owner shall, on demand, provide to the Company in writing such information as the Company may request in order to determine the effect, if any, of such Beneficial Ownership or Constructive Ownership on the Company’s status as a REIT and to ensure compliance with the Aggregate Share Ownership Limit, the Series A Ownership Limit and the other restrictions set forth in these Articles Supplementary or in the Declaration of Trust, and to comply with requirements of any taxing authority or governmental authority or to determine such compliance.

(v) Remedies Not Limited . Subject to Section 5.1 of the Declaration of Trust, nothing contained in this Section 9(b) shall limit the authority of the Board of Trustees to take such other action as it deems necessary or advisable to protect the Company and the interests of its shareholders in preserving the Company’s status as a REIT.

 

18


(vi) Ambiguity . In the case of an ambiguity in the application of any of the provisions of this Section 9, including Section 9(b) Section 9(c), or any definition contained in Section 9(a) or any defined term used in this Section 9 but defined elsewhere in these Articles Supplementary or the Declaration of Trust, the Board of Trustees shall have the power to determine the application of the provisions of this Section 9 with respect to any situation based on the facts known to it. In the event Section 9(b) or Section 9(c) requires an action by the Board of Trustees and these Articles Supplementary and the Declaration of Trust fail to provide specific guidance with respect to such action, the Board of Trustees shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Section 9(a), Section 9(b) or Section 9(c).

(vii) Exceptions .

(A) Subject to Section 9(b)(i)(A)(ii), the Board of Trustees, subject to the trustees’ duties under applicable law, may exempt (prospectively or retroactively) a Person from the Aggregate Share Ownership Limit and/or the Series A Ownership Limit, as the case may be, and, if necessary, shall establish or increase an Excepted Holder Limit for such Person, if the Board of Trustees determines, based on such representations, covenants and undertakings from such Person to the extent required by the Board of Trustees, and as are necessary or prudent to ascertain, as determined by the Board of Trustees in its sole discretion, that such exemption could not cause or permit:

(i) five or fewer Individuals to Beneficially Own more than 49% in value of the outstanding Equity Shares (taking into account the then current Series A Ownership Limit, Common Share Ownership Limit and Aggregate Share Ownership Limit, any then existing Excepted Holder Limits, and the Excepted Holder Limit of such Person); or

(ii) the Company to Constructively Own an interest in any tenant of the Company or any tenant of any entity directly or indirectly owned, in whole or in part, by the Company (for this purpose, the Board of Trustees may determine in its sole and absolute discretion that a tenant shall not be treated as a tenant of the Company if (a) the Company could not Constructively Own more than a 9.9% interest (that is described in Section 856(d)(2)(B) of the Code) in any such tenant; or (b) the Company (directly, or through an entity directly or indirectly owned, in whole or in part, by the Company) derives (and is expected to continue to derive) a sufficiently small amount of revenue from such tenant such that, in the opinion of the Board of Trustees, rent from such tenant would not adversely affect the Company’s ability to qualify as a REIT).

(B) Prior to granting any exception pursuant to Section 9(b)(vii)(A), the Board of Trustees may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Trustees in its sole and absolute discretion, as it may deem necessary or advisable in order to determine or ensure the Company’s status as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board of Trustees may impose such conditions or restrictions as it deems appropriate in connection with granting such exception.

(C) Subject to Section 9(b)(i)(A)(ii), an underwriter which participates in a public offering or a private placement of Series A Preferred Shares (or securities convertible into or exchangeable for Series A Preferred Shares) may Beneficially Own or Constructively Own Series A Preferred Shares (or securities convertible into or exchangeable for Series A Preferred Shares) in excess of the Series A Ownership Limit, the Aggregate Share Ownership Limit, or both such limits, but only to the extent necessary to facilitate such public offering or private placement.

 

19


(D) The Board of Trustees may only reduce the Excepted Holder Limit for an Excepted Holder: (1) with the written consent of such Excepted Holder at any time, or (2) pursuant to the terms and conditions of the agreements and undertakings entered into with such Excepted Holder in connection with the establishment of the Excepted Holder Limit for that Excepted Holder. No Excepted Holder Limit shall be reduced to a percentage that is less than the Series A Ownership Limit or the Aggregate Share Ownership Limit, as applicable.

(viii) Increase or Decrease in Series A Ownership Limit . Subject to Section 9(b)(i)(A)(ii) and the rest of this Section 9(b)(vii), the Board of Trustees may, in its sole and absolute discretion, from time to time increase or decrease the Series A Ownership Limit for one or more Persons; provided, however, that a decreased Series A Ownership Limit will not be effective for any Person who Beneficially Owns or Constructively Owns, as applicable, Series A Preferred Shares in excess of such decreased Series A Ownership Limit at the time such limit is decreased, until such time as such Person’s Beneficial Ownership or Constructive Ownership of Series A Preferred Shares, as applicable, equals or falls below the decreased Series A Ownership Limit, but any further acquisition of Series A Preferred Shares or increased Beneficial Ownership or Constructive Ownership of Series A Preferred Shares, during the period that such decreased Series A Ownership Limit is not effective with respect to such Person, will be in violation of the Series A Ownership Limit and, provided further, that the new Series A Ownership Limit (taking into account any then existing Excepted Holder Limits to the extent appropriate as determined by the Company) would not allow five or fewer Persons to Beneficially Own more than 49% in value of the outstanding Equity Shares.

(ix) Legend . Each certificate representing Series A Preferred Shares, if any, shall bear substantially the following legend, in addition to any other legend that may be required in order to comply with applicable federal and state laws:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE COMPANY’S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE ARTICLES SUPPLEMENTARY FOR THE SERIES A PREFERRED SHARES, (I) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN THE COMPANY’S SERIES A PREFERRED SHARES IN EXCESS OF THE SERIES A OWNERSHIP LIMIT UNLESS SUCH PERSON IS AN EXCEPTED HOLDER (IN WHICH CASE THE EXCEPTED HOLDER LIMIT SHALL BE APPLICABLE); (II) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN EQUITY SHARES (INCLUDING, WITHOUT LIMITATION, SERIES A PREFERRED SHARES) OF THE COMPANY IN EXCESS OF THE AGGREGATE SHARE OWNERSHIP LIMIT, UNLESS SUCH PERSON IS AN EXCEPTED HOLDER (IN WHICH CASE THE EXCEPTED HOLDER LIMIT SHALL BE APPLICABLE); (III) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES A PREFERRED SHARES THAT, TAKING INTO ACCOUNT OTHER EQUITY SHARES OF THE COMPANY BENEFICIALLY OR CONSTRUCTIVELY OWNED BY SUCH PERSON, WOULD RESULT IN THE

 

20


COMPANY (OR ANY DIRECT OR INDIRECT SUBSIDIARY OF THE COMPANY THAT INTENDS TO QUALIFY AS A REIT) BEING “CLOSELY HELD” UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE COMPANY (OR SUCH SUBSIDIARY) TO FAIL TO QUALIFY AS A REIT; AND (IV) NO PERSON MAY TRANSFER SERIES A PREFERRED SHARES IF SUCH TRANSFER WOULD RESULT IN THE EQUITY SHARES OF THE COMPANY BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES A PREFERRED SHARES WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES A PREFERRED SHARES IN EXCESS OR IN VIOLATION OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE COMPANY. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP SET FORTH IN (I) THROUGH (III) ABOVE ARE VIOLATED, THE SERIES A PREFERRED SHARES IN EXCESS OR IN VIOLATION OF THE ABOVE LIMITATIONS WILL BE AUTOMATICALLY TRANSFERRED TO A CHARITABLE TRUSTEE OF A CHARITABLE TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE COMPANY MAY TAKE OTHER ACTIONS, INCLUDING REDEEMING SHARES UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF TRUSTEES IN ITS SOLE AND ABSOLUTE DISCRETION IF THE BOARD OF TRUSTEES DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO . ALL CAPITALIZED TERMS IN THIS LEGEND HAVE THE MEANINGS DEFINED IN THE ARTICLES SUPPLEMENTARY FOR THE SERIES A PREFERRED SHARES, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF SERIES A PREFERRED SHARES OF THE COMPANY ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL OFFICE.

Instead of the foregoing legend, a certificate may state that the Company will furnish a full statement about certain restrictions on ownership and transfer of the shares to a shareholder on request and without charge.

(c) Transfer of Series A Preferred Shares in Trust .

(i) Ownership in Trust . Upon any purported Transfer or other event described in Section 9(b)(i)(B) that would result in a transfer of Series A Preferred Shares to a Charitable Trust, such Series A Preferred Shares shall be deemed to have been transferred to the Charitable Trustee as trustee of a Charitable Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the Charitable Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in the transfer to the Charitable Trust pursuant to Section 9(b)(i)(B). The Charitable Trustee shall be appointed by the Company and shall be a Person unaffiliated with the Company and any Prohibited Owner. Each Charitable Beneficiary shall be designated by the Company as provided in Section 9(c)(vi).

 

21


(ii) Status of Shares Held by the Charitable Trustee . Series A Preferred Shares held by the Charitable Trustee shall be issued and outstanding Series A Preferred Shares of the Company. The Prohibited Owner shall have no rights in the shares held by the Charitable Trustee. The Prohibited Owner shall not benefit economically from ownership of any shares held in trust by the Charitable Trustee, shall have no rights to dividends or other distributions and shall not possess any rights to vote or other rights attributable to the shares held in the Charitable Trust. The Prohibited Owner shall have no claim, cause of action, or any other recourse whatsoever against the purported transferor of such Series A Preferred Shares.

(iii) Dividend and Voting Rights . The Charitable Trustee shall have all voting rights and rights to dividends or other distributions with respect to Series A Preferred Shares held in the Charitable Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or other distribution paid prior to the discovery by the Company that the Series A Preferred Shares have been transferred to the Charitable Trustee shall be paid by the recipient of such dividend or other distribution to the Charitable Trustee upon demand and any dividend or other distribution authorized but unpaid shall be paid when due to the Charitable Trustee. Any dividend or distribution so paid to the Charitable Trustee shall be held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no voting rights with respect to shares held in the Charitable Trust and, subject to Maryland law, effective as of the date that the Series A Preferred Shares have been transferred to the Charitable Trustee, the Charitable Trustee shall have the authority (at the Charitable Trustee’s sole and absolute discretion) (i) to rescind as void any vote cast by a Prohibited Owner prior to the discovery by the Company that the Series A Preferred Shares have been transferred to the Charitable Trustee and (ii) to recast such vote in accordance with the desires of the Charitable Trustee acting for the benefit of the Charitable Beneficiary; provided, however, that if the Company has already taken irreversible corporate action, then the Charitable Trustee shall not have the authority to rescind and recast such vote. Notwithstanding the provisions of this Section 9, until the Company has received notification that Series A Preferred Shares have been transferred into a Charitable Trust, the Company shall be entitled to rely on its share transfer and other shareholder records for purposes of preparing lists of shareholders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes of shareholders.

(iv) Sale of Shares by Trustee . Within 20 days of receiving notice from the Company that Series A Preferred Shares have been transferred to the Charitable Trust, the Charitable Trustee of the Charitable Trust shall sell the shares held in the Charitable Trust to a Person or Persons, designated by the Charitable Trustee, whose ownership of the shares will not violate the ownership limitations set forth in Section 9(b)(i)(A). Upon such sale, the interest of the Charitable Beneficiary in the shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 9(c)(iv). The Prohibited Owner shall receive the lesser of (1) the price paid by the Prohibited Owner for the shares or, if the Prohibited Owner did not give value for the shares in connection with the event causing the shares to be held in the Charitable Trust ( e.g. , in the case of a gift, devise or other such transaction), the Market Price of the shares on the day of the event causing the shares to be held in the Charitable Trust and (2) the price per share received by the Charitable Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of the shares held in the Charitable Trust. The Charitable Trustee shall reduce the amount payable to the Prohibited Owner by the amount of dividends and other distributions which have been paid to the Prohibited Owner and are owed by the Prohibited Owner to the Charitable Trustee pursuant to Section 9(c)(iii). Any net sales proceeds in excess of the amount payable to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary. If, prior to the discovery by the Company that Series A Preferred Shares have been transferred to the Charitable Trustee, such shares are sold by a

 

22


Prohibited Owner, then (i) such shares shall be deemed to have been sold on behalf of the Charitable Trust and (ii) to the extent that the Prohibited Owner received an amount for such shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 9(c)(iv), such excess shall be paid to the Charitable Trustee upon demand.

(v) Purchase Right in Series A Preferred Shares Transferred to the Charitable Trustee . Series A Preferred Shares transferred to the Charitable Trustee shall be deemed to have been offered for sale to the Company, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in such transfer to the Charitable Trust (or, in the case of a gift, devise or other transaction, the Market Price at the time of such gift, devise or other transaction) and (ii) the Market Price on the date the Company, or its designee, accepts such offer. The Company shall reduce the amount payable to the Prohibited Owner by the amount of dividends and distributions which has been paid to the Prohibited Owner and are owed by the Prohibited Owner to the Charitable Trustee pursuant to Section 9(c)(iii). The Company shall pay the amount of such reduction to the Charitable Trustee for the benefit of the Charitable Beneficiary. The Company shall have the right to accept such offer until the Charitable Trustee has sold the shares held in the Charitable Trust pursuant to Section 9(c)(iv). Upon such a sale to the Company, the interest of the Charitable Beneficiary in the shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner.

(vi) Designation of Charitable Beneficiaries . By written notice to the Charitable Trustee, the Company shall designate one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Charitable Trust such that the Series A Preferred Shares held in the Charitable Trust would not violate the restrictions set forth in Section 9(b)(i)(A) in the hands of such Charitable Beneficiary. Neither the failure of the Company to make such designation nor the failure of the Company to appoint the Charitable Trustee before the automatic transfer provided for in Section 9(b)(i)(B)(i) shall make such transfer ineffective, provided that the Company thereafter makes such designation and appointment. The designation of a nonprofit organization as a Charitable Beneficiary shall not entitle such nonprofit organization to continue to serve in such capacity and the Company may, in its sole discretion, designate a different nonprofit organization as the Charitable Beneficiary at any time and for any or no reason, provided, however, that if a Charitable Beneficiary was designated at the time the Series A Preferred Shares were placed in the Charitable Trust, such Charitable Beneficiary shall be entitled to the rights set forth in herein with respect to such Series A Preferred Shares, unless and until the Company opts to purchase such shares.

(d) NYSE Transactions . Nothing in this Section 9 shall preclude the settlement of any transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system. The fact that the settlement of any transaction occurs shall not negate the effect of any other provision of this Section 9 and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Section 9.

(e) Enforcement . The Company is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this Section 9.

(f) Non-Waiver . No delay or failure on the part of the Company or the Board of Trustees in exercising any right hereunder shall operate as a waiver of any right of the Company or the Board of Trustees, as the case may be, except to the extent specifically waived in writing.

(g) Severability . If any provision of this Section 9 or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provisions shall be affected only to the extent necessary to comply with the determination of such court.

 

23


(h) Applicability of Section  9 . The provisions set forth in this Section 9 shall apply to the Series A Preferred Shares notwithstanding any contrary provisions of the Series A Preferred Shares provided for elsewhere in these Articles Supplementary.

Section 10. No Conversion Rights . The Series A Preferred Shares shall not be convertible into or exchangeable for any other property or securities of the Company or any other entity, except as otherwise provided herein.

Section 11. Record Holders . The Company and its transfer agent may deem and treat the record holder of any Series A Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Company nor its transfer agent shall be affected by any notice to the contrary.

Section 12. No Maturity or Sinking Fund . The Series A Preferred Shares have no maturity date, and no sinking fund has been established for the retirement or redemption of Series A Preferred Shares; provided , however , that the Series A Preferred Shares owned by a shareholder in excess of the Series A Ownership Limit or Aggregate Share Ownership Limit shall be subject to the provisions of Section 5 and Section 9 of these Articles Supplementary.

Section 13. Exclusion of Other Rights . The Series A Preferred Shares shall not have any preferences or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption other than expressly set forth in the Declaration of Trust and these Articles Supplementary.

Section 14. Headings of Subdivisions . The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

Section 15. Severability of Provisions . If any preferences or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of the Series A Preferred Shares set forth in the Declaration of Trust and these Articles Supplementary are invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other preferences or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of Series A Preferred Shares set forth in the Declaration of Trust which can be given effect without the invalid, unlawful or unenforceable provision thereof shall, nevertheless, remain in full force and effect and no preferences or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of the Series A Preferred Shares herein set forth shall be deemed dependent upon any other provision thereof unless so expressed therein.

Section 16. No Preemptive Rights . No holder of Series A Preferred Shares shall be entitled to any preemptive rights to subscribe for or acquire any unissued shares of beneficial interest of the Company (whether now or hereafter authorized) or securities of the Company convertible into or carrying a right to subscribe to or acquire shares of beneficial interest of the Company.

Section 17. Provision of Financial Information . Whether or not it is subject to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent permitted under the Exchange Act, file with the Securities and Exchange Commission (the “ SEC ”) the annual reports, quarterly reports and other

 

24


documents that the Company would have been required to file with the SEC pursuant to such Section 13 or 15(d) if it were so subject, such documents to be filed with the SEC on or prior to the respective dates (the “ Required Filing Dates ”) by which the Company would have been required so to file such documents if it were so subject. The Company will also in any event (1) within 15 days of each Required Filing Date transmit by mail or electronic transmittal to all holders, as their names and addresses appear in the security register, without cost to such holders, copies of the annual reports, quarterly reports and other documents that the Company is required to file or would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if it were subject to such sections, provided that the foregoing transmittal requirement will be deemed satisfied if the foregoing reports and documents are available on the SEC’s EDGAR system or on the Company’s website within the applicable time period specified above, and (2) if filing such documents with the SEC is not permitted under the Exchange Act, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective holder.

Section 18. Offer to Purchase .

(a) For so long as any Series A Preferred Shares are held by the Specified Holder, upon the occurrence of an Offer to Purchase Event (as defined below), the Company must offer to purchase the Series A Preferred Shares held by the Specified Holder within thirty (30) days after the first date on which such Offer to Purchase Event occurred at a purchase price equal to $25.00 per share, plus any accrued and unpaid dividends to, but not including, the payment date. If, prior to the Offer to Purchase Date (as defined below), the Company exercises any of its redemption rights relating to the Series A Preferred Shares (whether its Redemption Right or its Special Optional Redemption Right), the Company will not have the obligation to make the offer to purchase described in this Section 18 with respect to the shares called for redemption.

An “Offer to Purchase Event” means the occurrence of any of the following events: (i) a Change of Control, (ii) the merger, consolidation, sale of all or substantially all of the assets (which for the avoidance of doubt shall include a sale of all or substantially all of the assets comprising Master Trust A) or other similar transaction of the Company (including through its subsidiaries) with or into any other person in conjunction with which or within 12 months following the closing of which the asset management agreement, dated as of             , 2018, between the Company and Spirit Realty, L.P. is terminated, (iii) during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board of Trustees together with any new trustee(s) (other than a trustee designated by a person who entered into an agreement with the Company to effect a transaction described in the preceding clauses (i) or (ii) of this definition) whose election by the Board of Trustees or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the trustees then still in office who either were trustees at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iv) the approval by the shareholders of the Company of a liquidation or dissolution of the Company.

The “ Offer to Purchase Date ” is the date the Series A Preferred Shares are tendered to the Company for purchase, which will be a Business Day that is no fewer than two days nor more than 30 days after the date on which the Company provides notice to the Specified Holder of its offer to purchase.

(b) The Company will not be required to make an offer to purchase the Series A Preferred Shares held by the Specified Holder upon an Offer to Purchase Event if a related person of the Company within the meaning of Section 351(g)(2) of the Code makes an offer to purchase the Series A

 

25


Preferred Shares held by the Specified Holder in the manner, at the times and otherwise in compliance with the requirements set forth in these Articles Supplementary applicable to an offer to purchase made by the Company and purchases all the Series A Preferred Shares tendered for purchase by the Specified Holder. Notwithstanding anything to the contrary set forth in these Articles Supplementary, an offer to purchase may be made in advance of an Offer to Purchase Event and conditioned upon the consummation of such Offer to Purchase Event, if a definitive agreement is in place for the Offer to Purchase Event at the time the offer to purchase is made.

(c) If the terms of any indebtedness of the Company prohibit the Company from making an offer to purchase the Series A Preferred Shares held by the Specified Holder or from purchasing the Series A Preferred Shares tendered for purchase pursuant thereto, within sixty (60) days following an Offer to Purchase Event, the Company covenants to (i) repay in full all such indebtedness or (ii) obtain the requisite consent under such indebtedness to permit the purchase of the Series A Preferred Shares held by the Specified Holder as described in this Section 18. The Company must first comply with the covenant described in this Section 18 before it will be required to purchase the Series A Preferred Shares held by the Specified Holder in the event of an Offer to Purchase Event.

(d) The Company’s obligation to make the offer to purchase described in this Section 18 may be waived, in whole or in part, by the Specified Holder in the Specified Holder’s sole and absolute discretion.

THIRD : The Series A Preferred Shares have been classified and designated by the Board of Trustees under the authority contained in the Declaration of Trust.

FOURTH : These Articles Supplementary have been approved by the Board of Trustees in the manner and by the vote required by law.

FIFTH : These Articles Supplementary shall be effective at the time the Department accepts these Articles Supplementary for record.

SIXTH : The undersigned President acknowledges these Articles Supplementary to be the real estate investment trust act of the Company and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

[ Signature page follows ]

 

26


IN WITNESS WHEREOF, the Company has caused these Articles Supplementary to be executed in its name and on its behalf by its President and attested to by its Secretary as of the date first written above.

 

ATTEST:     SPIRIT MTA REIT

 

    By:  

 

Name:   Jay Young     Name:   Jackson Hsieh
Title:   Secretary     Title:   President

Exhibit 10.1

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (“Agreement”) is made and entered into as of the          day of                     , 20         , by and between Spirit MTA REIT, a Maryland trust (the “Company”), and                              (“Indemnitee”) .

WHEREAS, at the request of the Company, Indemnitee currently serves as a director of the Company and may, therefore, be subjected to claims, suits or proceedings arising as a result of his service; and

WHEREAS, as an inducement to Indemnitee to continue to serve as such director, the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law; and

WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses;

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section  1. Definitions. For purposes of this Agreement:

(a) “Adjudged” shall mean adjudged finally by a court or arbitral or other authority of competent jurisdiction and not subject to appeal.

(b) “Change of Control” means a change of control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change of Control shall be deemed to have occurred if, after the Effective Date: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of all of the Company’s then-outstanding securities entitled to vote generally in the election of directors without the prior approval of at least two-thirds of the members of the Board of Directors of the Company (the “Board of Directors”) in office immediately prior to such person’s attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not

 

-1-


approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) at any time, a majority of the members of the Board of Directors are not comprised of (A) individuals who were directors as of the Effective Date and/or (B) individuals whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by the affirmative vote of at least two-thirds of the directors then in office who were directors as of the Effective Date or whose election for nomination for election was previously so approved.

(c) “Corporate Status” means the status of a person as a present or former director, officer, employee or agent of the Company or as a director, trustee, officer, partner, member, manager or trustee.

(d) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification and/or advance of Expenses is sought by Indemnitee.

(e) “Effective Date” means the date set forth in the first paragraph of this Agreement.

(f) “Enterprise” means any foreign or domestic corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise in which Indemnitee is or was serving as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent at the request of the Company. As a clarification and without limiting the circumstances in which Indemnitee may be serving at the request of the Company, service by Indemnitee shall be deemed to be at the request of the Company if Indemnitee serves or served as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise (i) of which a majority of the voting power or equity interest is owned directly or indirectly by the Company or (ii) the management of which is controlled directly or indirectly by the Company.

(g) “Expenses” means any and all disbursements or expenses incurred by Indemnitee in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in or otherwise participating in a Proceeding, including, without limitation, reasonable attorneys’ fees and costs, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, and any

 

-2-


Employee Retirement Income Security Act of 1974, as amended (“ERISA”), excise taxes and penalties. Expenses shall also include (i) expenses incurred in connection with any appeal resulting from any Proceeding including, without limitation, the premium, security for and other costs relating to any cost bond, supersedeas bond or other appeal bond or its equivalent, (ii) expenses incurred in connection with recovery under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether the Indemnitee is ultimately determined to be entitled to such indemnification, advancement or expenses or insurance recovery, as the case may be, and (iii) expenses incurred by Indemnitee in establishing or enforcing his right to indemnification or reimbursement under this Agreement. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments, fines or penalties against Indemnitee (other than ERISA excise tax penalties).

(h) “Independent Counsel” means a law firm, or a member of a law firm, that is of outstanding reputation, experienced in matters of corporation law and neither is, nor in the past five years preceding the date of selection has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement or of other indemnitees under similar indemnification agreements); or (ii) any other party to or participant or witness in the Proceeding giving rise to a claim for indemnification or advance of Expenses hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel.

(i) “Proceeding” means any threatened, pending or completed action, suit, arbitration, mediation, alternate dispute resolution procedure, investigation, inquiry, administrative hearing or any other proceeding, whether brought by or in the right of the Company or otherwise and whether of a civil (including intentional or unintentional tort claims), criminal, administrative or investigative (formal or informal) nature, including any appeal therefrom, in which Indemnitee was, is, will or might be involved as a party or otherwise, by reason of any action taken by or omission by Indemnitee, or of any action or omission on Indemnitee’s part, in each case in or in connection with Indemnitee’s Corporate Status and whether or not acting or serving in such capacity at the time any liability or Expense is incurred for which indemnification, reimbursement or advancement of Expenses can be provided under this Agreement, except one pending or completed on or before the Effective Date, unless otherwise specifically agreed in writing by the Company and Indemnitee. If Indemnitee reasonably believes that a given situation may lead to or culminate in the institution of a Proceeding, such situation shall also be considered a

 

-3-


Proceeding. The term “Proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration or appeal of, and the giving of testimony in or related to, any threatened, pending or completed claim, action, suit or other proceeding, whether of a civil, criminal, administrative or investigative nature.

Section  2. Services by Indemnitee . The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce the Indemnitee to serve or continue to serve as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving or continuing to serve as a director. However, this Agreement shall not impose any independent obligation on Indemnitee or the Company to continue Indemnitee’s service to the Company. Indemnitee shall be entitled to resign or otherwise terminate such service with immediate effect at any time, and neither such resignation or termination nor the length of such service shall affect Indemnitee’s rights under this Agreement. This Agreement shall not be deemed an employment contract between the Company (or any other entity) and Indemnitee.

Section  3. General . The Company shall indemnify and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent not prohibited by Maryland law in effect on the Effective Date and as amended from time to time; provided, however , that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the Effective Date. The rights of Indemnitee provided in this Section  3 shall include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the Maryland General Corporation Law (the “MGCL”).

Section  4. Indemnification . If Indemnitee is, or is threatened to be, made a party to any Proceeding, the Company shall indemnify Indemnitee against all judgments, penalties, fines and amounts paid in settlement and all Expenses actually and reasonably incurred by him or on his behalf in connection with any such Proceeding unless (and only to the extent) it is established by clear and convincing evidence that (a) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, Indemnitee actually received an improper personal benefit in money, property or services or in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that the act or omission was unlawful.

Section  5. Certain Limits on Indemnification . Notwithstanding any other provision of this Agreement (other than Section  6) , Indemnitee shall not be entitled to:

(a) indemnification hereunder if the Proceeding was one by or in the right of the Company and Indemnitee is Adjudged to be liable to the Company;

 

-4-


(b) indemnification hereunder if Indemnitee is Adjudged to be liable on the basis that personal benefit was improperly received in any Proceeding charging improper personal benefit to Indemnitee; or

(c) indemnification or advance of Expenses hereunder if the Proceeding was brought by Indemnitee unless: (i) the Proceeding was brought to establish or enforce indemnification rights under this Agreement, and then only to the extent in accordance with and as authorized by Section  12 of this Agreement; or (ii) the Company’s charter or Bylaws, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise.

Section  6. Court-Ordered Indemnification . Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court shall require, may order indemnification in the following circumstances:

(a) if it determines Indemnitee is entitled to reimbursement under Section 2-418(d)(I) of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to recover the Expenses of securing such reimbursement; or

(b) if it determines that Indemnitee is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standards of conduct set forth in Section 2-418(b) of the MGCL or (ii) has been Adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification as the court shall deem proper. However, indemnification with respect to any Proceeding by or in the right of the Company or in which liability shall have been Adjudged in the circumstances described in Section 2-418(c) of the MGCL shall be limited to Expenses.

Section  7. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, and without limiting any such provision, to the extent that Indemnitee was or is made a party to (or otherwise becomes a participant in) any Proceeding and is successful, on the merits or otherwise, in the defense of such Proceeding, Indemnitee shall be indemnified for all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify

 

-5-


Indemnitee under this Section  7 for all Expenses actually and reasonably incurred by him or on his behalf in connection with each such claim, issue or matter, allocated on a reasonable and proportionate basis. For purposes of this Section  7 and, without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section  8. Advance of Expenses for a Party . lf Indemnitee was, is, or is threatened to be, made a party to any Proceeding, the Company shall, without requiring a preliminary determination of Indemnitee’s ultimate entitlement to indemnification hereunder, advance all Expenses incurred by or on behalf of Indemnitee in connection with such Proceeding within ten days after the receipt by the Company of a statement or statements requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by law and by this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the Company for any Expenses advanced to Indemnitee relating to claims, issues or matters in the Proceeding as to which it shall ultimately be established that the standard of conduct set forth in Exhibit A has not been met by Indemnitee and which have not been successfully resolved as described in Section  7 of this Agreement. Advances shall be interest-free and unsecured. The undertaking required by this Section  8 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee’s financial ability to repay such advanced Expenses and without any requirement to post security therefor.

Section  9. Indemnification and Advance of Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee was, is or may be made a witness or otherwise asked to participate in any Proceeding, whether instituted by the Company or any other party, and to which Indemnitee is not a party, he shall be advanced all reasonable Expenses and indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith within ten days after the receipt by the Company of a statement or statements requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee. Advances shall be interest-free and unsecured.

Section  10. Procedure for Determination of Entitlement to Indemnification .

 

-6-


(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification; provided that any failure or delay in giving such notice shall not relieve the Company of its obligations under this Agreement unless and to the extent that (i) none of the Company or its subsidiaries are party to or aware of such Proceeding and (ii) the Company is materially prejudiced by such failure or delay. Indemnitee may submit one or more such requests from time to time and at such time(s) as Indemnitee deems appropriate in his sole discretion. The officer of the Company receiving any such request from Indemnitee shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b) Upon written request by Indemnitee for indemnification pursuant to Section  10(a) above, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall promptly be made in the specific case: (i) if a Change of Control has occurred, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, which Independent Counsel shall be selected by the Indemnitee and approved by the Board of Directors in accordance with Section 2-4 I 8(e)(2)(ii) of the MGCL, which approval will not be unreasonably withheld or delayed; or (ii) if a Change of Control has not occurred, (A) by the Board of Directors by a majority vote of a quorum consisting entirely of Disinterested Directors or, if such a quorum cannot be obtained, then by a majority vote of a duly authorized committee of the Board of Directors consisting solely of one or more Disinterested Directors, (B) if Independent Counsel has been selected by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL and approved by the Indemnitee, which approval shall not be unreasonably withheld or delayed, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee or (C) if so directed by a majority of the members of the Board of Directors, by the stockholders of the Company. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination in the discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B) of this Section  10(b) . Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.

 

-7-


(c) The Company shall pay the reasonable fees and expenses of Independent Counsel, if one is appointed.

Section 11. Presumptions and Effect of Certain Proceedings .

(a) In making any determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section  10(a) of this Agreement, and the Company shall have the burden of proof and the burden of persuasion by clear and convincing evidence to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, upon a plea of nolo contendere or its equivalent, or entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.

(c) The knowledge and/or actions, or failure to act, of any other director, officer, employee or agent of the Company or any other director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any Enterprise shall not be imputed to Indemnitee for purposes of determining any other right to indemnification under this Agreement.

(d) For purposes of this Agreement, Indemnitee shall be considered to have been wholly successful with respect to any Proceeding if such Proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to Indemnitee, (ii) it being Adjudged that Indemnitee was liable to the Company, (iii) a plea of guilty by Indemnitee, (iv) it being Adjudged that an act or omission of Indemnitee was material to the matter giving rise to the Proceeding and was (A) committed in bad faith or (B) the result of Indemnitee’s active and deliberate dishonesty, (v) it being Adjudged that Indemnitee actually received an improper personal benefit in money, property or services or (vi) with respect to any criminal proceeding, it being Adjudged that Indemnitee had reasonable cause to believe the act or omission was unlawful.

 

-8-


Section 12. Remedies of Indemnitee .

(a) If (i) a determination is made pursuant to Section  10(b) of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Section  8 or Section  9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section l0(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section  7 of this Agreement within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification pursuant to any other section of this Agreement or the charter or Bylaws of the Company is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court located in the State of Maryland, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advance of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence a proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section  12(a); provided, however, that the foregoing clause shall not apply to a proceeding brought by Indemnitee to enforce his rights under Section  7 of this Agreement. Except as set forth herein, the provisions of Maryland law (without regard to its conflicts of laws rules) shall apply to any such arbitration. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b) In any judicial proceeding or arbitration commenced pursuant to this Section  12 , Indemnitee shall be presumed to be entitled to indemnification or advance of Expenses, as the case may be, under this Agreement and the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section  12 , Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section of this Agreement until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed). The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section  12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all of the provisions of this Agreement.

(c) If a determination shall have been made pursuant to Section l0(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section  12 , absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification that was not introduced in evidence in connection with the determination.

 

-9-


(d) In the event that Indemnitee, pursuant to this Section  12 , seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to advancement from the Company for any and all Expenses actually and reasonably incurred by him in such judicial adjudication or arbitration in accordance with this Agreement; provided, however, that if Indemnitee’s claim pursuant to this Section  12 is unsuccessful, then all such Expenses advanced to Indemnitee by the Company shall be repaid by Indemnitee to the Company.

(e) Interest shall be paid by the Company to Indemnitee at the maximum rate allowed to be charged for judgments under the Courts and Judicial Proceedings Article of the Annotated Code of Maryland for amounts which the Company pays or is obligated to pay for the period commencing with the date that is the tenth day following the date on which the Indemnitee requests indemnification or advancement of Expenses in accordance with this Agreement and ending on the date such payment is made to Indemnitee by the Company.

Section 13. Defense of the Underlying Proceeding .

(a) Indemnitee shall notify the Company promptly in writing upon being served with any summons, citation, subpoena, complaint, indictment, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder and shall include with such notice a description of the nature of the Proceeding and a summary of the facts underlying the Proceeding. The failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company’s ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

(b) Subject to the provisions of the last sentence of this Section  13(b) and of Section l3(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder using a law firm of the Company’s choice, subject to the prior written approval of the Indemnitee, which shall not be unreasonably withheld or delayed; provided, however, that the Company shall notify Indemnitee in writing of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section l 3(a) above. Indemnitee shall have the right to retain a separate law firm in any such Proceeding at

 

-10-


Indemnitee’s sole expense. The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee, (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee or (iii) would impose any Expense, judgment, fine, penalty or limitation on Indemnitee. This Section l3(b) shall not apply to a Proceeding brought by Indemnitee under Section  12 of this Agreement, a Proceeding by or in the right of the Company or in the case of clause (ii) of Section  13(c).

(c) Notwithstanding the provisions of Section  13(b) above, if in a Proceeding to which Indemnitee is a party (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld or delayed, that he may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee’s choice, subject, except in the case of (ii) or (iii) above, to the prior approval of the Company, which shall not be unreasonably withheld or delayed, at the expense of the Company. In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee’s choice, at the expense of the Company (subject to Section  12(d) of this Agreement), to represent Indemnitee in connection with any such matter.

Section 14. Jointly Indemnifiable Claims .

(a) Given that certain Jointly Indemnifiable Claims may arise, the Company acknowledges and agrees that the Company shall, and to the extent applicable shall cause any Enterprise to (i) be fully and primarily responsible for, and be the indemnitor of first resort with respect to, payment to or payment on behalf of the Indemnitee in respect of indemnification or advancement of Expenses in connection with any such Jointly Indemnifiable Claim, irrespective of any right of recovery the Indemnitee may have from the Third-Party Indemnitors, and (ii) be required to advance the full amount of Expenses incurred by the Indemnitee and shall be liable for the full amount of all Expenses, judgments, fines, penalties and amounts paid in settlement to the extent not prohibited by (and not merely to the extent affirmatively permitted by) applicable law and as required by the terms of this Agreement, without regard to any rights the Indemnitee may have against the Third-Party Indemnitors. Under no circumstance shall the Company or any

 

-11-


Enterprise be entitled to, and the Company hereby irrevocably waives, relinquishes and releases, any claims against the Third-Party Indemnitors for subrogation, contribution or recovery of any kind and no right of advancement or recovery the Indemnitee may have from the Third-Party Indemnitors shall reduce or otherwise alter the rights of the Indemnitee or the obligations of the Company or any Enterprise. The Company further agrees that no advancement or payment by any Third-Party Indemnitor on behalf of Indemnitee with respect to any Proceeding for which Indemnitee has sought indemnification rights from the Company shall affect the foregoing and the Third-Party Indemnitor(s) shall have a right to receive from the Company, contribution and/or be subrogated, to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and the Indemnitee agree that each of the Third-Party Indemnitors shall be third-party beneficiaries with respect to this Agreement entitled to enforce this Section  14 as though each such Third-Party Indemnitor were a party to this Agreement.

(b) For purposes of this Agreement “Third-Party Indemnitor” means any person or entity that has or may in the future provide to the Indemnitee any indemnification or Expense advancement rights and/or insurance benefits other than (i) the Company, (ii) any Enterprise and (iii) any entity or entities through which the Company maintains liability insurance applicable to the Indemnitee.

(c) For purposes of this Agreement, “Jointly Indemnifiable Claims” shall mean any Proceeding for which the Indemnitee shall be entitled to indemnification, advancement of Expenses or insurance from (i) the Company and/or any Enterprise pursuant to this Agreement, the charter or Bylaws or other governing documents of the Company or any Enterprise, any agreement or a resolution of the stockholders of the Company entitled to vote generally in the election of directors or of the Board of Directors, or otherwise, on the one hand, and (ii) any Third-Party Indemnitor pursuant to any agreement between any Third-Party Indemnitor and the Indemnitee pursuant to which the Indemnitee is indemnified, the laws of the jurisdiction of incorporation or organization of any Third-Party Indemnitor and/or the certificate of incorporation, certificate of organization, bylaws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership or other organizational or governing documents of any Third-Party Indemnitor, on the other hand.

 

-12-


Section  15. Non-Exclusivity; Survival of Rights; Subrogation .

(a) The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the charter or Bylaws or other governing documents of the Company or any Enterprise, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise. Unless consented to in writing by Indemnitee, no amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in or by reason of his Corporate Status prior to such amendment, alteration or repeal, regardless of whether a claim with respect to such action or inaction is raised prior or subsequent to such amendment, alteration or repeal. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right or remedy shall be cumulative and in addition to every other right or remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion of any right or remedy hereunder, or otherwise, shall not prohibit the concurrent assertion or employment of any other right or remedy.

(b) Except as set forth in Section  14 , in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

Section  16. Insurance. The Company will use its reasonable best efforts to acquire directors and officers liability insurance, on terms and conditions deemed appropriate by the Board of Directors, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee by reason of his Corporate Status or by reason of alleged actions or omissions by Indemnitee in such capacity and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against Indemnitee by reason of his Corporate Status or by reason of alleged actions or omissions by Indemnitee in such capacity. Without in any way limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all judgments, penalties, fines, settlements and Expenses incurred by Indemnitee in connection with a Proceeding over the coverage of any insurance referred to in the previous sentence. The purchase, establishment and maintenance of any such insurance shall not in any way limit or affect the rights or obligations of the Company or Indemnitee under this Agreement except as expressly provided herein, and the

 

-13-


execution and delivery of this Agreement by the Company and the Indemnitee shall not in any way limit or affect the rights or obligations of the Company under any such insurance policies. If, at the time the Company receives notice from any source of a Proceeding to which Indemnitee is a party or a participant (as a witness or otherwise) the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies.

Section  17. Coordination of Payments. Except as set forth in Section  14 , the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

Section 18. Contribution . If the indemnification provided in this Agreement is unavailable in whole or in part and may not be paid to Indemnitee for any reason, other than for failure to satisfy the standard of conduct set forth in Section 4 or due to the provisions of Section 5, then, with respect to any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), to the fullest extent permissible under applicable law, the Company, in lieu of indemnifying and holding harmless Indemnitee, shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for Expenses, judgments, penalties, and/or amounts paid or to be paid in settlement, in connection with any Proceeding without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have at any time against Indemnitee.

Section  19. Reports to Stockholders . To the extent required by the MGCL, the Company shall report in writing to its stockholders the payment of any amounts for indemnification of, or advance of Expenses to, Indemnitee under this Agreement arising out of a Proceeding by or in the right of the Company with the notice of the meeting of stockholders of the Company next following the date of the payment of any such indemnification or advance of Expenses or prior to such meeting.

Section 20. Duration of Agreement; Binding Effect .

(a) This Agreement shall be effective as of the Effective Date and may apply to acts or omissions of Indemnitee taken in or in connection with Indemnitee’s Corporate Status which occurred prior to such date if Indemnitee was an officer, director, employee or agent of the Company or was a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any Enterprise at the time such act or omission occurred.

(b) This Agreement shall continue until and terminate on the later of (i) the date that Indemnitee shall have ceased to serve as a director, officer, employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any Enterprise and (ii) the date that Indemnitee is no longer subject to any actual or possible Proceeding (including any rights of appeal thereto and any Proceeding commenced by Indemnitee pursuant to Section  12 of this Agreement).

(c) The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or

 

-14-


substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any Enterprise, and shall inure to the benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(d) The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

(e) The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which he may be entitled. Indemnitee shall further be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertakings in connection therewith. The Company acknowledges that, in the absence of a waiver, a bond or undertaking may be required of Indemnitee by a court, and the Company hereby waives any such requirement of such a bond or undertaking.

Section  21. Section  409A . It is intended that any indemnification payment or advancement of Expenses made hereunder shall be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, and the guidance issued thereunder (“Section 409A”) pursuant to Treasury Regulation Section l .409A-l (b)(10). Notwithstanding the foregoing, if any indemnification payment or advancement of Expenses made hereunder shall be determined to be “nonqualified deferred compensation” within the meaning of Section 409A, then (i) the amount of the indemnification payment or advancement of Expenses during one taxable year shall not affect the amount of the indemnification payments or advancement of Expenses during any other taxable year, (ii) the indemnification

 

-15-


payments or advancement of Expenses must be made on or before the last day of the Indemnitee’s taxable year following the year in which the expense was incurred, and (iii) the right to indemnification payments or advancement of Expenses hereunder is not subject to liquidation or exchange for another benefit.

Section  22. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section  23. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.

Section  24. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section  25 . Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor, unless otherwise expressly stated, shall such waiver constitute a continuing waiver.

Section  26. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

 

-16-


(a) If to Indemnitee, to the address set forth on the signature page hereto.

(b) If to the Company, to:

Spirit MTA REIT

2727 N. Harwood Street, Suite 300

Dallas, TX 75201

Attn: Jay Young, General Counsel

or to such other address as may have been furnished in writing to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section  27. Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland, without regard to its conflicts of laws rules.

Section  28. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.

[SIGNATURE PAGE FOLLOWS]

 

-17-


EXHIBIT A

FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED

The Board of Directors of Spirit MTA REIT (SMTA)

Re: Undertaking to Repay Expenses Advanced

Ladies and Gentleman,

This undertaking is being provided pursuant to that certain Indemnification Agreement dated                     by and between SMTA and the undersigned Indemnitee (“ Indemnification Agreement ”) pursuant to which I am entitled to advance Expenses in connection with [DESCRIPTION OF PROCEEDINGS] (the “ Proceeding ”).

Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.

I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity. I hereby affirm my good belief that at all times, insofar as I was involved as [a director] [an officer] of the Company, in any of the facts or events giving rise to the Proceeding, I (1) did not act with bad faith or active or deliberate dishonesty, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.

In consideration of the advance of Expenses by the Company for reasonable attorneys’ fees and related Expenses incurred by me in connection with the Proceeding (the “Advanced Expenses”), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established.


IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this         day of                 20

 

 

 

Name:

Exhibit 10.2

ASSET MANAGEMENT AGREEMENT

dated as of             , 2018

between

SPIRIT MTA REIT

and

SPIRIT REALTY, L.P.

 

 


TABLE OF CONTENTS

 

SECTION 1.

    

DEFINITIONS

     1  

SECTION 2.

    

APPOINTMENT AND DUTIES OF THE MANAGER

     6  

SECTION 3.

    

DEVOTION OF TIME; ADDITIONAL ACTIVITIES

     10  

SECTION 4.

    

AGENCY

     11  

SECTION 5.

    

BANK ACCOUNTS

     11  

SECTION 6.

    

RECORDS; CONFIDENTIALITY

     11  

SECTION 7.

    

OBLIGATIONS OF MANAGER; RESTRICTIONS.

     12  

SECTION 8.

    

COMPENSATION

     12  

SECTION 9.

    

EXPENSES

     13  

SECTION 10.

    

LIMITS OF MANAGER RESPONSIBILITY; INDEMNIFICATION

     15  

SECTION 11.

    

NO JOINT VENTURE

     16  

SECTION 12.

    

TERM; TERMINATION

     16  

SECTION 13.

    

TERMINATION FEE

     17  

SECTION 14.

    

PROMOTE

     17  

SECTION 15.

    

ASSIGNMENT

     18  

SECTION 16.

    

ACTION UPON TERMINATION

     19  

SECTION 17.

    

RELEASE OF MONEY OR OTHER PROPERTY UPON WRITTEN REQUEST

     19  

SECTION 18.

    

NOTICES

     20  

SECTION 19.

    

BINDING NATURE OF AGREEMENT; SUCCESSORS AND ASSIGNS

     20  

SECTION 20.

    

ENTIRE AGREEMENT

     20  

SECTION 21.

    

ARBITRATION

     20  


SECTION 22.

    

NAME LICENSE

     23  

SECTION 23.

    

CONTROLLING LAW

     23  

SECTION 24.

    

INDULGENCES, NOT WAIVERS

     23  

SECTION 25.

    

TITLES NOT TO AFFECT INTERPRETATION

     23  

SECTION 26.

    

EXECUTION IN COUNTERPARTS

     24  

SECTION 27.

    

PROVISIONS SEPARABLE

     24  

 


ASSET MANAGEMENT AGREEMENT

THIS ASSET MANAGEMENT AGREEMENT (this “ Agreement ”) is made as of             , 2018 by and between Spirit MTA REIT, a Maryland real estate investment trust (the “ Company ”), and Spirit Realty, L.P., a Delaware limited partnership (together with its permitted assignees, the “ Manager ”).

WHEREAS, the Company desires to avail itself of the experience, sources of information, advice, assistance and certain facilities of, or available to, the Manager and to have the Manager undertake the duties and responsibilities hereinafter set forth, on behalf of the Company, as provided in this Agreement; and

WHEREAS, the Manager is willing to render such services on the terms and conditions hereinafter set forth.

NOW THEREFORE, IN CONSIDERATION OF THE MUTUAL AGREEMENTS HEREIN SET FORTH, THE PARTIES HERETO AGREE AS FOLLOWS:

SECTION 1. DEFINITIONS.

The following terms have the meanings assigned to them:

AAA ” has the meaning set forth in Section 21 of this Agreement.

Affiliate ” means, with respect to any Person, (i) any other Person directly or indirectly controlling, controlled by, or under common control with such Person, (ii) any executive officer, general partner or managing member of such Person, (iii) any member of the board of directors or board of managers (or bodies performing similar functions) of such Person, and (iv) any legal entity for which such Person acts as an executive officer, general partner or managing member. For purposes of this Agreement, the Company shall not be considered an Affiliate of the Manager.

Agreement ” means this Asset Management Agreement, as amended from time to time.

Appellate Rules ” has the meaning set forth in Section 21 of this Agreement.

Award ” has the meaning set forth in Section 21 of this Agreement.

Board of Trustees ” means the board of trustees of the Company.

Change in Control ” shall mean the occurrence of any of the following events:

(i) a transaction or series of transactions whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company or any Subsidiary of the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

 

1


(ii) during any period of two (2) consecutive years, individuals who, at the beginning of such period, constitute the Board of Trustees together with any new trustee(s) (other than a trustee designated by a person who shall have entered into an agreement with the Company to effect a transaction described in the preceding clause (i) or the succeeding clause (iii) of this definition) whose election by the Board of Trustees or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the trustees then still in office who either were trustees at the beginning of the two (2)-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(iii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (A) a merger, consolidation, reorganization, or business combination, (B) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (C) the acquisition of assets or stock of another entity, in each case, other than a transaction:

(1) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “ Successor Entity ”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and following which the Successor Entity continues to own all or substantially all the assets that the Company owned immediately before the transaction and succeeds to its business, and

(2) after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (iii)(2) as beneficially owning fifty percent (50%) or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

(iv) approval by the Company’s shareholders of a liquidation or dissolution of the Company.

Code ” means the Internal Revenue Code of 1986, as amended.

Common Share ” means a common share of beneficial interest, par value $0.01 per share, of the Company now or hereafter authorized as common voting shares of the Company.

Company ” has the meaning set forth in the preamble to this Agreement.

Company Account ” has the meaning set forth in Section 5 of this Agreement.

Company Indemnified Party ” has the meaning set forth in Section 10 of this Agreement.

Company TSR Percentage ” means the XIRR, expressed as a percentage (rounded to the nearest tenth of a percent (0.1%)), during the Measurement Period due to the appreciation in the price per Common Share, plus dividends declared during the Measurement Period, assuming dividends are reinvested in Common Shares on the date that they were paid (at a price equal to the closing price per Common Share on the applicable dividend payment date); provided, however, that for purposes of calculating the Company TSR Percentage, the initial share price shall equal the Initial Price Per Share and the final share price as of any given date shall equal the Share Value.

 

2


Company TSR Amount ” means the sum of the price per Common Share on the last day of the Measurement Period, plus the sum of all dividends declared during the Measurement Period, assuming dividends are reinvested in Common Shares on the date that they were paid (at a price equal to the closing price per Common Share on the applicable dividend payment date); provided, however, that for purposes of calculating the Company TSR Amount, the initial share price shall equal the Initial Price Per Share and the final share price as of any given date shall equal the Share Value.

Conflicts of Interest Policy ” refers to the conflicts of interest policy included in the Investment Manual.

Disputes ” has the meaning set forth in Section 21 of this Agreement.

Distribution Date ” means May 31, 2018.

Effective Termination Date ” means the earliest to occur of (i) the date designated by the Company pursuant to Section 12(b)(i) or Section 12(c)(i) on which the Manager shall cease to provide services under this Agreement and (ii) the effective date of termination of this Agreement pursuant to Section 12(b)(ii) and Section 12(c)(ii).

Excess Funds ” has the meaning set forth in Section 2(i) of this Agreement.

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

GAAP ” means generally accepted accounting principles in the United States.

Governing Instruments ” means, with regard to any entity, the declaration of trust and bylaws in the case of a real estate investment trust, the articles of incorporation and bylaws in the case of a corporation, the certificate of limited partnership (if applicable) and the partnership agreement in the case of a general or limited partnership, the articles of formation and the operating agreement in the case of a limited liability company, or, in each case, comparable governing documents.

Hurdle TSR Amount ” means an indicative price per Common Share on the last day of the Measurement Period calculated assuming appreciation in the price per Common Share based on a specified Company TSR Percentage during the Measurement Period; provided, however, that for purposes of calculating the Hurdle TSR Amount, the initial share price shall equal the Initial Price Per Share.

Indemnified Party ” has the meaning set forth in Section 10 of this Agreement.

Independent Trustees ” means the members of the Board of Trustees who are not officers or employees of the Manager, and who are otherwise “independent” in accordance with the Company’s Governing Instruments and the rules of the NYSE or such other securities exchange on which the Common Shares are listed.

Initial Price Per Share ” means the VWAP per Common Share for the 30 consecutive trading days on the principal exchange on which such shares are then traded immediately following the Distribution Date.

 

3


Investment Manual ” means the investment manual approved by the Board of Trustees, as the same may amended, restated, modified, supplemented or waived pursuant to the approval of a majority of the entire Board of Trustees from time to time (which must include a majority of the Independent Trustees).

Investments ” means the investments of the Company.

Investment Company Act ” means the Investment Company Act of 1940, as amended.

Licensed Name ” has the meaning set forth in Section 22 of this Agreement.

Losses ” has the meaning set forth in Section 10 of this Agreement.

License Term ” has the meaning set forth in Section 22 of this Agreement.

Management Fee ” has the meaning set forth in Section 8(a) of this Agreement.

Management Fee PIK Event ” means (i) the good faith determination by the Board of Trustees that forgoing the payment of all or any portion of the monthly installment of the Management Fee is necessary for the Company to have sufficient funds to declare and pay dividends required to be paid in cash in order for the Company to maintain its status as a REIT under the Code and to avoid incurring income or excise taxes, or (ii) the occurrence and continuance of an “Early Amortization Event,” “Event of Default” or “Sweep Period,” in each case, as defined under the Second Amended and Restated Master Indenture, dated as of May 20, 2014, among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., as amended and supplemented from time to time, such definitions not to be revised, modified or amended without prior written consent by Manager.

Manager ” has the meaning set forth in the preamble to this Agreement.

Measurement Period ” means the period commencing on the Distribution Date and ending upon the earlier of (i) the Effective Termination Date and (ii) the date that is 36 full calendar months after the Distribution Date.

Notice of Proposal to Negotiate ” has the meaning set forth in Section 12(b)(i) of this Agreement.

NYSE ” means the New York Stock Exchange.

Operating Partnership ” means Spirit MTA REIT, L.P., a Delaware limited partnership, of which Spirit MTA OP Holdings, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company, is the sole general partner. The Company is the managing member of Spirit MTA OP Holdings, LLC.

Original Term ” has the meaning set forth in Section 12(a) of this Agreement.

Person ” means any natural person, corporation, partnership, association, limited liability company, estate, trust, joint venture, any federal, state, county or municipal government or any bureau, department or agency thereof or any other legal entity and any fiduciary acting in such capacity on behalf of the foregoing.

Preferred Share ” means a share of share capital of the Company now or hereafter authorized or reclassified that has dividend rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the Common Shares.

 

4


Promote ” has the meaning set forth in Section 14 of this Agreement.

Property Management Agreement ” means the Second Amended and Restated Property Management and Servicing Agreement dated May 20, 2014, by and among Spirit Realty, L.P., Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Midland Loan Services, a division of PNC Bank, National Association, as subsequently amended.

REIT ” means a real estate investment trust under the Code.

Renewal Term ” has the meaning set forth in Section 12(a) of this Agreement.

Rules ” has the meaning set forth in Section 21 of this Agreement.

SEC ” means the U.S. Securities and Exchange Commission.

Securities Act ” means the Securities Act of 1933, as amended.

Series A Preferred Shares ” means the Series A preferred shares of the Company, par value $0.01 per share.

Share Value ,” as of any given date, means the VWAP per Common Share for the 10 consecutive trading days on the principal exchange on which such shares are then traded immediately preceding such date; provided, however, that if a Change in Control causes the end of the Measurement Period, Share Value shall mean the price per Common Share paid by the acquiror in the Change in Control transaction or, to the extent that the consideration in the Change in Control transaction is paid in stock of the acquiror or its affiliates, the Share Value shall mean the value of the consideration paid per Common Share based on the VWAP per share of such acquiror stock for the 10 consecutive trading days on the principal exchange on which such shares are then traded immediately preceding the date on which a Change in Control occurs.

Subsidiary ” means any subsidiary of the Company and any partnership, the general partner of which is the Company or any subsidiary of the Company and any limited liability company, the managing member of which is the Company or any subsidiary of the Company.

Termination Fee ” has the meaning set forth in Section 13 of this Agreement.

Termination Notice ” has the meaning set forth in Section 12(b)(i) of this Agreement.

Transition Services Agreement ” has the meaning set forth in Section 12(b)(i) of this Agreement.

VWAP ” means the volume weighted average price.

XIRR ” means the Extended Internal Rate of Return as calculated by using the “=XIRR” function in Microsoft Excel.

 

5


SECTION 2. APPOINTMENT AND DUTIES OF THE MANAGER.

(a) The Company hereby appoints the Manager to manage the assets of the Company, subject to the further terms and conditions set forth in this Agreement, and the Manager hereby agrees to use its commercially reasonable efforts to perform each of the duties set forth herein. The appointment of the Manager shall be exclusive to the Manager, except to the extent that the Manager elects, pursuant to the terms and conditions of this Agreement, to cause the duties of the Manager hereunder to be provided by third parties.

(b) The Manager, in its capacity as manager of the assets and the day-to-day operations of the Company (and all subsidiaries and joint ventures of the Company), at all times will be subject to the supervision, direction and management of the Board of Trustees and will have only such functions and authority as the Company may delegate to it. The Company hereby reserves to a majority of the Board of Trustees (three (3) of whom must be independent) the following powers:

(i) the authority to determine or change the strategic direction of the Company at any time and in the sole discretion of the Board of Trustees;

(ii) the approval of prospective Investments, to the extent required by the Investment Manual or the Conflicts of Interest Policy, which may not be amended in a manner that is detrimental to the Company without approval by a majority of the Independent Trustees, it being understood that the Board of Trustees shall have the power to reject prospective Investments, even if such Investments comply with the criteria outlined in the Investment Manual;

(iii) the approval or disapproval of prospective dispositions of Investments, to the extent required by the Investment Manual, as it may be amended by the Board of Trustees from time to time;

(iv) the approval of the terms of loan documents for the Company’s financings;

(v) the approval of the Company’s annual budget (which shall address in reasonable detail, among other matters, financing plans and capital planning, it being understood that the Manager will submit such budget in advance to the Board of Trustees for review and approval, and will provide quarterly updates of performance against the annual budget to the Board of Trustees;

(vi) the approval of the retention of the Company’s registered public accountants;

(vii) the approval of any material transaction between the Company and the Manager and its Affiliates, other than transactions pursuant to this Agreement, the Property Management Agreement and other transactions in effect as of the Distribution Date;

(viii) the issuance of equity or debt securities by the Company;

(ix) the grant of equity incentive awards by the Company;

(x) the entry into joint ventures by the Company or its Subsidiaries;

(xi) the approval of entry into any transaction that would constitute a Change in Control; and

 

6


(xii) such other matters as may be determined by the Board of Trustees from time to time.

(c) The Company, subject to Section 2(b), hereby delegates the following functions and authority to the Manager. Subject to the Section 2(b), the Manager will be responsible for managing the assets and the day-to-day operations of the Company and will perform (or cause to be performed) such services and activities relating to the assets and operations of the Company as may be appropriate, including, without limitation:

(i) sourcing, investigating and evaluating prospective Investments and dispositions of Investments, subject to and consistent with the Investment Manual, and making recommendations with respect thereto to the Board of Trustees, where applicable;

(ii) subject to and consistent with the Investment Manual, conducting negotiations with brokers, sellers and purchasers, and their respective agents and representatives, investment bankers and owners of privately and publicly held real estate or related assets, regarding the purchase, sale, exchange or other disposition of any Investments;

(iii) managing and monitoring the operating performance of Investments and providing periodic reports to the Board of Trustees, including comparative information with respect to such operating performance and budgeted or projected operating results;

(iv) assisting the Company in developing criteria that are specifically tailored to the Company’s investment objectives and making available to the Company the Manager’s knowledge and experience with respect to its target assets;

(v) engaging and supervising independent contractors that provide services relating to the Company or the Investments, including, but not limited to, investment banking, legal or regulatory advisory, tax advisory, accounting advisory, securities brokerage, property management/operations, property condition, real estate and leasing advisory and brokerage, and other financial and consulting services reasonably necessary for Manager to perform its duties hereunder (it being understood that the Board of Trustees and its Audit Committee shall retain authority to determine the Company’s independent public accountant and that the Independent Trustees and any committee of the Board of Trustees shall retain the authority to hire its or their own attorneys or other advisors);

(vi) subject to any required approval of the Board of Trustees, negotiating, on behalf of the Company, the terms of loan documents for the Company’s financings;

(vii) enforcing, monitoring and managing compliance with loan documents to which the Company is a party on behalf of the Company;

(viii) coordinating and managing operations of any joint venture or co-investment interests held by the Company and conducting all matters with the joint venture or co-investment partners;

(ix) coordinating and supervising all property managers, tenant operators, leasing agents and developers for the administration, leasing, management and/or development of any of the Investments;

 

7


(x) providing executive and administrative personnel, office space and office services required in rendering services to the Company;

(xi) administering bookkeeping and accounting functions as are required for the management and operation of the Company, contracting for audits and preparing or causing to be prepared such periodic reports and filings as may be required by any governmental authority in connection with the ordinary conduct of the Company’s business, and otherwise advising and assisting the Company with its compliance with applicable legal and regulatory requirements, including, without limitation, periodic reports, returns or statements required under the Exchange Act, the Code and any regulations or rulings thereunder, the securities and tax statutes of any jurisdiction in which the Company is obligated to file such reports, or the rules and regulations promulgated under any of the foregoing;

(xii) advising and assisting in the preparation and filing of all offering documents, registration statements, prospectuses, proxies, and other forms or documents filed with the SEC pursuant to the Securities Act or any state securities regulators (it being understood that the Company shall be responsible for the content of any and all of its offering documents, SEC filings or state regulatory filings, and that Manager shall not be held liable for any costs or liabilities arising out of any misstatements or omissions in the Company’s offering documents, SEC filings, state regulatory filings or other filings referred to in this subparagraph, whether or not material (except by reason of acts constituting bad faith, willful misconduct, gross negligence or reckless disregard of Manager’s duties under this Agreement);

(xiii) causing the Company to retain qualified accountants and legal counsel, as applicable, to assist in developing appropriate accounting procedures, compliance procedures and testing systems with respect to financial reporting obligations and compliance with the provisions of the Code applicable to REITs (it being understood that the Board of Trustees and its Audit Committee shall retain authority to determine the Company’s independent public accountant and that the Independent Trustees and any Committee of the Board of Trustees shall retain the authority to hire its or their own attorneys or other advisors);

(xiv) taking all necessary actions to enable the Company to make required tax filings and reports, including soliciting shareholders for required information to the extent required by the provisions of the Code applicable to REITs;

(xv) counseling the Company regarding the maintenance of its status as a REIT and monitoring compliance with the various REIT qualification tests and other rules set out in the Code and Treasury Regulations thereunder;

(xvi) counseling the Company regarding the maintenance of its exemption from the Investment Company Act and monitoring compliance with the requirements for maintaining an exemption from the Investment Company Act;

(xvii) counseling the Company in connection with policy decisions to be made by the Board of Trustees;

 

8


(xviii) evaluating and recommending to the Board of Trustees modifications to any hedging strategies in effect on the date hereof and engaging in hedging activities;

(xix) communicating with the Company’s investors and analysts as required to satisfy reporting or other requirements of any governing body or exchange on which the Company’s securities are traded and to maintain effective relations with such investors;

(xx) investing and re-investing any moneys and securities of the Company (including investing in short-term Investments pending investment in Investments, payment of fees, costs and expenses, or payments of dividends or distributions to shareholders and partners of the Company) and advising the Company as to its capital structure and capital raising;

(xxi) causing the Company to qualify to do business in all applicable jurisdictions and to obtain and maintain all appropriate licenses;

(xxii) handling and resolving all claims, disputes or controversies (including all litigation, arbitration, settlement or other proceedings or negotiations) in which the Company may be involved or to which the Company may be subject arising out of the Company’s day-to-day operations, subject to such limitations or parameters as may be imposed from time to time by the Board of Trustees;

(xxiii) using commercially reasonable efforts to cause expenses incurred by or on behalf of the Company to be within any expense guidelines set by the Board of Trustees from time to time;

(xxiv) performing such other services as may be required from time to time for management and other activities relating to the assets of the Company as the Board of Trustees and Manager shall agree from time to time; and

(xxv) using commercially reasonable efforts to cause the Company to comply with all applicable laws and regulations in all material respects, subject to the Company providing appropriate, necessary and timely funding of capital.

The Board of Trustee has dispositive power in the event of any conflict between the Board of Trustees and the Manager with respect to the functions and authority delegated to the Manager above.

Without limiting the foregoing, the Manager will perform portfolio management services on behalf of the Company with respect to the Investments. Such services will include, but not be limited to, consulting with the Company on the purchase and sale of, and other investment opportunities in connection with, the Company’s portfolio of assets; the collection of information and the submission of reports pertaining to the Company’s assets, interest rates and general economic conditions; periodic review and evaluation of the performance of the Company’s portfolio of assets; acting as liaison between the Company and banking, mortgage banking, investment banking and other parties with respect to the purchase, financing and disposition of assets; and other customary functions related to portfolio management. Additionally, the Manager will perform monitoring services on behalf of the Company with respect to any services provided by third parties, which the Manager determines are material to the performance of the business.

(d) Subject to Section 2(b) above and the Conflicts of Interest Policy, the Manager may enter into agreements with other parties in connection with its duties hereunder.

 

9


(e) The Manager may retain, for and on behalf, and at the sole cost and expense, of the Company, such services of accountants, legal counsel, tax counsel, appraisers, insurers, brokers or business developers, transfer agents, registrars, developers, investment banks, financial advisors, underwriters, banks and other lenders and others as the Manager deems necessary or advisable in connection with the management and operations of the Company. Notwithstanding anything contained herein to the contrary, the Manager shall have the right to cause any such services to be rendered by its employees or Affiliates (which, for the avoidance of doubt, includes any employees, consultants or agents of any Affiliate of the Manager).

(f) As frequently as the Manager may deem necessary or advisable, or at the direction of the Board of Trustees, the Manager shall, at the sole cost and expense of the Company, prepare, or cause to be prepared, with respect to any Investment (i) an appraisal prepared by an independent real estate appraiser; (ii) reports and information on the Company’s operations and asset performance; and (iii) other information reasonably requested by the Company.

(g) The Manager shall prepare, or cause to be prepared, at the sole cost and expense of the Company, all reports, financial or otherwise, with respect to the Company required by the Board of Trustees in order for the Company to comply with its Governing Instruments or any other materials required to be filed with any governmental body or agency, as well as all materials and data necessary to complete such reports and other materials including, without limitation, an annual audit of the Company’s books of account by a nationally recognized independent accounting firm.

(h) The Manager shall prepare regular reports for the Board of Trustees to enable the Board of Trustees to review the Company’s acquisitions, portfolio composition and characteristics, credit quality, performance and compliance with the Investment Manual and any policies approved by the Board of Trustees.

(i) Notwithstanding anything contained in this Agreement to the contrary, the Manager shall not be required to expend money (“ Excess Funds ”) in excess of that contained in any applicable Company Account or otherwise made available by the Company to be expended by the Manager hereunder. Failure of the Manager to expend Excess Funds out-of-pocket shall not give rise or be a contributing factor to the right of the Company under Section 12(b) to terminate this Agreement due to the Manager’s unsatisfactory performance.

(j) In performing its duties under this Section 2, the Manager shall be entitled to rely reasonably on qualified experts hired by the Manager.

SECTION 3. DEVOTION OF TIME; ADDITIONAL ACTIVITIES.

(a) The Manager will provide a management team, including a dedicated chief executive officer and a dedicated chief financial officer, to provide the management services hereunder. The members of such team shall devote such of their time to the management of the Company as is reasonably necessary and appropriate.

(b) Except to the extent set forth in clause (a) above or in the Conflicts of Interest Policy, nothing herein shall prevent the Manager or any of its Affiliates or any of the officers and employees of any of the foregoing from engaging in other businesses or from rendering services of any kind to any other

 

10


person or entity, including investment in, or advisory service to others investing in, any type of real estate or real estate related investment, including investments which meet the principal investment objectives of the Company. Subject to the Conflicts of Interest Policy, the Company recognizes that it is not entitled to preferential treatment in receiving information, recommendations and other services from the Manager. The Manager shall act in good faith to endeavor to identify to the Independent Trustees any conflicts that may arise among the Company, the Manager and/or any other person or entity on whose behalf the Manager may be engaged. When allocating investment opportunities among the persons or entities for which the Manager acts as manager, the Manager will comply with its Conflicts of Interest Policy as in effect from time to time

(c) Managers, members, officers, employees and agents of the Manager or Affiliates of the Manager may serve as trustees, officers, employees, agents, nominees or signatories for the Company or any Subsidiary, to the extent permitted by the Governing Instruments of the Company or any such Subsidiary, as from time to time amended, or by any resolutions duly adopted by the Board of Trustees pursuant to the Company’s Governing Instruments. When executing documents or otherwise acting in such capacities for the Company, such persons shall use their respective titles in the Company.

SECTION 4. AGENCY.

The Manager shall act as agent of the Company in making, acquiring, financing and disposing of Investments, disbursing and collecting the Company’s funds, paying the debts and fulfilling the obligations of the Company, supervising the performance of professionals engaged by or on behalf of the Company and handling, prosecuting and settling any claims of or against the Company, the Board of Trustees, holders of the Company’s securities or the Company’s representatives or properties.

SECTION 5. BANK ACCOUNTS.

The Manager may establish and maintain one or more bank accounts in the name of the Company or any Subsidiary (any such account, a “ Company Account ”), and may collect and deposit funds into any such Company Account or Company Accounts, and disburse funds from any such Company Account or Company Accounts; and the Manager shall from time to time render appropriate accountings of such collections and payments to the Board of Trustees and, upon request, to the auditors of the Company or any Subsidiary.

SECTION 6. RECORDS; CONFIDENTIALITY.

The Manager shall maintain appropriate books of accounts and records relating to services performed under this Agreement, and such books of account and records shall be accessible for inspection by representatives of the Company at any time during normal business hours upon reasonable advance notice to the Manager.

The Manager shall keep confidential any and all non-public information obtained in connection with the services rendered under this Agreement and shall not disclose any such information to any person, except to (i) its Affiliates, members, officers, directors, employees, agents, representatives or advisors who have a need to know such information in order to carry out their duties to the Company and who have a duty to the Manager or to the Company to keep such information confidential, (ii) appraisers, financing sources and others in the ordinary course of the Manager’s business for the purpose of rendering services hereunder, provided that such persons agree to keep such information confidential, (iii) in connection with any governmental or regulatory requests of the Manager and any of its Affiliates, (v) as required by

 

11


applicable law or regulation, including any applicable disclosure requirements applicable to the Manager and its Affiliates under securities or blue sky laws or stock exchange listing requirements, or (vi) with the prior written consent of the Board of Trustees.

SECTION 7. OBLIGATIONS OF MANAGER; RESTRICTIONS.

(a) The Manager shall require each seller or transferor of Investments to the Company to make such representations and warranties regarding such assets as may, in the sole judgment made in good faith of the Manager, be necessary and appropriate. In addition, the Manager shall take such other action as it deems necessary or appropriate with regard to the protection of the Investments.

(b) The Manager shall refrain from any action that, in its sole judgment made in good faith, (i) is not in compliance with the Investment Manual, (ii) can reasonably be expected to result in the loss of the Company’s status as a REIT under the Code or (iii) would violate any law, rule or regulation of any governmental body or agency having jurisdiction over the Company or any Subsidiary that would materially adversely affect the Company or that would otherwise not be permitted by such entity’s Governing Instruments. If the Manager is ordered to take any such action by the Board of Trustees, the Manager shall promptly notify the Board of Trustees of the Manager’s judgment that such action would adversely affect such status or violate any such law, rule or regulation or the Governing Instruments. Notwithstanding the foregoing, the Manager and its Affiliates, officers and employees shall not be liable to the Company or any Subsidiary, the Board of Trustees, or the Company’s or any Subsidiary’s shareholders or partners for any act or omission by the Manager, its Affiliates, officers or employees except as provided in Section 10.

(c) The Manager shall at all times during the term of this Agreement (including the Original Term and any renewal term) maintain a tangible net worth equal to or greater than $1,000,000. Additionally, during such period the Manager shall maintain “errors and omissions” insurance coverage and other insurance coverage which is customarily carried by asset and investment managers performing functions similar to those of the Manager under this Agreement with respect to assets similar to the assets of the Company, in an amount which is comparable to that customarily maintained by other managers or servicers of similar assets.

SECTION 8. COMPENSATION.

(a) The Company shall pay Manager a management fee (“ Management Fee ”) equal to $20.0 million per annum, payable in equal monthly installments, in arrears, on the tenth day of each calendar month beginning with the first calendar month after the date of this Agreement; provided , however , that (i) in the event of a Management Fee PIK Event arising under clause (i) of the definition thereof, the portion of the monthly installment of the Management Fee that is necessary for the Company to have sufficient funds to declare and pay dividends required to be paid in cash in order for the Company to maintain its status as a REIT under the Code and to avoid incurring income or excise taxes shall, during the occurrence and continuation of any such Management Fee PIK Event, be payable in a number of Series A Preferred Shares determined by dividing such portion of the Management Fee by the liquidation preference of the Series A Preferred Shares rounded down to the nearest whole share and (ii) in the event of a Management Fee PIK Event arising under clause (ii) of the definition thereof, that the entire monthly installment of the Management Fee shall, during the occurrence and continuation of any such Management Fee PIK Event, be payable in a number of Series A Preferred Shares determined by dividing the Management Fee by the liquidation preference of the Series A Preferred Shares rounded down to the nearest whole share. In the event that this Agreement commences on a date other than the first day of a

 

12


calendar month, or terminates on a date other than the last day of a calendar month, the installment of the Management Fee payable for that month shall be prorated for the actual number of days that this Agreement is effective in that calendar month.

(b) The Management Fee is subject to adjustment pursuant to and in accordance with the provisions of Section 12(b).

(c) To incentivize employees, officers, consultants, non-employee trustees, Affiliates or representatives of the Manager to achieve the goals and business objectives of the Company as established by the Board of Trustees, in addition to the Management Fee set forth above, the Board of Trustees will have the authority to make recommendations of annual equity awards to the Manager or its affiliates or directly to employees, officers, consultants, non-employee trustees, Affiliates or representatives of the Manager (including the dedicated chief executive officer and chief financial officer of the Company), based on the achievement by the Company of certain financial or other objectives established by the Board of Trustees; provided that, no equity awards by the Company to employees or officers of the Manager (including the dedicated chief executive officer and chief financial officer of the Company) shall be made without the Manager’s prior written consent. The Company, at its option, may choose to issue such compensation in the form of equity awards in the Company or the Operating Partnership, unless and to the extent that receipt of such equity awards would adversely affect the Company’s status as a REIT, in which case, the equity awards shall be limited to equity awards in the Operating Partnership, unless and to the extent that receipt of such equity awards would adversely affect the Operating Partnership’s status as a partnership for U.S. federal income tax purposes or the Company’s status as a REIT, in which case, the grant of equity awards shall not be made. Any transfer of such equity awards at any time must comply with the transfer restrictions of the Operating Partnership’s partnership agreement or the Company’s declaration of trust and bylaws, as applicable.

SECTION 9. EXPENSES.

(a) Expenses of the Manager . Except as otherwise expressly provided herein or approved by majority vote of the Independent Trustees, the Manager shall bear the following expenses incurred in connection with the performance of its duties under this Agreement:

(i) base salary, cash incentive compensation and other employment expenses (excluding equity awards granted by the Company pursuant to Section 8(c)) of the dedicated chief executive officer and dedicated chief financial officer of the Company;

(ii) employment expenses of other personnel employed by the Manager, including, but not limited to, salaries, wages, payroll taxes and the cost of employee benefit plans;

(iii) fees and travel and other expenses of officers and employees of the Manager, except for (A) fees and travel and other expenses of such persons incurred while performing services on behalf of the Company (provided that, if such fees and travel and other expenses are incurred while providing services on behalf of both the Company and its affiliates and Spirit Realty Capital, Inc. and its affiliates, the Manager shall have the authority to reasonably allocate such fees and travel and other expenses between the entities), and (B) fees and travel and other expenses of such persons who are trustees or officers of the Company incurred in their capacities as trustees or officers of the Company;

(iv) rent, telephone, utilities, office furniture, equipment and machinery (including

 

13


computers, to the extent utilized) and other office expenses of the Manager, except to the extent such expenses relate solely to an office maintained by the Company separate from the office of the Manager; and

(v) miscellaneous administrative expenses relating to performance by the Manager of its obligations hereunder.

(b) Expenses of the Company . Except as expressly otherwise provided in this Agreement, the Company shall pay all of its and its Subsidiaries’ expenses, and, without limiting the generality of the foregoing, it is specifically agreed that the following expenses of the Company and its Subsidiaries shall be paid by the Company or its Subsidiaries and shall not be paid by the Manager:

(i) the cost of borrowed money;

(ii) taxes on income and taxes and assessments on real and personal property, if any, and all other taxes applicable to the Company or its Subsidiaries;

(iii) legal, auditing, accounting, underwriting, brokerage, listing, reporting, registration and other fees, and printing, engraving and other expenses and taxes incurred in connection with the issuance, distribution, transfer, trading, registration and listing of the Company’s or any of its Subsidiaries securities on the stock exchange, including transfer agent’s, registrar’s and indenture trustee’s fees and charges;

(iv) expenses of organizing, restructuring, reorganizing or liquidating the Company or any of its Subsidiaries, or of revising, amending, converting or modifying the Company’s or any of its Subsidiaries’ organizational documents;

(v) fees and travel and other expenses paid to members of the Board of Trustees and officers of the Company or those of individuals in similar positions with any of its Subsidiaries in their capacities as such (but not in their capacities as officers or employees of the Manager) and fees and travel and other expenses paid to advisors, contractors, mortgage servicers, consultants, and other agents and independent contractors employed by or on behalf of the Company and its Subsidiaries;

(vi) expenses directly connected with the investigation, acquisition, disposition or ownership of real estate interests or other property (including third party property diligence costs, appraisal reporting, the costs of foreclosure, insurance premiums, legal services, brokerage and sales commissions, maintenance, repair, improvement and local management of property), other than expenses with respect thereto of employees of the Manager, to the extent that such expenses are to be borne by the Manager pursuant to Section 9(a) above;

(vii) all insurance costs incurred in connection with the Company and its Subsidiaries (including officer and trustee liability insurance) or in connection with any officer and trustee indemnity agreement to which the Company or any of its Subsidiaries is a party;

(viii) expenses connected with payments of dividends or interest or contributions in cash or any other form made or caused to be made by the Trustees to holders of securities of the Company or any of its Subsidiaries;

 

14


(ix) all expenses connected with communications to holders of securities of the Company or its Subsidiaries and other bookkeeping and clerical work necessary to maintaining relations with holders of securities, including the cost of any transfer agent, the cost of preparing, printing, posting, distributing and mailing certificates for securities and proxy solicitation materials and reports to holders of the Company’s or its Subsidiaries’ securities;

(x) legal, accounting and auditing fees and expenses in addition to those described in subsection (iii) above;

(xi) filing and recording fees for regulatory or governmental filings, approvals and notices to the extent not otherwise covered by any of the foregoing items of this Section 9(b);

(xii) expenses relating to any office or office facilities maintained by the Company or its Subsidiaries separate from the office of the Manager;

(xiii) software licensing fees and other fees and costs associated with proprietary software and programs used separately by the Company;

(xiv) the costs and expenses of all equity award or compensation plans or arrangements established by the Company or any of its Subsidiaries, including the value of awards made by the Company or any of its Subsidiaries to the Manager or its employees, if any, and payment of any employment or withholding taxes in connection therewith;

(xv) the equity portion of the compensation of the Company’s dedicated chief executive officer and dedicated chief financial officer, which the Company shall be solely responsible for determining and paying; and

(xvi) all other costs and expenses of the Company and its Subsidiaries, other than those to be specifically borne by the Manager pursuant to Section 9(a) above.

Notwithstanding the foregoing, nothing in this Agreement shall be deemed to amend or modify the Property Management Agreement.

SECTION 10. LIMITS OF MANAGER RESPONSIBILITY; INDEMNIFICATION.

(a) The Manager assumes no responsibility under this Agreement other than to render the services called for under this Agreement in good faith and shall not be responsible for any action of the Board of Trustees in following or declining to follow any advice or recommendations of the Manager, including as set forth in Section 7(b). The Manager, its members, managers, officers and employees will not be liable to the Company or any Subsidiary, to the Board of Trustees, or the Company’s or any Subsidiary’s shareholders or partners for any acts or omissions by the Manager, its Affiliates, members, managers, officers or employees, pursuant to or in accordance with this Agreement, except by reason of acts constituting bad faith, willful misconduct or gross negligence. The Company shall, to the full extent lawful, reimburse, indemnify and hold the Manager, its Affiliates, members, managers, officers and employees, sub-advisers and each other Person, if any, controlling the Manager (each, an “ Indemnified Party ”), harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) (collectively, “ Losses ”) in respect of or arising from any acts or omissions of such Indemnified Party made in good faith in the performance of the Manager’s duties under this Agreement and not constituting such Indemnified Party’s bad faith, willful misconduct or gross negligence.

(b) The Manager shall, to the full extent lawful, reimburse, indemnify and hold the Company, its shareholders, trustees, officers and employees and each other Person, if any, controlling the Company (each, a “ Company Indemnified Party ”), harmless of and from any and all Losses in respect of or arising from any acts or omissions of the Manager constituting bad faith, willful misconduct or gross negligence.

 

15


SECTION 11. NO JOINT VENTURE.

Nothing in this Agreement shall be construed to make the Company and the Manager partners or joint venturers or impose any liability as such on either of them.

SECTION 12. TERM; TERMINATION.

(a) Term . Unless terminated in accordance with Section 15(a), this Agreement shall be in effect until the date that is three years after the date hereof (the “ Original Term ”). At the expiration of the Original Term, this Agreement shall be deemed renewed automatically each year for an additional one-year period (each, a “ Renewal Term ”), unless terminated pursuant to Section 12(b) or Section 12(c) below.

(b) Termination without Cause .

(i) Termination by the Company . The Company may terminate this Agreement at any time upon 180-day written notice to the Manager informing it of the Company’s intention to terminate this Agreement. Effective on the termination date of this Agreement under this Section 12(b)(i), the Company and the Manager will enter into a transition services agreement (“ Transition Services Agreement ”), upon mutually acceptable terms, that shall be in effect until the date that is eight months after the date of the termination of this Agreement. For its services under the Transition Services Agreement, the Company shall pay the Manager the Management Fee, pro rated for the eights-month term of the Transition Services Agreement, payable in equal monthly installments, in arrears, on the tenth day of each calendar month beginning with the first calendar month after the date of termination of this Agreement.

(ii) Termination by the Manager . No later than 180 days prior to the expiration of the Original Term or any Renewal Term, the Manager may deliver written notice to the Company informing it of the Manager’s intention not to renew the term, whereupon the term of this Agreement shall not be renewed and extended, and this Agreement shall terminate effective on the expiration date of this Agreement next following the delivery of such notice.

(c) Termination for Cause .

(i) Termination by the Company . The Company may terminate this Agreement upon 30 days’ prior written notice to the Manager if (A) there is a commencement of any proceeding relating to the Manager’s bankruptcy or insolvency, including an order for relief in an involuntary bankruptcy case or the Manager authorizing or filing a voluntary bankruptcy petition, and such proceeding or order shall remain in force or unstayed for a period of 30 days, (B) the Manager dissolves as an entity, or (C) the Manager commits fraud against the Company, misappropriates or embezzles funds of the Company, or acts in a manner constituting bad faith, willful misconduct or gross negligence in the performance of its duties under this Agreement; provided, however, that if any of the actions or omissions described in this clause (C) are caused by an employee and/or officer of the Manager or one of its affiliates and the Manager takes appropriate action against such person and cures the damage caused by such actions or omissions within 30 days of the Manager’s actual knowledge of its commission or omission, the Company shall not have the right to terminate this Agreement pursuant to this clause (iii).

 

16


(ii) Termination by the Manager . The Manager may terminate this Agreement upon 60 days’ prior written notice to the Company in the event that the Company shall default in the performance or observance of any material term, condition or covenant contained in this Agreement and such default shall continue for a period of 30 days after written notice thereof specifying such default and requesting that the same be remedied in such 30-day period. The Manager may also terminate this Agreement in its sole discretion effective immediately concurrently with or within 90 days following a Change in Control or a non-cause termination of the Property Management Agreement, in each case upon 30 days’ prior written notice to the Company.

SECTION 13. TERMINATION FEE.

In the event that this Agreement is terminated (a) by the Company pursuant to Section 12(b)(i) or (b) by the Manager pursuant to Section 12(c)(ii), the Company shall pay to the Manager, on the Effective Termination Date or as promptly thereafter as practicable, a termination fee (the “ Termination Fee ”) equal to 1.75 times the sum of (x) the Management Fee for the 12 full calendar months preceding the Effective Termination Date, plus (y) all fees due to the Manager or its Affiliates under the Property Management Agreement for the 12 full calendar months preceding the Effective Termination Date.

SECTION 14. PROMOTE.

Upon the earlier of (a) a termination of this Agreement pursuant to Section 12(b)(i), (b) a termination of this Agreement pursuant to Section 12(c)(ii), and (c) the date that is 36 full calendar months after the date of this Agreement, the Company shall pay to the Manager, on the date of the relevant termination or other event or as promptly thereafter as practicable, a cash promote payment (the “ Promote ”) if the Company TSR Percentage exceeds 10% during the Measurement Period. The Promote shall be calculated, without duplication, as follows:

(i) to the extent that the Company TSR Percentage exceeds 10% during the Measurement Period, the Promote shall equal the product of:

(x) the weighted-average number of Common Shares outstanding during the Measurement Period (calculated on a fully-diluted basis in accordance with GAAP), multiplied by

(y) the product of (A) 10%, multiplied by (B) the difference of (I) the Company TSR Amount not to exceed a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 12.5%, less (II) a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 10%;

(ii) to the extent that the Company TSR Percentage exceeds 12.5% during the Measurement Period, the Promote shall equal the sum of:

(x) the amount under (i) above, plus

(y) the product of:

(A) the weighted-average number of Common Shares outstanding during the Measurement Period (calculated on a fully-diluted basis in accordance with GAAP), multiplied by

 

17


(B) the product of (I) 15%, multiplied by (II) the difference of (1) the Company TSR Amount not to exceed a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 15%, less (2) a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 12.5%; and

(iii) to the extent that the Company TSR Percentage exceeds 15% during the Measurement Period, the Promote shall equal the sum of:

(x) the amount under (ii) above, plus

(y) the product of:

(A) the weighted-average number of Common Shares outstanding during the Measurement Period (calculated on a fully-diluted basis in accordance with GAAP), multiplied by

(B) the product of (I) 20%, multiplied by (II) the difference of (1) the Company TSR Amount, less (2) a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 15%.

For avoidance of doubt, the Promote (including the related definitions of the Company TSR Amount, the Company TSR Percentage and the Hurdle TSR Amount) shall be calculated consistent with the illustrative Promote calculation methodology set forth on Exhibit A hereto.

SECTION 15. ASSIGNMENT.

(a) Except as set forth in Section 15(b), this Agreement shall terminate automatically in the event of its assignment, in whole or in part, by the Manager, unless such assignment is consented to in writing by the Company with the consent of a majority of the Independent Trustees; provided, however, that no such consent shall be required in the case of an assignment by the Manager to an entity whose business and operations are managed or supervised by Spirit Realty Capital, Inc. Any such permitted assignment shall bind the assignee under this Agreement in the same manner as the Manager is bound. The Manager shall continue to be liable to the Company for all errors or omissions of any assignee that is managed or supervised by Spirit Realty Capital, Inc. The Manager shall not be liable for errors or omissions of any other successor manager arising from and after any such assignment. In the case of any assignment, the assignee shall execute and deliver to the Company a counterpart of this Agreement naming such assignee as Manager. This Agreement shall not be assigned by the Company without the prior written consent of the Manager, except in the case of assignment by the Company to another REIT or other organization that is a successor (by merger, consolidation or purchase of assets) to the Company, in which case such successor organization shall be bound under this Agreement and by the terms of such assignment in the same manner as the Company is bound under this Agreement.

(b) Notwithstanding any provision of this Agreement, the Manager may subcontract and assign any or all of its responsibilities under Section 2 to any of its Affiliates in accordance with the terms of this Agreement, and the Company hereby consents to any such assignment and subcontracting. In addition, provided that the Manager provides prior written notice to the Company for informational purposes only, nothing contained in this Agreement shall preclude any pledge, hypothecation or other transfer of any amounts payable to the Manager under this Agreement.

 

18


SECTION 16. ACTION UPON TERMINATION.

(a) From and after the Effective Termination Date pursuant to Section 12, the Manager shall not be entitled to compensation for further services under this Agreement, but shall be paid all compensation accruing to the date of termination, including, without limitation, any Termination Fee or/and Promote Fee due in connection with such termination. On the Effective Termination Date or as promptly thereafter as practicable, the Manager shall forthwith:

(i) after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled, pay over to the Company or a Subsidiary all money collected and held for the account of the Company or a Subsidiary pursuant to this Agreement;

(ii) deliver to the Board of Trustees a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board of Trustees with respect to the Company or a Subsidiary; and

(iii) deliver to the Board of Trustees all property and documents of the Company or any Subsidiary then in the custody of the Manager; provided, however, that the Manager may retain copies of all such information.

(b) Upon termination of this Agreement pursuant to Section 12, on the Effective Termination Date or as promptly thereafter as practicable, the Company shall forthwith:

(i) pay over to the Manager all compensation accruing to the date of termination, including, without limitation, any Termination Fee or/and Promote Fee due in connection with such termination; and

(ii) reimbursement the Manager for all its expenses to which it is then entitled.

(c) The obligation of the Company to pay the Termination Fee and the Promote Fee shall survive the termination of this Agreement. In addition, Section 9 and Section 10 shall survive the termination of this Agreement.

SECTION 17. RELEASE OF MONEY OR OTHER PROPERTY UPON WRITTEN REQUEST.

The Manager agrees that any money or other property of the Company or a Subsidiary thereof held by the Manager under this Agreement shall be held by the Manager as custodian for the Company or such Subsidiary, and the Manager’s records shall be appropriately marked clearly to reflect the ownership of such money or other property by the Company or such Subsidiary. Upon the receipt by the Manager of a written request signed by a duly authorized officer of the Company requesting the Manager to release to the Company or any Subsidiary any money or other property then held by the Manager for the account of the Company or any Subsidiary under this Agreement, the Manager shall release such money or other property to the Company or any Subsidiary within a reasonable period of time, but in no event later than 30 days following such request. The Manager shall not be liable to the Company, any Subsidiary, the Independent Trustees, or the Company’s or a Subsidiary’s shareholders or partners for any acts performed, or omissions to act, by the Company or any Subsidiary in connection with the money or other property released to the Company or any Subsidiary in accordance with the first sentence of this Section 17.

 

19


SECTION 18. NOTICES.

Unless expressly provided otherwise in this Agreement, all notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received when delivered against receipt or upon actual receipt of (i) personal delivery, (ii) delivery by reputable overnight courier, (iii) delivery by facsimile transmission or email against answerback, (iv) delivery by registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below:

 

  (a) If to the Company:

Spirit MTA REIT

c/o Spirit Realty Capital, Inc.

2727 North Harwood Street

Suite 300, Dallas, Texas 75201

Attention: General Counsel

 

  (b) If to the Manager:

Spirit Realty, L.P.

2727 North Harwood Street

Suite 300, Dallas, Texas 75201

Attention: General Counsel

Either party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section 18 for the giving of notice.

SECTION 19. BINDING NATURE OF AGREEMENT; SUCCESSORS AND ASSIGNS.

This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns as provided in this Agreement.

SECTION 20. ENTIRE AGREEMENT.

This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter of this Agreement. The express terms of this Agreement control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms of this Agreement. This Agreement may not be modified or amended other than by an agreement in writing executed by both parties.

SECTION 21. ARBITRATION.

(a) Any disputes, claims or controversies arising out of or relating to this Agreement, the provision of services by the Manager pursuant to this Agreement or the transactions contemplated hereby, including any disputes, claims or controversies brought by or on behalf of the Company or the Manager or any holder of equity interests (which, for purposes of this Section 21, shall mean any holder of record

 

20


or any beneficial owner of equity interests or any former holder of record or beneficial owner of equity interests) of the Company or the Manager, either on his, her or its own behalf, on behalf of the Company or the Manager or on behalf of any series or class of equity interests of the Company or Manager or holders of any equity interests of the Company or the Manager against the Company or the Manager or any of their respective trustees, directors, members, officers, managers (including the Manager or its successor), agents or employees, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration agreement or the governing documents of the Company or the Manager (all of which are referred to as “ Disputes ”), or relating in any way to such a Dispute or Disputes shall, on the demand of any party to such Dispute or Disputes, be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “ Rules ”) of the American Arbitration Association (“ AAA ”) then in effect, except as those Rules may be modified in this Section 21. For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against the trustees, directors, officers or managers of the Company or the Manager and class actions by a holder of equity interests against those individuals or entities and the Company or the Manager. For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party. For purposes of this Section 21, the term “equity interest” shall mean, (i) in respect of the Company, shares of beneficial interest of the Company, and (ii) in respect of the Manager, “membership interest” in the Manager as defined in the Delaware Limited Partnership Act.

(b) There shall be three (3) arbitrators. If there are only two (2) parties to the Dispute, each party shall select one (1) arbitrator within fifteen (15) days after receipt by respondent of a copy of the demand for arbitration. The arbitrators may be affiliated or interested persons of the parties. If there are more than two (2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one (1) arbitrator within fifteen (15) days after receipt of the demand for arbitration. The arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be. If either a claimant (or all claimants) or a respondent (or all respondents) fail(s) to timely select an arbitrator then the party (or parties) who has selected an arbitrator may request AAA to provide a list of three (3) proposed arbitrators in accordance with the Rules (each of whom shall be neutral, impartial and unaffiliated with any party) and the party (or parties) that failed to timely appoint an arbitrator shall have ten (10) days from the date AAA provides the list to select one (1) of the three (3) arbitrators proposed by AAA. If the party (or parties) fail(s) to select the second (2nd) arbitrator by that time, the party (or parties) who have appointed the first (1st) arbitrator shall then have ten (10) days to select one (1) of the three (3) arbitrators proposed by AAA to be the second (2nd) arbitrator; and, if he/they should fail to select the second (2nd) arbitrator by such time, AAA shall select, within fifteen (15) days thereafter, one (1) of the three (3) arbitrators it had proposed as the second (2nd) arbitrator. The two (2) arbitrators so appointed shall jointly appoint the third (3rd) and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within fifteen (15) days of the appointment of the second (2nd) arbitrator. If the third (3rd) arbitrator has not been appointed within the time limit specified herein, then AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.

(c) The place of arbitration shall be Dallas, Texas, unless otherwise agreed by the parties.

(d) There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators. For the avoidance of doubt, it is intended that there shall be no depositions and no other discovery other than limited documentary discovery as described in the preceding sentence.

 

21


(e) In rendering an award or decision (the “ Award ”), the arbitrators shall be required to follow the laws of the State of Maryland. Any arbitration proceedings or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq. The Award shall be in writing and shall state the findings of fact and conclusions of law on which it is based. Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset. Subject to Section 21(g), each party against which the Award assesses a monetary obligation shall pay that obligation on or before the thirtieth (30th) day following the date of the Award or such other date as the Award may provide.

(f) Except to the extent expressly provided by this Agreement or as otherwise agreed by the parties thereto, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of the Company’s or the Manager’s, as applicable, award to the claimant or the claimant’s attorneys. Each party (or, if there are more than two (2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two (2) parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third (3rd) appointed arbitrator.

(g) Notwithstanding any language to the contrary in this Agreement, the Award, including but not limited to, any interim Award, may be appealed pursuant to the AAA’s Optional Appellate Arbitration Rules (“ Appellate Rules ”). The Award shall not be considered final until after the time for filing the notice of appeal pursuant to the Appellate Rules has expired. Appeals must be initiated within thirty (30) days of receipt of the Award by filing a notice of appeal with any AAA office. Following the appeal process, the decision rendered by the appeal tribunal may be entered in any court having jurisdiction thereof. For the avoidance of doubt, and despite any contrary provision of the Appellate Rules, this Section 21(f) shall apply to any appeal pursuant to this Section and the appeal tribunal shall not render an award that would include shifting of any costs or expenses (including attorneys’ fees) of any party.

(h) Following the expiration of the time for filing the notice of appeal, or the conclusion of the appeal process set forth in Section 21(g), the Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between those parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators. Judgment upon the Award may be entered in any court having jurisdiction. To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(i) This Section 21 is intended to benefit and be enforceable by the Company, the Manager and their respective holders of equity interests, trustees, directors, officers, managers (including the Manager or its successor), agents or employees, and their respective successors and assigns and shall be binding upon the Company, the Manager and their respective holders of equity interests, and be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

 

22


SECTION 22. NAME LICENSE.

The Manager hereby grants to the Company and its Affiliates a personal, royalty-free, non-exclusive, non-sublicensable, and non-transferable right and license during the License Term (as defined below) and Wind-Down Term (if any, and as defined below) to use, display and reproduce the name “Spirit” (“ Licensed Name ”) in connection with the operation of their respective businesses, including in the corporate names of Company and its Affiliates. The “ License Term ” shall mean the period commencing on the date of this Agreement and continuing until 90 days after the Effective Date of Termination of this Agreement. For the avoidance of doubt, the license grant herein is non-exclusive and accordingly the Manager and its Affiliates hereby retain the right to continue using the Licensed Name and to license or transfer any rights the Manager and its Affiliates may have in the Licensed Name to third parties, and Company and its Affiliates will not take any action to challenge the Manager and its Affiliates rights in the Licensed Name. Company and its Affiliates acknowledge that certain goodwill and reputation may be associated with the Licensed Name and agree to use the Licensed Name only in a manner that maintains and promotes such goodwill and reputation, and any use in contravention of the foregoing shall be deemed a material breach of this Agreement. Company and its Affiliates shall cooperate with Manager and its Affiliates in facilitating the Manager’s control of the nature and quality of the products, services and other uses of the Licensed Name, including providing Manager, upon Manager’s written request, with samples of any public facing materials produced by or on behalf of the Company and its Affiliates that bear the Licensed Name. Upon the expiration of the License Term, (i) the license grant set forth in this Section 22 will terminate, (ii) Company and its Affiliates will cease all use of the Licensed Name and destroy, or at Manager’s election transfer to Manager, all public facing materials in the Company and its Affiliates’ possession or control containing the Licensed Names, and (iii) Company and its Affiliates will immediately change their corporate names to no longer contain the word “Spirit” or any derivation thereof.

SECTION 23. CONTROLLING LAW.

This Agreement and all questions relating to its validity, interpretation, performance and enforcement shall be governed by and construed, interpreted and enforced in accordance with the laws of the State of New York, notwithstanding any New York or other conflict-of-law provisions to the contrary.

SECTION 24. INDULGENCES, NOT WAIVERS.

Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

SECTION 25. TITLES NOT TO AFFECT INTERPRETATION.

The titles of paragraphs and subparagraphs contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation of this Agreement.

 

23


SECTION 26. EXECUTION IN COUNTERPARTS.

This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts of this Agreement, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.

SECTION 27. PROVISIONS SEPARABLE.

The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.

[ Remainder of this page intentionally left blank ]

 

24


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

 

COMPANY:

Spirit MTA REIT

By:

 

 

 

Name:

 

Title:

MANAGER:

Spirit Realty, L.P.

By: Spirit General OP Holdings, LLC, as sole general partner of Spirit Realty, L.P.

By: Spirit Realty Capital, Inc., in its capacity as sole member of Spirit General OP Holdings, LLC

By:

 

 

 

Name:

 

Title:

[ Signature page to Asset M anagement Agreement ]


EXHIBIT A

Illustrative Total Shareholder Return Calculation Methodology

[See attached.]


Spirit Promote Calculation

 

Assumptions    Annual     Quarterly  

Illustrative Initial Share Price

   $ 10.00          

Illustrative Dividend Per Share (1)

   $ 0.50     $ 0.13  

Implied Illustrative Initial Yield

     5.0        

Illustrative Share Price CAGR

     12.5     3.0

    

 

Structural Notes

Promote paid in month 36 on weighted average shares over that timeframe
Initial measurement based on first 30 days SMTA trading VWAP
SRC promote calculated on a per share basis, that per share figure is multiplied by the wtd. avg. shares outstanding over the entire period
The measurement period to determine the exit share price is the 30 VWAP ending the day before the termination of the contract, the end of 36 months, or the cash/stock mix that SMTA shareholders receive in a change of control transaction
 

 

Total Shareholder Return Illustration (Assuming Dividend Reinvestment)

 

     Q218     Q318     Q418     Q119     Q219     Q319     Q419     Q120     Q220     Q320     Q420     Q121     Q221  

Share Price

  $ 10.00     $ 10.30     $ 10.61     $ 10.92     $ 11.25     $ 11.59     $ 11.93     $ 12.29     $ 12.66     $ 13.03     $ 13.42     $ 13.83     $ 14.24  

Dividends / Share - Reinvested

          $ 0.13     $ 0.13     $ 0.13     $ 0.13     $ 0.13     $ 0.13     $ 0.13     $ 0.13     $ 0.13     $ 0.13     $ 0.13     $ 0.13  

Shares Purchased

    1.000       0.012       0.012       0.011       0.011       0.011       0.010       0.010       0.010       0.010       0.009       0.009       0.009  

Adjusted Shares

    1.000       1.012       1.024       1.035       1.046       1.057       1.068       1.078       1.088       1.097       1.107       1.116       1.125  

Cash Flow

  ($ 10.000                                                                                           $ 16.01  

Total Shareholder Return

    17.0                        

 

Per Share Promote to SRC - 36 Months                Hurdle      In the
Money
     SRC Value  
     Threshold     Promote     Low      High        

Amount Eligible For Hurdle One

     10.0     10.0   $ 13.310      $ 14.238      $ 0.928      $ 0.093  

Amount Eligible For Hurdle Two

     12.5     15.0   $ 14.238      $ 15.209      $ 0.970      $ 0.146  

Amount Eligible For Hurdle Three

     15.0     20.0   $ 15.209        NA      $ 0.802      $ 0.160  

Per Share Value to SRC

                                     $ 2.701      $ 0.399  

Weighted Average Shares Outstanding Calculation

 

     Q218   Q318   Q418   Q119   Q219   Q319   Q419   Q120   Q220   Q320   Q420   Q121   Q221

1) No Share Issuance

Shares Outstanding

  90   90   90   90   90   90   90   90   90   90   90   90   90

Wtd. Avg. Shares Outstanding

  90                        
       

p      

Issuance / Buyback      

           

2) Share Buyback

Shares Outstanding

  90   90   90   90   80   80   80   80   80   80   80   80   80

Wtd. Avg. Shares Outstanding

  83                        
       

p      

Issuance / Buyback      

           

3) Share Issuance

Shares Outstanding

  90   90   90   90   100   100   100   100   100   100   100   100   100

Wtd. Avg. Shares Outstanding

  97                        
       

p      

Issuance / Buyback      

           
                                                    

Sensitivity to Illustrative Share Price CAGR

 

                             

Illustrative Share Price CAGR

                  0.0%   2.5%   5.0%   7.5%   10.0%   12.5%   15.0%  

SRC Promote Per Share

                  $0.000   $0.000   $0.000   $0.077   $0.211   $0.399   $0.605  

Gross Promote Assuming ($MM)

                             

1) No Share Issuance

                  —     —     —     7   19   36   54  

2) Share Buyback

                  —     —     —     6   17   33   50  

3) Share Issuance

                  —     —     —     7   20   39   58  

Note

1. Assumes no change in dividend

Exhibits 10.3

 

 

TAX MATTERS AGREEMENT

by and between

SPIRIT REALTY CAPITAL, INC.

and

SPIRIT MTA REIT

dated as of

[ 🌑 ], 2018

 

 


TABLE OF CONTENTS

 

         Page  
Section 1. Definition of Terms      1
Section 2. Allocation of Tax Liabilities      6

Section 2.1

  General Rule      6

Section 2.2

  General Allocation Principles      7

Section 2.3

  Allocation Conventions      7

Section 2.4

  Transfer Taxes      8
Section 3. Preparation and Filing of Tax Returns      8

Section 3.1

  SRC Separate Returns and Joint Returns      8

Section 3.2

  SMTA Separate Returns      8

Section 3.3

  Tax Reporting Practices      8

Section 3.4

  SMTA Carrybacks and Claims for Refund      9

Section 3.5

  Apportionment of Tax Attributes      9
Section 4. Tax Payments      10

Section 4.1

  Taxes Shown on Tax Returns      10

Section 4.2

  Adjustments Resulting in Underpayments      10

Section 4.3

  Indemnification Payments.      10
Section 5. Tax Benefits      11

Section 5.1

  Tax Refunds      11

Section 5.2

  Other Tax Benefits      11
Section 6. REIT Qualification      12

Section 6.1

  SRC      12

Section 6.2

  SMTA      12
Section 7. Assistance and Cooperation      12

Section 7.1

  Assistance and Cooperation      12

Section 7.2

  Tax Return Information      13

Section 7.3

  Reliance by SRC      13

Section 7.4

  Reliance by SMTA      13
Section 8. Tax Records      13

Section 8.1

  Retention of Tax Records      13

Section 8.2

  Access to Tax Records      14

Section 8.3

  Preservation of Privilege      14
Section 9. Tax Contests      14

Section 9.1

  Notice      14

Section 9.2

  Control of Tax Contests      15
Section 10. Survival of Obligations      17
Section 11. Tax Treatment of Payments      17

Section 11.1

  General Rule      17

 

i


Section 11.2

   Interest      17
Section 12. Indemnification Payment Escrow      17
Section 13. Dispute Resolution      18
Section 14. General Provisions      18

Section 14.1

   Amendments and Waivers      18

Section 14.2

   Entire Agreement      19

Section 14.3

   Survival of Agreements      19

Section 14.4

   Third Party Beneficiaries      19

Section 14.5

   Notices      19

Section 14.6

   Counterparts; Electronic Delivery      20

Section 14.7

   Severability      20

Section 14.8

   Assignability; Binding Effect      20

Section 14.9

   Governing Law      20

Section 14.10

   Construction      21

Section 14.11

   Performance      21

Section 14.12

   Title and Headings      21

Section 14.13

   Other Agreements      21

Section 14.14

   Payment Terms      21

Section 14.15

   No Admission of Liability      22

 

ii


TAX MATTERS AGREEMENT

This TAX MATTERS AGREEMENT (this “ Agreement ”) is entered into as of [ 🌑 ], 2018, by and between Spirit Realty Capital, Inc., a Maryland corporation (“ SRC ”), and Spirit MTA REIT, a Maryland real estate investment trust and an indirect, wholly owned subsidiary of SRC (“ SMTA ”). SRC and SMTA are sometimes referred to herein individually as a “ Party ,” and collectively as the “ Parties .” Capitalized terms used but not otherwise defined herein shall have the respective meanings set forth in Section  1 of this Agreement.

RECITALS

WHEREAS, SRC and SMTA have entered into a Separation and Distribution Agreement, dated as of [ 🌑 ], 2018 (the “ Separation Agreement ”) pursuant to which the Transactions will be consummated; and

WHEREAS, SRC and SMTA desire to set forth their agreement on the rights and obligations of SRC and SMTA and the members of the SRC Group and the SMTA Group, respectively, with respect to (A) the administration and allocation of federal, state, local, and foreign Taxes incurred in Tax Periods beginning prior to the Distribution Date, (B) Taxes resulting from the Distribution and transactions effected in connection with the Distribution and (C) various other Tax matters.

NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:

Section 1. Definition of Terms. For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings:

Adjustment Request ” means any formal or informal claim or request filed with any Tax Authority, or with any administrative agency or court, for the adjustment, refund, or credit of Taxes, including (i) any amended Tax Return claiming adjustment to the Taxes as reported on the Tax Return or, if applicable, as previously adjusted, (ii) any claim for equitable recoupment or other offset, and (iii) any claim for refund or credit of Taxes previously paid.

Affiliate ” has the meaning set forth in the Separation Agreement.

Agreement ” means this Tax Matters Agreement.

Agreement Dispute ” has the meaning set forth in the Separation Agreement.

Allowed Amount ” has the meaning set forth in Section  12 of this Agreement.

Ancillary Agreements ” has the meaning set forth in the Separation Agreement; provided , however , that for purposes of this Agreement, this Agreement shall not constitute an Ancillary Agreement.

 

1


Business Day ” has the meaning set forth in the Separation Agreement.

Code ” has the meaning set forth in the Separation Agreement.

Controlling Party ” has the meaning set forth in Section  9.2(c) of this Agreement.

Distribution ” has the meaning set forth in the Separation Agreement.

Distribution Date ” has the meaning set forth in the Separation Agreement.

Effective Time ” has the meaning set forth in the Separation Agreement.

Escrowed Amount ” has the meaning set forth in Section  12 of this Agreement.

Final Allocation ” has the meaning set forth in Section  3.5(b) of this Agreement.

Final Determination ” means the final resolution of liability for any Tax, which resolution may be for a specific issue or adjustment or for any Tax Period, (i) by IRS Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the taxpayer, or by a comparable form under the laws of a state, local, or foreign taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall not constitute a Final Determination to the extent that it reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund or the right of the Tax Authority to assert a further deficiency in respect of such issue or adjustment or for such Tax Period (as the case may be); (ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (iii) by a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the laws of a state, local, or foreign taxing jurisdiction; (iv) by any allowance of a refund or credit in respect of an overpayment of a Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the jurisdiction imposing such Tax; (v) by a final settlement resulting from a treaty-based competent authority determination; or (vi) by any other final disposition, including by reason of the expiration of the applicable statute of limitations, the execution of a pre-filing agreement with the IRS or other Tax Authority, or by mutual agreement of the Parties.

Financing JV ” means SMTA Financing, JV, a Delaware limited liability company.

Governmental Authority ” has the meaning set forth in the Separation Agreement.

Group ” has the meaning set forth in the Separation Agreement.

Income Tax ” means all U.S. federal, state, local and foreign income, franchise or similar Taxes imposed on (or measured by) net income or net profits.

Indemnification Payee ” has the meaning set forth in Section  12 of this Agreement.

Indemnification Payment ” has the meaning set forth in Section  12 of this Agreement.

 

2


Indemnification Payor ” has the meaning set forth in Section  12 of this Agreement.

Intended Tax Treatment ” means the treatment of (i) the transaction steps set forth on Exhibit A hereto as specified therein and (ii) the Distribution as a taxable distribution under Section 301 of the Code.

IRS ” has the meaning set forth in the Separation Agreement.

Joint Return ” means any Tax Return that includes, by election or otherwise, one or more members of the SRC Group together with one or more members of the SMTA Group.

Law ” has the meaning set forth in the Separation Agreement.

Loss ” has the meaning set forth in Section  5.2 of this Agreement.

Non-Controlling Party ” has the meaning set forth in Section  9.2(c) of this Agreement.

Parties ” and “ Party ” have the meaning set forth in the preamble to this Agreement.

Past Practices ” has the meaning set forth in Section  3.3(a) of this Agreement.

Payment Date ” means, with respect to a Tax Return, (A) the due date for any required installment of estimated Taxes, (B) the due date (determined without regard to extensions) for filing such Tax Return, or (C) the date such Tax Return is filed, as the case may be.

Payor ” has the meaning set forth in Section  4.3(a) of this Agreement.

Person ” has the meaning set forth in the Separation Agreement.

Positive Tax Opinion or Ruling ” has the meaning set forth in Section  12 of this Agreement.

Post-Distribution Period ” means any Tax Period beginning after the Distribution Date and, in the case of any Straddle Period, the portion of such Tax Period beginning on the day after the Distribution Date.

Pre-Distribution Period ” means any Tax Period ending on or before the Distribution Date and, in the case of any Straddle Period, the portion of such Straddle Period ending on and including the Distribution Date.

Prime Rate ” means the “prime rate” as published in The Wall Street Journal , Eastern Edition.

Prior Group ” means any group that filed or was required to file (or will file or be required to file) a Tax Return, for a Tax Period or portion thereof ending at the close of the Distribution Date, on an affiliated, consolidated, combined, unitary, fiscal unity or other group basis (including as permitted by Section 1501 of the Code) that includes at least one member of the SMTA Group.

 

3


Privilege ” means any privilege that may be asserted under applicable law, including, any privilege arising under or relating to the attorney-client relationship (including the attorney-client and work product privileges), the accountant-client privilege and any privilege relating to internal evaluation processes.

Proposed Allocation ” shall have the meaning set forth in Section  3.5(b) of this Agreement.

Protected REIT ” means any entity that (i) has elected to be taxed as a REIT, and (ii) either (A) is an Indemnification Payee or (B) owns a direct or indirect equity interest in an Indemnification Payee and is treated for purposes of Section 856 of the Code as owning all or a portion of the assets of such Indemnification Payee or as receiving all or a portion of such Indemnification Payee’s income.

Qualifying Income ” has the meaning set forth in Section  12 of this Agreement.

REIT ” has the meaning set forth in the Separation Agreement.

Required Party ” has the meaning set forth in Section  4.3(a) of this Agreement.

Responsible Party ” means, with respect to any Tax Return, the Party having responsibility for preparing and filing such Tax Return under this Agreement.

Retention Date ” has the meaning set forth in Section  8.1 of this Agreement.

Ruling ” means a private letter ruling from the IRS regarding the Tax treatment of all or any part of the Transactions.

Separation Agreement ” has the meaning set forth in the recitals to this Agreement.

SMTA ” has the meaning provided in the preamble to this Agreement.

SMTA Carryback ” means any net operating loss, net capital loss, excess Tax credit, or other similar Tax item of any member of the SMTA Group which may or must be carried from one Tax Period to another prior Tax Period under the Code or other applicable Tax Law.

SMTA GP ” means Spirit MTA OP Holdings, LLC, a Delaware limited liability company.

SMTA Group ” has the meaning set forth in the Separation Agreement.

SMTA OP ” means Spirit MTA REIT, L.P., a Delaware limited partnership.

SMTA Separate Return ” means any Tax Return of or including any member of the SMTA Group (including any consolidated, combined or unitary return) that does not include any member of the SRC Group.

SRC ” has the meaning set forth in the preamble to this Agreement.

 

4


SRC Group ” has the meaning set forth in the Separation Agreement.

SRC Separate Return ” means any Tax Return of or including any member of the SRC Group (including any consolidated, combined or unitary return) that does not include any member of the SMTA Group.

SRLP ” means Spirit Realty, L.P., a Delaware limited partnership.

Straddle Period ” means any Tax Period that begins before and ends after the Distribution Date.

SubREIT ” means Spirit MTA SubREIT, Inc., a Maryland corporation.

Subsidiary ” has the meaning set forth in the Separation Agreement.

Tax ” or “ Taxes ” means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, value added, stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, escheat, alternative minimum, universal service fund, estimated or other tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax), imposed by any Governmental Authority or political subdivision thereof, and any interest, penalty, additions to tax or additional amounts in respect of the foregoing.

Tax Advisor ” means a Tax counsel or accountant, in each case of recognized national standing.

Tax Attribute ” means a net operating loss, net capital loss, unused investment credit, unused foreign Tax credit (including credits of a foreign company under Section 902 of the Code), excess charitable contribution, general business credit, research and development credit, earnings and profits, basis, or any other Tax Item that could reduce a Tax or create a Tax Benefit.

Tax Authority ” means, with respect to any Tax, the Governmental Authority or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision.

Tax Benefit ” means any refund, credit, or other item that causes reduction in otherwise required liability for Taxes.

Tax Contest ” means an audit, review, examination, contest, litigation, investigation or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes (including any administrative or judicial review of any claim for refund).

Tax Item ” means, with respect to any Income Tax, any item of income, gain, loss, deduction, or credit.

Tax Law ” means the Law of any Governmental Authority or political subdivision thereof relating to any Tax.

 

5


Tax Opinion ” means an opinion from a Tax Advisor regarding the qualification of SRC, SMTA or SubREIT as a REIT or regarding the Tax treatment of all or any part of the Transactions.

Tax Period ” means, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law.

Tax Records ” means any (i) Tax Returns, (ii) Tax Return workpapers, (iii) documentation relating to any Tax Contests, and (iv) any other books of account or records (whether or not in written, electronic or other tangible or intangible forms and whether or not stored on electronic or any other medium) maintained or required to be maintained under the Code or other applicable Tax Laws or under any record retention agreement with any Tax Authority, in each case filed or required to be filed with respect to or otherwise relating to Taxes.

Tax Return ” means any report of Taxes due, any claim for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document filed or required to be filed under the Code or other Tax Law with respect to Taxes, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing.

Transactions ” has the meaning set forth in the Separation Agreement.

Transfer Taxes ” means all sales, use, transfer, real property transfer, intangible, recordation, registration, documentary, stamp or similar Taxes imposed in connection with the Transactions (excluding in each case, for the avoidance of doubt, any Income Taxes).

Treasury Regulations ” means the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period.

Section 2. Allocation of Tax Liabilities.

Section 2.1 General Rule .

(a) SRC Liability . Except with respect to Taxes described in Section  2.1(b) of this Agreement, SRC shall be liable for, and shall indemnify and hold harmless the SMTA Group from and against any liability for:

(i) Taxes that are allocated to SRC under this Section  2 ;

(ii) any Tax resulting from a breach of any of SRC’s representations or covenants in this Agreement, the Separation Agreement or any Ancillary Agreement; and

(iii) Taxes imposed on SMTA or any member of the SMTA Group pursuant to the provisions of Treasury Regulations § 1.1502-6 (or similar provisions of state, local, or foreign Tax Law) as a result of any such member being or having been a member of a Prior Group.

 

6


(b) SMTA Liability . SMTA shall be liable for, and shall indemnify and hold harmless the SRC Group from and against any liability for:

(i) Taxes that are allocated to SMTA under this Section  2 ; and

(ii) any Tax resulting from a breach of any of SMTA’s representations or covenants in this Agreement, the Separation Agreement or any Ancillary Agreement.

Section 2.2 General Allocation Principles . Except as otherwise provided in this Section  2 , all Taxes shall be allocated as follows:

(a) Allocation of Taxes for Joint Returns . SRC shall be responsible for all Taxes reported, or required to be reported, on any Joint Return that any member of the SRC Group files or is required to file under the Code or other applicable Tax Law; provided , however , that to the extent any such Joint Return includes any Tax Item attributable to the operations or assets of any member of the SMTA Group for any Post-Distribution Period, SMTA shall be responsible for all Taxes attributable to such Tax Items, computed in a manner reasonably determined by SRC.

(b) Allocation of Taxes for Separate Returns .

(i) SRC shall be responsible for all Taxes reported, or required to be reported, on (x) an SRC Separate Return or (y) an SMTA Separate Return with respect to a Pre-Distribution Period.

(ii) SMTA shall be responsible for all Taxes reported, or required to be reported, on an SMTA Separate Return with respect to a Post-Distribution Period.

(c) Taxes Not Reported on Tax Returns .

(i) SRC shall be responsible for any Tax attributable to any member of the SRC Group that is not required to be reported on a Tax Return.

(ii) SMTA shall be responsible for any Tax attributable to any member of the SMTA Group that is not required to be reported on a Tax Return.

Section 2.3 Allocation Conventions .

(a) All Taxes allocated pursuant to Section  2.2 of this Agreement shall be apportioned between portions of a Tax Period based on a closing of the books and records on the close of the Distribution Date (in the event that the Distribution Date is not the last day of the Tax Period, as if the Distribution Date were the last day of the Tax Period), subject to adjustment for items accrued on the Distribution Date that are properly allocable to the Tax Period following the Distribution, as jointly determined by SRC and SMTA; provided that any items not susceptible to such apportionment shall be apportioned on the basis of elapsed days during the relevant portion of the Tax Period.

 

7


(b) Any Tax Item of SMTA or any member of the SMTA Group arising from a transaction engaged in outside of the ordinary course of business on the Distribution Date after the Effective Time shall be properly allocable to SMTA and any such transaction by or with respect to SMTA or any member of the SMTA Group occurring after the Effective Time shall be treated for all Tax purposes (to the extent permitted by applicable Tax Law) as occurring at the beginning of the day following the Distribution Date in accordance with the principles of Treasury Regulation § 1.1502-76(b) or any similar provisions of state, local or foreign Law.

Section 2.4 Transfer Taxes . Any Transfer Taxes shall be allocated solely to SRC.

Section 3. Preparation and Filing of Tax Returns .

Section 3.1 SRC Separate Returns and Joint Returns .

(a) SRC shall prepare and file, or cause to be prepared and filed, all SRC Separate Returns and Joint Returns, and each member of the SMTA Group to which any such Joint Return relates shall execute and file such consents, elections and other documents as SRC may determine, after consulting with SMTA in good faith, are required or appropriate, or otherwise requested by SRC in connection with the filing of such Joint Return. SMTA will elect and join, and will cause its respective Affiliates to elect and join, in filing any Joint Returns that SRC determines are required to be filed or that SRC elects to file, in each case pursuant to this Section  3.1(a) .

(b) The Parties and their respective Affiliates shall elect to close the Tax Period of each SMTA Group member on the Distribution Date, to the extent permitted by applicable Tax Law.

Section 3.2 SMTA Separate Returns . SMTA shall prepare and file (or cause to be prepared and filed) all SMTA Separate Returns.

Section 3.3 Tax Reporting Practices .

(a) General Rule . Except as provided in Section  3.3(b) of this Agreement, SRC shall prepare any Straddle Period Joint Return in accordance with past practices, permissible accounting methods, elections or conventions (“ Past Practices ”) used by the members of the SRC Group and the members of the SMTA Group prior to the Distribution Date with respect to such Tax Return, and to the extent any items, methods or positions are not covered by Past Practices, then SRC shall prepare such Tax Return in accordance with reasonable Tax accounting practices selected by SRC. With respect to any Tax Return that SMTA has the obligation and right to prepare, or cause to be prepared, under this Section  3 , to the extent such Tax Return could affect SRC, such Tax Return shall be prepared in accordance with Past Practices used by the members of the SRC Group and the members of the SMTA Group prior to the Distribution Date with respect to such Tax Return, and to the extent any items, methods or positions are not covered by Past Practices, such Tax Return shall be prepared in accordance with reasonable Tax accounting practices selected by SMTA, subject to the consent of SRC (which consent may not be unreasonably withheld, conditioned or delayed).

 

8


(b) Consistency with Intended Tax Treatment . Except as otherwise agreed by the Parties, the Parties shall prepare all Tax Returns consistent with the Intended Tax Treatment unless, and then only to the extent, an alternative position is required pursuant to a determination by a Tax Authority; provided , however , that neither Party shall be required to litigate before any court any challenge to the Intended Tax Treatment by a Tax Authority.

Section 3.4 SMTA Carrybacks and Claims for Refund .

(a) SMTA hereby agrees that, unless SRC consents in writing (which consent may not be unreasonably withheld, conditioned or delayed) or as required by Law, (i) no member of the SMTA Group (nor its successors) shall file any Adjustment Request with respect to any Tax Return that could affect any Joint Return or any other Tax Return reflecting Taxes that are allocated to SRC under Section  2 and (ii) any available elections to waive the right to claim any SMTA Carryback in any Joint Return or any other Tax Return reflecting Taxes that are allocated to SRC under Section  2 shall be made, and no affirmative election shall be made to claim any such SMTA Carryback. In the event that SMTA (or the appropriate member of the SMTA Group) is prohibited by applicable Law from waiving or otherwise forgoing an SMTA Carryback or SRC consents to an SMTA Carryback (which consent may not be unreasonably withheld, conditioned or delayed), SRC shall cooperate with SMTA, at SMTA’s expense, in seeking from the appropriate Tax Authority such Tax Benefit as reasonably would result from such SMTA Carryback, to the extent that such Tax Benefit is directly attributable to such SMTA Carryback, and shall pay over to SMTA the amount of such Tax Benefit within ten (10) days after such Tax Benefit is recognized by the SRC Group; provided , however , that SMTA shall indemnify and hold the members of the SRC Group harmless from and against any and all collateral Tax consequences resulting from or caused by any such SMTA Carryback, including, without limitation, the loss or postponement of any benefit from the use of Tax Attributes generated by a member of the SRC Group if (i) such Tax Attributes expire unused, but would have been utilized but for such SMTA Carryback, or (ii) the use of such Tax Attributes is postponed to a later Tax Period than the Tax Period in which such Tax Attributes would have been used but for such SMTA Carryback.

(b) SRC hereby agrees that, unless SMTA consents in writing (which consent may not be unreasonably withheld, conditioned or delayed) or as required by Law, no member of the SRC Group shall file any Adjustment Request with respect to any SMTA Separate Return.

Section 3.5 Apportionment of Tax Attributes .

(a) Tax Attributes arising in a Pre-Distribution Period will be allocated to (and the benefits and burdens of such Tax Attributes will inure to) the members of the SRC Group and the members of the SMTA Group in accordance with the Code, Treasury Regulations, and any other applicable Tax Law, and, in the absence of controlling legal authority or unless otherwise provided under this Agreement, Tax Attributes shall be allocated to the taxpayer that created such Tax Attributes.

(b) On or before the first anniversary of the Distribution Date, SRC shall deliver to SMTA its determination in writing of the portion, if any, of any earnings and profits, Tax Attributes, overall foreign loss or other affiliated, consolidated, combined, unitary, fiscal unity or

 

9


other group basis Tax Attribute which is allocated or apportioned to the members of the SMTA Group under applicable Tax Law and this Agreement (“ Proposed Allocation ”). SMTA shall have sixty (60) days to review the Proposed Allocation and provide SRC any comments with respect thereto. SRC shall accept any such comments that are reasonable, and such resulting determination will become final (“ Final Allocation ”). All members of the SRC Group and SMTA Group shall prepare all Tax Returns in accordance the Final Allocation. In the event of an adjustment to the earnings and profits, any Tax Attributes or other affiliated, consolidated, combined, unitary, fiscal unity or other group basis attribute, SRC shall promptly notify SMTA in writing of such adjustment. For the avoidance of doubt, SRC shall not be liable to any member of the SMTA Group for any failure of any determination under this Section  3.5(b) to be accurate under applicable Tax Law; provided such determination was made in good faith.

(c) Except as otherwise provided herein, to the extent that the amount of any Tax Attribute is later reduced or increased by a Tax Authority or Tax Proceeding, such reduction or increase shall be allocated to the Party to which such Tax Attribute was allocated pursuant to Section  3.5(a) of this Agreement, as agreed by the Parties.

Section 4. Tax Payments .

Section 4.1 Taxes Shown on Tax Returns . SRC shall pay (or cause to be paid) to the proper Tax Authority the Tax shown as due on any Tax Return that a member of the SRC Group is responsible for preparing under Section  3 of this Agreement, and SMTA shall pay (or cause to be paid) to the proper Tax Authority the Tax shown as due on any Tax Return that a member of the SMTA Group is responsible for preparing under Section  3 of this Agreement. At least seven (7) Business Days prior to any Payment Date for any Straddle Period Joint Return, SMTA shall pay to SRC the amount SMTA is responsible for under the provisions of Section  2 as calculated pursuant to this Agreement.

Section 4.2 Adjustments Resulting in Underpayments . In the case of any adjustment pursuant to a Final Determination with respect to any Tax, the Party to which such Tax is allocated pursuant to this Agreement shall pay to the applicable Tax Authority when due any additional Tax required to be paid as a result of such adjustment.

Section 4.3 Indemnification Payments.

(a) Except as provided in the last sentence of Section  4.1 of this Agreement, if any Party (the “ Payor ”) is required under applicable Tax Law to pay to a Tax Authority a Tax that another Party (the “ Required Party ”) is liable for under this Agreement, the Required Party shall reimburse the Payor within twenty (20) Business Days of delivery by the Payor to the Required Party of an invoice for the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. The reimbursement shall include interest on the Tax payment computed at the Prime Rate based on the number of days from the date of the Payor’s payment to the Tax Authority to the date of reimbursement by the Required Party under this Section  4.3 . Except as otherwise provided in the following sentence, the Required Party shall also pay to the Payor any reasonable costs and expenses related to the foregoing (including reasonable attorneys’ fees and expenses) within five (5) days after the Payor’s written demand therefor.

 

10


(b) All indemnification payments under this Agreement shall be made by SRC directly to SMTA and by SMTA directly to SRC; provided , however , that if the Parties mutually agree for administrative convenience with respect to any such indemnification payment, any member of the SRC Group, on the one hand, may make such indemnification payment to any member of the SMTA Group, on the other hand, and vice versa.

Section 5. Tax Benefits .

Section 5.1 Tax Refunds . SRC shall be entitled (subject to the limitations provided in Section  3.4 of this Agreement) to any refund (and any interest thereon received from the applicable Tax Authority) of Taxes for which SRC is liable hereunder, and SMTA shall be entitled (subject to the limitations provided in Section  3.4 of this Agreement) to any refund (and any interest thereon received from the applicable Tax Authority) of Taxes for which SMTA is liable hereunder. A Party receiving a refund to which another Party is entitled hereunder shall pay over such refund to such other Party within twenty (20) Business Days after such refund is received (together with interest computed at the Prime Rate based on the number of days from the date the refund was received to the date the refund was paid over).

Section 5.2 Other Tax Benefits .

(a) If (i) a member of the SMTA Group actually realizes any Tax Benefit as a result of any liability, obligation, loss or payment (each, a “ Loss ”) for which a member of the SRC Group is required to indemnify any member of the SMTA Group pursuant to this Agreement, the Separation Agreement or any Ancillary Agreement (in each case, without duplication of any amounts payable or taken into account under this Agreement, the Separation Agreement or any Ancillary Agreement), or (ii) if a member of the SRC Group actually realizes any Tax Benefit as a result of any Loss for which a member of the SMTA Group is required to indemnify any member of the SRC Group pursuant to this Agreement, the Separation Agreement or any Ancillary Agreement (in each case, without duplication of any amounts payable or taken into account under this Agreement, the Separation Agreement or any Ancillary Agreement), and, in each case, such Tax Benefit would not have arisen but for such adjustment or Loss (determined on a “with and without” basis), SMTA (in the case of the foregoing clause (i)) or SRC (in the case of the foregoing clause (ii)), as the case may be, shall make a payment to the other Party in an amount equal to the amount of such actually realized Tax Benefit in cash within ten (10) Business Days of actually realizing such Tax Benefit. To the extent that any Tax Benefit (or portion thereof) in respect of which any amounts were paid over pursuant to the foregoing provisions of this Section  5.2(a) is subsequently disallowed by the applicable Tax Authority, the Party that received such amounts shall promptly repay such amounts (together with any penalties, interest or other charges imposed by the relevant Tax Authority) to the other Party.

(b) No later than ten (10) Business Days after a Tax Benefit described in Section  5.2(a) is actually realized by a member of the SRC Group or a member of the SMTA Group, SRC or SMTA, as the case may be, shall provide the other Party with a written calculation of the amount payable to such other Party pursuant to Section  5.2(a) . In the event that SRC or SMTA, as the case may be, disagrees with any such calculation described in this Section  5.2(b) , such Party shall so notify the other Party in writing within twenty (20) Business Days of receiving such written calculation. The Parties shall endeavor in good faith to resolve such disagreement, and, failing that, the amount payable under this Section  5.2 shall be determined in accordance with Section  13 of this Agreement.

 

11


Section 6. REIT Qualification .

Section 6.1 SRC . SRC represents that, commencing with its taxable year ended December 31, 2014, through its taxable year ending December 31, 2017, SRC has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT under the Code. SRC covenants that it will qualify as a REIT under the Code for its taxable year ending December 31, 2018.

Section 6.2 SMTA . SMTA covenants that it will elect to qualify as a REIT under the Code and will be organized and operate so that it will qualify as a REIT under the Code for its taxable year ending December 31, 2018.

Section 7. Assistance and Cooperation .

Section 7.1 Assistance and Cooperation .

(a) The Parties shall cooperate (and cause their respective Affiliates to cooperate) with each other and with each other’s agents, including accounting firms and legal counsel, in connection with Tax matters relating to the Parties and their Affiliates, including (i) preparation and filing of Tax Returns, (ii) determining the liability for and amount of any Taxes due (including estimated Taxes) or the right to and amount of any refund of Taxes, (iii) examinations of Tax Returns, and (iv) any administrative or judicial proceeding in respect of Taxes assessed or proposed to be assessed. Such cooperation shall include making all information and documents in their possession relating to any other Party and its Affiliates reasonably available to such other Party as provided in Section  8 of this Agreement. Each of the Parties shall also make available to any other Party, as reasonably requested and available, personnel (including officers, directors, employees and agents of the Parties or their respective Affiliates) responsible for preparing, maintaining, and interpreting information and documents relevant to Taxes, and personnel reasonably required as witnesses or for purposes of providing information or documents in connection with any administrative or judicial proceedings relating to Taxes. SMTA and each other member of the SMTA Group, on the one hand, and SRC and member of the SRC Group, on the other hand, shall cooperate with each other and take any and all actions reasonably requested by the other in connection with obtaining a Tax Opinion or Ruling (including, without limitation, by making any new representation or covenant, confirming any previously made representation or covenant or providing any materials or information requested by any Tax Advisor; provided that no one shall be required to make or confirm any representation or covenant that is inconsistent with historical facts or as to future matters or events occurring after December 31, 2018 or over which it has no control).

(b) Any information or documents provided under this Agreement shall be kept confidential by the Party receiving the information or documents, except as may otherwise be necessary in connection with the filing of Tax Returns or in connection with any administrative or judicial proceedings relating to Taxes. In addition, in the event that SRC determines that the provision of any information or documents to SMTA or any of its Affiliates, or SMTA

 

12


determines that the provision of any information or documents to SRC or any SRC Affiliate, could be commercially detrimental, violate any Law or agreement or waive any Privilege, the Parties shall use commercially reasonable efforts to permit each other’s compliance with its obligations under this Section  7 in a manner that avoids any such harm or consequence.

Section 7.2 Tax Return Information . Each of SRC and SMTA, and each member of their respective Groups, acknowledges that time is of the essence in relation to any request for information, assistance or cooperation made pursuant to Section  7.1 of this Agreement or this Section  7.2 . Each of SRC and SMTA, and each member of their respective Groups, acknowledges that failure to conform to the reasonable deadlines set by the Party making such request could cause irreparable harm. Each Party shall provide to the other Party information and documents relating to its Group reasonably required by the other Party to prepare Tax Returns, including any pro forma returns required by the Responsible Party for purposes of preparing such Tax Returns. Any information or documents the Responsible Party requires to prepare such Tax Returns shall be provided in such form as the Responsible Party reasonably requests and at or prior to the time reasonably specified by the Responsible Party so as to enable the Responsible Party to file such Tax Returns on a timely basis.

Section 7.3 Reliance by SRC . If any member of the SMTA Group supplies information to a member of the SRC Group in connection with a Tax liability and an officer of a member of the SRC Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the SRC Group identifying the information being so relied upon, the chief financial officer of SMTA (or any officer of SMTA as designated by the chief financial officer of SMTA) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete.

Section 7.4 Reliance by SMTA . If any member of the SRC Group supplies information to a member of the SMTA Group in connection with a Tax liability and an officer of a member of the SMTA Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the SMTA Group identifying the information being so relied upon, the chief financial officer of SRC (or any officer of SRC as designated by the chief financial officer of SRC) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete.

Section 8. Tax Records .

Section 8.1 Retention of Tax Records . Each of SRC and SMTA shall preserve and keep all Tax Records exclusively relating to the assets and activities of its Group for Pre-Distribution Periods, and SRC shall preserve and keep all other Tax Records relating to Taxes of the SRC and SMTA Groups for Pre-Distribution Periods, for so long as the contents thereof may be or become material in the administration of any matter under the Code or other applicable Tax Law, but in any event until the later of (i) the expiration of any applicable statutes of limitations, or (ii) seven (7) years after the Distribution Date (such later date, the “ Retention Date ”). After the Retention Date, each of SRC and SMTA may dispose of such Tax Records upon sixty (60) Business Days’ prior written notice to the other Party. If, prior to the Retention Date, (a) SRC or

 

13


SMTA reasonably determines that any Tax Records which it would otherwise be required to preserve and keep under this Section  8 are no longer material in the administration of any matter under the Code or other applicable Tax Law and the other Party agrees, then such first Party may dispose of such Tax Records upon sixty (60) Business Days’ prior notice to the other Party. Any notice of an intent to dispose given pursuant to this Section  8.1 shall include a list of the Tax Records to be disposed of describing in reasonable detail each file, book, or other record accumulation being disposed. The notified Parties shall have the opportunity, at their cost and expense, to copy or remove, within such sixty (60) Business Day period, all or any part of such Tax Records. If, at any time prior to the Retention Date, a Party or any of its Affiliates determines to decommission or otherwise discontinue any computer program or information technology system used to access or store any Tax Records, then such program or system may be decommissioned or discontinued upon ninety (90) Business Days’ prior notice to the other Party and the other Party shall have the opportunity, at its cost and expense, to copy, within such ninety (90) Business Day period, all or any part of the underlying data relating to the Tax Records accessed by or stored on such program or system.

Section 8.2 Access to Tax Records . The Parties and their respective Affiliates shall make available to each other for inspection and copying during normal business hours upon reasonable notice all Tax Records (and, for the avoidance of doubt, any pertinent underlying data accessed or stored on any computer program or information technology system) in their possession pertaining to (i) in the case of any Tax Return of the SRC Group, the portion of such return that relates to Taxes for which the SMTA Group may be liable pursuant to this Agreement or (ii) in the case of any Tax Return of the SMTA Group, the portion of such return that relates to Taxes for which the SRC Group may be liable pursuant to this Agreement, and shall permit the other Party and its Affiliates, authorized agents and representatives and any representative of a Tax Authority or other Tax auditor direct access, at the cost and expense of the requesting Party, during normal business hours upon reasonable notice to any computer program or information technology system used to access or store any Tax Records, in each case to the extent reasonably required by the other Party in connection with the preparation of Tax Returns or financial accounting statements, audits, litigation, or the resolution of items under this Agreement.

Section 8.3 Preservation of Privilege . The Parties and their respective Affiliates shall not provide access to, copies of, or otherwise disclose to any Person any documentation relating to Taxes existing prior to the Distribution Date to which Privilege may reasonably be asserted without the prior written consent of the other Party, such consent not to be unreasonably withheld, conditioned or delayed.

Section 9. Tax Contests .

Section 9.1 Notice . Each Party shall provide prompt notice to the other Party of any written communication from a Tax Authority regarding any pending Tax audit, assessment or proceeding or other Tax Contest of which it becomes aware (i) related to Taxes for Tax Periods for which it is indemnified by the other Party hereunder or for which it may be required to indemnify the other Party hereunder or (ii) otherwise relating to the Intended Tax Treatment or the Transactions (including the resolution of any Tax Contest relating thereto). Such notice shall attach copies of the pertinent portion of any written communication from a Tax Authority and

 

14


contain factual information (to the extent known) describing any asserted Tax liability in reasonable detail and shall be accompanied by copies of any notice and other documents received from any Tax Authority in respect of any such matters. If an indemnified Party has knowledge of an asserted Tax liability with respect to a matter for which it is to be indemnified hereunder and such Party fails to give the indemnifying Party prompt notice of such asserted Tax liability and the indemnifying Party is entitled under this Agreement to contest the asserted Tax liability, then (x) to the extent the indemnifying Party is precluded from contesting the asserted Tax liability in any forum as a result of the failure to give prompt notice, the indemnifying Party shall have no obligation to indemnify the indemnified Party for any Taxes arising out of such asserted Tax liability, and (y) to the extent the indemnifying Party is not precluded from contesting the asserted Tax liability in any forum, but such failure to give prompt notice results in a material monetary detriment to the indemnifying Party, then any amount which the indemnifying Party is otherwise required to pay the indemnified Party pursuant to this Agreement shall be reduced by the amount of such detriment.

Section 9.2 Control of Tax Contests .

(a) SRC Control . Notwithstanding anything in this Agreement to the contrary, SRC shall have the right to control any Tax Contest with respect to any Tax matters relating to (i) a Joint Return, (ii) an SRC Separate Return and (iii) Transfer Taxes. Subject to Section  9.2(c) and Section  9.2(d) of this Agreement, SRC shall have absolute discretion with respect to any decisions to be made, or the nature of any action to be taken, with respect to any such Tax Contest.

(b) SMTA Control . Except as otherwise provided in this Section  9.2 , SMTA shall have the right to control any Tax Contest with respect to any Tax matters relating to an SMTA Separate Return. Subject to Section  9.2(c) and Section  9.2(d) of this Agreement, SMTA shall have reasonable discretion, after consultation with SRC, with respect to any decisions to be made, or the nature of any action to be taken, with respect to any such Tax Contest relating to an SMTA Separate Return for a Pre-Distribution Period or Straddle Period, and absolute discretion with respect to any decisions to be made, or the nature of any action to be taken, with respect to any other such Tax Contest.

(c) Settlement Rights . The Controlling Party shall have the sole right to contest, litigate, compromise and settle any Tax Contest without obtaining the prior consent of the Non-Controlling Party; provided , that to the extent any such Tax Contest (i) could give rise to a claim for indemnity by the Controlling Party or its Affiliates against the Non-Controlling Party or its Affiliates under this Agreement, or (ii) is with respect to an SMTA Separate Return for a Pre-Distribution Period or Straddle Period, then the Controlling Party shall not settle any such Tax Contest without the Non-Controlling Party’s prior written consent (which consent may not be unreasonably withheld, conditioned or delayed and must take into account the reasonable likelihood of success of such Tax Contest on its merits without regard to the ability of SMTA to pay). Subject to Section  9.2(e) of this Agreement, and unless waived by the Parties in writing, in connection with any potential adjustment in a Tax Contest as a result of which adjustment the Non-Controlling Party may reasonably be expected to become liable to make any indemnification payment to the Controlling Party under this Agreement: (I) the Controlling Party shall keep the Non-Controlling Party informed in a timely manner of all actions taken or

 

15


proposed to be taken by the Controlling Party with respect to such potential adjustment in such Tax Contest; (II) the Controlling Party shall timely provide the Non-Controlling Party copies of any written materials relating to such potential adjustment in such Tax Contest received from any Tax Authority; (III) the Controlling Party shall timely provide the Non-Controlling Party with copies of any correspondence or filings submitted to any Tax Authority or judicial authority in connection with such potential adjustment in such Tax Contest; (IV) the Controlling Party shall consult with the Non-Controlling Party and offer the Non-Controlling Party a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such potential adjustment in such Tax Contest; and (V) the Controlling Party shall defend such Tax Contest diligently and in good faith. The failure of the Controlling Party to take any action specified in the preceding sentence with respect to the Non-Controlling Party shall not relieve the Non-Controlling Party of any liability and/or obligation which it may have to the Controlling Party under this Agreement except to the extent that the Non-Controlling Party was actually harmed by such failure, and in no event shall such failure relieve the Non-Controlling Party from any other liability or obligation which it may have to the Controlling Party. In the case of any Tax Contest described in this Section  9 , “ Controlling Party ” means the Party entitled to control the Tax Contest under such Section and “ Non-Controlling Party ” means (x) SRC if SMTA is the Controlling Party and (y) SMTA if SRC is the Controlling Party.

(d) Tax Contest Participation . Subject to Section  9.2(e) of this Agreement, and unless waived by the Parties in writing, the Controlling Party shall provide the Non-Controlling Party with written notice reasonably in advance of, and the Non-Controlling Party shall have the right to attend, any formally scheduled meetings with Tax Authorities or hearings or proceedings before any judicial authorities in connection with any potential adjustment in a Tax Contest pursuant to which the Non-Controlling Party may reasonably be expected to become liable to make any indemnification payment to the Controlling Party under this Agreement. The failure of the Controlling Party to provide any notice specified in this Section  9.2(d) to the Non-Controlling Party shall not relieve the Non-Controlling Party of any liability or obligation which it may have to the Controlling Party under this Agreement except to the extent that the Non-Controlling Party was actually harmed by such failure, and in no event shall such failure relieve the Non-Controlling Party from any other liability or obligation which it may have to the Controlling Party.

(e) Joint Returns . Notwithstanding anything in this Section  9 to the contrary, in the case of a Tax Contest related to a Joint Return, the rights of SMTA and its Affiliates under Section  9.2(c) and Section  9.2(d) of this Agreement shall be limited in scope to the portion of such Tax Contest relating to Taxes for which SMTA may reasonably expected to become liable to make any indemnification payment to SRC under this Agreement.

(f) Power of Attorney . Each member of the SMTA Group shall execute and deliver to SRC (or such member of the SRC Group as SRC shall designate) any power of attorney or other similar document reasonably requested by SRC (or such designee) in connection with any Tax Contest (as to which SRC is the Controlling Party) described in this Section  9 . Each member of the SRC Group shall execute and deliver to SMTA (or such member of the SMTA Group as SMTA shall designate) any power of attorney or other similar document requested by SMTA (or such designee) in connection with any Tax Contest (as to which SMTA is the Controlling Party) described in this Section  9 .

 

16


Section 10. Survival of Obligations. The representations, warranties, covenants and agreements set forth in this Agreement shall be unconditional and absolute and shall remain in effect without limitation as to time.

Section 11. Tax Treatment of Payments .

Section 11.1 General Rule . Except as otherwise required by applicable Law or as otherwise agreed to by the Parties, any payment (other than interest thereon) made by SRC or any member of the SRC Group to SMTA or any member of the SMTA Group, or by SMTA or any member of the SMTA Group to SRC or any member of the SRC Group, pursuant to this Agreement, the Separation Agreement or any Ancillary Agreement that relates to Taxable periods (or portions thereof) ending on or before the Distribution Date shall be treated by the Parties for all Tax purposes as a distribution by SMTA to SRC, or a capital contribution from SRC to SMTA, as the case may be, occurring immediately before the Distribution; provided, however, that any such payment that is made or received by a Person other than SRC or SMTA, as the case may be, shall be treated as if made or received by the payor or the recipient as agent for SRC or SMTA, in each case as appropriate. No Party shall take any position inconsistent with the treatment described in the preceding sentence, and in the event that a Tax Authority asserts that a Party’s treatment of a payment pursuant to this Agreement should be other than as set forth in the preceding sentence, such Party shall use its commercially reasonable efforts to contest such challenge.

Section 11.2 Interest . Anything herein or in the Separation Agreement to the contrary notwithstanding, to the extent one Party makes a payment of interest to the other Party under this Agreement with respect to the period from the date that the Party receiving the interest payment made a payment of Tax to a Tax Authority to the date that the Party making the interest payment reimbursed the Party receiving the interest payment for such Tax payment, the interest payment shall be treated as interest expense to the Party making such payment (deductible to the extent provided by Law) and as interest income by the Party receiving such payment (includible in income to the extent provided by Law). The amount of the payment shall not be adjusted to take into account any associated Tax Benefit to the Party making such payment or increase in Tax to the Party receiving such payment.

Section 12. Indemnification Payment Escrow . Notwithstanding anything to the contrary in this Agreement, the Separation Agreement or any Ancillary Agreement, if one party to this Agreement, the Separation Agreement or any Ancillary Agreement (the “ Indemnification Payor ”) is required to pay another party to such agreement (the “ Indemnification Payee ”) any indemnification payment that could reasonably result in income to any Protected REIT for U.S. federal income Tax purposes if paid (such payment, an “ Indemnification Payment ”), then, unless the Indemnification Payee shall have received a tax opinion of a Tax Advisor or a ruling from the IRS to the effect that the Indemnification Payee’s receipt of such payment will be treated as qualifying income with respect to the any applicable Protected REIT for purposes of Section 856(c)(2) and 856(c)(3) of the Code (“ Qualifying Income ”) or shall be excluded from income for such purposes (such opinion or ruling, a “ Positive Tax Opinion or Ruling ”), and notified the Indemnification Payor in writing of its receipt of such Positive Tax Opinion or Ruling and directed that payment be made otherwise than into escrow as provided below, the amounts payable to the Indemnification Payee shall be limited to the maximum amount (“ Allowed

 

17


Amount ”) that can be paid without causing the Indemnification Payee’s receipt of its share of such funds to cause any applicable Protected REIT to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code, determined as if the payment of such amount did not constitute Qualifying Income and the Protected REIT has $[ 🌑 ] of income from unknown sources during such year that does not constitute Qualifying Income (in addition to any known or anticipated income that is not Qualifying Income), as determined by independent accountants to the Indemnification Payee, and any excess of the amount of the Indemnification Payment over the Allowed Amount (such excess, the “ Escrowed Amount ”) shall be placed into escrow. Any such Escrowed Amount shall be retained by the escrow agent in a separate interest-bearing, segregated account for the account of the Indemnification Payor. The Indemnification Payee shall pay all costs associated with obtaining any tax opinion of a Tax Advisor or ruling from the IRS described above. The Escrowed Amount shall be fully disbursed (and therefore any unpaid portion of the Indemnification Payment shall be paid to the Indemnification Payee) upon the escrow agent’s receipt of a Positive Tax Opinion or Ruling. To the extent not previously paid, upon any determination by independent accountants to the Indemnification Payee that any additional amount of the Indemnification Payment may be disbursed to the Indemnification Payee without causing any applicable Protected REIT to fail to meet the requirements of Sections 856(c)(2) and 856(c)(3) of the Code, determined as if the payment of such amount did not constitute Qualifying Income and the Protected REIT has $[ 🌑 ] of income from unknown sources during such year that does not constitute Qualifying Income (in addition to any known or anticipated income that is not Qualifying Income), the determination of such independent accountants shall be provided to the escrow agent and such additional amount shall be disbursed to the Indemnification Payee. At the end of the second calendar year beginning after the date on which the Indemnification Payor’s obligation to pay the Indemnification Payment arose (or earlier if directed by the Indemnification Payee), any remainder of the Escrowed Amount (together with interest thereon) then being held by the escrow agent shall be disbursed to the Indemnification Payor and, in the event that the Indemnification Payment has not by then been paid in full, such unpaid portion shall never be due. The Indemnification Payee shall bear any and all expenses associated with the escrow of the Escrowed Amount. The Indemnification Payee is hereby granted the power of attorney on behalf of the Indemnification Payor to execute, acknowledge, swear to and deliver all such documents required in connection with the foregoing escrow account, such power to be irrevocable and coupled with an interest.

Section 13. Dispute Resolution. Any and all Agreement Disputes arising hereunder shall be resolved through the procedures provided in Article X of the Separation Agreement.

Section 14. General Provisions .

Section 14.1 Amendments and Waivers .

(a) Subject to Section [11.1] of the Separation Agreement, this Agreement may not be amended except by an agreement in writing signed by both Parties.

 

18


(b) Any term or provision of this Agreement may be waived, or the time for its performance may be extended, by the Party entitled to the benefit thereof and any such waiver shall be validly and sufficiently given for the purposes of this Agreement if it is in writing signed by an authorized representative of such Party. No delay or failure in exercising any right, power or remedy hereunder shall affect or operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or remedy preclude any further exercise thereof or of any other right, power or remedy. The rights and remedies hereunder are cumulative and not exclusive of any rights or remedies that either Party would otherwise have.

Section 14.2 Entire Agreement . This Agreement, the Ancillary Agreements, and the Exhibits and Schedules referenced herein and therein and attached hereto or thereto, constitute the entire agreement and understanding between the Parties with respect to the subject matter hereof and supersede all prior negotiations, agreements, commitments, writings, courses of dealing and understandings with respect to the subject matter hereof; for the avoidance of doubt, the preceding clause shall apply to all other agreements, whether or not written, in respect of any Tax between or among any member or members of the SRC Group, on the one hand, and any member or members of the SMTA Group, on the other hand, which agreements shall be of no further effect between the parties thereto and any rights or obligations existing thereunder shall be fully and finally settled, calculated as of the date hereof. Except as expressly set forth in the Separation Agreement or any Ancillary Agreement: (i) all matters relating to Taxes and Tax Returns of the Parties and their respective Subsidiaries, to the extent such matters are the subject of this Agreement, shall be governed exclusively by this Agreement; and (ii) for the avoidance of doubt, in the event of any conflict between the Separation Agreement or any Ancillary Agreement, on the one hand, and this Agreement, on the other hand, with respect to such matters, the terms and conditions of this Agreement shall govern.

Section 14.3 Survival of Agreements . Except as otherwise expressly contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Effective Time and remain in full force and effect in accordance with their applicable terms.

Section 14.4 Third Party Beneficiaries . Except as specifically provided herein, this Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.

Section 14.5 Notices . All notices, requests, permissions, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given (a) five (5) Business Days following sending by registered or certified mail, postage prepaid, (b) when sent, if sent by facsimile, (c) when delivered, if delivered personally to the intended recipient, and (d) one (1) Business Day following sending by overnight delivery via a national courier service and, in each case, addressed to a Party at the following address for such Party.

 

19


  (a) If to SRC:

Spirit Realty Capital, Inc.

2727 North Harwood Street, Suite 300,

Dallas, Texas 75201

Attention: General Counsel

Facsimile No.: (800) 973-0850

 

  (b) If to SMTA:

Spirit MTA REIT

2727 North Harwood Street, Suite 300,

Dallas, Texas 75201

Attention: Chief Financial Officer

Facsimile No.: (800) 973-0850

Section 14.6 Counterparts; Electronic Delivery . This Agreement may be executed in multiple counterparts, each of which when executed shall be deemed to be an original, but all of which together shall constitute one and the same agreement. Execution and delivery of this Agreement or any other documents pursuant to this Agreement by facsimile or other electronic means shall be deemed to be, and shall have the same legal effect as, execution by an original signature and delivery in person.

Section 14.7 Severability . If any term or other provision of this Agreement or the Exhibits and Schedules attached hereto or thereto is determined by a nonappealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the court, administrative agency or arbitrator shall interpret this Agreement so as to affect the original intent of the Parties as closely as possible in an acceptable manner to the end that the Transactions are fulfilled to the fullest extent possible. If any sentence in this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only as broad as is enforceable.

Section 14.8 Assignability; Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns; provided, however, that the rights and obligations of each Party under this Agreement shall not be assignable, in whole or in part, directly or indirectly, whether by operation of law or otherwise, by such Party without the prior written consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed) and any attempt to assign any rights or obligations under this Agreement without such consent shall be null and void. Notwithstanding the foregoing, either Party may assign its rights and obligations under this Agreement to any of their respective Affiliates provided that no such assignment shall release such assigning Party from any liability or obligation under this Agreement.

Section 14.9 Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with, the substantive laws of the State of New York, without regard to any conflicts of law provisions thereof that would result in the application of the laws of any other jurisdiction.

 

20


Section 14.10 Construction . This Agreement shall be construed as if jointly drafted by the Parties and no rule of construction or strict interpretation shall be applied against either Party. The Parties represent that this Agreement is entered into with full consideration of any and all rights which the Parties may have. The Parties have relied upon their own knowledge and judgment. The Parties have had access to independent legal advice, have conducted such investigations they thought appropriate, and have consulted with such other independent advisors as they deemed appropriate regarding this Agreement and their rights and asserted rights in connection therewith. The Parties are not relying upon any representations or statements made by the other Party, or such other Party’s employees, agents, representatives or attorneys, regarding this Agreement, except to the extent such representations are expressly set forth or incorporated in this Agreement. The Parties are not relying upon a legal duty, if one exists, on the part of the other Party (or such other Party’s employees, agents, representatives or attorneys) to disclose any information in connection with the execution of this Agreement or their preparation, it being expressly understood that neither Party shall ever assert any failure to disclose information on the part of the other Party as a ground for challenging this Agreement.

Section 14.11 Performance . Each Party shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary or Affiliate of such Party.

Section 14.12 Title and Headings . Titles and headings to Sections and Articles are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

Section 14.13 Other Agreements . Except as expressly set forth herein, this Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Separation Agreement or the Ancillary Agreements.

Section 14.14 Payment Terms .

(a) Except as otherwise expressly provided to the contrary in this Agreement, any amount to be paid or reimbursed by a Party (where applicable, or a member of such Party’s Group) to the other Party (where applicable, or a member of such other Party’s Group) under this Agreement shall be paid or reimbursed hereunder within sixty (60) days after presentation of an invoice or a written demand therefor, in either case setting forth, or accompanied by, reasonable documentation or other reasonable explanation supporting such amount.

(b) Except as expressly provided to the contrary in this Agreement, any amount not paid when due pursuant to this Agreement (and any amount billed or otherwise invoiced or demanded and properly payable that is not paid within sixty (60) days of such bill, invoice or other demand) shall bear interest at a rate per annum equal to the Prime Rate, from time to time in effect, plus two percent (2%), calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment.

 

21


(c) Without the consent of the Party receiving any payment under this Agreement specifying otherwise, all payments to be made by either SRC or SMTA under this Agreement shall be made in U.S. dollars. Except as expressly provided herein, any amount which is not expressed in U.S. dollars shall be converted into U.S. dollars by using the exchange rate published on Bloomberg at 5:00 pm, Eastern time, on the day before the relevant date, or in The Wall Street Journal on such date if not so published on Bloomberg. Except as expressly provided herein, in the event that any Tax indemnity payment required to be made hereunder may be denominated in a currency other than U.S. dollars, the amount of such payment shall be converted into U.S. dollars on the date in which notice of the claim is given to the indemnifying Party.

Section 14.15 No Admission of Liability . The allocation of assets and liabilities herein is solely for the purpose of allocating such assets and liabilities between SRC and SMTA and is not intended as an admission of liability or responsibility for any alleged liabilities vis-à-vis any third party, including with respect to the liabilities of any non-wholly owned subsidiary of SRC or SMTA.

[Signature Page Follows]

 

22


IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective officers as of the date first set forth above.

 

SPIRIT REALTY CAPITAL, INC.
By:  

 

    Name:
    Title:
SPIRIT MTA REIT
By:  

 

    Name:
    Title:

 

[ Signature Page to Tax Matters Agreement ]


Exhibit A

 

Transaction Step

  

Intended Tax Treatment

  
  
  

Exhibit 10.4

INSURANCE SHARING AGREEMENT

Dated as of                , 2018


TABLE OF CONTENTS

Page

1.

  

Insurance Procurement

     1  
   1.1      Duty of Manager      1  
   1.2      Policy Type      1  
   1.3      Considerations      2  
   1.4      Binding Effect      2  
   1.5      Reliance Upon Broker      2  
   1.6      Presentation of Claims      2  

2.

  

Interim Period

     2  

3.

  

Allocation of Costs and Proceeds

     3  
   3.1      Cost of Separate Insurance      3  
   3.2      Cost of Common Benefit Insurance      3  
   3.3      Remittance of Separate Insurance Proceeds      3  
   3.4      Remittance of Common Benefit Insurance Proceeds      3  

4.

  

Payment of Costs

     4  

5.

  

Term; Termination

     4  

6.

  

General Provisions

     5  
   6.1      Independent Contractor      5  
   6.2      Notices      5  
   6.3      Attorneys’ Fees      5  
   6.4      Non-Assignability      5  
   6.5      Amendments      5  
   6.6      Counterparts      5  
   6.7      Governing Law      6  
   6.8      Cooperation      6  
   6.9      Waiver of Rights      6  
   6.10    Successors and Assigns      6  
   6.11    Subordination      6  
   6.12    Further Assurance      6  

 

i


INSURANCE SHARING AGREEMENT

THIS PROPERTY INSURANCE SHARING AGREEMENT (this “ Agreement ”) is entered into as of                , 2018 by and among SPIRIT REALTY, L.P., a Delaware limited partnership (“ Manager ”), SPIRIT REALTY CAPITAL, INC., a Maryland corporation (together with its subsidiaries, “ Spirit ”), and SPIRIT MTA REIT, a Maryland real estate investment trust (together with its subsidiaries, “ SMTA ”). Spirit and SMTA are each referred to as an “ Insured Entity ” and, collectively, as the “ Insured Entities ”.

Recitals

WHEREAS, in connection with the proposed spin-off by Spirit of certain assets and liabilities to Spirit’s common stockholders, Manager, Spirit and SMTA will engage in certain restructuring transactions (“ Restructuring Transactions ”) resulting in each of Spirit and SMTA, directly or indirectly, owning or leasing certain land and improvements (collectively, the “ Projects ”) upon the consummation of the Restructuring Transactions,; and

WHEREAS, subject to, and upon the consummation of, the Restructuring Transactions, the Insured Entities desire to appoint Manager as their agent and representative in connection with the matters set forth in this Agreement.

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Manager and Insured Entities hereby agree as follows:

1. Insurance Procurement .

1.1 Duty of Manager . Subject to, and upon the consummation of, the Restructuring Transactions, the Insured Entities hereby appoint Manager as their agent and representative to procure and continue in force on behalf of the Insured Entities such policies of insurance on the Projects as Manager shall determine to be necessary or appropriate from time to time; provided , however , that such policies of insurance shall at all times materially comply with any requirements by lenders or lessors of the Insured Entities as set forth in any deeds of trust, mortgages and other secured loan documents or instruments, security agreements, ground or other leases and other loan, lease or guaranty agreements, documents or instruments as the Insured Entities may enter into with respect to the Projects from time to time, and which will be provided by the Insured Entities to Manager in accordance with Section 1.3 hereof. The Insured Entities agree that such policies of insurance may include, without limitation, general liability, automobile liability, umbrella liability, property and environmental liability policies.

1.2      Policy Type . Manager has the authority to procure and maintain on behalf of the Insured Entities or an Insured Entity, as the case may be, (i) separate policies of insurance (“ Separate Insurance ”) with respect to (A) one or any group of Projects owned or leased, directly or indirectly, solely by Spirit or SMTA, respectively, and (B) director and officer liability, and (ii) blanket policies of insurance (“ Common Benefit Insurance ”) with respect to any group of Projects owned or leased, directly or indirectly, by Spirit and SMTA, in each case in accordance with this Agreement. All insurance policies procured and maintained by Manager hereunder shall be issued by financially sound and responsible insurance companies and shall insure both the owner or the lessor of the insured Project and Manager, as the case may be.

 

1


1.3 Considerations . S ubject to Section  1.6 below, any determination to be made by Manager pursuant to Sections 1.1 and 1.2 above shall be based upon, in addition to such other factors and considerations as Manager may deem to be appropriate, (i) the nature and amount of insurance coverage maintained with respect to similar properties and industries located in the areas in which the Projects are located, (ii) insurance requirements set forth in third-party agreements, including, but not limited to, leases and loan agreements, documents and instruments entered into with respect to the respective Projects and (iii) the condition of, and limitations imposed by, the insurance underwriting market with respect to the availability of insurance coverage. In connection with the foregoing, each Insured Entity agrees that it shall provide to Manager promptly upon request a true and complete copy of each mortgage, loan, lease, security agreement and/or other third party agreement, document and instrument to which such Insured Entity is a party and which contains any insurance requirement with respect to the Projects owned or leased by such Insured Entity.

1.4 Binding Effect . The exercise in good faith of all discretion conferred upon Manager pursuant to the terms of this Agreement shall be binding upon each of the Insured Entities.

1.5 Reliance Upon Broker . Each Insured Entity authorizes and directs Manager to employ one or more nationally recognized insurance brokerage firms to assist in the performance of its duties hereunder, and Manager shall be entitled to rely in good faith upon any advice given by such brokerage firms with respect to availability of coverages, rates, policy terms, allocations of premiums and coverages, the insurable value of each of the Projects and other similar matters.

1.6 Presentation of Claims . The Insured Entity owning or leasing an affected Project shall inform Manager in writing as soon as reasonably practicable after an event giving rise to a claim for payment of insured losses. Manager shall then promptly present such claim for payment of insured losses to insurance carriers, pursue such claim until final resolution and take other similar actions as Manager determines are reasonably necessary. Each Insured Entity authorizes Manager to employ independent insurance adjusters and other independent contractors as may be reasonably necessary or required by the terms of the applicable insurance policy to effect loss recovery. To the extent the cost thereof is not paid by the insurers, such cost shall be borne as set forth in Section  3.1 below.

2. Interim Period .

Manager shall use commercially reasonable efforts to add SMTA as a named insured under Spirit’s existing general liability, automobile liability, umbrella liability, property liability and premise environmental liability policies (each, an “ Existing Policy ”), effective upon the consummation of the Restructuring Transactions, until the expiration of the current term of each such Existing Policy. SMTA will reimburse Spirit for its pro rata share of the premiums and other costs for each Existing Policy to which SMTA is added as a named insured in accordance with the methodology shown on Schedule 1 attached hereto. The remittance of insurance proceeds to the Insured Entities under an Existing Policy shall be made at the times and in the manner set forth in Section 3.4 below.

 

2


3. Allocation of Costs and Proceeds .

From and after the expiration of any relevant Existing Policy, the payment of premiums and other costs by, and remittance of insurance proceeds to, the Insured Entities under Separate Insurance and Common Benefit Insurance shall be made at the times and in the manner set forth in this Section  3 .

3.1 Cost of Separate Insurance . From and after the expiration of any relevant Existing Policy, the premiums and other costs for Separate Insurance, if any, procured and maintained by Manager hereunder shall be paid by the respective Insured Entity named as the insured under such Separate Insurance. Any costs or expenses incurred by Manager with respect to the presentation or pursuit of claims under any such Separate Insurance or with respect to Manager’s assistance in the presentation and pursuit of such claims shall be paid by the respective Insured Entity.

3.2 Cost of Common Benefit Insurance . From and after the expiration of any relevant Existing Policy, the premiums, broker fees and other costs for Common Benefit Insurance, if any, procured and maintained by Manager hereunder with respect to any Projects owned or leased, directly or indirectly, by Spirit and SMTA shall be paid by the Insured Entities in accordance with the methodology shown on Schedules 2-6 attached hereto. Any costs or expenses incurred by Manager with respect to the presentation or pursuit of claims under any Common Benefit Insurance shall, if such claims are pursued for the benefit of only one Insured Entity, be paid by such Insured Entity and, if such claims are pursued for the benefit of more than one Insured Entity, be paid by the relevant Insured Entity (a) if Insurance Proceeds (defined below) are remitted to the Insured Entities with respect to insured losses or damages from an event or casualty covered by Common Benefit Insurance, in proportion to their respective share of the Insurance Proceeds from Common Benefit Insurance as set forth in Section  3.4 below and (b) if Insurance Proceeds are not remitted to the Insured Entities with respect to insured losses or damages from an event or casualty covered by Common Benefit Insurance, in proportion to their respective share of the premium cost for Common Benefit Insurance as set forth in the immediately preceding sentence of this Section  3.2 .

3.3 Remittance of Separate Insurance Proceeds . Insurance proceeds, net of any deductible or exclusion (“ Insurance Proceeds ”), with respect to insured losses or damages from an event or casualty covered by Separate Insurance shall be remitted solely to the respective Insured Entity named as the insured under such Separate Insurance.

3.4 Remittance of Common Benefit Insurance Proceeds . Insurance Proceeds with respect to insured losses or damages from an event or casualty covered by Common Benefit Insurance shall be remitted to the Insured Entities as follows, subject to adjustment in accordance with Section  3.4(c) :

(a) If one Project sustains insured losses or damages from the same event or casualty covered by Common Benefit Insurance, Insurance Proceeds with respect to such insured losses or damages shall be remitted to the Insured Entity owning or leasing such Project;

 

3


(b) If more than one Project sustains insured losses or damages from an event or casualty covered by Common Benefit Insurance, Insurance Proceeds with respect to such insured losses or damages shall be remitted to the Insured Entities owning or leasing such Projects; provided that such Insurance Proceeds shall be remitted to each such Insured Entity so that the proportion of such Insurance Proceeds received by each such Insured Entity equals a fraction, the numerator of which is the insured losses or damages sustained by the Projects owned or leased by each such Insured Entity and the denominator of which is the aggregate insured losses or damages sustained by all Projects owned or leased by both such Insured Entities; and

(c) If Insurance Proceeds are remitted to the Insured Entities pursuant to Sections 3.4(a) and/or (b)  for insured losses or damages from more than one event or casualty covered by Common Benefit Insurance, at the end of each calendar year during the existence of a Common Benefit Insurance and, in the year of termination of such Common Benefit Insurance, upon termination of such Common Benefit Insurance, the Insured Entities agree to make or receive payments, without interest, amongst themselves as necessary so that the proportion of such Insurance Proceeds received by each such Insured Entity during the existence of the Common Benefit Insurance date equals a fraction, the numerator of which is the insured losses or damages sustained by the Projects owned or leased by each such Insured Entity through such date of determination and the denominator of which is the aggregate insured losses or damages sustained by all Projects owned or leased by all such Insured Entities during the existence of the Common Benefit Insurance through such date of determination.

4. Payment of Costs .

The Insured Entities each hereby direct Manager, as soon as practicable after the receipt of each premium notice for any policy of insurance procured or maintained by Manager hereunder and the receipt of any invoice for any other item of cost related to such policy of insurance, to give written notice to the Insured Entities of the amount of such premium or invoice allocable to each such Insured Entity as determined pursuant to Sections 3.1 and 3.2 above. Not less than five (5) business days prior to the last date for payment without penalty stated in such premium notice or invoice, each Insured Entity shall pay to Manager, or to the insurance broker or insurance company, as directed by Manager, its allocable share of the amount of such premium or invoice, or the entire premium or invoice, in the case of Separate Insurance. Manager shall be entitled to finance the cost of any Common Benefit Insurance obtained hereunder over the policy period of such Common Benefit Insurance, in which case the costs thereof for which the Insured Entities are responsible shall include all interest, fees and other costs of such financing. Manager shall notify the Insured Entities of the periodic payments required under such financing and each Insured Entity shall pay its allocable share thereof not less than five (5) business days prior to the date each such payment is due.

5. Term; Termination .

(a) Unless the parties hereto agree otherwise, this Agreement shall be effective upon, the consummation of the Restructuring Transactions until the date that is three years after the date hereof (the “ Original Term ”). At the expiration of the Original Term, this Agreement shall be deemed renewed automatically each year for an additional one-year period. Each of the Manager and the Insured Entities shall be entitled to withdraw from this Agreement upon thirty (30) days prior written notice to the other parties. Notwithstanding the foregoing, this Agreement shall terminate automatically upon the termination of the Asset Management Agreement, dated                , 2018, between SMTA and Manager.

 

4


(b) At least 30 (thirty) days before the expiration date of each policy of insurance (such expiration date, the “ Reallocation Date ”), Manager shall notify each Insured Entity of the premium allocations for the period beginning on the Reallocation Date (the “ Following Period ”), specifying such allocations in the form shown on Schedules 2-6 hereto. Such allocations shall replace and supersede in their entirety Schedules 2-6 for such Following Period.

(c) Upon termination of this Agreement pursuant to Section  5(a) , each Insured Entity shall, notwithstanding anything to the contrary contained herein, negotiate in good faith to equitably separate the policies of insurance on the Projects that constitute Common Benefit Insurance, including the equitable resolution of (i) the payment of premiums and other costs by the Insured Entities under Common Benefit Insurance pursuant to Sections 3.2 and (ii) the remittance of insurance proceeds to the Insured Entities under Common Benefit Insurance pursuant to Section  3.4 .

6. General Provisions .

6.1 Independent Contractor . It is expressly understood and agreed that Manager acts as an independent contractor in performance of its duties as described herein.

6.2 Notices . All notices, demands, consents and reports provided for in this Agreement shall be in writing and shall be personally served or sent by certified or registered mail, return receipt requested, postage prepaid to the Insured Entities at 2727 North Harwood Street, Suite 300, Dallas, Texas 75201, or to such other address as each Insured Entity may provide to the other by written notice. For purposes of this Agreement, notices will be deemed to have been given upon personal delivery thereof or forty-eight (48) hours after having been deposited in the United States mail, postage prepaid and properly addressed.

6.3 Attorneys Fees . If any suit, action or proceeding is instituted in connection with any controversy arising out of this Agreement, the prevailing party shall be entitled to recover, in addition to costs, such sum as the court may adjudge reasonable as attorneys’ fees in such suit, action or proceeding and on any appeal from any judgment or decree entered therein.

6.4 Non-Assignability . This Agreement and the rights and obligations hereunder, shall be fully assignable by the Manager to an affiliate thereof. This Agreement and the rights and obligations hereunder shall not be assignable by any other party hereto without the written consent of all of the other parties hereto. Provided, however, that the foregoing shall not extend to assignments required by any insurance carrier in any matter relating to subrogation and shall not extend to an assignment by any Insured Entity in connection with a sale or financing of a Project or a portion thereof.

6.5 Amendments . Except as otherwise provided herein all amendments to this Agreement shall be in writing and executed by the party to be charged.

6.6 Counterparts . This Agreement may be executed in one or more counterparts, which, when taken together, shall constitute one original.

 

5


6.7 Governing Law . This Agreement and all questions relating to its validity, interpretation, performance and enforcement shall be governed by and construed, interpreted and enforced in accordance with the laws of the State of New York, notwithstanding any New York or other conflict-of-law provisions to the contrary.

6.8 Cooperation . The Insured Entities shall furnish such information and reasonable assistance in presenting or prosecuting any claim for payment under a policy of insurance procured or maintained by Manager hereunder as may be reasonably requested by Manager.

6.9 Waiver of Rights . The failure of any Insured Entity to seek redress for violation, or to insist upon the strict performance of any covenant, agreement, provision or condition of this Agreement, shall not constitute a waiver of the terms of such covenant, agreement, provision or condition at any subsequent time, or of the terms of any other covenant, agreement, provision or condition contained in this Agreement.

6.10 Successors and Assigns . This Agreement and each of the provisions hereof shall be binding upon and inure to the benefit of the Insured Entities hereto and their respective heirs, executors, administrators, successors and assigns, subject to Section  6.4 above.

6.11 Subordination . This Agreement shall be and remain absolutely and unconditionally subordinate to any valid recorded deed of trust on each Project or any part thereof and to any ground lease or other lease of a Project to an Insured Entity whether already or hereafter recorded.

6.12 Further Assurance . The Insured Entities hereby agree to take such further action and to execute such other and further documents as may be reasonably necessary to carry out the purposes of this Agreement.

[Signature Pages Follow]

 

 

6


IN WITNESS WHEREOF, the Insured Entities have executed this Insurance Sharing Agreement as of the day and year first above written.

 

SPIRIT REALTY CAPITAL, INC.,

a Maryland corporation

By:  

 

SPIRIT MTA REIT,

a Maryland real estate investment trust

By:  

 

[ Signature page to Insurance Sharing Agreement ]


The undersigned hereby agrees to perform and comply with its obligations and duties under the foregoing Insurance Sharing Agreement.

MANAGER

SPIRIT REALTY, L.P.,

a Delaware limited partnership

 

By:   Spirit General OP Holdings, LLC,
  as general partner
  By:  

 

[ Signature page to Insurance Sharing Agreement ]


SCHEDULE 1

Premium Allocation – Interim Period

General Liability

Total unamortized premium balance, including all surcharges, taxes, policy fees and broker commissions, multiplied by the percentage that represents SMTA’s square footage to total square footage.

Example : Assuming an effective date for the spin-off related to the Restructuring Transactions referred to in the preamble to this Agreement (“ Spin-off Effective Date ”) of 5/31/18, total unamortized premium balance is $83,739. SMTA’s square footage is 42.44% of total square footage, therefore, the allocation is $35,539.

Automobile Liability

Neither SMTA nor SRC has any owned autos. The policy premium, including all surcharges, fees, taxes, policy fees and broker commissions, is for Hired and Non-Owned Liability, which is primarily for autos rented for business by employees and for employees using their own autos for business purposes. Since SMTA has no employees, no allocation is needed.

Umbrella Liability

Total unamortized premium balance, including all surcharges, taxes, policy fees and broker commissions, multiplied by the percentage that represents SMTA’s square footage to total square footage.

Example : Assuming a Spin-off Effective Date of 5/31/18, total unamortized premium balance is $24,154. SMTA’s square footage is 42.44% of total square footage, therefore, the allocation is $10,251.

Property

Total unamortized premium balance, including all surcharges, taxes, policy fees and broker commissions, multiplied by the percentage that represents SMTA’s insured property values to total insured property values.

Example : Assuming a Spin-off Effective Date of 5/31/18, total unamortized premium balance is $211,875. SMTA’s insured property values are 13.53% of total insured property values, therefore, the allocation is $28,666.

Premises Environmental Liability

Total unamortized premium balance, including all surcharges, taxes, policy fees and broker commissions, multiplied by the percentage that represents SMTA’s proportionate share of the balance, based on a premium by category/industry type, which is multiplied by the number of locations in each category.


Example : Assuming a Spin-off Effective Date of 5/31/18, total unamortized premium balance is $277,891. SMTA’s proportionate share is 33.6% of the balance, based on the sum of the individual premiums by category.

 

    Single-tenant retail, grocery or restaurant – 200 at $400 each

 

    Office or medical – 589 at $500 each

 

    Carwash, gas station, auto dealership or auto repair shop – 98 at $750 each

 

    Industrial or manufacturing – 11 at $1,000 each

Using this methodology, total SMTA premium for the term would be $459,000, or 33.6% of the total premium of $1,366,070 paid by Spirit for the full term. Therefore, SMTA will be allocated $93,414 for the interim period.


SCHEDULE 2

Premium Allocation – General Liability Policy

Total annual policy premium, including all surcharges, taxes, policy fees and broker commissions, multiplied by the percentage that represents the SMTA square footage to total square footage, based on the schedule provided to carriers in the renewal submission. The remainder is allocated to Spirit.

Example : Total premium is $335,000. Total square feet insured at time of renewal submission is 44,000,000. SMTA owns 19,800,000 square feet, or 45% of the total. Total premium of $335,000 multiplied by 45% equals $150,750. The remainder is allocated to Spirit.


SCHEDULE 3

Premium Allocation – Automobile Liability

Neither SMTA nor Spirit has any owned autos. The policy premium, including all surcharges, fees, taxes, policy fees and broker commissions, is for Hired and Non-Owned Liability, which is primarily for autos rented for business by employees and for employees using their own autos for business purposes. Since SMTA has no employees, the full annual premium will be allocated to Spirit.


SCHEDULE 4

Premium Allocation – Umbrella Liability

Total annual policy premium, including all surcharges, taxes, policy fees and broker commissions, multiplied by the percentage that represents the SMTA square feet to total square feet, based on the schedule provided to carriers in the renewal submission. The remainder is allocated to Spirit.

Example : Total premium is $97,000. Total square feet insured at time of renewal submission is 44,000,000. SMTA owns 19,800,000 square feet, or 45% of the total. Total premium of $97,000 multiplied by 45% equals $43,650. The remainder is allocated to Spirit.


SCHEDULE 5

Premium Allocation – Property

Total annual policy premium, including all surcharges, taxes, policy fees and broker commissions, multiplied by the percentage that represents the SMTA property values insured to total property values insured, based on the schedule provided to carriers in the renewal submission. The remainder is allocated to Spirit.

Example : Total premium is $600,000. Total property values insured at time of renewal submission are $30,000,000. SMTA property values insured are $10,000,000 or 33.3% of total property values insured. Total premium of $600,000 multiplied by 33.3% equals $199,800. The remainder is allocated to Spirit.


SCHEDULE 6

Premium Allocation – Environmental Liability

Total annual policy premium, including all surcharges, taxes, policy fees and broker commissions, is based on a premium per occupancy type multiplied by the number of properties that fall within each occupancy category. The SMTA allocation will be the sum of each premium for each property, based on the premium per occupancy. The remainder is allocated to Spirit.

Example : Total premium is $900,000. The premiums by occupancy type are shown below.

 

Single-tenant retail, grocery or restaurant with no historical uses of concern:

   $ 400  

Single-tenant retail, grocery or restaurant with historical uses of concern:

   $ 600  

Commercial office or medical office:

   $ 500  

Industrial or Manufacturing:

   $ 1,000  

Multi-family residential:

   $ 30 per unit  

Carwash, gas station, auto dealership or automobile repair shop:

   $ 750  

Multi-tenant retail shoping center or strip mall:

   $ 500  

Vacant land with no historical uses of concern:

   $ 25 per acre  

SMTA has 400 single-tenant retail properties with no historical uses of concern, 300 restaurants with no historical uses of concern, 100 grocery stores with no historical uses of concern and 100 medical offices.

The premiums by category are $160,000 (400 X $400); $120,000 (300 X $400); $40,000 (100 X $400); and $50,000 (100 X $500) for a total of $370,000.

Exhibit 10.5

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT is entered into as of            , 2018 by and among Spirit MTA REIT, a Maryland real estate investment trust (the “ Company ”), and Spirit Realty, L.P., a Delaware limited partnership (the “ Initial Holder ”).

RECITALS

WHEREAS, the Company, the Initial Holder and one of the Initial Holder’s wholly-owned subsidiaries entered into that certain Contribution Agreement, dated as of            , 2018 (the “ Contribution Agreement ”), in connection with the issuance by the Company to the Initial Holder and its wholly-owned subsidiary of a total of 6,000,000 10.0% Series A cumulative redeemable preferred shares of beneficial interest, par value $0.01 per share, of the Company (the “ Series A Preferred Shares ”) as consideration for certain equity interests contributed by the Initial Holder (directly or indirectly through its subsidiaries) to the Company;

WHEREAS, the Series A Preferred Shares shall be issued pursuant to the Articles Supplementary, dated as of            , 2018 (the “ Articles Supplementary ”), establishing the terms of the Series A Preferred Shares;

WHEREAS, in order to induce the Initial Holder to enter into the Contribution Agreement, the Company has agreed to grant to the Initial Holder and its affiliates and permitted assignees and transferees the registration rights set forth in Article II hereof; and

WHEREAS, the execution and delivery of this Agreement is a condition to the closing of the transactions contemplated by the Contribution Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows

ARTICLE I

DEFINITIONS

Section 1.1. Definitions . In addition to the definitions set forth above, the following terms, as used herein, have the following meanings:

Affiliate ” of any Person means any other Person directly or indirectly controlling or controlled by or under common control with such Person. For the purposes of this definition, “control” when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms “ controlling ” and “ controlled ” have meanings correlative to the foregoing; provided, that the Holders shall not be considered Affiliates of the Company or any other subsidiaries of the Company.

Agreement ” means this Registration Rights Agreement, as it may be amended, supplemented or restated from time to time.

Business Day ” means any day except a Saturday, Sunday or other day on which commercial banks in The City of New York, New York or Dallas, Texas are authorized by law to close.

Commission ” means the Securities and Exchange Commission.

Common Shares ” means the commons shares of beneficial interest, par value $0.01, of the Company.

 

1


Company ” shall have the meaning set forth in the Preamble hereto.

Company Offering ” means an offering pursuant to an effective registration statement in which equity securities of the Company are sold (whether or not for the account of the Company) (i) to an underwriter on a firm commitment basis for reoffering and resale to the public, (ii) in an offering that is a “bought deal” with one or more investment banks or (iii) in a block trade with a broker-dealer, but shall, in each case, not include any at-the-market offering programs of the Company.

Declaration of Trust ” means the declaration of trust of the Company.

Demand Registration ” shall have the meaning set forth in Section  2.1(a) .

Demand Registration Statement ” shall have the meaning set forth in Section  2.1(a) .

Effectiveness Period ” shall have the meaning set forth in Section  2.2(a) .

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Holder ” means (i) the Initial Holder, or (ii) any assignee or transferee of the Initial Holder (including assignments or transfers of Registrable Securities to such assignees or transferees as a result of the foreclosure on any loans secured by such Registrable Securities) (x) to the extent permitted under, and not in violation of the Declaration of Trust, and (y) provided such assignee or transferee agrees in writing to be bound by all the provisions hereof.

Holder Indemnitee ” shall have the meaning set forth in Section  2.6 .

Indemnified Party ” shall have the meaning set forth in Section  2.8 .

Indemnifying Party ” shall have the meaning set forth in Section  2.8 .

Initial Holder ” shall have the meaning set forth in the Preamble hereto.

Inspectors ” shall have the meaning set forth in Section  2.4(m) .

Permitted Offering ” shall have the meaning set forth in Section  2.12 .

Person ” means an individual or a corporation, partnership, limited liability company, association, trust, or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

Contribution Agreement ” shall have the meaning set forth in the Recitals hereto.

Qualified Offering ” means an offering pursuant to an effective registration statement in which Registrable Securities are sold (i) to an underwriter on a firm commitment basis for reoffering and resale to the public, (ii) in an offering that is a “bought deal” with one or more investment banks or (iii) in a block trade with a broker-dealer, but in each case shall not include any at-the-market offering programs of the Company.

Records ” shall have the meaning set forth in Section  2.4(m) .

Registration Expenses ” shall have the meaning set forth in Section  2.5 .

Registrable Securities ” means with respect to any Holder, (a) the Series A Preferred Shares owned, either of record or beneficially, by such Holder that were received by the Initial Holder and its Affiliates pursuant to the

 

2


Contribution Agreement, and (b) the maximum number of Common Shares issuable upon conversion of the Series A Preferred Shares based on the share cap set forth in the Articles Supplementary, together with any additional Common Shares issued as a dividend or distribution on, in exchange for, or otherwise in respect of, such securities (including as a result of splits, combinations, recapitalizations, mergers, consolidations, reorganizations or otherwise). As to any particular Registrable Securities, they shall cease to be Registrable Securities at the earliest time as one of the following shall have occurred: (i) a registration statement (including a Shelf Registration Statement) covering such shares has been declared effective by the Commission and all such shares have been disposed of pursuant to such effective registration statement or (ii) such shares have been sold in accordance with Rule 144.

Rule 144 ” means Rule 144 promulgated under the Securities Act, as amended from time to time, or any similar successor rule thereto that may be promulgated by the Commission.

Securities Act ” means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.

Selling Holder ” means a Holder who is selling Registrable Securities pursuant to a registration statement under the Securities Act pursuant to the terms hereof.

Series A Preferred Shares ” shall have the meaning set forth in the Recitals hereto.

Shelf Registration Statement ” shall have the meaning set forth in Section  2.2(a) .

Suspension Notice ” shall have the meaning set forth in Section  2.12 .

Suspension Period ” shall have the meaning set forth in Section  2.12 .

ARTICLE II

REGISTRATION RIGHTS

Section 2.1. Demand Registration .

(a) Commencing on August 1, 2019 and from time to time so long as there are any Registrable Securities outstanding, if the Company is not eligible to file a Shelf Registration Statement, if the Company has not caused a Shelf Registration Statement to be declared effective by the Commission in accordance with Section  2.2 or if the Shelf Registration Statement shall cease to be effective, subject to the minimum size limitations in Section  2.3(a) , the Holder(s) holding a majority of Registrable Securities then outstanding may collectively make one or more written requests to the Company for registration under the Securities Act of all or part of its or their Registrable Securities (a “ Demand Registration ”). The Holders submitting the request for a Demand Registration shall concurrently provide written notice of the proposed registration to all other Holders. The Company shall prepare and file with the Commission, within thirty (30) days after such request for a Demand Registration, a registration statement on an appropriate form which the Company is then eligible to use with respect to any Demand Registration (a “ Demand Registration Statement ”) as selected by the Company, and shall use its reasonable best efforts to cause any such Demand Registration Statement to be declared effective by the Commission as promptly as reasonably practicable after the filing thereof. Any request for a Demand Registration will specify the number of shares of Registrable Securities proposed to be sold in the offering thereof; provided that the requesting Holder(s) may change the number of Registrable Securities proposed to be offered pursuant to any Demand Registration at any time prior to the Demand Registration Statement with respect to the Demand Registration being declared effective by the Commission, in each case subject to the minimum size limitations in Section  2.3(a) . Without the prior written consent of the Holders requesting such Demand Registration, neither the Company nor any shareholder of the Company (other than the Holders) may include securities in any offering requested under this Section  2.1 .

 

3


(b) Effective Registration . The Company will use its reasonable best efforts to keep any Demand Registration Statement continuously effective and in compliance with the Securities Act and usable for sale of such Registrable Securities for the period as may be requested by the Selling Holders.

Section 2.2. Shelf Registration.

(a) The Company shall prepare and file not later than June 1, 2019, a “shelf” registration statement with respect to the resale of all of the Registrable Securities by the Holders thereof on an appropriate form which the Company is then eligible to use for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act (the “ Shelf Registration Statement ”) and permitting registration of such Registrable Securities for resale by such Holders in accordance with the methods of distribution elected by the Holders and set forth in the Shelf Registration Statement. Unless the Shelf Registration Statement shall become automatically effective, the Company shall use its reasonable best efforts to cause the Shelf Registration Statement to be declared effective by the Commission prior to July 31, 2019, and, subject to Section  2.12 , to keep such Shelf Registration Statement continuously effective for a period ending when all Registrable Securities covered by the Shelf Registration Statement are no longer Registrable Securities (the “ Effectiveness Period ”).

(b) At the time the Shelf Registration Statement is declared effective, each Holder shall be named as a selling securityholder in the Shelf Registration Statement and the related prospectus in such a manner as to permit such Holder to deliver such prospectus to purchasers of Registrable Securities in accordance with applicable law.

(c) Subsequent Filings . The Company shall prepare and file such additional registration statements as necessary and use its reasonable best efforts to cause such registration statements to be declared effective by the Commission so that a Shelf Registration Statement remains continuously effective, subject to Section  2.12 , with respect to resales of all Registrable Securities as and for the periods required under Section  2.2(a) (such subsequent registration statements to constitute a Shelf Registration Statement).

Section 2.3. Qualified Offerings .

(a) Requests . Any offering under a Demand Registration Statement or a Shelf Registration Statement shall be by means of a Qualified Offering if requested in writing by the Holder(s) requesting such Demand Registration or offering of Registrable Securities off of a Shelf Registration Statement, as applicable. Any request for a Qualified Offering hereunder shall be made to the Company in accordance with the notice provisions of this Agreement. Without the prior written consent of the Holders, neither the Company nor any shareholder of the Company (other than the Holders) may include securities in any Qualified Offering requested under this Section  2.3 .

(b) Reduction of Qualified Offering . Notwithstanding anything contained herein, if the managing underwriter(s) of an offering described in Section  2.3(a) advise in writing the Company and the Holder(s) of the Registrable Securities included in such offering that the size of the intended offering is such that the success of the offering would be significantly and adversely affected by inclusion of all the Registrable Securities requested to be included, then the amount of securities to be offered for the accounts of the Holders shall be reduced pro rata among such Holders (according to the Registrable Securities requested for inclusion by them or in such other proportions as mutually agreed by the requesting Holders) to the extent necessary to reduce the total amount of securities to be included in such offering to the amount recommended by such managing underwriter(s).

(c) Managing Underwriters . The Holders of a majority of the Registrable Securities to be included in a Qualified Offering pursuant to Section  2.3(a) shall select the managing underwriter(s) in connection with any Qualified Offering; provided that such managing underwriter must be reasonably satisfactory to the Company.

(d) Structure . The Holders of a majority of the Registrable Securities to be included in a Qualified Offering pursuant to Section  2.3(a) shall determine the size, manner of sale, plan of distribution, price, underwriting discounts and other financial terms for the offering. Each Holder will be permitted to request the removal of any

 

4


Registrable Securities held by it from any Qualified Offering pursuant to Section  2.3(a) at any time prior to the pricing of the Qualified Offering or the effective date of the applicable registration statement (or supplement for a take down in the case of a Shelf Registration Statement), by providing written notice thereof to the Company.

Section 2.4. Registration Procedures; Filings; Information . Subject to Section  2.12 hereof, in connection with each registration effected by the Company pursuant to Sections 2.1 or 2.2 or offering pursuant thereto, as applicable:

(a) The Company will, as promptly as practicable, prepare and file with the Commission such amendments, post-effective amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to cause or maintain the effectiveness of such registration statement for so long as such registration statement is required to be kept effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement during the period in which such registration statement is required to be kept effective, and, upon the written request of a Holder, the Company shall as soon as reasonably practicable amend or supplement the prospectus relating to the Shelf Registration Statement to facilitate a “take down” as may be reasonably requested by such Holder.

(b) The Company will, within a reasonable period of time prior (but no later than two (2) Business Days prior) to filing a registration statement or prospectus or any amendment or supplement thereto, furnish to each Holder of Registrable Securities being registered and each underwriter, if any, of the Registrable Securities covered by such registration statement copies of such registration statement as proposed to be filed, and thereafter furnish to such Holder and underwriter, if any, such number of conformed copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents proposed to be filed including documents that are to be incorporated by reference into the registration statement, amendment or supplement or as such Holder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Selling Holder. The Company shall consider in good faith such reasonable changes in any such documents prior to the filing thereof as the counsel to the Holders may request and the Company shall make available such of its representatives as shall be reasonably requested by the Holders or any underwriter available for discussion of such documents.

(c) The Company will furnish to each Holder of Registrable Securities being registered, without charge, such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits) other than those which are being incorporated into such registration statement by reference, such number of copies of the prospectus contained in such registration statements (including each complete prospectus and any summary or preliminary prospectus) and any other prospectus filed under Rule 424 under the Securities Act in conformity with the requirements of the Securities Act, and such other documents, including documents incorporated by reference, as any Holder or an underwriter in a Qualified Offering may reasonably request, in each case, including each such amendment and supplement thereto, to the extent such other documents are not available on the Commission’s Electronic Data Gathering Analysis and Retrieval System (or any successor system), in order to facilitate the disposition of the Registrable Securities by such Holder (it being understood that the Company consents to the use of such prospectus and any amendment or supplement thereto by the Holders and their underwriters, if any, in connection with the offering and sale of the Registrable Securities thereby).

(d) The Company will notify each Holder, as promptly as practicable after it shall receive notice thereof, of the time when such registration statement, or any post-effective amendments to such registration statement, shall have become effective, or a supplement to any prospectus forming part of such registration statement has been filed or when any document is filed with the Commission that would be incorporated by reference into the prospectus.

(e) The Company will deliver as promptly as practicable to Holders’ counsel copies of all correspondence between the Commission and the Company, its counsel or auditors with respect to any registration statement relating to Registrable Securities.

 

5


(f) After the filing of a registration statement, the Company will as promptly as practicable notify each Selling Holder of Registrable Securities covered by such registration statement of (i) any stop order, injunction or other order or requirement of the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and use its reasonable best efforts to prevent the issuance or entry of such stop order, injunction or other order or requirement and, if issued or entered, to obtain as soon as practicable the lifting thereof, and (ii) the removal of any such stop order, injunction or other order or requirement or proceeding or the lifting of any such suspension.

(g) The Company will use its reasonable best efforts to (i) register or qualify the Registrable Securities under such other securities or “blue sky” laws of such jurisdictions in the United States (where an exemption does not apply) as any Holder or managing underwriter(s), if any, reasonably (in light of such Holder’s intended plan of distribution) requests, (ii) keep such registration or qualification in effect for so long as such registration statement is required to be kept effective, (iii) cooperate with the Holders and the underwriter(s), if any, and their respective counsel in connection with any filings required to be made with the Financial Industry Regulatory Authority and (iv) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company; provided that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (g), (B) subject itself to any material tax obligation in any such jurisdiction where it is not then so subject or (C) consent to general service of process in any such jurisdiction to which it is not then so subject. The Company will promptly notify each Selling Holder of (x) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction or the initiation or threat of initiation of any proceeding for such purpose, and the Company will use its reasonable best efforts to prevent the issuance of any such order or suspension and, if issued, will use its reasonable best efforts to remove any such order or suspension and (y) the removal of any such order or suspension.

(h) The Company will immediately notify each Holder of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such registration statement or prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such registration statement or prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and promptly prepare and file, and furnish to each Selling Holder a reasonable number of copies of, any such supplement or amendment.

(i) The Company will cooperate with the Holders to facilitate the timely delivery, preparation and delivery of certificates, with requisite CUSIP numbers, representing Registrable Securities to be sold.

(j) The Company will otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make available to its securityholders, as soon as reasonably practicable, an earnings statement covering a period of twelve (12) months, beginning after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder (or any successor rule or regulation hereafter adopted by the Commission).

(k) Subject to Section  2.3(a) , in the case of a Qualified Offering hereunder, the Company will enter into and perform its obligations under customary agreements (including an underwriting agreement, if any, in customary form and including provisions with respect to indemnification and contribution in customary form and consistent with the provisions relating to indemnification and contribution contained herein) and take such other actions as are reasonably required and at such times as customarily occur in similar registered offerings in order to expedite or facilitate the disposition of the Registrable Securities subject to such Qualified Offering, including:

(i) making such representations and warranties to the Selling Holders and the underwriters, if any, in form, substance and scope as are customarily made by issuers in similar offerings;

 

6


(ii) using its reasonable best efforts to obtain opinions of counsel to the Company and updates thereof addressed to the underwriters, if any, covering the matters customarily covered in opinions requested in similar offerings;

(iii) using its reasonable best efforts to obtain “cold comfort” letters and updates thereof from the Company’s independent certified public accountants addressed to the underwriters, if any, which letters shall be customary in form and shall cover matters of the type customarily covered in “cold comfort” letters to underwriters in connection with similar offerings; and

(iv) to the extent reasonably requested by the lead or managing underwriters, making the Company’s executive officers available for customary presentations to investors to discuss the affairs of the Company at times that may be mutually and reasonably agreed upon (including, to the extent customary, senior management participation in due diligence calls with the underwriters and their counsel and, in the case of any marketed Qualified Offering, sending appropriate officers of the Company to attend “road shows” scheduled in reasonable number and at reasonable times in connection with any such Qualified Offering).

(l) In the case of a Qualified Offering, the Company will make available for inspection by any Selling Holder of Registrable Securities subject to such Qualified Offering, any underwriter participating in any disposition of such Registrable Securities and any attorney, accountant or other professional retained by any such Selling Holder or underwriter (the “ Inspectors ”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “ Records ”) as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information reasonably requested by any Inspector in connection with such registration statement, subject to entry by each such Inspector of a customary confidentiality agreement in a form reasonably acceptable to the Company.

(m) The Company will use its reasonable best efforts to cause all Registrable Securities covered by a registration statement filed by the Company pursuant to Sections 2.1 or 2.2 to be listed on the securities exchange or national quotation system on which the Common Shares are then listed or quoted, subject to the listing standards of such securities exchange or national quotation system.

(n) The Company will use its reasonable best efforts to facilitate the registration and thereafter to complete the distribution of the Registrable Securities so registered.

(o) The Company may require each Selling Holder of Registrable Securities to promptly furnish in writing to the Company such information regarding such Selling Holder, the Registrable Securities held by it and the intended method of distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration. No Holder may include Registrable Securities in any registration statement pursuant to this Agreement unless and until such Holder has furnished to the Company such information. Each Holder further agrees to furnish as soon as reasonably practicable to the Company all information required to be disclosed in order to make information previously furnished to the Company by such Holder not materially misleading.

(p) Each Selling Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Sections 2.4(f) or 2.4(h) or upon receipt of a Suspension Notice, such Selling Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Selling Holder’s receipt of written notice from the Company that such disposition may be made and, in the case of Section  2.4(h) copies of any supplemented or amended prospectus contemplated by Section  2.4(h) and, if so directed by the Company, such Selling Holder will deliver to the Company all copies, other than permanent file copies then in such Selling Holder’s possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. Each Selling Holder of

 

7


Registrable Securities agrees that it will immediately notify the Company at any time when a prospectus relating to the registration of such Registrable Securities is required to be delivered under the Securities Act of the happening of an event as a result of which information previously furnished by such Selling Holder to the Company in writing for inclusion in such prospectus contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made.

Section 2.5. Registration Expenses . In connection with the registration of Registrable Securities pursuant to this Agreement and the Company’s performance of its other obligations hereunder, the Company shall pay any and all third party (except with respect to clause (iv) below) registration expenses incurred in connection therewith (the “ Registration Expenses ”), regardless whether a registration statement is declared effective by the Commission, including: (i) all registration and filing fees; (ii) all fees and expenses of compliance with securities or “blue sky” laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities); (iii) all printing expenses; (iv) all of the Company’s internal expenses (including all salaries and expenses of its officers and employees performing legal or accounting duties); (v) all fees and expenses incurred in connection with the listing of the Registrable Securities; (vi) all fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters); (vii) all fees and disbursements of the Company’s auditors, including in connection with the preparation of comfort letters, and any transfer agent and registrar fees; (viii) all fees and expenses of any special experts retained by the Company in connection with such registration and (iv) all fees and disbursements of counsel to the Initial Holder; provided , however , that the Company shall have no obligation to pay any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities or any transfer taxes relating to the registration or sale of the Registrable Securities.

Section 2.6. Indemnification by the Company . The Company agrees to indemnify and hold harmless each Holder and each Holder’s officers, directors, agents, partners, members, employees, managers, advisors, sub-advisors, attorneys, representatives and Affiliates, each underwriter (within the meaning of the Securities Act), and each Person, if any, who controls such Selling Holder or underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a “ Holder Indemnitee ”) from and against, as incurred, any and all losses, claims, damages and liabilities (or actions in respect thereof), costs and expenses (including reasonable and documented fees, expenses and disbursements of attorneys and other professionals) that arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement, preliminary prospectus, prospectus, or free writing prospectus relating to the Registrable Securities (in each case, as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or that arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent such losses, claims, damages, liabilities, costs or expenses arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission included in such registration statement or in any such prospectus in reliance upon and in conformity with information regarding such Holder Indemnitee which was furnished in writing to the Company by such Holder Indemnitee or on such Holder Indemnitee’s behalf expressly for inclusion therein.

Section 2.7. Indemnification by Holders of Registrable Securities . Each Selling Holder agrees, severally but not jointly, to indemnify and hold harmless the Company, its officers, trustees, agents, employees, attorneys, representatives and Affiliates, each underwriter (within the meaning of the Securities Act), and each Person, if any, who controls the Company or underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Selling Holder, but only with respect to information relating to such Selling Holder that was included in reliance upon and in conformity with information furnished in writing by such Selling Holder or on such Selling Holder’s behalf expressly for use in any registration statement, preliminary prospectus, prospectus or free writing prospectus relating to the Registrable Securities, or any amendment or supplement thereto; provided , however , that the total obligations of such Selling Holder under this Agreement (including, but not limited to, obligations arising under

 

8


Section  2.9 herein) will be limited to an amount equal to the net proceeds actually received by such Selling Holder (after deducting any discounts and commissions) from the disposition of Registrable Securities pursuant to such registration statement.

Section 2.8. Conduct of Indemnification Proceedings . In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section  2.6 or 2.7 , such person (an “ Indemnified Party ”) shall promptly notify the person against whom such indemnity may be sought (an “ Indemnifying Party ”) in writing of the commencement thereof, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party, and shall assume the payment of all fees and expenses ( provided , however , that the failure of any Indemnified Party to give such notice will not relieve such Indemnifying Party of any obligations hereunder, except to the extent such Indemnifying Party is materially prejudiced by such failure). The Indemnifying Party shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof; provided , however , that (i) if the Indemnifying Party fails to take reasonable steps necessary to defend diligently the action or proceeding within twenty (20) Business Days after receiving notice from such Indemnified Party that the Indemnified Party believes it has failed to do so, or (ii) if such Indemnified Party who is a defendant in any action or proceeding which is also brought against the Indemnifying Party shall have reasonably concluded, based on the advice of counsel, that there may be one or more legal defenses available to such Indemnified Party which are not available to the Indemnifying Party, then, in any such proceeding, any Indemnified Party shall have the right to assume or continue its own defense and the Indemnifying Party shall be liable for the expenses therefor subject to the remainder of this Section  2.8 . It is understood that the Indemnifying Party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one (1) separate firm of attorneys in each jurisdiction at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred upon written request and presentation of invoices. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by (i) in the case of Persons indemnified pursuant to Section  2.6 hereof, the Selling Holders which owned a majority of the Registrable Securities sold under the applicable registration statement and (ii) in the case of Persons indemnified pursuant to Section  2.7 , the Company. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld, effect any settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or (to the knowledge of the Indemnifying Party) threatened action or claim in respect of which indemnity or contribution could have been sought hereunder by such Indemnified Party (whether or not the Indemnified Party is an actual or potential party to such action or claim), unless such settlement, compromise or judgment includes an unconditional release of such Indemnified Party from all liability arising out of such action or claim without any admission of fault, culpability, failure to act or liability by or on behalf of any such Indemnified Party.

Section 2.9. Contribution . If the indemnification provided for in Section  2.6 or 2.7 hereof is held by a court of competent jurisdiction to be unavailable to an Indemnified Party or insufficient in respect of any losses, claims, damages, liabilities, costs or expenses that otherwise would have been covered by Section  2.6 or 2.7 hereof, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, liabilities, costs or expenses in such proportion as is appropriate to reflect the relative fault of the Company, on the one hand, and of each Selling Holder, on the other hand, in connection with such statements or omissions which resulted in such losses, claims, damages, liabilities, costs or expenses, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of each Selling Holder, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party.

The Company and the Selling Holders agree that it would not be just and equitable if contribution pursuant

 

9


to this Section  2.9 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages, liabilities, costs or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section  2.9 , no Selling Holder shall be required to contribute any amount which in the aggregate exceeds the amount that such Selling Holder would have been obligated to pay by way of indemnification if indemnification as provided for under Section  2.7 had been available under the circumstances. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Selling Holders’ obligations to contribute pursuant to this Section  2.9 , if any, are several in proportion to amount that the proceeds of the offering actually received by such Selling Holder bears to the total proceeds of the offering received by all the Selling Holders, and not joint.

Section 2.10. Rule 144 . The Company covenants that it will use its reasonable best efforts to comply with all applicable requirements under the Securities Act and the Exchange Act and with all applicable rules and regulations of the Commission thereunder so as to enable any Holder to sell its Registrable Securities pursuant to Rule 144, including to (a) make and keep public information regarding the Company available, as those terms are defined in Rule 144(c)(1), (b) file with the Commission in a timely manner any reports and documents required to be filed by the Company under the Securities Act and the Exchange Act, (c) furnish to any Holder forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested by a Holder so as to enable such Holder to sell Registrable Securities without registration under the Securities Act within the exemptions provided by Rule 144, and (d) take such further action as any Holder may reasonably request, all to the extent required from time to time to enable Holders to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 (including reasonably cooperating with the Holders to cause the transfer agent to remove any restrictive legend on certificates evidencing Registrable Securities). This Section  2.10 shall survive the termination of the Agreement so long as any Holder continues to hold Registrable Securities.

Section 2.11. Participation in Qualified Offerings .

(a) No Person may participate in any underwritten offerings hereunder unless such Person (i) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements (provided that any underwriting agreements shall be in customary form, and including provisions with respect to indemnification and contribution in customary form) and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and these registration rights provided for in this Article II .

(b) The Company agrees that, if requested by the managing underwriter(s) in any Qualified Offering contemplated by this Agreement, (i) it will enter into a customary “lock-up” agreement providing that it will not, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of any securities that are the same or similar to the Registrable Securities being offered (or securities convertible into or exchangeable or exercisable for such securities) (subject to customary exceptions) and will not enter into derivative transactions with similar economic effect, and (ii) it will use its reasonable best efforts to obtain agreements from its directors and executive officers regarding the same, in each case, for a period not to exceed sixty (60) days from the effective date of the registration statement pertaining to such Registrable Securities or from such other date as may be requested by the underwriter(s).

Section 2.12. Suspension of Use of Registration Statement . If the Board of Trustees of the Company determines in its good faith judgment that the filing of a registration statement or the use of any related prospectus (I) would be

 

10


materially detrimental to the Company because (x) such action would require the disclosure of material information that the Company has a bona fide business purpose for preserving as confidential or the disclosure of which would materially impede the Company’s ability to consummate a significant transaction, and that the Company is not otherwise required by applicable securities laws or regulations to disclose or (y) the Company is actively undertaking an underwritten offering of its equity securities or is in active discussions with underwriters regarding an underwritten offering of its equity securities and it is reasonably likely that such an underwritten offering will be promptly initiated by the Company, or (II) is prohibited because all reports required to be filed by the Company pursuant to the Exchange Act have not been filed by the required date without regard to any extension, or if the consummation of any business combination or acquisition or investment by the Company has occurred or is probable for purposes of Rule 3-05, Rule 3-14 or Article 11 of Regulation S-X promulgated under the Securities Act or any similar successor rule, upon written notice thereof by the Company to the Holders, then upon the delivery of written notice (a “ Suspension Notice ”) of such determination by the Company to the Holders which shall be signed by the Chief Executive Officer or Chief Financial Officer of the Company certifying thereto, the rights of the Holders to offer, sell or distribute any Registrable Securities pursuant to a registration statement or to require the Company to take action with respect to the registration or sale of any Registrable Securities pursuant to a registration statement shall be suspended (a “ Suspension Period ”) until the earliest of (i) the date upon which the Company notifies the Holders in writing that suspension of such rights for the grounds set forth in this Section  2.12 is no longer necessary, (ii) the date upon which copies of any applicable supplemented or amended prospectus is distributed to the Holders (in the case of a suspension pursuant to clause (I)(x) above), (iii) in the case of clause (II), the date upon which the Company has filed such reports or obtained and filed the financial information required by Rule 3-05, Rule 3-14 or Article 11 of Regulation S-X to be included or incorporated by reference, as applicable, in a Shelf Registration Statement, and (iv) the ninetieth (90th) day after delivery of the Suspension Notice; provided , that the Company shall not be entitled to exercise any such right more than one (1) time in any twelve (12) month period or less than thirty (30) days from the termination of the prior such Suspension Period, as applicable; and provided further , that in no event shall the number of days covered by one or more Suspension Periods exceed one hundred and fifty-five (155) days in any three hundred and sixty-five (365)-day period. During any Suspension Period, the Company shall also delay the filing or effectiveness of, and shall not sell or permit a sale under, any registration statement with respect to any equity securities of the Company to be sold by the Company or by any other shareholders of the Company, other than (x) sales pursuant to a Company Offering for the account of the Company, (y) sales under a Company-sponsored dividend reinvestment plan or pursuant to a registration statement on Form S-4 or Form S-8 (or any substitute forms that may be adopted by the Commission) or filed in connection with an exchange offer or offering of securities solely to the Company’s existing securityholders, or (z) in the case of a suspension pursuant to clause (I)(y) above, sales by shareholders of the Company not involving an offering pursuant to an effective registration statement sold to an underwriter on a firm commitment basis for reoffering and resale to the public and not involving an offering that is a “bought deal” with one or more investment banks and, in each case of this clause (z), not requiring the Company to undertake any of the types of actions contemplated by clauses (ii), (iii) or (iv) of Section  2.4(k) (as described in this clause (z), a “ Permitted Offering ”). The Company agrees to give the notice under (i) above as promptly as practicable following the date that such suspension of rights is no longer necessary. For the avoidance of doubt, in the case of a suspension pursuant to clause (I)(y) above, the Holders shall be permitted to make a Permitted Offering if other shareholders of the Company are being allowed by the Company to make Permitted Offerings.

Section 2.13. Additional Shares . The Company, at its option, may register under a Shelf Registration Statement and any filings with any state securities commissions filed pursuant to this Agreement, any number of unissued Series A Preferred Shares (and the maximum number of Common Shares issuable upon conversion of the series A Preferred Shares based on the share cap set forth in the Articles Supplementary), or any Series A Preferred Shares (and the maximum number of Common Shares issuable upon conversion of the series A Preferred Shares based on the share cap set forth in the Articles Supplementary) owned by any other shareholder or shareholders of the Company; provided that in no event shall the inclusion of such shares on a registration statement reduce the amount offered for the account of the Holders in any offering at the request of the Holders pursuant to Section  2.3 . From and after the date hereof, the Company shall not enter into any agreement granting registration rights to any party with respect to the Company’s securities that would cause a violation of the rights granted to the Holders hereunder. The Company represents and warrants to each Holder that, as of the date of this Agreement, no Person has any registration rights with respect to any securities of the Company.

 

11


ARTICLE III

MISCELLANEOUS

Section 3.1. Remedies . In addition to being entitled to exercise all rights provided herein and granted by law, including recovery of damages, the Holders shall be entitled to specific performance of the rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

Section 3.2. Amendments and Waivers . The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, in each case without the written consent of the Company and the Holders holding a majority of the then outstanding Registrable Securities. No failure or delay by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon any breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.

Section 3.3. Notices . All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally (notice deemed given upon receipt), telecopied (notice deemed given upon confirmation of receipt) or sent by a nationally recognized overnight courier service, such as Federal Express (notice deemed given upon receipt of proof of delivery), to the parties hereto at the following addresses (or at such other address for a Party as shall be specified by like notice):

(1) if to any Holder, initially to 2727 North Harwood Street, Suite 300, Dallas, Texas 75201 or to such other address and to such other Persons as any Holder may hereafter specify in writing; and

(2) if to the Company, initially at 2727 North Harwood Street, Suite 300, Dallas, Texas 75201, Attention: Chief Financial Officer, or to such other address as the Company may hereafter specify in writing.

Section 3.4. Successors and Assigns; Assignment of Registration Rights . This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties. Any Holder may assign its rights under this Agreement in whole or in part without the consent of the Company in connection with a transfer of such Holder’s Registrable Securities, but only if the assignment or transfer is permitted by, and not in violation of, the Declaration of Trust, and provided such assignee or transferee agrees in writing to be bound by all the provisions hereof.

Section 3.5. Counterparts . This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Each party shall become bound by this Agreement immediately upon affixing its signature hereto.

Section 3.6. Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York.

Section 3.7. Severability . In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.

Section 3.8. Entire Agreement . This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties

 

12


hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

Section 3.9. Certain Transactions . In the event that any securities are issued in respect of, or in exchange for, or in substitution of the Registrable Securities by reason of any reorganization, recapitalization, merger, consolidation, spin-off, partial or complete liquidation, share dividend, split-up, sale of assets, distribution to shareholders or combination or any other similar change in the Company’s capital structure, the Company agrees that appropriate adjustments shall be made to this Agreement to ensure that the Holders have, immediately after consummation of such transaction, substantially the same rights with respect to the Company or another issuer of securities, as applicable, as they have immediately prior to the consummation of such transaction in respect of the Registrable Securities under this Agreement.

Section 3.10. Headings; Interpretation . The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. The words “include,” “includes,” and “including” herein shall be deemed to be followed by “without limitation” whether or not they are in fact followed by such word or words of like import.

Section 3.11. Termination . The obligations of the parties hereunder shall terminate with respect to a Holder when it no longer holds Registrable Securities, and with respect to all the parties hereto in the event that (i)(x) the Holders holding Series A Preferred Shares constituting Registrable Securities, in the aggregate, own less than one percent (1%) of the outstanding Series A Preferred Shares and (ii) all of the Series A Preferred Shares received pursuant to the Purchase Agreement may be sold in one transaction pursuant to Rule 144 (without any volume, manner of sale or other limitations), except, in each case, for any obligations under Sections 2.5 , 2.6 , 2.7 , 2.8 , 2.9 , 2.10 and this Article III .

Section 3.12. Waiver of Jury Trial . The parties hereto (including the Initial Holder and any subsequent Holder) irrevocably waive any right to trial by jury.

[SIGNATURE PAGE FOLLOWS]

 

13


IN WITNESS WHEREOF , the undersigned have executed this Agreement as of the date first written above.

 

SPIRIT MTA REIT
By:  

 

  Name:
  Title:

INITIAL HOLDER :

SPIRIT REALTY, L.P.

By: Spirit General OP Holdings, LLC, as

sole general partner of Spirit Realty, L.P.

By: Spirit Realty Capital, Inc., in its

capacity as sole member of Spirit General

OP Holdings, LLC

 

By:  

 

  Name:
  Title:

 

[ Signature Page to Registration Rights Agreement ]

Exhibit 10.11

SPIRIT MTA REIT

AND SPIRIT MTA REIT, L.P.

2018 INCENTIVE AWARD PLAN

ARTICLE 1.

PURPOSE

The purpose of the Spirit MTA REIT and Spirit MTA REIT, L.P. 2018 Incentive Award Plan (the “ Plan ”) is to promote the success and enhance the value of Spirit MTA REIT, a Maryland real estate investment trust (the “ Company ”) and Spirit MTA REIT, L.P. (the “ Partnership ”) by linking the individual interests of Employees, Consultants and Trustees to those of the Company’s shareholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to the Company’s shareholders. The Plan is further intended to provide flexibility to the Company, the Partnership and their Affiliates in their ability to motivate, attract, and retain the services of those individuals upon whose judgment, interest, and special effort the successful conduct of the Company’s and the Partnership’s operation is largely dependent.

ARTICLE 2.

DEFINITIONS AND CONSTRUCTION

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.

2.1 “ Administrator ” shall mean the entity that conducts the general administration of the Plan as provided in Article 11 hereof. With reference to the duties of the Administrator under the Plan which have been delegated to one or more persons pursuant to Section 11.6 hereof, or which the Board has assumed, the term “Administrator” shall refer to such person(s) unless the Committee or the Board has revoked such delegation or the Board has terminated the assumption of such duties.

2.2 “ Affiliate ” shall mean, (i) the Partnership, and (ii) with respect to any Person, (a) any Parent or any Subsidiary, (b) any other Person directly or indirectly controlling, controlled by, or under common control with such Person, (c) any executive officer, general partner or managing member of such Person, (d) any member of the board of directors or board of managers (or bodies performing similar functions) of such Person, and (e) any legal entity for which such Person acts as an executive officer, general partner or managing member.

2.3 “ Applicable Accounting Standards ” shall mean Generally Accepted Accounting Principles in the United States, International Financial Reporting Standards or such other accounting principles or standards as may apply to the Company’s financial statements under United States federal securities laws from time to time.


2.4 “ Applicable Law ” shall mean any applicable law, including without limitation, (a) provisions of the Code, the Securities Act, the Exchange Act and any rules or regulations thereunder; (b) corporate, securities, tax or other laws, statutes, rules, requirements or regulations, whether federal, state, local or foreign; and (c) rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded.

2.5 “ Award ” shall mean an Option, a Restricted Share award, a Performance Award, a Dividend Equivalent award, a Share Payment award, a Restricted Share Unit award, a Performance Share award, an Other Incentive Award, an LTIP Unit award or a Share Appreciation Right, which may be awarded or granted under the Plan.

2.6 “ Award Agreement ” shall mean any written notice, agreement, contract or other instrument or document evidencing an Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Administrator shall determine, consistent with the Plan.

2.7 “ Board ” shall mean the Board of Trustees of the Company.

2.8 “ Change in Control ” shall mean the occurrence of any of the following events:

(a) A transaction or series of transactions whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company or any Subsidiary of the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

(b) During any period of two (2) consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new trustee(s) (other than a trustee designated by a person who shall have entered into an agreement with the Company to effect a transaction described in the preceding Section 2.8(a) or the succeeding Section 2.8(c)) whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the trustees then still in office who either were trustees at the beginning of the two (2)-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (A) a merger, consolidation, reorganization, or business combination, (B) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (C) the acquisition of assets or stock of another entity, in each case, other than a transaction:

(i) Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company

 

2


(the Company or such person, the “ Successor Entity ”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and following which the Successor Entity continues to own all or substantially all the assets that the Company owned immediately before the transaction and succeeds to its business, and

(ii) after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this Section 2.8(c)(ii) as beneficially owning fifty percent (50%) or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

(d) Approval by the Company’s shareholders of a liquidation or dissolution of the Company.

Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or any portion of an Award) that provides for the deferral of compensation that is subject to Section 409A of the Code, to the extent required to avoid the imposition of additional taxes under Section 409A of the Code, the transaction or event described in subsection (a), (b) or (c) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event,” as defined in Section 409A of the Code. Consistent with the terms of this Section 2.8, the Administrator shall have full and final authority to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto.

2.9 “ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder, whether issued prior or subsequent to the grant of any Award.

2.10 “ Committee ” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board described in Article 11 hereof.

2.11 “ Common Shares ” shall mean the common shares of beneficial interest of the Company, par value $0.01 per share.

2.12 “ Company ” shall mean Spirit MTA REIT, a Maryland real estate investment trust.

2.13 “ Consultant ” shall mean any consultant or advisor of the Company, the Manager or any of their respective Affiliates.

2.14 “ Dividend Equivalent ” shall mean a right to receive the equivalent value (in cash or Shares) of dividends paid on Shares, awarded under Section 8.2 hereof.

 

3


2.15 “ DRO ” shall mean a “domestic relations order” as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or the rules thereunder.

2.16 “ Effective Date ” shall mean the date on which the Plan is adopted by the Board.

2.17 “ Eligible Person ” shall mean any Employee, Consultant or Non-Employee Trustee, as determined by the Administrator. In addition, the Manager and its Affiliates each shall constitute an Eligible Person for purposes of Awards granted hereunder, which may in turn issue Awards to Employees, Consultants or Non-Employee Trustees of the Manager or any of its Affiliates.

2.18 “ Employee ” shall mean any officer or other employee (within the meaning of Section 3401(c) of the Code) of the Company, the Manager or their respective Affiliates.

2.19 “ Equity Restructuring ” shall mean a nonreciprocal transaction between the Company and its shareholders, such as a share dividend, share split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other securities of the Company) or the share price of Common Shares (or other securities) and causes a change in the per share value of the Common Shares underlying outstanding share-based Awards.

2.20 “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

2.21 “ Expiration Date ” shall have the meaning provided in Section 12.1 hereof.

2.22 “ Fair Market Value ” shall mean, as of any given date, the value of a Share determined as follows:

(a) If the Common Shares are (i) listed on any established securities exchange (such as the New York Stock Exchange, the NASDAQ Global Market and the NASDAQ Global Select Market), (ii) listed on any national market system or (iii) listed, quoted or traded on any automated quotation system, its Fair Market Value shall be the closing sales price for a Share as quoted on such exchange or system for such date or, if there is no closing sales price for a Share on the date in question, the closing sales price for a Share on the last preceding date for which such quotation exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(b) If the Common Shares are not listed on an established securities exchange, national market system or automated quotation system, but the Common Shares are regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a Share on such date, the high bid and low asked prices for a Share on the last preceding date for which such information exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

 

4


(c) If the Common Shares are neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Administrator in good faith.

2.23 “ Greater Than 10% Shareholder” shall mean an individual then-owning (within the meaning of Section 424(d) of the Code) more than ten percent (10%) of the total combined voting power of all classes of shares of the Company or any “parent corporation” or “subsidiary corporation” (as defined in Sections 424(e) and 424(f) of the Code, respectively).

2.24 “ Incentive Stock Option ” shall mean an Option that is intended to qualify as an incentive stock option and conforms to the applicable provisions of Section 422 of the Code.

2.25 “ LTIP Unit ” shall mean, to the extent authorized by the Partnership Agreement, a unit of the Partnership that is granted pursuant to Section 8.7 hereof and is intended to constitute a “profits interest” within the meaning of the Code.

2.26 “ Management Agreement ” shall mean that certain Asset Management Agreement, dated [______], 2018, by and between the Company and the Manager.

2.27 “ Manager ” shall mean Spirit Realty, L.P. or a Subsidiary of Spirit Realty, L.P.

2.28 “ Non-Employee Trustee ” shall mean a Trustee of the Company who is not an Employee of the Company, the Manager or their respective Affiliates.

2.29 “ Non-Qualified Stock Option ” shall mean an Option that is not an Incentive Stock Option or which is designated as an Incentive Stock Option but does not meet the applicable requirements of Section 422 of the Code.

2.30 “ Option ” shall mean a right to purchase Shares at a specified exercise price, granted under Article 5 hereof. An Option shall be either a Non-Qualified Stock Option or an Incentive Stock Option; provided , however , that Options granted to Non-Employee Trustees and Consultants shall only be Non-Qualified Stock Options.

2.31 “ Other Incentive Award ” shall mean an Award denominated in, linked to or derived from Shares or value metrics related to Shares, granted pursuant to Section 8.6 hereof.

2.32 “ Parent ,” with respect to an entity (the “ Subject Entity ”), shall mean any other entity, whether domestic or foreign, in an unbroken chain of entities ending with the Subject Entity (including the Company, the Partnership or the Manager) if each of the entities other than the Subject Entity beneficially owns, at the time of the determination, securities or interests representing more than fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

2.33 “ Participant ” shall mean a person or entity who has been granted an Award pursuant to the Plan.

2.34 “ Partnership ” shall mean Spirit MTA REIT, L.P.

 

5


2.35 “ Partnership Agreement ” shall mean the Agreement of Limited Partnership of Spirit MTA REIT, L.P., as the same may be amended, modified or restated from time to time.

2.36 “ Performance Award ” shall mean an Award that is granted under Section 8.1 hereof.

2.37 “ Performance Criteria ” shall mean the criteria (and adjustments) that the Committee selects for an Award for purposes of establishing the Performance Goal or Performance Goals for a Performance Period, determined as follows:

(a) The Performance Criteria that may be used to establish Performance Goals include but are not limited to the following: (i) net earnings (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation, (D) amortization, and (E) non-cash equity-based compensation expense); (ii) gross or net sales or revenue; (iii) net income (either before or after taxes); (iv) adjusted net income; (v) operating earnings or profit; (vi) cash flow (including, but not limited to, operating cash flow and free cash flow); (vii) return on assets; (viii) return on capital; (ix) return on shareholders’ equity; (x) total shareholder return; (xi) return on sales; (xii) gross or net profit or operating margin; (xiii) costs; (xiv) funds from operations; (xv) expenses; (xvi) working capital; (xvii) earnings per share; (xviii) adjusted earnings per share; (xix) price per Share; (xx) regulatory body approval for commercialization of a product; (xxi) implementation or completion of critical projects; (xxii) market share; (xxiii) economic value; (xxiv) debt levels or reduction; (xxv) sales-related goals; (xxvi) comparisons with other stock market indices; (xxvii) operating efficiency; (xxviii) employee satisfaction; (xxix) financing and other capital raising transactions; (xxx) recruiting and maintaining personnel; and (xxxi) year-end cash, any of which may be measured either in absolute terms for the Company or any operating unit of the Company or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.

(b) The Administrator may, in its sole discretion, provide that one or more objectively determinable adjustments shall be made to one or more of the Performance Goals. Such adjustments may include, but are not limited to, one or more of the following: (i) items related to a change in Applicable Accounting Standards; (ii) items relating to financing activities; (iii) expenses for restructuring or productivity initiatives; (iv) other non-operating items; (v) items related to acquisitions; (vi) items attributable to the business operations of any entity acquired by the Company during the Performance Period; (vii) items related to the sale or disposition of a business or segment of a business; (viii) items related to discontinued operations that do not qualify as a segment of a business under Applicable Accounting Standards; (ix) items attributable to any share dividend, share split, combination or exchange of shares occurring during the Performance Period; (x) any other items of significant income or expense which are determined to be appropriate adjustments; (xi) items relating to unusual or extraordinary corporate transactions, events or developments, (xii) items related to amortization of acquired intangible assets; (xiii) items that are outside the scope of the Company’s core, on-going business activities; (xiv) items related to acquired in-process research and development; (xv) items relating to changes in tax laws; (xvi) items relating to major licensing or partnership arrangements; (xvii) items relating to asset impairment charges; (xviii) items relating to gains or losses for litigation, arbitration and contractual settlements; or (xix) items relating to any other unusual or nonrecurring events or changes in Applicable Law, Applicable Accounting Standards or business conditions.

 

6


2.38 “ Performance Goals ” shall mean, for a Performance Period, one or more goals established in writing by the Administrator for the Performance Period based upon one or more Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall performance of the Company, the Partnership, any Subsidiary, any division or business unit thereof or an individual.

2.39 “ Performance Period ” shall mean one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, vesting of, and/or the payment of, an Award.

2.40 “ Performance Share ” shall mean a contractual right awarded under Section 8.5 hereof to receive a number of Shares or the cash value of such number of Shares based on the attainment of specified Performance Goals or other criteria determined by the Administrator.

2.41 “ Permitted Transferee ” shall mean, with respect to a Participant, any “family member” of the Participant, as defined under the General Instructions to Form S-8 Registration Statement under the Securities Act or any successor Form thereto, or any other transferee specifically approved by the Administrator, after taking into account Applicable Law.

2.42 “ Plan ” shall mean this Spirit MTA REIT 2018 Incentive Award Plan, as it may be amended from time to time.

2.43 “ Program ” shall mean any program adopted by the Administrator pursuant to the Plan containing the terms and conditions intended to govern a specified type of Award granted under the Plan and pursuant to which such type of Award may be granted under the Plan.

2.44 “ Public Trading Date ” shall mean the first date upon which the Common Shares are listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.

2.45 “ REIT ” shall mean a real estate investment trust within the meaning of Sections 856 through 860 of the Code.

2.46 “ Restricted Shares ” shall mean an award of Shares made under Article 7 hereof that is subject to certain restrictions and may be subject to risk of forfeiture.

2.47 “ Restricted Share Unit ” shall mean a contractual right awarded under Section 8.4 hereof to receive in the future a Share or the cash value of a Share.

2.48 “ Securities Act ” shall mean the Securities Act of 1933, as amended.

2.49 “ Share Limit ” shall have the meaning provided in Section 3.1(a) hereof.

 

7


2.50 “ Shares ” shall mean Common Shares.

2.51 “ Share Appreciation Right ” shall mean a share appreciation right granted under Article 9 hereof.

2.52 “ Share Payment ” shall mean a payment in the form of Shares awarded under Section 8.3 hereof.

2.53 “ Subsidiary ,” with respect to an entity (the “ Subject Entity ”), shall mean (a) a corporation, association or other business entity of which fifty percent (50%) or more of the total combined voting power of all classes of capital stock is owned, directly or indirectly, by the Subject Entity (including the Company, the Partnership or the Manager) and/or by one or more Subsidiaries, (b) any partnership or limited liability company of which fifty percent (50%) or more of the equity interests are owned, directly or indirectly, by the Subject Entity (including the Company, the Partnership or the Manager) and/or by one or more Subsidiaries, and (c) any other entity not described in clauses (a) or (b) above of which fifty percent (50%) or more of the ownership and the power (whether voting interests or otherwise), pursuant to a written contract or agreement, to direct the policies and management or the financial and the other affairs thereof, are owned or controlled by the Subject Entity (including the Company, the Partnership or the Manager) and/or by one or more Subsidiaries.

2.54 “ Substitute Award ” shall mean an Award granted under the Plan in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock, in any case, upon the assumption of, or in substitution for, an outstanding equity award previously granted by a company or other entity that is a party to such transaction; provided , however , that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an Option or Share Appreciation Right.

2.55 “ Successor Entity ” shall have the meaning provided in Section 2.8(c)(i) hereof.

2.56 “ Termination of Service ” shall mean, unless otherwise determined by the Administrator:

(a) As to a Consultant, the time when the engagement of a Participant as a Consultant is terminated for any reason, with or without cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where the Consultant simultaneously commences or remains in employment and/or service as an Employee and/or Trustee with the Company, the Manager or any of their respective Affiliates.

(b) As to a Non-Employee Trustee, the time when a Participant who is a Non-Employee Trustee ceases to be a Trustee for any reason, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Participant simultaneously commences or remains in employment and/or service as an Employee and/or Consultant with the Company, the Manager or any of their respective Affiliates.

 

8


(c) As to an Employee, the time when the employment relationship between a Participant and the Company, the Manager or any of their respective Affiliates, is terminated for any reason, including, without limitation, a termination by resignation, discharge, death, disability or retirement, but excluding terminations where the Participant simultaneously commences or remains in service as an Employee, Consultant and/or Trustee with the Company, the Manager or any of their respective Affiliates.

(d) As to the Manager, the time when the engagement of the Manager by the Company is terminated for any reason.

The Administrator, in its sole discretion, shall determine the effect of all matters and questions relating to any Termination of Service, including, without limitation, whether a Termination of Service has occurred, whether any Termination of Service resulted from a discharge for cause and whether any particular leave of absence constitutes a Termination of Service; provided , however , that, with respect to Incentive Stock Options, unless the Administrator otherwise provides in the terms of any Program, Award Agreement or otherwise, or as otherwise required by Applicable Law, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Service only if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code.    For purposes of the Plan, a Participant’s employee-employer relationship or consultancy relationship shall be deemed to be terminated in the event that the Affiliate employing or contracting with such Participant ceases to remain an Affiliate following any merger, sale of shares or other corporate transaction or event (including, without limitation, a spin-off).

2.57 “ Trustee ” shall mean a member of the board of trustees (or similar governing body) of the Company, the Manager or any of their respective Affiliates.

2.58 “ Trustee Limit ” shall mean the limits applicable to Awards granted to Non-Employee Trustees under the Plan, as set forth in Section 3.3 hereof.

ARTICLE 3.

SHARES SUBJECT TO THE PLAN

3.1 Number of Shares .

(a) Subject to Section 3.1(b) and Section 12.2 hereof, the aggregate number of Shares which may be issued or transferred pursuant to Awards under the Plan is 3,645,000 (the “ Share Limit ”). In order that the applicable regulations under the Code relating to Incentive Stock Options be satisfied, the maximum number of Shares that may be issued under the Plan upon the exercise of Incentive Stock Options shall be 3,645,000. Subject to Section 12.2 hereof, each LTIP Unit issued pursuant to an Award shall count as one Share for purposes of calculating the aggregate number of Shares available for issuance under the Plan as set forth in this Section 3.1(a) and for purposes of calculating the Trustee Limit set forth in Section 3.3 hereof.

 

9


(b) If any Shares subject to an Award are forfeited or expire or such Award is settled for cash (in whole or in part), the Shares subject to such Award shall, to the extent of such forfeiture, expiration or cash settlement, again be available for future grants of Awards under the Plan and shall be added back to the Share Limit in the same number of Shares as were debited from the Share Limit in respect of the grant of such Award (as may be adjusted in accordance with Section 12.2 hereof). Notwithstanding anything to the contrary contained herein, the following Shares shall not be added back to the Share Limit and will not be available for future grants of Awards: (i) Shares tendered by a Participant or withheld by the Company in payment of the exercise price of an Option; (ii) Shares tendered by the Participant or withheld by the Company to satisfy any tax withholding obligation with respect to an Award; (iii) Shares subject to a Share Appreciation Right that are not issued in connection with the share settlement of the Share Appreciation Right on exercise thereof; and (iv) Shares purchased on the open market with the cash proceeds from the exercise of Options. Any Shares repurchased by the Company under Section 7.4 hereof at the same price paid by the Participant so that such Shares are returned to the Company will again be available for Awards. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the Shares available for issuance under the Plan. Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.

(c) Substitute Awards shall not reduce the Shares authorized for grant under the Plan, except to the extent required by reason of Section 422 of the Code. Additionally, tot he extent permitted by Applicable Law, in the event that a company acquired by the Company or any of its Affiliates, or with which the Company or any of its Affiliates combines, has shares available under a pre-existing plan approved by its shareholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common shares of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan; provided , however , that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by or providing services to the Company or its Affiliates immediately prior to such acquisition or combination.

3.2 Shares Distributed . Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Common Shares or Common Shares purchased on the open market.

3.3 Non-Employee Trustee Award Limit . Notwithstanding any provision to the contrary in the Plan or in any other agreement, plan, policy or program regarding Non-Employee Trustee compensation, the sum of any cash compensation and the aggregate grant date fair value (determined as of the date of the grant under Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of all equity-based Awards granted during any calendar year to a Non-Employee Trustee for services as a Non-Employee Trustee shall not exceed $750,000 (the “ Trustee Limit ”).

 

10


ARTICLE 4.

GRANTING OF AWARDS

4.1 Participation. The Administrator may, from time to time, select from among all Eligible Persons, those to whom one or more Awards shall be granted and shall determine the nature and amount of each Award, which shall not be inconsistent with the requirements of the Plan. No Eligible Person shall have any right to be granted an Award pursuant to the Plan.

4.2 Award Agreement . Each Award shall be evidenced by an Award Agreement stating the terms and conditions applicable to such Award, consistent with the requirements of the Plan and any applicable Program.

4.3 Limitations Applicable to Section  16 Persons . Notwithstanding anything contained herein to the contrary, with respect to any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, the Plan, any applicable Program and the applicable Award Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including Rule 16b-3 of the Exchange Act and any amendments thereto) that are requirements for the application of such exemptive rule, and such additional limitations shall be deemed to be incorporated by reference into such Award to the extent permitted by Applicable Law.

4.4 At-Will Service . Nothing in the Plan or in any Program or Award Agreement hereunder shall confer upon any Participant any right to continue as an Employee, Trustee, Consultant or other service provider of the Company, the Manager or any of their respective Affiliates, or shall interfere with or restrict in any way the rights of the Company, the Manager or any Affiliate thereof, which rights are hereby expressly reserved, to discharge any Participant at any time for any reason whatsoever, with or without cause, and with or without notice, or to terminate or change all other terms and conditions of any Participant’s employment or engagement, except to the extent expressly provided otherwise in a written agreement between the Participant and the Company, the Manager or such Affiliate.

4.5 Foreign Participants . Notwithstanding any provision of the Plan or an applicable Program to the contrary, in order to comply with the laws in other countries in which the Company, the Manager or any of their respective Affiliates operate or have Employees, Non-Employee Trustees or Consultants, or in order to comply with the requirements of any foreign securities exchange or Applicable Law, the Administrator, in its sole discretion, shall have the power and authority to: (a) determine which Affiliates shall be covered by the Plan; (b) determine which Eligible Persons outside the United States are eligible to participate in the Plan; (c) modify the terms and conditions of any Award granted to Eligible Persons outside the United States to comply with applicable foreign laws or listing requirements of any such foreign securities exchange; (d) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable; provided , however , that no such subplans and/or modifications shall increase the Share Limit or the Trustee Limit contained

 

11


in Sections 3.1 and 3.3 hereof, respectively; and (e) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals or listing requirements of any such foreign securities exchange. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate Applicable Law.

4.6 Stand-Alone and Tandem Awards . Awards granted pursuant to the Plan may, in the sole discretion of the Administrator, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

ARTICLE 5.

GRANTING OF OPTIONS

5.1 Granting of Options to Eligible Persons . The Administrator is authorized to grant Options to Eligible Persons from time to time, in its sole discretion, on such terms and conditions as it may determine which shall not be inconsistent with the Plan.

5.2 Qualification of Incentive Stock Options . No Incentive Stock Option shall be granted to any person who is not an Employee of the Company or any “parent corporation” or “subsidiary corporation” of the Company (as defined in Sections 424(e) and 424(f) of the Code, respectively). No person who qualifies as a Greater Than 10% Stockholder may be granted an Incentive Stock Option unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code. Any Incentive Stock Option granted under the Plan may be modified by the Administrator, with the consent of the Participant, to disqualify such Option from treatment as an “incentive stock option” under Section 422 of the Code. To the extent that the aggregate fair market value of stock with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Participant during any calendar year under the Plan and all other plans of the Company or any “parent corporation” or “subsidiary corporation” of the Company (as defined in Section 424(e) and 424(f) of the Code, respectively) exceeds one hundred thousand dollars ($100,000), the Options shall be treated as Non-Qualified Stock Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied by taking Options and other “incentive stock options” into account in the order in which they were granted and the fair market value of stock shall be determined as of the time the respective options were granted. In addition, to the extent that any Options otherwise fail to qualify as Incentive Stock Options, such Options shall be treated as Nonqualified Stock Options. Any interpretations and rules under the Plan with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code.

5.3 Option Exercise Price . The exercise price per Share subject to each Option shall be set by the Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted (or, as to Incentive Stock Options, on the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code). In addition, in the case of Incentive Stock Options granted to a Greater Than 10% Shareholder, such price shall not be less than one hundred ten percent (110%) of the Fair Market Value of a Share on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code).

 

12


5.4 Option Term . The term of each Option shall be set by the Administrator in its sole discretion; provided , however , that the term shall not be more than ten (10) years from the date the Option is granted, or five (5) years from the date an Incentive Stock Option is granted to a Greater Than 10% Shareholder. The Administrator shall determine the time period, including the time period following a Termination of Service, during which the Participant has the right to exercise the vested Options, which time period may not extend beyond the stated term of the Option. Except as limited by the requirements of Section 409A or Section 422 of the Code, the Administrator may extend the term of any outstanding Option, and may extend the time period during which vested Options may be exercised, in connection with any Termination of Service of the Participant, and may amend any other term or condition of such Option relating to such a Termination of Service.

5.5 Option Vesting .

(a) The terms and conditions pursuant to which an Option vests in the Participant and becomes exercisable shall be determined by the Administrator and set forth in the applicable Award Agreement. Such vesting may be based on service with the Company, the Manager or any of their respective Affiliates, any of the Performance Criteria, or any other criteria selected by the Administrator. At any time after the grant of an Option, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the vesting of the Option.

(b) No portion of an Option which is unexercisable at a Participant’s Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in an applicable Program, the applicable Award Agreement or by action of the Administrator following the grant of the Option.

5.6 Substitute Awards . Notwithstanding the foregoing provisions of this Article 5 to the contrary, in the case of an Option that is a Substitute Award, the price per Share of the Shares subject to such Option may be less than the Fair Market Value per share on the date of grant, provided , however , that the exercise price of any Substitute Award shall be determined in accordance with the applicable requirements of Sections 424 and 409A of the Code.

5.7 Substitution of Share Appreciation Rights . The Administrator may, in its sole discretion, substitute an Award of Share Appreciation Rights for an outstanding Option at any time prior to or upon exercise of such Option; provided , however , that such Share Appreciation Rights shall be exercisable with respect to the same number of Shares for which such substituted Option would have been exercisable, and shall also have the same exercise price and remaining term as the substituted Option.

 

13


ARTICLE 6.

EXERCISE OF OPTIONS

6.1 Partial Exercise . An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the Administrator may require that, by the terms of the Option, a partial exercise must be with respect to a minimum number of Shares.

6.2 Manner of Exercise . All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:

(a) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Participant or other person then entitled to exercise the Option or such portion of the Option;

(b) Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with Applicable Law. The Administrator may, in its sole discretion, also take such additional actions as it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;

(c) In the event that the Option shall be exercised pursuant to Section 10.3 hereof by any person or persons other than the Participant, appropriate proof of the right of such person or persons to exercise the Option, as determined in the sole discretion of the Administrator; and

(d) Full payment of the exercise price and applicable withholding taxes to the share administrator of the Company for the Shares with respect to which the Option, or portion thereof, is exercised, in a manner permitted by the Administrator in accordance with Sections 10.1 and 10.2 hereof.

6.3 Notification Regarding Disposition . The Participant shall give the Company prompt written or electronic notice of any disposition of Shares acquired by exercise of an Incentive Stock Option which occurs within (a) two (2) years after the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code) of such Option to such Participant, or (b) one (1) year after the date of transfer of such Shares to such Participant.

 

14


ARTICLE 7.

RESTRICTED SHARES

7.1 Award of Restricted Shares .

(a) The Administrator is authorized to grant Restricted Shares to Eligible Persons, and shall determine the terms and conditions, including the restrictions applicable to each award of Restricted Shares, which terms and conditions shall not be inconsistent with the Plan or any applicable Program, and may impose such conditions on the issuance of such Restricted Shares as it deems appropriate.

(b) The Administrator shall establish the purchase price, if any, and form of payment for Restricted Shares; provided , however , that if a purchase price is charged, such purchase price shall be no less than the par value of the Shares to be purchased, unless otherwise permitted by Applicable Law. In all cases, legal consideration shall be required for each issuance of Restricted Shares to the extent required by Applicable Law.

7.2 Rights as Shareholders . Subject to Section 7.4 hereof, upon issuance of Restricted Shares, the Participant shall have, unless otherwise provided by the Administrator, all the rights of a shareholder with respect to said shares, subject to the restrictions in an applicable Program or in the applicable Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the shares; provided , however , that, in the sole discretion of the Administrator, any extraordinary distributions with respect to the shares shall be subject to the restrictions set forth in Section 7.3 hereof. In addition, any dividends paid with respect to shares of Restricted Shares subject to performance-based vesting shall be subject to (and payable only upon the attainment of) the same vesting conditions applicable to the underlying performance-based vesting Restricted Shares.

7.3 Restrictions . All shares of Restricted Shares (including any shares received by Participants thereof with respect to shares of Restricted Shares as a result of share dividends, share splits or any other form of recapitalization) shall, in the terms of an applicable Program or the applicable Award Agreement, be subject to such restrictions and vesting requirements as the Administrator shall provide. Such restrictions may include, without limitation, restrictions concerning voting rights and transferability and such restrictions may lapse separately or in combination at such times and pursuant to such circumstances or based on such criteria as selected by the Administrator, including, without limitation, criteria based on the Participant’s continued employment, trusteeship or consultancy with the Company, the Performance Criteria, Company or Affiliate performance, individual performance or other criteria selected by the Administrator. By action taken after the Restricted Shares is issued, the Administrator may, on such terms and conditions as it may determine to be appropriate, accelerate the vesting of such Restricted Shares by removing any or all of the restrictions imposed by the terms of any Program or by the applicable Award Agreement. Restricted Shares may not be sold or encumbered until all restrictions are terminated or expire.

 

15


7.4 Repurchase or Forfeiture of Restricted Shares . If no purchase price was paid by the Participant for the Restricted Shares, upon a Termination of Service, the Participant’s rights in unvested Restricted Shares then subject to restrictions shall lapse, and such Restricted Shares shall be surrendered to the Company and cancelled without consideration. If a purchase price was paid by the Participant for the Restricted Shares, upon a Termination of Service the Company shall have the right to repurchase from the Participant the unvested Restricted Shares then-subject to restrictions at a cash price per share equal to the price paid by the Participant for such Restricted Shares or such other amount as may be specified in an applicable Program or the applicable Award Agreement. The Administrator in its sole discretion may provide that, upon certain events, including without limitation a Change in Control, the Participant’s death, retirement or disability, any other specified Termination of Service or any other event, the Participant’s rights in unvested Restricted Shares shall not terminate, such Restricted Shares shall vest and cease to be forfeitable and, if applicable, the Company shall cease to have a right of repurchase.

7.5 Certificates for Restricted Shares . Restricted Shares granted pursuant to the Plan may be evidenced in such manner as the Administrator shall determine. Certificates or book entries evidencing shares of Restricted Shares must include an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Shares, and the Company may, in its sole discretion, retain physical possession of any share certificate until such time as all applicable restrictions lapse.

ARTICLE 8.

PERFORMANCE AWARDS; DIVIDEND EQUIVALENTS; SHARE PAYMENTS; RESTRICTED SHARE UNITS; PERFORMANCE SHARES; OTHER INCENTIVE AWARDS; LTIP UNITS

8.1 Performance Awards .

(a) The Administrator is authorized to grant Performance Awards to any Eligible Person. The value of Performance Awards may be linked to any one or more of the Performance Criteria or other specific criteria determined by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator.

(b) Without limiting Section 8.1(a) hereof, the Administrator may grant Performance Awards to any Eligible Person in the form of a cash bonus payable upon the attainment of objective Performance Goals, or such other criteria, whether or not objective, which are established by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator.

8.2 Dividend Equivalents .

(a) Subject to Section 8.2(b) hereof, Dividend Equivalents may be granted by the Administrator, either alone or in tandem with another Award, based on dividends declared on the Common Shares, to be credited as of dividend payment dates during the period between the date the Dividend Equivalents are granted to a Participant and the date such Dividend Equivalents terminate or expire, as determined by the Administrator. Such Dividend Equivalents shall be converted to cash or additional Shares by such formula and at such time and subject to such limitations as may be determined by the Administrator.

 

16


(b) Notwithstanding the foregoing, (i) no Dividend Equivalents shall be payable with respect to Options or Share Appreciation Rights and (ii) any Dividend Equivalents that may become payable with respect to Awards subject to performance-based vesting shall be subject to (and payable only upon the attainment of) the same vesting conditions applicable to the underlying performance-based vesting Award.

8.3 Share Payments . The Administrator is authorized to make one or more Share Payments to any Eligible Person. The number or value of Shares of any Share Payment shall be determined by the Administrator and may be based upon one or more Performance Criteria or any other specific criteria, including service to the Company, the Manager or any of their respective Affiliates, determined by the Administrator. Share Payments may, but are not required to be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to such Eligible Person.

8.4 Restricted Share Units . The Administrator is authorized to grant Restricted Share Units to any Eligible Person. The number and terms and conditions of Restricted Share Units shall be determined by the Administrator. The Administrator shall specify the date or dates on which the Restricted Share Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate, including conditions based on one or more Performance Criteria or other specific criteria, including service to the Company, the Manager or any of their respective Affiliates, in each case, on a specified date or dates or over any period or periods, as determined by the Administrator. The Administrator shall specify, or may permit the Participant to elect, the conditions and dates upon which the Shares underlying the Restricted Share Units shall be issued, which dates shall not be earlier than the date as of which the Restricted Share Units vest and become nonforfeitable and which conditions and dates shall be consistent with the applicable provisions of Section 409A of the Code or an exemption therefrom. On the distribution dates, the Company shall issue to the Participant one unrestricted, fully transferable Share (or the Fair Market Value of one such Share in cash) for each vested and nonforfeitable Restricted Share Unit.

8.5 Performance Share Awards . Any Eligible Person selected by the Administrator may be granted one or more Performance Share awards which shall be denominated in a number of Shares and the vesting of which may be linked to any one or more Performance Criteria, other specific performance criteria (in each case on a specified date or dates or over any period or periods determined by the Administrator) and/or time-vesting or other criteria, as determined by the Administrator.

8.6 Other Incentive Awards . The Administrator is authorized to grant Other Incentive Awards to any Eligible Person, which Awards may cover Shares or the right to purchase Shares or have a value derived from the value of, or an exercise or conversion privilege at a price related to, or that are otherwise payable in or based on, Shares, shareholder value or shareholder return, in each case, on a specified date or dates or over any period or periods determined by the Administrator. Other Incentive Awards may be linked to any one or more Performance Criteria or any other specific performance criteria determined appropriate by the Administrator. Other Incentive Awards may be paid in cash, Shares, or a combination of cash and Shares, as determined by the Administrator.

 

17


8.7 LTIP Units . The Administrator is authorized to grant LTIP Units in such amount and subject to such terms and conditions as may be determined by the Administrator; provided , however , that LTIP Units may only be issued to a Participant for the performance of services to or for the benefit of the Partnership (a) in the Participant’s capacity as a partner of the Partnership, (b) in anticipation of the Participant becoming a partner of the Partnership, or (c) as otherwise determined by the Administrator, provided that the LTIP Units are intended to constitute “profits interests” within the meaning of the Code, including, to the extent applicable, Revenue Procedure 93-27, 1993-2 C.B. 343 and Revenue Procedure 2001-43, 2001-2 C.B. 191. The Administrator shall specify the conditions and dates upon which the LTIP Units shall vest and become nonforfeitable. LTIP Units shall be subject to the terms and conditions of the Partnership Agreement and such other restrictions, including restrictions on transferability, as the Administrator may impose. These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Administrator determines at the time of the grant of the Award or thereafter.

8.8 Other Terms and Conditions . All applicable terms and conditions of each Award described in this Article 8, including without limitation, as applicable, the term, vesting conditions and exercise/purchase price applicable to the Award, shall be set by the Administrator in its sole discretion, provided , however , that the value of the consideration paid by a Participant for an Award shall not be less than the par value of a Share, unless otherwise permitted by Applicable Law.

8.9 Exercise upon Termination of Service . Awards described in this Article 8 are exercisable or distributable, as applicable, only while the Participant is an Employee, Trustee or Consultant (or, in the case of Awards granted to the Manager or its Affiliates, while the Manager or such Affiliate is providing services to the Company or its Affiliates), as applicable. The Administrator, however, in its sole discretion may provide that such Award may be exercised or distributed subsequent to a Termination of Service as provided under an applicable Program, Award Agreement, payment deferral election and/or in certain events, including without limitation, a Change in Control, the Participant’s death, retirement or disability or any other specified Termination of Service.

ARTICLE 9.

SHARE APPRECIATION RIGHTS

9.1 Grant of Share Appreciation Rights .

(a) The Administrator is authorized to grant Share Appreciation Rights to Eligible Persons from time to time, in its sole discretion, on such terms and conditions as it may determine consistent with the Plan.

 

18


(b) A Share Appreciation Right shall entitle the Participant (or other person entitled to exercise the Share Appreciation Right pursuant to the Plan) to exercise all or a specified portion of the Share Appreciation Right (to the extent then-exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per Share of the Share Appreciation Right from the Fair Market Value on the date of exercise of the Share Appreciation Right by the number of Shares with respect to which the Share Appreciation Right shall have been exercised, subject to any limitations the Administrator may impose. Except as described in Section 9.1(c) hereof, the exercise price per Share subject to each Share Appreciation Right shall be set by the Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value on the date the Share Appreciation Right is granted.

(c) Notwithstanding the foregoing provisions of Section 9.1(b) hereof to the contrary, in the case of a Share Appreciation Right that is a Substitute Award, the price per share of the shares subject to such Share Appreciation Right may be less than 100% of the Fair Market Value per share on the date of grant; provided , however , that the exercise price of any Substitute Award shall be determined in accordance with the applicable requirements of Sections 424 and 409A of the Code.

9.2 Share Appreciation Right Vesting .

(a) The Administrator shall determine the period during which the Participant shall vest in a Share Appreciation Right and have the right to exercise such Share Appreciation Rights (subject to Section 9.4 hereof) in whole or in part. Such vesting may be based on service with the Company, the Manager or any of their respective Affiliates, any of the Performance Criteria or any other criteria selected by the Administrator. At any time after grant of a Share Appreciation Right, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the period during which the Share Appreciation Right vests.

(b) No portion of a Share Appreciation Right which is unexercisable at Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in an applicable Program or Award Agreement or by action of the Administrator following the grant of the Share Appreciation Right.

9.3 Manner of Exercise . All or a portion of an exercisable Share Appreciation Right shall be deemed exercised upon delivery of all of the following to the share administrator of the Company, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:

(a) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Share Appreciation Right, or a portion thereof, is exercised. The notice shall be signed by the Participant or other person then-entitled to exercise the Share Appreciation Right or such portion of the Share Appreciation Right;

(b) Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal, state or foreign securities laws or regulations. The Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance;

 

19


(c) In the event that the Share Appreciation Right shall be exercised pursuant to this Section 9.3 by any person or persons other than the Participant, appropriate proof of the right of such person or persons to exercise the Share Appreciation Right; and

(d) Full payment of the applicable withholding taxes to the share administrator of the Company for the Shares with respect to which the Share Appreciation Rights, or portion thereof, are exercised, in a manner permitted by the Administrator in accordance with Sections 10.1 and 10.2 hereof.

9.4 Share Appreciation Right Term . The term of each Share Appreciation Right shall be set by the Administrator in its sole discretion; provided , however , that the term shall not be more than ten (10) years from the date the Share Appreciation Right is granted. The Administrator shall determine the time period, including the time period following a Termination of Service, during which the Participant has the right to exercise the vested Share Appreciation Rights, which time period may not extend beyond the expiration date of the Share Appreciation Right term. Except as limited by the requirements of Section 409A of the Code, the Administrator may extend the term of any outstanding Share Appreciation Right, and may extend the time period during which vested Share Appreciation Rights may be exercised, in connection with any Termination of Service of the Participant, and may amend any other term or condition of such Share Appreciation Right relating to such a Termination of Service.

ARTICLE 10.

ADDITIONAL TERMS OF AWARDS

10.1 Payment . The Administrator shall determine the methods by which payments by any Participant with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) cash or check, (b) Shares (including Shares issuable pursuant to the exercise, vesting or payment of the Award) held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences, in each case, having a Fair Market Value on the date of delivery equal to the aggregate payments required, (c) delivery of a written or electronic notice that the Participant has placed a market sell order with a broker with respect to Shares then-issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided , however , that payment of such proceeds is then made to the Company upon settlement of such sale, or (d) other form of legal consideration acceptable to the Administrator. The Administrator shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a Trustee or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.

 

20


10.2 Tax Withholding . The Company, the Manager and their respective Affiliates shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company or an Affiliate, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s social security, Medicare and any other employment tax obligation) required by law to be withheld with respect to any taxable event concerning a Participant arising in connection with any Award. The Administrator may in its sole discretion and in satisfaction of the foregoing requirement, or in satisfaction of such additional withholding obligations as a Participant may have elected or agreed, allow a Participant to satisfy such obligations by any payment means described in Section 10.1 hereof, including without limitation, by allowing such Participant to elect to have the Company or an Affiliate withhold Shares otherwise issuable under an Award (or allow the surrender of Shares). The number of Shares which may be so withheld or surrendered shall be limited to the number of Shares which have a fair market value on the date of withholding or repurchase no greater than the aggregate amount of such liabilities based on the maximum statutory withholding rates in the applicable jurisdictions for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such taxable income. The Administrator shall determine the fair market value of the Shares, consistent with applicable provisions of the Code, for tax withholding obligations due in connection with a broker-assisted cashless Option or Share Appreciation Right exercise involving the sale of Shares to pay the Option or Share Appreciation Right exercise price or any tax withholding obligation.

10.3 Transferability of Awards .

(a) Except as otherwise provided in Section 10.3(b), (c) or (d) hereof:

(i) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed;

(ii) No Award or interest or right therein shall be liable for or otherwise subject to the debts, contracts or engagements of the Participant or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed, and any attempted disposition of an Award prior to the satisfaction of these conditions shall be null and void and of no effect, except to the extent that such disposition is permitted by clause (i) of this provision; and

(iii) During the lifetime of the Participant, only the Participant may exercise an Award (or any portion thereof) granted to him under the Plan, unless it has been disposed of pursuant to a DRO; after the death of the Participant, any exercisable portion of an Award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Program or Award Agreement, be exercised by his personal representative or by any person empowered to do so under the deceased Participant’s will or under the then-applicable laws of descent and distribution.

 

21


(b) Subject to Section 12.8 hereof, Awards granted to the Manager or its Affiliates may be transferred by such entity to an Employee or Trustee of the Manager or any of its Affiliates, subject to such terms, conditions and requirements (if any) as may be determined by the Administrator in its sole discretion. Without limiting the generality of the foregoing, unless otherwise determined by the Administrator, any Award so transferred shall be subject to the terms and conditions set forth in Section 10.3(c) below.

(c) Notwithstanding Section 10.3(a) hereof, the Administrator, in its sole discretion, may determine to permit a Participant or a Permitted Transferee of such Participant to transfer an Award other than an Incentive Stock Option (unless such Incentive Stock Option is to become a Non-Qualified Stock Option) to any one or more Permitted Transferees of such Participant, subject to the following terms and conditions: (i) an Award transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee (other than to another Permitted Transferee of the applicable Participant) other than by will or the laws of descent and distribution; (ii) an Award transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Award as applicable to the original Participant (other than the ability to further transfer the Award); and (iii) the Participant (or transferring Permitted Transferee) and the Permitted Transferee shall execute any and all documents requested by the Administrator, including without limitation, documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal, state and foreign securities laws and (C) evidence the transfer. In addition, and further notwithstanding Section 10.3(a) hereof, the Administrator, in its sole discretion, may determine to permit a Participant to transfer Incentive Stock Options to a trust that constitutes a Permitted Transferee if, under Section 671 of the Code and applicable state law, the Participant is considered the sole beneficial owner of the Incentive Stock Option while it is held in the trust.

(d) Notwithstanding Section 10.3(a) hereof, a Participant may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Program or Award Agreement applicable to the Participant, except to the extent the Plan, the Program and the Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator. If the Participant is married or a domestic partner in a domestic partnership qualified under Applicable Law and resides in a “community property” state, a designation of a person other than the Participant’s spouse or domestic partner, as applicable, as his or her beneficiary with respect to more than fifty percent (50%) of the Participant’s interest in the Award shall not be effective without the prior written or electronic consent of the Participant’s spouse or domestic partner. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is delivered to the Administrator in writing prior to the Participant’s death.

 

22


(e) Notwithstanding anything to the contrary contained herein, the transfer of any Award shall be subject to the terms and conditions of the Management Agreement and the Partnership Agreement.

10.4 Conditions to Issuance of Shares .

(a) Notwithstanding anything herein to the contrary, neither the Company nor its Affiliates shall be required to issue or deliver any certificates or make any book entries evidencing Shares pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice of counsel, that the issuance of such Shares is in compliance with Applicable Law, and the Shares are covered by an effective registration statement or applicable exemption from registration. In addition to the terms and conditions provided herein, the Administrator may require that a Participant make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems advisable in order to comply with any such Applicable Law.

(b) All Share certificates delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with Applicable Law. The Administrator may place legends on any Share certificate or book entry to reference restrictions applicable to the Shares.

(c) The Administrator shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement, distribution or exercise of any Award, including a window-period limitation, as may be imposed in the sole discretion of the Administrator.

(d) No fractional Shares shall be issued and the Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding down.

(e) Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by Applicable Law, the Company and/or its Affiliates may, in lieu of delivering to any Participant certificates evidencing Shares issued in connection with any Award, record the issuance of Shares in the books of the Company (or, as applicable, its transfer agent or share plan administrator).

10.5 Forfeiture and Claw-Back Provisions .

(a) Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Administrator shall have the right to provide, in the terms of Awards made under the Plan, or to require a Participant to agree by separate written or electronic instrument, that: (i) any proceeds, gains or other economic benefit actually or constructively received by the Participant upon any receipt or exercise of the Award, or upon the receipt or resale of any Shares underlying the Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (x) a Termination of Service occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, (y) the Participant at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Administrator or (z) the Participant incurs a Termination of Service for cause; and

 

23


(b) All Awards (including any proceeds, gains or other economic benefit actually or constructively received by a Participant upon any receipt or exercise of any Award or upon the receipt or resale of any Shares underlying the Award) shall be subject to the applicable provisions of any claw-back policy implemented by the Company, whether implemented prior to or after the grant of such Award, including without limitation, any claw-back policy adopted to comply with the requirements of Applicable Law, including without limitation the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder, to the extent set forth in such claw-back policy and/or in the applicable Award Agreement.

10.6 Prohibition on Repricing . Subject to Section 12.2 hereof, the Administrator shall not, without the approval of the shareholders of the Company, authorize the amendment of any outstanding Option or Share Appreciation Right to reduce its price per share, or cancel any Option or Share Appreciation Right in exchange for cash or another Award when the Option or Share Appreciation Right price per share exceeds the Fair Market Value of the underlying Shares.

10.7 Cash Settlement . Without limiting the generality of any other provision of the Plan, the Administrator may provide, in an Award Agreement or subsequent to the grant of an Award, in its discretion, that any Award may be settled in cash, Shares or a combination thereof.

10.8 Leave of Absence . Unless the Administrator provides otherwise, vesting of Awards granted hereunder shall be suspended during any unpaid leave of absence. A Participant shall not cease to be considered an Employee, Non-Employee Trustee or Consultant, as applicable, in the case of any (a) leave of absence approved by the employing entity, (b) transfer between locations of the Company or between the Company, the Manager and any of their respective Affiliates or any successor thereof, or (c) change in status (Employee to Trustee, Employee to Consultant, etc.), provided that such change does not affect the specific terms applying to the Participant’s Award.

10.9 Terms May Vary Between Awards . The terms and conditions of each Award shall be determined by the Administrator in its sole discretion and the Administrator shall have complete flexibility to provide for varied terms and conditions as between any Awards, whether of the same or different Award type and/or whether granted to the same or different Participants (in all cases, subject to the terms and conditions of the Plan).

10.10 Acceleration on Death or Disability . Except as may otherwise be provided in an applicable Award Agreement, in the event that the Participant experiences a Termination of Service due to the Participant’s death or disability (whether a “disability” exists to be reasonably determined by the Administrator), any Awards held by the Participant shall automatically vest in full and, if applicable, become exercisable; provided , that with respect to any Award that vests and/or is earned based on the achievement of Performance Goals, such Award shall vest and be deemed earned as to the target number of Shares subject to such Award (and no additional Shares subject to such Award shall vest or become payable thereafter).

 

24


ARTICLE 11.

ADMINISTRATION

11.1 Administrator . Unless the Board has otherwise theretofore delegated the administration of the Plan to a Committee as set forth herein, prior to the Public Trading Date, the Board shall administer the Plan. Effective as of the Public Trading Date, the Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under the Plan) shall administer the Plan (except as otherwise permitted herein) and, unless otherwise determined by the Board, shall consist solely of two or more Non-Employee Trustees appointed by and holding office at the pleasure of the Board, each of whom is intended to qualify as a “non-employee director” as defined by Rule 16b-3 of the Exchange Act and an “independent director” under the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded, in each case, to the extent required under such provision; provided , however , that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 11.l or otherwise provided in the Company’s charter or Bylaws or any charter of the Committee. Except as may otherwise be provided in any charter of the Committee, appointment of Committee members shall be effective upon acceptance of appointment, Committee members may resign at any time by delivering written or electronic notice to the Board, and vacancies in the Committee may only be filled by the Board. Notwithstanding the foregoing, (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Awards granted to Non-Employee Trustees of the Company and (b) the Board or Committee may delegate its authority hereunder to the extent permitted by Section 11.6 hereof.

11.2 Duties and Powers of Administrator . It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with its provisions. The Administrator shall have the power to interpret the Plan and all Programs and Award Agreements, and to adopt such rules for the administration, interpretation and application of the Plan and any Program as are not inconsistent with the Plan, to interpret, amend or revoke any such rules and to amend any Program or Award Agreement provided that the rights or obligations of the holder of the Award that is the subject of any such Program or Award Agreement are not affected adversely by such amendment, unless the consent of the Participant is obtained or such amendment is otherwise permitted under Section 12.13 hereof. Any such grant or award under the Plan need not be the same with respect to each Participant. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 under the Exchange Act, or the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded are required to be determined in the sole discretion of the Committee.

 

25


11.3 Action by the Administrator . Unless otherwise established by the Board, in the Company’s charter or Bylaws or in any charter of the Administrator or as required by Applicable Law, a majority of the Administrator shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by all members of the Administrator in lieu of a meeting, shall be deemed the acts of the Administrator. Each member of the Administrator is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

11.4 Authority of Administrator . Subject to any specific designation in the Plan and Applicable Law, the Administrator has the exclusive power, authority and sole discretion to:

(a) Designate Eligible Persons (including the Manager or its Affiliates) to receive Awards;

(b) Determine the type or types of Awards to be granted to each Eligible Person;

(c) Determine the number of Awards to be granted and the number of Shares to which an Award will relate;

(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any performance criteria, any restrictions or limitations on the Award, any schedule for vesting, lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Administrator in its sole discretion determines;

(e) Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

(f) Prescribe the form of each Award Agreement, which need not be identical for each Participant;

(g) Determine as between the Company, the Partnership and any Affiliate which entity will make payments with respect to an Award, consistent with applicable securities laws and other Applicable Law;

(h) Decide all other matters that must be determined in connection with an Award;

(i) Establish, adopt, or revise any Program, rules and regulations as it may deem necessary or advisable to administer the Plan;

 

26


(j) Interpret the terms of, and any matter arising pursuant to, the Plan, any Program or any Award Agreement; and

(k) Make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan.

11.5 Decisions Binding . The Administrator’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Program, any Award Agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.

11.6 Delegation of Authority . To the extent permitted by Applicable Law, the Board or Committee may from time to time delegate to a committee of one or more members of the Board or one or more officers of the Company the authority to grant or amend Awards or to take other administrative actions pursuant to this Article 11; provided , however , that in no event shall an officer of the Company be delegated the authority to grant Awards to, or amend Awards held by, the following individuals: (a) individuals who are subject to Section 16 of the Exchange Act or (b) officers of the Company (or Trustees) to whom authority to grant or amend Awards has been delegated hereunder; provided , further , that any delegation of administrative authority shall only be permitted to the extent it is permissible under other Applicable Law. Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation, and the Board may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 11.6 shall serve in such capacity at the pleasure of the Board or the Committee, as applicable, and the Board or the Committee may abolish any committee at any time and re-vest in itself any previously delegated authority.

ARTICLE 12.

MISCELLANEOUS PROVISIONS

12.1 Amendment, Suspension or Termination of the Plan . Except as otherwise provided in this Section 12.1, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board. However, without approval of the Company’s shareholders given within twelve (12) months before or after the action by the Administrator, no action of the Administrator may, except as provided in Section 12.2 hereof, (i) increase the Share Limit or the Trustee Limit, (ii) authorize the amendment of any outstanding Option or Share Appreciation Right to reduce its price per share, or (iii) cancel any Option or Share Appreciation Right in exchange for cash or another Award when the Option or Share Appreciation Right price per share exceeds the Fair Market Value of the underlying Shares. Except as provided in Section 12.13 hereof, no amendment, suspension or termination of the Plan shall, without the consent of the Participant, impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides. No Awards may be granted or awarded during any period of suspension or after termination of the Plan, and in no event may any Award be granted under the Plan after the tenth (10 th ) anniversary of the Effective Date (the “ Expiration Date ”). Any Awards that are outstanding on the Expiration Date, or the date of termination of the Plan (if earlier), shall remain in force according to the terms of the Plan and the applicable Award Agreement.

 

27


12.2 Changes in Common Shares or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events .

(a) In the event of any share dividend, share split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to shareholders, or any other change affecting the shares of the Company’s shares or the share price of the Company’s shares other than an Equity Restructuring, the Administrator may make equitable adjustments, if any, to reflect such change with respect to (i) the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the Share Limit and the Trustee Limit); (ii) the number and kind of Shares (or other securities or property) subject to outstanding Awards; (iii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and/or (iv) the grant or exercise price per share for any outstanding Awards under the Plan.

(b) In the event of any transaction or event described in Section 12.2(a) hereof or any unusual or nonrecurring transactions or events affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in Applicable Law or Applicable Accounting Standards, the Administrator, in its sole discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:

(i) To provide for either (A) termination of any such Award in exchange for an amount of cash and/or other property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 12.2, the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion having an aggregate value not exceeding the amount that could have been attained upon the exercise of such Award or realization of the Participant’s rights had such Award been currently exercisable or payable or fully vested;

(ii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

 

28


(iii) To make adjustments in the number and type of securities subject to outstanding Awards and Awards which may be granted in the future and/or in the terms, conditions and criteria included in such Awards (including the grant or exercise price, as applicable);

(iv) To provide that such Award shall be exercisable or payable or fully vested with respect to all securities covered thereby, notwithstanding anything to the contrary in the Plan or an applicable Program or Award Agreement; and

(v) To provide that the Award cannot vest, be exercised or become payable after such event.

(c) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 12.2(a) and 12.2(b) hereof:

(i) The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, shall be equitably adjusted; and/or

(ii) The Administrator shall make such equitable adjustments, if any, as the Administrator in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments to the Share Limit, the Trustee Limit).

The adjustments provided under this Section 12.2(c) shall be nondiscretionary and shall be final and binding on the affected Participant and the Company.

(d) Except as may otherwise be provided in any applicable Award Agreement or other written agreement entered into between the Company (or an Affiliate) and a Participant, if a Change in Control occurs and a Participant’s outstanding Awards are not continued, converted, assumed, or replaced by the surviving or successor entity in such Change in Control, then immediately prior to the Change in Control such outstanding Awards, to the extent not continued, converted, assumed, or replaced, shall become fully vested and exercisable, and all forfeiture, repurchase and other restrictions on such Awards shall lapse. Upon, or in anticipation of, a Change in Control, the Administrator may cause any and all Awards outstanding hereunder to terminate at a specific time in the future, including but not limited to the date of such Change in Control, and shall give each Participant the right to exercise such Awards during a period of time as the Administrator, in its sole and absolute discretion, shall determine. For the avoidance of doubt, if the value of an Award that is terminated in connection with this Section 12.2(d) is zero or negative at the time of such Change in Control, such Award shall be terminated upon the Change in Control without payment of consideration therefor.

(e) The Administrator may, in its sole discretion, include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company that are not inconsistent with the provisions of the Plan.

 

29


(f) Unless otherwise determined by the Administrator, no adjustment or action described in this Section 12.2 or in any other provision of the Plan shall be authorized (i) to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code and (ii) with respect to any Award to the extent such adjustment or action would result in short-swing profits liability under Section 16 of the Exchange Act or violate the exemptive conditions of Rule 16b-3 of the Exchange Act.

(g) The existence of the Plan, any Program, any Award Agreement and/or any Award granted hereunder shall not affect or restrict in any way the right or power of the Company, the shareholders of the Company or any Affiliate to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s or such Affiliate’s capital structure or its business, any merger or consolidation of the Company or any Affiliate, any issue of shares or of options, warrants or rights to purchase shares or of bonds, debentures, preferred or prior preference shares whose rights are superior to or affect the Common Shares, the securities of any Affiliate or the rights thereof or which are convertible into or exchangeable for Common Shares or securities of any Affiliate, or the dissolution or liquidation of the Company or any Affiliate, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

(h) No action shall be taken under this Section 12.2 which shall cause an Award to fail to comply with Section 409A of the Code or an exemption therefrom, in either case, to the extent applicable to such Award, unless the Administrator determines any such adjustments to be appropriate.

(i) In the event of any pending share dividend, share split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to shareholders, or any other change affecting the Shares or the share price of the Common Shares including any Equity Restructuring, for reasons of administrative convenience, the Company in its sole discretion may refuse to permit the exercise of any Award during a period of thirty (30) days prior to the consummation of any such transaction.

12.3 Approval of Plan by Shareholders . The Plan shall be submitted for the approval of the Company’s shareholders within twelve (12) months after the date of the Board’s initial adoption of the Plan. If the Plan is not approved by shareholders within twelve (12) months after its adoption by the Board, then the Plan shall be of no force or effect.

12.4 No Shareholders Rights . Except as otherwise provided herein or in an applicable Program or Award Agreement, a Participant shall have none of the rights of a shareholder with respect to Shares covered by any Award until the Participant becomes the record owner of such Shares.

12.5 Paperless Administration . In the event that the Company establishes, for itself or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Participant may be permitted through the use of such an automated system.

 

30


12.6 Section  83(b) Election . No Participant may make an election under Section 83(b) of the Code with respect to any Award under the Plan without the consent of the Administrator, which the Administrator may grant (prospectively or retroactively) or withhold in its sole discretion. If, with the consent of the Administrator, a Participant makes an election under Section 83(b) of the Code to be taxed with respect to the Restricted Shares as of the date of transfer of the Restricted Shares rather than as of the date or dates upon which the Participant would otherwise be taxable under Section 83(a) of the Code, the Participant shall be required to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service.

12.7 Grant of Awards to Certain Employees or Consultants . The Company, the Partnership, the Manager and any Affiliate of the Company, the Partnership or the Manager may provide through the establishment of a formal written policy or otherwise for the method by which Shares or other securities of the Company or the Partnership may be issued and by which such Shares or other securities and/or payment therefor may be exchanged or contributed among such entities, or may be returned upon any forfeiture of Shares or other securities by the Participant, for the purpose of ensuring that the relationship between the Company and its Affiliates remain at arm’s-length.

12.8 REIT Status . The Plan shall be interpreted and construed in a manner consistent with the Company’s status as a REIT. No Award shall be granted or awarded, and with respect to any Award granted under the Plan, such Award shall not vest, be exercisable or be settled:

(a) to the extent that the grant, vesting, exercise or settlement of such Award could cause the Participant or any other person to be in violation of the Common Share Ownership Limit or the Aggregate Share Ownership Limit (each as defined in the Company’s charter, as amended from time to time) or any other provision of Section 7.2 of the Company’s charter; or

(b) if, in the discretion of the Administrator, the grant, vesting, exercise or settlement of such Award could impair the Company’s status as a REIT;

(c) if, in the discretion of the Administrator, the grant, vesting, exercise or settlement of such Award could impair the Partnership’s status as a partnership for U.S. federal income tax purposes.

12.9 Effect of Plan upon Other Compensation Plans . The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Affiliate. Nothing in the Plan shall be construed to limit the right of the Company or any Affiliate: (a) to establish any other forms of incentives or compensation for Employees, Trustees or Consultants of the Company or any Affiliate or for Employees or Trustees of the Manager or any Affiliate or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including without limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.

 

31


12.10 Compliance with Laws . The Plan, the granting and vesting of Awards under the Plan, the issuance and delivery of Shares and LTIP Units and the payment of money under the Plan or under Awards granted or awarded hereunder are subject to compliance with all Applicable Law and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all Applicable Law. To the extent permitted by Applicable Law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such Applicable Law.

12.11 Titles and Headings, References to Sections of the Code or Exchange Act . The titles and headings of the sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. References to sections of the Code or the Exchange Act shall include any amendment or successor thereto.

12.12 Governing Law . The Plan and any Programs or Award Agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Maryland without regard to conflicts of laws thereof.

12.13 Section  409A . To the extent that the Administrator determines that any Award granted under the Plan is subject to Section 409A of the Code, the Plan, the Program pursuant to which such Award is granted and the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. In that regard, to the extent any Award under the Plan or any other compensatory plan or arrangement is subject to Section 409A of the Code, and such Award or other amount is payable on account of a Participant’s Termination of Service (or any similarly defined term), then (a) such Award or amount shall only be paid to the extent such Termination of Service qualifies as a “separation from service” as defined in Section 409A of the Code, and (b) if such Award or amount is payable to a “specified employee” as defined in Section 409A of the Code then to the extent required in order to avoid a prohibited distribution under Section 409A of the Code, such Award or other compensatory payment shall not be payable prior to the earlier of (i) the expiration of the six-month period measured from the date of the Participant’s Termination of Service, or (ii) the date of the Participant’s death. To the extent applicable, the Plan, the Program and any Award Agreements shall be interpreted in accordance with Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Administrator determines that any Award may be subject to Section 409A of the Code, the Administrator may (but is not obligated to), without a Participant’s consent, adopt such amendments to the Plan and the applicable Program and Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (A) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (B) comply with the requirements of Section 409A of the Code and thereby avoid the application of any penalty taxes under Section 409A of the Code. The Company makes no representations or warranties as to the tax treatment of any

 

32


Award under Section 409A of the Code or otherwise. The Company shall have no obligation under this Section 12.13 or otherwise to take any action (whether or not described herein) to avoid the imposition of taxes, penalties or interest under Section 409A of the Code with respect to any Award and shall have no liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to constitute non-compliant, “nonqualified deferred compensation” subject to the imposition of taxes, penalties and/or interest under Section 409A of the Code.

12.14 No Rights to Awards . No Eligible Person or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Administrator is obligated to treat Eligible Persons, Participants or any other persons uniformly.

12.15 Unfunded Status of Awards . The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Program or Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Affiliate.

12.16 Indemnification . To the extent allowable pursuant to Applicable Law and the Company’s charter and Bylaws, each member of the Board and any officer or other employee to whom authority to administer any component of the Plan is delegated shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided , however , that he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

12.17 Relationship to other Benefits . No payment pursuant to the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Affiliate except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

12.18 Expenses . The expenses of administering the Plan shall be borne by the Company and its Affiliates.

* * * * *

I hereby certify that the foregoing Plan was duly adopted by the Board of Trustees of Spirit MTA REIT on May 1, 2018.

 

33


* * * * *

I hereby certify that the foregoing Plan was approved by the shareholders of Spirit MTA REIT on May 1, 2018.

Executed on this              day of                      , 2018.

 

 

Corporate Secretary

 

34

Exhibit 10.12

SPIRIT MTA REIT

NON-EMPLOYEE TRUSTEE COMPENSATION PROGRAM

Eligible Trustees (as defined below) on the board of trustees (the “ Board ”) of Spirit MTA REIT (the “ Company ”) shall be eligible to receive cash and equity compensation as set forth in this Non-Employee Trustee Compensation Program (this “ Program ”). The cash and equity compensation described in this Program shall be paid or be made, as applicable, automatically and without further action of the Board, to each member of the Board who is not an employee of the Company, Spirit Realty Capital, Inc. (“ Spirit ”) or any of their respective parents, affiliates or subsidiaries (each, an “ Eligible Trustee ”), unless such Eligible Trustee declines the receipt of such cash or equity compensation by written notice to the Company.

This Program shall become effective upon the distribution by Spirit to its shareholders of all of the outstanding common shares of beneficial interest of the Company (the “ Effective Date ”) and shall remain in effect until it is revised or rescinded by further action of the Board. This Program may be amended, modified or terminated by the Board at any time in its sole discretion. No Eligible Trustee shall have any rights hereunder, except with respect to equity awards granted pursuant to Section 2 of this Program.

1. Cash Compensation .

a. Annual Retainers . Effective upon the Effective Date, each Eligible Trustee shall be eligible to receive an annual cash retainer of $125,000 for service on the Board.

b. Meeting Fees . After the occurrence of six meetings of the Board following the Effective Date, each Eligible Trustee will be paid $1,500 for each meeting of the Board attended in person or telephonically.

c. Payment of Retainers . The annual cash retainers and meeting fees described in Sections 1(a) and 1(b) above shall be earned on a quarterly basis based on a calendar quarter and shall be paid by the Company in arrears not later than thirty days following the end of each calendar quarter, with the final calendar quarter payment being made prior to the end of the applicable fiscal year.

2. Equity Compensation . Eligible Trustees shall be granted the equity awards described below. The awards described below shall be granted under and shall be subject to the terms and provisions of the Company’s 2018 Incentive Award Plan or any other applicable Company equity incentive plan then-maintained by the Company (such plan, as may be amended from time to time, the “ Equity Plan ”) and may be granted subject to the execution and delivery of award agreements, including attached exhibits, in substantially the forms approved by the Board prior to or in connection with such grants. All applicable terms of the Equity Plan apply to this Program as if fully set forth herein, and all grants of equity awards hereby are subject in all respects to the terms of the Equity Plan. Notwithstanding any provision to the contrary in this Program or the Equity Plan, the amount of any cash compensation and/or the grant date fair value (determined as of the date of the grant under Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of all awards granted under this Program shall be subject to any limitations imposed under the Equity Plan or any other applicable Company agreement, program, policy or plan. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Equity Plan.

 

1


a. Spin-Off Restricted Share Awards . Each Eligible Trustee serving on the Board as of the Effective Date automatically shall be granted a Restricted Share award covering a number of the Company’s common shares of beneficial interest (the “ common shares ”) equal to $375,000, divided by the volume weighted average price per share of the Company’s common shares over the 30 consecutive trading-day period beginning on (and including) the first trading day following the Effective Date (the “ VWAP Period ”), rounded to the nearest whole common share and subject to adjustment as provided in the Equity Plan. Each such award will be granted on the trading day immediately following the last day of the VWAP Period, and each such award shall vest in full on the earlier of (i) the date of the annual meeting immediately following the grant date or (ii) the one-year anniversary of the Effective Date, subject to continued service.

b. Initial Restricted Share Awards . Each Eligible Trustee who is initially elected or appointed to serve on the Board after the Effective Date automatically shall be granted on such date, a Restricted Share award covering a number of the Company’s common shares equal to $375,000, divided by the closing price per share of the Company’s common shares on such election or appointment date, rounded to the nearest whole common share and subject to adjustment as provided in the Equity Plan. Each such award shall vest in full on the one-year anniversary of the grant date, subject to continued service.

c. Annual Restricted Share Awards . An Eligible Trustee who is serving on the Board as of the date of the annual meeting of the Company’s shareholders each calendar year beginning with calendar year 2019 automatically shall be granted, on such date, a Restricted Share award covering a number of shares of the Company’s common shares equal to $125,000, divided by the closing price per share of the Company’s common shares on the trading day immediately preceding the applicable grant date, rounded to the nearest whole common share and subject to adjustment as provided in the Equity Plan. Each such award shall vest in full on the earlier of (i) the date of the next annual meeting following the grant date or (ii) the one-year anniversary of the grant date, subject to continued service.

 

2

Exhibit 10.13

SPIRIT MTA REIT AND SPIRIT MTA REIT, L.P.

2018 INCENTIVE AWARD PLAN

RESTRICTED SHARE AWARD GRANT NOTICE

Spirit MTA REIT, a Maryland real estate investment trust (the “ Company ”), pursuant to the Spirit MTA REIT and Spirit MTA REIT, L.P. 2018 Incentive Award Plan, as amended from time to time (the “ Plan ”), hereby grants to the individual listed below (the “ Participant ”), in consideration of the mutual agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the number of shares of the Company’s Common Shares set forth below (the “ Shares ”). This Restricted Share award is subject to all of the terms and conditions as set forth herein and in the Restricted Share Award Agreement attached hereto as Exhibit A (the “ Restricted Share Agreement ”) (including without limitation the Restrictions on the Shares set forth in the Restricted Share Agreement) and the Plan, each of which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Restricted Share Award Grant Notice (the “ Grant Notice ”) and the Restricted Share Agreement.

 

Participant:       [________________________]
Grant Date:       [________________________]
Total Number of Restricted Shares:       [________________] Shares
Vesting Commencement Date:       [________________________]
Vesting Schedule:       [________________]

By his or her signature and the Company’s signature below, the Participant agrees to be bound by the terms and conditions of the Plan, the Restricted Share Agreement and this Grant Notice. The Participant has reviewed the Restricted Share Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of this Grant Notice, the Restricted Share Agreement and the Plan. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator of the Plan upon any questions arising under the Plan, this Grant Notice and/or the Restricted Share Agreement. If the Participant is married, his or her spouse has signed the Consent of Spouse attached to this Grant Notice as Exhibit B .

 

SPIRIT MTA REIT:       PARTICIPANT:
By:               By:     
Print Name:               Print Name:         
Title:                 
Address:               Address:     
                  


EXHIBIT A

TO RESTRICTED SHARE AWARD GRANT NOTICE

RESTRICTED SHARE AWARD AGREEMENT

Pursuant to the Restricted Share Award Grant Notice (the “ Grant Notice ”) to which this Restricted Share Award Agreement (the “ Agreement ”) is attached, Spirit MTA REIT, a Maryland real estate investment trust (the “ Company ”) has granted to the Participant the number of Restricted Shares (the “ Shares ”) under the Spirit MTA REIT and Spirit MTA REIT, L.P. 2018 Incentive Award Plan, as amended from time to time (the “ Plan ”), as set forth in the Grant Notice. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.

ARTICLE I.

GENERAL

1.1 Incorporation of Terms of Plan . The Award (as defined below) is subject to the terms and conditions of the Plan, which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.

ARTICLE II.

AWARD OF RESTRICTED SHARES

2.1 Award of Restricted Shares .

(a) Award . Pursuant to the Grant Notice and upon the terms and conditions set forth in the Plan and this Agreement, effective as of the Grant Date set forth in the Grant Notice, the Company has granted to the Participant an award of Restricted Shares (the “ Award ”) under the Plan in consideration of the Participant’s past and/or continued employment with or service to the Company or its Affiliates, and for other good and valuable consideration which the Administrator has determined exceeds the aggregate par value of the Common Shares subject to the Award as of the Grant Date. The number of Shares subject to the Award is set forth in the Grant Notice. The Participant is an Employee, Trustee or Consultant of the Company, the Manager, or one of their respective Affiliates.

(b) Book Entry Form; Certificates . At the sole discretion of the Administrator, the Shares will be issued in either (i) uncertificated form, with the Shares recorded in the name of the Participant in the books and records of the Company’s transfer agent with appropriate notations regarding the restrictions on transfer imposed pursuant to this Agreement, and upon vesting and the satisfaction of all conditions set forth in Sections 2.2(b) and (d) hereof, the Company shall remove such notations on any such vested Shares in accordance with Section 2.1(e) below; or (ii) certificated form pursuant to the terms of Sections 2.1(c), (d) and (e) below.

(c) Legend . Certificates representing Shares issued pursuant to this Agreement shall, until all Restrictions (as defined below) imposed pursuant to this Agreement lapse or have been removed and the Shares have thereby become vested or the Shares represented thereby have been forfeited hereunder, bear the following legend (or such other legend as shall be determined by the Administrator):

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VESTING REQUIREMENTS AND MAY BE SUBJECT TO FORFEITURE UNDER THE TERMS OF A RESTRICTED SHARE AWARD AGREEMENT, BY AND BETWEEN SPIRIT


MTA REIT AND THE REGISTERED OWNER OF SUCH SHARES, AND SUCH SHARES MAY NOT BE, DIRECTLY OR INDIRECTLY, OFFERED, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNDER ANY CIRCUMSTANCES, EXCEPT PURSUANT TO THE PROVISIONS OF SUCH AGREEMENT.”

(d) Escrow . The Secretary of the Company or such other escrow holder as the Administrator may appoint may retain physical custody of any certificates representing the Shares until all of the Restrictions lapse or shall have been removed; in such event, the Participant shall not retain physical custody of any certificates representing unvested Shares issued to him or her. The Participant, by acceptance of the Award, shall be deemed to appoint, and does so appoint, the Company and each of its authorized representatives as the Participant’s attorney(s)-in-fact to effect any transfer of unvested forfeited Shares (or Shares otherwise reacquired by the Company hereunder) to the Company as may be required pursuant to the Plan or this Agreement and to execute such documents as the Company or such representatives deem necessary or advisable in connection with any such transfer.

(e) Removal of Notations; Delivery of Certificates Upon Vesting . As soon as administratively practicable after the vesting of any Shares subject to the Award pursuant to Section 2.2(b) hereof, the Company shall, as applicable, either remove the notations on any Shares subject to the Award issued in book entry form which have vested or deliver to the Participant a certificate or certificates evidencing the number of Shares subject to the Award which have vested (or, in either case, such lesser number of Shares as may be permitted pursuant to Section 10.2 of the Plan). The Participant (or the beneficiary or personal representative of the Participant in the event of the Participant’s death or incapacity, as the case may be) shall deliver to the Company any representations or other documents or assurances required by the Company. The Shares so delivered shall no longer be subject to the Restrictions hereunder.

2.2 Restrictions .

(a) Forfeiture . Notwithstanding any contrary provision of this Agreement, upon the Participant’s Termination of Service for any or no reason, any portion of the Award (and the Shares subject thereto) which has not vested prior to or in connection with such Termination of Service (after taking into consideration any accelerated vesting and lapsing of Restrictions, if any, which may occur in connection with such Termination of Service) shall thereupon be forfeited immediately and without any further action by the Company or the Participant, and the Participant shall have no further right or interest in or with respect to such Shares or such portion of the Award. For purposes of this Agreement, “ Restrictions ” shall mean the restrictions on sale or other transfer set forth in Section 3.2 hereof and the exposure to forfeiture set forth in this Section 2.2(a).

(b) Vesting and Lapse of Restrictions . Subject to Section 2.2(a) above, the Award shall vest and Restrictions shall lapse in accordance with the vesting schedule set forth in the Grant Notice (rounding down to the nearest whole Share, except in the case of the final vesting event). In addition, the Award shall vest and the Restrictions shall lapse in accordance with Section 10.10 of the Plan [and the Company and the Participant acknowledge that the vesting of the Award and lapsing of the Restrictions may be subject to acceleration in the event of a Termination of Service under certain circumstances in accordance with the Participant’s employment agreement with the Company dated as of [                ]]. Notwithstanding anything contained herein, the Award shall not vest and the Restrictions shall not lapse to the extent that such lapsing of Restrictions and vesting is prohibited by Section 12.8 of the Plan.


(c) Tax Withholding . The Company or its Affiliates shall be entitled to require a cash payment (or permit the Participant to elect, such other form of payment determined in accordance with Section 10.2 of the Plan) by or on behalf of the Participant and/or to deduct from other compensation payable to the Participant any sums required by federal, state or local tax law to be withheld with respect to the grant or vesting of the Award or the lapse of the Restrictions hereunder. In satisfaction of the foregoing requirement with respect to the grant or vesting of the Award or the lapse of the Restrictions hereunder, the Company, the Manager or their respective Affiliates shall withhold Shares otherwise issuable under the Award having a fair market value equal to the sums required to be withheld by federal, state and/or local tax law. The number of Shares which shall be so withheld in order to satisfy such federal, state and/or local withholding tax liabilities shall be limited to the number of shares which have a fair market value on the date of withholding no greater than the aggregate amount of such liabilities based on the maximum statutory withholding rates in the applicable jurisdictions for federal, state and/or local tax purposes that are applicable to such taxable income. Notwithstanding any other provision of this Agreement (including without limitation Section 2.1(b) hereof), the Company shall not be obligated to deliver any new certificate representing Shares to the Participant or the Participant’s legal representative or to enter any such Shares in book entry form unless and until the Participant or the Participant’s legal representative, as applicable, shall have paid or otherwise satisfied in full the amount of all federal, state and local taxes applicable to the taxable income of the Participant resulting from the grant or vesting of the Award or the issuance of Shares hereunder.

(d) Conditions to Delivery of Shares . Subject to Section 2.1 above, the Shares deliverable under this Award may be either previously authorized but unissued Shares or Shares purchased on the open market. Such Shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any Shares under this Award prior to fulfillment of the conditions set forth in Section 10.4 of the Plan.

Notwithstanding the foregoing, the issuance of such Shares shall not be delayed if and to the extent that such delay would result in a violation of Section 409A of the Code. In the event that the Company delays the issuance of such Shares because it reasonably determines that the issuance of such Shares will violate Applicable Law, such issuance shall be made at the earliest date at which the Company reasonably determines that issuing such Shares will not cause such violation, as required by Treasury Regulation Section 1.409A-2(b)(7)(ii).

(e) To ensure compliance with the Restrictions, the Common Share Ownership Limit, the Aggregate Share Ownership Limit (each as defined in the Company’s charter, as amended from time to time), any other provision of Section 7.2 of the Company’s charter, and/or Applicable Law and for other proper purposes, the Company may issue appropriate “stop transfer” and other instructions to its transfer agent with respect to the Restricted Shares. The Company shall notify the transfer agent as and when the Restrictions lapse.

2.3 Consideration to the Company . In consideration of the grant of the Award pursuant hereto, the Participant agrees to render faithful and efficient services to the Company or any Affiliate.

ARTICLE III.

OTHER PROVISIONS

3.1 Section 83(b) Election . The Participant covenants that he or she will not make an election under Section 83(b) of the Code with respect to the receipt of any Share without the consent of the Administrator, which the Administrator may grant or withhold in its sole discretion. If, with the consent of the Administrator, the Participant makes an election under Section 83(b) of the Code to be taxed with


respect to the Restricted Shares as of the date of transfer of the Restricted Shares rather than as of the date or dates upon which the Participant would otherwise be taxable under Section 83(a) of the Code, the Participant hereby agrees to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service.

3.2 Restricted Shares Not Transferable . Until the Restrictions hereunder lapse or expire pursuant to this Agreement and the Shares vest, the Restricted Shares (including any Shares received by holders thereof with respect to Restricted Shares as a result of share dividends, share splits or any other form of recapitalization) shall be subject to the restrictions on transferability set forth in Section 10.3 of the Plan; provided, however, that this Section 3.2 notwithstanding, with the consent of the Administrator, the Shares may be transferred to one or more Permitted Transferees, subject to and in accordance with Section 10.3 of the Plan. Any transfer of the Restricted Shares which is not made in compliance with the Plan and this Agreement shall be null and void and of no effect.

3.3 Rights as Shareholder . Except as otherwise provided herein, upon the Grant Date, the Participant shall have all the rights of a shareholder of the Company with respect to the Shares, subject to the Restrictions, including, without limitation, voting rights and rights to receive any cash or share dividends, in respect of the Shares subject to the Award and deliverable hereunder.

3.4 Not a Contract of Service Relationship . Nothing in this Agreement or in the Plan shall confer upon the Participant any right to continue to serve as an Employee or other service provider of the Company or any of its Affiliates or shall interfere with or restrict in any way the rights of the Company and its Affiliates, which rights are hereby expressly reserved, to discharge or terminate the services of the Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or the applicable Affiliate and the Participant.

3.5 Governing Law . The laws of the State of Maryland shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

3.6 Conformity to Securities Laws . The Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act, and any and all Applicable Law. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Award is granted, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by Applicable Law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

3.7 Amendment, Suspension and Termination . To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board; provided, however, that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the Award in any material way without the prior written consent of the Participant.

3.8 Notices . Any notice to be given under the terms of this Agreement shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to the Participant shall be addressed to the Participant at the Participant’s last address reflected on the Company’s records. Any notice shall be deemed duly given when sent via email or when sent by reputable overnight courier or by certified mail (return receipt requested) through the United States Postal Service.


3.9 Successors and Assigns . The Company or any Affiliate may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company and its Affiliates. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon the Participant and his or her heirs, executors, administrators, successors and assigns.

3.10 Limitations Applicable to Section  16 Persons . Notwithstanding any other provision of the Plan or this Agreement, if the Participant is subject to Section 16 of the Exchange Act, then the Plan, the Award and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

3.11 Entire Agreement . The Plan, the Grant Notice and this Agreement (including all Exhibits thereto, if any) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and its Affiliates and the Participant with respect to the subject matter hereof.

3.12 Limitation on the Participant’s Rights . Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. The Plan, in and of itself, has no assets. The Participant shall have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the Shares issuable hereunder.


EXHIBIT B

TO RESTRICTED SHARE AWARD GRANT NOTICE

CONSENT OF SPOUSE

I,                , spouse of                , have read and approve the Restricted Share Award Grant Notice (the “ Grant Notice ”) to which this Consent of Spouse is attached and the Restricted Share Award Agreement (the “ Agreement ”) attached to the Grant Notice. In consideration of issuing to my spouse the common shares of beneficial interest of Spirit MTA REIT set forth in the Grant Notice, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any common shares of beneficial interest of Spirit MTA REIT issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement.

 

Dated:                          Signature of Spouse:                                                                                      

Exhibit 21.1

 

Name of Subsidiary

  

State/Country of Incorporation/Formation

SMTA Financing JV, LLC    Delaware
SMTA Shopko Holdings, LLC    Delaware
SMTA Shopko Portfolio I, LLC    Delaware
SMTA TN Property Holdings, LLC    Delaware
Spirit AS Katy TX, LP    Delaware
Spirit IM Katy TX, LLC    Delaware
Spirit Master Funding, LLC    Delaware
Spirit Master Funding II, LLC    Delaware
Spirit Master Funding III, LLC    Delaware
Spirit Master Funding VI, LLC    Delaware
Spirit Master Funding VII, LLC    Delaware
Spirit Master Funding XI, LLC    Delaware
Spirit MTA OP Holdings, LLC    Delaware
Spirit MTA REIT, L.P.    Delaware
Spirit MTA SubREIT, Inc.    Maryland
Spirit SPE Crown 2014-1, LLC    Delaware
Spirit SPE Portfolio 2006-1, LLC    Delaware
Spirit SPE Portfolio 2006-2, LLC    Delaware
Spirit SPE Portfolio 2006-3, LLC    Delaware
Spirit SPE Portfolio 2012-5, LLC    Delaware
Table of Contents

Exhibit 99.1

 

LOGO

Dear Spirit Realty Capital, Inc. Stockholder:

We are pleased to inform you that on May 1, 2018, the board of directors of Spirit Realty Capital, Inc. (“Spirit”) declared the distribution of 100% of the common shares of beneficial interest, par value $0.01 per share, or common shares, of Spirit MTA REIT (“SMTA”), a wholly-owned subsidiary of Spirit, to Spirit’s common stockholders. SMTA holds or will hold prior to the distribution, directly or indirectly, the assets that collateralize Master Trust 2014, part of Spirit’s asset-backed securitization program, almost all of the properties that Spirit leases to Specialty Retail Shops Holding Corp. and certain of its affiliates, as well as certain other assets.

Upon the distribution, Spirit common stockholders will own 100% of the common shares of SMTA. The board of directors of Spirit has determined upon careful review and consideration that creating SMTA is in the best interests of Spirit and its stockholders.

The distribution of the common shares of SMTA will occur on May 31, 2018 by way of a taxable pro rata special distribution to Spirit’s common stockholders of record on the record date of the distribution. Each holder of Spirit common stock will be entitled to receive one common share of SMTA for every ten shares of Spirit common stock held by such stockholder as of the close of business on May 18, 2018, the record date of the distribution. The SMTA common shares will be issued in book-entry form only, which means that no physical share certificates will be issued.

Stockholder approval of the distribution is not required, and you are not required to take any action to receive your SMTA common shares.

Following the distribution, you will own shares in both Spirit and SMTA. The number of Spirit shares you own will not change as a result of this distribution. Spirit’s common stock will continue to trade on the New York Stock Exchange under the symbol “SRC.” SMTA intends to list its common shares on the New York Stock Exchange under the symbol “SMTA.”

The information statement, which is being mailed to all holders of Spirit common stock on the record date for the distribution, describes the distribution in detail and contains important information about SMTA, its business, financial condition and operations. We urge you to read the information statement carefully.

We want to thank you for your continued support of Spirit and we look forward to your future support of SMTA.

Sincerely,

Jackson Hsieh

Chief Executive Officer and President


Table of Contents

Information contained herein is subject to completion or amendment. A registration statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

 

SUBJECT TO COMPLETION, DATED MAY 4, 2018

INFORMATION STATEMENT

Common Shares

Spirit MTA REIT

 

 

This information statement is being furnished in connection with the taxable distribution by Spirit Realty Capital, Inc. (“Spirit”), a real estate investment trust (“REIT”), to its stockholders of outstanding common shares of beneficial interest, par value $0.01 per share, or common shares, of Spirit MTA REIT (“SMTA,” “we,” “us” or “our”), a wholly-owned subsidiary of Spirit. We hold, or will hold, directly or indirectly, investments in a portfolio of approximately 903 properties. To implement the distribution, Spirit will distribute 100% of our outstanding common shares on a pro rata basis to existing holders of Spirit’s common stock. References herein to Spirit’s stockholders are intended to refer only to holders of Spirit’s common stock, unless context otherwise requires.

For every ten shares of common stock of Spirit held of record by you as of the close of business on May 18, 2018 (the “distribution record date”), you will receive one of our common shares. We expect our common shares will be distributed by Spirit to you on or about May 31, 2018 (the “distribution date”).

No vote of Spirit’s stockholders is required in connection with the spin-off. Therefore, you are not being asked for a proxy, and you are requested not to send us a proxy, in connection with the spin-off from Spirit. You will not be required to pay any consideration or to exchange or surrender your existing shares of common stock of Spirit or take any other action to receive our common shares to which you are entitled on the distribution date.

There is no current trading market for our common shares, although we expect that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the distribution record date, and we expect “regular-way” trading of our common shares to begin on the first trading day following the completion of the distribution. We intend to list our common shares on the New York Stock Exchange (“NYSE”) under the symbol “SMTA.”

We intend to elect to be taxed as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2018. We believe we will be organized and intend to operate in a manner that will allow us to qualify for taxation as a REIT commencing with such taxable year. To qualify as a REIT, we must meet a number of organizational and operational requirements, including requirements related to the nature of our income and assets and the amount of our distributions, among others. See “Material U.S. Federal Income Tax Consequences.”

We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements.

 

 

In reviewing this information statement, you should carefully consider the matters described under the caption “ Risk Factors ” beginning on page 29.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement was first mailed to Spirit’s stockholders on or about                     , 2018.

                    ,


Table of Contents

TABLE OF CONTENTS

 

BASIS OF PRESENTATION

     ii  

CERTAIN DEFINED TERMS

     iii  

SUMMARY

     1  

RISK FACTORS

     29  

FORWARD-LOOKING STATEMENTS

     60  

OUR SPIN-OFF FROM SPIRIT

     62  

DISTRIBUTION POLICY

     74  

SELECTED PRO FORMA AND HISTORICAL COMBINED FINANCIAL AND OTHER DATA

     78  

UNAUDITED PRO FORMA FINANCIAL INFORMATION

     80  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     89  

BUSINESS AND PROPERTIES

     111  

OUR MANAGER AND ASSET MANAGEMENT AGREEMENT

     127  

MANAGEMENT

     137  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     146  

PRINCIPAL SHAREHOLDERS

     155  

DESCRIPTION OF INDEBTEDNESS

     157  

DESCRIPTION OF SHARES

     170  

CERTAIN PROVISIONS OF MARYLAND LAW AND OUR DECLARATION OF TRUST AND BYLAWS

     180  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     188  

WHERE YOU CAN FIND MORE INFORMATION

     210  

INDEX TO FINANCIAL STATEMENTS

     F-1  

 

i


Table of Contents

BASIS OF PRESENTATION

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about Spirit MTA REIT, a Maryland real estate investment trust (“SMTA”), assumes the completion of all of the transactions referred to in this information statement in connection with the spin-off by Spirit Realty Capital, Inc. (“Spirit”) and the combination of the legal entities to be contributed by Spirit to SMTA.

Upon completion of the spin-off, we expect to own investments in a portfolio of approximately 903 properties, consisting of 897 owned properties and mortgage loans receivable secured by six properties. Unless the context otherwise requires, references in this information statement to “our company,” “the company,” “us,” “our,” and “we” refer to SMTA following the spin-off.

 

ii


Table of Contents

CERTAIN DEFINED TERMS

 

2017 Tax Legislation

  Tax Cuts and Jobs Act

ABS

  Asset Backed Securities

ACM

  Asbestos-Containing Materials

ADA

  Americans with Disabilities Act

AFFO

 

Adjusted Funds From Operations. See definition in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures”

ASC

  Accounting Standards Codification

Asset Management Agreement

  Asset Management Agreement between Spirit Realty, L.P. and Spirit MTA REIT

ASU

  Accounting Standards Update

CMBS

  Commercial Mortgage Backed Securities

Code

  Internal Revenue Code of 1986, as amended

Contractual Rent

  Monthly contractual cash rent, excluding percentage rents, from properties owned fee-simple or ground leased, recognized during the final month of the reporting period, adjusted to exclude amounts received from properties sold during that period and adjusted to include a full month of contractual rent for properties acquired during that period

CPI

  Consumer Price Index

EBITDA

  Earnings Before Interest, Taxes, Depreciation and Amortization

EDF

  Expected Default Frequency

Exchange Act

  Securities and Exchange Act of 1934

FASB

  Financial Accounting Standards Board

FCCR

  Fixed Charge Coverage Ratio. See definition in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures”

FFO

  Funds From Operations. See definition in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures”

Financing JV

  SMTA Financing JV, LLC

GAAP

  Generally Accepted Accounting Principles in the United States

IASB

  International Accounting Standards Board

IFRS

  International Financial Reporting Standards

IRS

  Internal Revenue Service

JOBS Act

  Jumpstart Our Business Startups Act

Liquidity Reserve

  Cash held on deposit until there is a cashflow shortfall as defined in the Master Trust 2014 agreements or a liquidation of Master Trust 2014 occurs

Manager

  Spirit Realty, L.P., a wholly-owned subsidiary of Spirit

Master Trust 2014

  The asset-backed securitization trust established in 2005, and amended and restated in 2014, which issues non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans from time to time

 

iii


Table of Contents

Master Trust 2014 Release

   Proceeds from the sale of assets securing Master Trust 2014 held in a restricted account until a qualifying substitution is made

MGCL

   Maryland General Corporation Law

Moody’s

   Moody’s Investor Services

NAREIT

   National Association of Real Estate Investment Trusts

NYSE

   New York Stock Exchange

Occupancy

   The number of economically yielding owned properties divided by total owned properties

Operating Partnership

   Spirit MTA REIT, L.P.

OP Holdings

   Spirit MTA OP Holdings, LLC

PIK

   Payment-in-kind

Porter’s Five Forces

   An analytical framework used to examine the attractiveness of an industry and potential for disruption in that industry based on: threats of new entrants, threats of substitutes, the bargaining power of customers, the bargaining power of suppliers and industry rivalry

Post-ARD

   Post anticipated repayment date

Predecessor Entities

   The legal entities comprised of Master Trust 2014, the Shopko Entities, the Sporting Goods Entities and two additional legal entities

Properties

   Owned properties and mortgage loans receivable secured by properties

Property Management and Servicing Agreement

   Second amended and restated agreement governing the management services and special services provided to Master Trust 2014 by Spirit Realty, L.P., dated as of May 20, 2014, as amended, supplemented, amended and restated or otherwise modified

QSR

   Quick service restaurants

Real Estate Investment Value

   The gross acquisition cost, including capitalized transaction costs, plus improvements and less impairments, if any

REIT

   Real Estate Investment Trust

S&P

   Standard & Poor’s Rating Services

Separation and Distribution Agreement

   Separation and Distribution Agreement between Spirit Realty Capital, Inc. and Spirit MTA REIT

SEC

   Securities and Exchange Commission

Securities Act

   Securities Act of 1933, as amended

Series A preferred shares

   10% series A preferred shares of beneficial interest, par value $0.01 per share, of Spirit MTA REIT initially issued to Spirit with an aggregate liquidation preference of $150.0 million

Shopko

   Specialty Retail Shops Holding Corp. and certain of its affiliates

Shopko Assets

   Owned properties leased to Shopko

Shopko Entities

   Three legal entities which own properties primarily leased to Shopko

SMTA

   Spirit MTA REIT

Spirit

   Spirit Realty Capital, Inc.

 

iv


Table of Contents

Spirit Heat Map

   An analysis of industries across Porter’s Five Forces and potential causes of technological disruption to identify tenant industries which Spirit believes to have good fundamentals for future performance

Spirit Property Ranking Model

   A proprietary model used annually to rank properties across twelve factors and weightings consisting of both real estate quality scores and credit underwriting criteria, in order to benchmark property quality, identify asset recycling opportunities and to enhance acquisition or disposition decisions

Sporting Goods Entities

   One legal entity which owns a single distribution center property leased to a sporting goods tenant and its general partner entity

SubREIT

  

Spirit MTA SubREIT, Inc., a corporation that will be our subsidiary and intends to elect to be taxed as a REIT for federal income tax purposes

SubREIT preferred shares

   18% series A preferred stock, par value $0.01 per share, of Spirit MTA SubREIT with an aggregate liquidation preference of $5.0 million

TRS

   Taxable REIT subsidiary

TSR

   Total Shareholder Return

U.S.

   United States of America

Vacant

   Owned properties that are not economically yielding

 

v


Table of Contents

SUMMARY

This summary highlights some of the information in this information statement relating to our company, our spin-off from Spirit and the distribution of our common shares by Spirit to its stockholders. For a more complete understanding of our business and the spin-off, you should read carefully the more detailed information set forth under the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Our Spin-Off from Spirit” and the other information included in this information statement. Except as otherwise indicated or unless the context otherwise requires, (i) references in this information statement to “our company,” “the company,” “us,” “our,” and “we” refer to SMTA following the spin-off and (ii) operating and financial data disclosed herein give effect to the spin-off and related transactions and the other adjustments described under the section entitled “Unaudited Pro Forma Combined Financial Information.”

 

 

Overview

We are a newly formed, externally-managed REIT with a portfolio of primarily single-tenant properties throughout the U.S. Upon completion of the spin-off, we expect to own investments in a portfolio of approximately 903 properties, approximately 57.8% of which are operated under master leases. At December 31, 2017, our properties had an Occupancy of 99.1%, and their leases had a weighted average non-cancelable remaining lease term (based on Contractual Rent) of approximately 10.6 years. These leases are generally long-term, with non-cancelable initial terms of 15 to 20 years and tenant renewal options for additional terms. As of December 31, 2017, approximately 96.0% of our single-tenant leases (based on Contractual Rent) provided for increases in future annual base rent.

The assets comprising Master Trust 2014 will be the largest component of SMTA. Master Trust 2014 is an investment-grade rated long-term ABS platform through which we are able to raise capital on an ongoing basis by issuing non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans receivable. Additionally, we will own one distribution center property encumbered with CMBS debt, an unencumbered portfolio of properties primarily leased to Shopko, a Midwest retailer operating in the general merchandise industry, and 14 other unencumbered properties.

We will be externally managed by Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, a self-administered and self-managed REIT with in-house capabilities, including acquisition, portfolio management, asset management, credit research, real estate research, legal, finance and accounting and capital markets. Spirit primarily invests in single-tenant, operationally essential real estate throughout the U.S. that is generally acquired through strategic sale-leaseback transactions and subsequently leased on a long-term, triple-net basis to high-quality tenants with business operations within predominantly retail and, to a lesser extent, office and industrial property types. We will not have any employees. All of the services typically provided by employees will be provided to us by our Manager pursuant to the Asset Management Agreement. We believe that our Manager is well-positioned to optimize the operating and financial performance of our portfolio and that the experience, extensive industry relationships and asset management expertise of its senior management team will enable us to compete effectively for acquisitions and help generate attractive returns for our shareholders.

We intend to elect to be taxed as a REIT for federal income tax purposes, and we intend to conduct our business and own substantially all of our assets through the Operating Partnership.

Prior to the completion of the spin-off, we are a wholly-owned subsidiary of Spirit.



 

1


Table of Contents

Our Mission Statement

Our mission will be to grow and reinforce our asset base through a) our Manager’s active and experienced management of our portfolio, b) pursuing monetization, distribution of proceeds to shareholders and capital recycling of our Shopko Assets, c) redeveloping select Shopko Assets, and d) developing select outparcels of Shopko Assets into quick service restaurants and casual dining restaurants. We intend to utilize Master Trust 2014 to provide long-term financing for redeployed proceeds from dispositions of our Shopko Assets. We plan to redeploy Shopko proceeds into new assets consistent with the Spirit Heat Map and Spirit Property Ranking Model and potentially distribute a portion of these proceeds to shareholders. We will generally focus on entering into new leases with small and medium sized tenants using master lease structures, with contractual rent escalators and requirements to provide unit level financial reporting.

Reasons for the Spin-Off

Upon careful review and consideration in accordance with the applicable standard of review under Maryland law, Spirit’s board of directors determined that the spin-off is in the best interest of Spirit and its stockholders. The spin-off will enable potential investors and the financial community to evaluate the performance of each company separately, which may result in a higher aggregate market value than the value of the combined company. Spirit’s board of directors’ determination was based on a number of factors and goals, including those set forth below:

 

    Optimize Capital Structure for Both Companies . Upon completion of the spin-off, we believe each company will have a clear capital structure tailored to its needs, and each may be able to attain more favorable financing terms separately. Our capital structure will utilize Master Trust 2014 to access the secured ABS market to fund future growth, while the removal of Master Trust 2014 from Spirit’s capital structure will result in Spirit having meaningfully less secured debt, which we believe will further facilitate Spirit’s access to capital and investment-grade credit markets.

 

    Seek Optimal Long-Term Solution for Shopko Portfolio. The transfer of the unencumbered Shopko Assets to SMTA will allow us to pursue longer term value creation alternatives for them, including sales, out parcel development and redevelopment opportunities. Proceeds from dispositions of Shopko Assets can then be utilized to fund new acquisitions that will serve as collateral for future issuances under Master Trust 2014.

Our Competitive Strengths

 

    Strong Master Trust 2014 Platform . Master Trust 2014 will be the cornerstone of SMTA. Master Trust 2014 has a long and stable history as one of the first issuers of triple-net ABS notes in the early 2000s and was investment-grade rated as of December 31, 2017. Since its creation, Master Trust 2014 has issued several series of notes as additional properties have been acquired and added as collateral, including our most recent issuance of approximately $674.4 million aggregate principal amount of notes in December 2017. As of December 31, 2017, Master Trust 2014’s diversified portfolio accounted for 73.2% of our Contractual Rent and consisted of 787 owned properties and mortgage loans receivable secured by an additional six properties, with approximately 196 tenants operating in 44 states across 23 industries, including restaurants—quick service, restaurants—casual dining, movie theaters and medical / other office. We believe it would be difficult for a new competitor to replicate such a diversified portfolio on a comparable scale. The diversity of the Master Trust 2014 portfolio reduces the risks associated with adverse events affecting a particular tenant or an economic decline in any particular industry. Additionally, the scale of this portfolio allows us to make acquisitions without introducing additional concentration risks.


 

2


Table of Contents
    Unencumbered Portfolio to Provide Capital . Master Trust 2014 allows us to issue additional notes as additional properties are acquired and added as collateral, as evidenced by our issuances of several series of notes, including our most recent issuance of approximately $674.4 million aggregate principal amount of notes in December 2017 at a loan-to-value ratio of 75%. We plan to be an active issuer of notes under Master Trust 2014 by aggressively monetizing our Shopko Assets and 14 unencumbered properties and reinvesting the proceeds in properties that will be added to the collateral pool.

 

    Attractive In-Place Long-Term Indebtedness and Liquidity to Support Business . We seek to select funding sources designed to lock in long-term investment spreads and limit interest rate sensitivity. We also seek to balance the use of debt (which includes Master Trust 2014, CMBS and bank borrowings) and equity financing (including possible preferred share issuances). As of December 31, 2017, we had $2.1 billion aggregate principal amount of indebtedness outstanding, with a weighted average maturity of 5.6 years and a weighted average interest rate of 5.0%. Our long-term leases and in-place indebtedness allow us to deliver attractive levered cash-on-cash returns to our shareholders. There are principal amortization payments of $477.8 million due under our debt instruments prior to January 1, 2021, and 86.3% of the principal balance of our indebtedness at December 31, 2017 is fully or partially amortizing, providing for an ongoing reduction in principal prior to maturity.

 

    Long-Term, Triple-Net Leases . Our properties had a 99.1% Occupancy as of December 31, 2017, with a weighted average non-cancelable remaining lease term (based on Contractual Rent) of approximately 10.6 years. Due to the triple-net structure of approximately 94.4% of our leases (based on Contractual Rent) as of December 31, 2017, we do not expect to incur significant capital expenditures. The potential impact of inflation on our operating expenses is also minimal because approximately 96.0% of our leases (based on Contractual Rent) as of December 31, 2017 provided for increases in future contractual base rent.

 

    Experienced Manager with In-House Capabilities Across Asset Management, Investment, Credit and Research Functions . The senior management of our Manager has significant experience in the real estate industry and in managing public companies, including asset management, investment, credit, research, finance, IT and accounting functions. Our Manager’s President and Chief Executive Officer and our trustee, Jackson Hsieh, has been active in the real estate industry for over 25 years, holding numerous leadership positions in real estate investment banking and public real estate companies. Our Manager’s Head of Asset Management, Ken Heimlich, has over 25 years of industry experience.

 

    Operational Continuity . Our Manager has intimate knowledge of our portfolio from providing asset management, property management, investment, credit and research functions for these assets historically, as well as becoming the direct servicer of Master Trust 2014 collateral in the second quarter of 2017. We will benefit from this knowledge base as we transition into a separate public entity. Our Manager has established internal processes for accounting, finance and IT to allow for the effective management of our assets.

We intend to have our Manager continue to use the Spirit Heat Map and the proprietary Spirit Property Ranking Model to identify asset recycling opportunities and enhance our acquisition and disposition decisions. Further, we will utilize our Manager’s knowledge of our portfolio and our Manager’s network and infrastructure to manage our properties, source deals, underwrite credit and assist with back office support, including accounting and information technology.

 

   

Investment Strategy and Portfolio Rankings . Our Manager’s underwriting and risk management expertise enhances our ability to identify and structure investments that we believe provide superior risk-adjusted returns due to specific investment risks that can be identified and mitigated through intensive credit underwriting and real estate analysis, tailored lease structures (such as master leases) and ongoing tenant monitoring. Spirit has instituted a proprietary Spirit Property Ranking Model that our Manager will also apply to our portfolio. The Spirit Property Ranking Model is used annually to



 

3


Table of Contents
 

rank all properties in our and Spirit’s portfolio, across twelve factors and weightings consisting of both real estate quality scores and credit underwriting criteria, in order to benchmark property quality, identify asset recycling opportunities and to enhance acquisition and disposition decisions. Spirit also updates the Spirit Heat Map that will be used for us and Spirit, which analyzes tenant industries across Porter’s Five Forces and potential causes of technological disruption to identify tenant industries that Spirit believes to have good fundamentals for future performance. Porter’s Five Forces – threats of new entrants, threats of substitutes, the bargaining power of customers, the bargaining power of suppliers and industry rivalry – is an analytical framework used to examine the attractiveness of an industry and potential for disruption in that industry. We believe that our Manager’s approach to underwriting and risk management provides us with a unique competitive advantage that translates into the potential for attractive levered cash-on-cash returns to our shareholders.

SPIRIT PROPERTY RANKING MODEL 1

 

LOGO

 

  (1)   Represents properties as of December 31, 2017 of Spirit and the Predecessor Entities that will be contributed to SMTA.


 

4


Table of Contents

SPIRIT HEAT MAP—PORTFOLIO / INVESTMENT METHODOLOGY

 

LOGO

 

    Highly Incentivized Management Structure . We have structured the Asset Management Agreement to incentivize our Manager to drive our growth and total shareholder return. Under the Asset Management Agreement, in addition to an annual $20.0 million flat fee, our Manager will be entitled to receive a promote payment based on meeting certain shareholder return thresholds. The promote payment, due upon the earliest of (i) a termination of the Asset Management Agreement by us without cause, (ii) a termination of the Asset Management Agreement by our Manager for cause (including upon a Change in Control), and (iii) the date that is 36 full calendar months after the distribution date, provides our Manager with additional compensation based on the total shareholder return on our common shares during the relevant period. See “Our Manager and Asset Management Agreement” for a more detailed description of the promote payment. In addition, under the Property Management and Servicing Agreement for Master Trust 2014, our Manager will receive property management fees, which accrue daily at 0.25% per annum of the collateral value of Master Trust 2014 collateral pool, less any specially serviced assets and special servicing fees, which accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced. We believe the relatively stable nature of the asset management and property management fees will allow us to increase our asset base without proportional increases in our general and administrative expenses due to economies of scale.


 

5


Table of Contents
    Attractive Corporate Governance . We will have a governance structure designed to promote the long-term interests of our shareholders. Some of the significant features of our corporate governance structure include:

 

    our Manager is a public company;

 

    our board of trustees is not classified, each of our trustees is subject to re-election annually and we cannot classify our board in the future without the prior approval of our shareholders;

 

    we provide for majority shareholder voting in uncontested trustee elections;

 

    shareholders may alter or repeal any provision of our bylaws or adopt new bylaws with the affirmative vote of a majority of all votes entitled to be cast on the matter by shareholders;

 

    of the five trustees who will serve on our board of trustees immediately after the completion of the spin-off, we expect our board to determine that four of our trustees satisfy the listing standards for independence of the NYSE and Rule 10A-3 under the Exchange Act, with all four of these trustees having no prior affiliations with Spirit;

 

    at least one of our trustees will qualify as an “audit committee financial expert” as defined by the SEC;

 

    we have opted out of the Maryland business combination and control share acquisition statutes, and we cannot opt back in without prior shareholder approval;

 

    we do not have a shareholders rights plan, and we will not adopt a shareholders rights plan in the future without (i) the approval of our shareholders or (ii) seeking ratification from our shareholders within 12 months of adoption of the plan if the board of trustees determines, in the exercise of its duties under applicable law, that it is in our best interest to adopt a rights plan without the delay of seeking prior shareholder approval;

 

    we will not include a “group,” as that term is used for purposes of Rule 13d-5(b) or Section 13(d)(3) of the Exchange Act, in the definition of “person” for purposes of the “ownership limits” set forth in our declaration of trust;

 

    our chief executive officer and chief financial officer will dedicate their services to us; and

 

    our corporate governance policies will establish a comprehensive framework to address conflicts.

Business and Growth Strategies

We will seek to maximize shareholder value through:

 

    Focus on Diversified Assets in Target Industries . Our investment strategy will be to continue to increase our exposure to industries that we determine are attractive based on Spirit’s proprietary Spirit Heat Map and where we believe we are underweight, including health and fitness, distribution centers, auto service, restaurants—quick service and entertainment assets. On the disposition side, we intend to reduce our Shopko concentration, as well as potentially reduce industry concentration based on the Spirit Heat Map and where we believe we are overweight, including restaurants—casual dining and movie theaters.

We monitor and manage the diversification of our real estate investment portfolio in order to reduce the risks associated with adverse developments affecting a particular tenant, property, industry or region. Our strategy emphasizes a portfolio that (i) derives no more than 7%, excluding Shopko, of Contractual Rent from any single tenant or more than 7% of Contractual Rent from any single property, (ii) is leased to tenants operating in various industries and (iii) is geographically diversified. While we consider the foregoing when making investments, we may make opportunistic investments that do not



 

6


Table of Contents

meet one or more of these criteria if we believe the opportunity is sufficiently attractive. As of December 31, 2017, Shopko contributed 19.7% of our Contractual Rent and represented 15.3% of total assets. As of December 31, 2017, no other tenant contributed more than 7% of our Contractual Rent or represented more than 7% of our total assets, and no one single property contributed more than 7% of our Contractual Rent.

 

    Focus on Small and Middle Market Companies . We will primarily focus on investing in properties that we net lease to small and middle market companies with attractive credit characteristics and stable operating histories, but that may not carry a credit rating from a rating agency. This strategy offers us the opportunity to achieve superior risk-adjusted returns when coupled with our intensive credit and real estate analysis, lease structuring and ongoing portfolio management. Small and middle market companies are often willing to enter into leases with structures and terms we consider attractive (such as master leases, leases with rental escalations and leases that require ongoing tenant financial reporting) and that we believe increase the security of rental payments. We may also selectively acquire properties leased to large companies where we believe that we can achieve superior risk-adjusted returns, subject to our investment guidelines and conflicts of interest policy.

 

    Portfolio Management through Proactive Asset Management . Our focus will be on maximizing the value of our assets through proactive asset management, including: seller financing to expedite sales of Shopko Assets, effective asset recycling, and new master lease terms, including increased landlord rights, financial controls and performance-based provisions. Additionally, our Manager has robust tenant surveillance and other established processes. We plan to selectively make acquisitions that contribute to our portfolio’s tenant, industry and geographic diversification through proactive recycling of assets. Given the volume of transactions in the single-tenant market, we believe there will be ample opportunities fitting our acquisition and disposition criteria.

 

    Selling Down Shopko Exposure to Pursue Selective Growth through Acquisitions . Our Shopko Assets represented 19.7% of Contractual Rent at December 31, 2017, and Shopko is subject to risks that could adversely affect its performance and, thus, its ability to pay us rent. Therefore, we plan to aggressively monetize our Shopko Assets through dispositions, select redevelopments and select outparcel restaurant—quick service and casual dining developments. We intend to proactively engage with Shopko to enhance the value of our assets, and have identified 72 outparcels for potential new development, including 64 in the Midwest and eight in the Pacific Northwest. We will use the proceeds from our dispositions of Shopko Assets to pursue growth opportunities to further strengthen and diversify our portfolio. Our Manager has a long relationship with Shopko and has been effective in reducing its exposure to Shopko over the last several years.

 

    Active Issuer Under Master Trust 2014 . We intend to utilize Master Trust 2014 to lever proceeds from dispositions of Shopko Assets to purchase additional assets that we will add to the collateral pool of Master Trust 2014. We will seek to enter into lease structures that we consider attractive, such as master leases, leases with contractual rent escalators and leases that require ongoing tenant financial reporting, which are attractive features that would allow us to further optimize our borrowing capacity under the Master Trust 2014. Master Trust 2014 provides us access to incremental leverage capacity and liquidity to fund our growth and achieve our asset recycling goals. Additionally, we believe that capital recycling will help drive growth, as well as provide our investors attractive cash-on-cash returns and improve portfolio diversification. In December 2017, we completed an issuance of approximately $674.4 million aggregate principal amount of Master Trust 2014 notes and contributed 10 additional real estate properties to the collateral pool with a total appraised value of $282.4 million.


 

7


Table of Contents

Our Structure and Formation

Spirit MTA REIT was formed as a Maryland real estate investment trust on November 15, 2017 as a wholly-owned subsidiary of Spirit. Prior to or concurrently with the completion of the spin-off, we have engaged or will engage in certain reorganization transactions that are designed to consolidate Master Trust 2014, the Shopko Entities, the Sporting Goods Entities, two additional legal entities and ten additional properties, all currently owned directly or indirectly by Spirit, into our Operating Partnership, provide for external management, facilitate the spin-off, provide us with our initial capital, and enable us to qualify as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2018.

The significant elements of the reorganization transactions include:

 

    Spirit MTA OP Holdings, LLC was formed as a wholly-owned subsidiary of SMTA.

 

    Spirit MTA REIT, L.P. was formed as a subsidiary of SMTA and Spirit MTA OP Holdings, LLC.

 

    SMTA TN Property Holdings, LLC, Spirit Realty AM Corporation and SMTA Financing JV, LLC (“Financing JV”) were formed as wholly-owned subsidiaries of Spirit Realty, L.P.

 

    Certain properties were contributed by Spirit Realty, L.P. and Spirit Realty AM Corporation to Financing JV in exchange for ownership interests in Financing JV.

 

    SMTA Shopko Portfolio I, LLC was formed as a wholly-owned subsidiary of Spirit Realty, L.P.

 

    Spirit Master Funding XI, LLC was formed as a wholly-owned subsidiary of SMTA Financing JV, LLC.

 

    Spirit MTA SubREIT, Inc. (“SubREIT”) was formed as a wholly-owned subsidiary of Spirit Realty, L.P.

 

    Spirit Realty, L.P. contributed certain properties to each of SMTA Shopko Portfolio I, LLC and SMTA TN Property Holdings, LLC.

 

    Spirit Realty, L.P. entered into a binding commitment to sell $5 million in SubREIT preferred shares to third parties.

 

    Spirit Realty, L.P. contributed the Shopko Entities, SMTA TN Property Holdings, LLC, certain properties and entities and the $35 million B-1 Term Loan with Shopko to SMTA, which will then contribute these entities and assets to Spirit MTA REIT, L.P.

 

    Spirit Realty, L.P. contributed SMTA Shopko Portfolio I, LLC and the entities holding the assets that serve as collateral under Master Trust 2014 to Financing JV (but will retain the $33.7 million of notes issued under Master Trust 2014 Series 2017-1 required by risk retention rules).

 

    Spirit Realty, L.P. will contribute its interest in Financing JV and its interest in the Sporting Goods Entities to SubREIT in exchange for additional common shares and $5 million in SubREIT preferred shares.

 

    Spirit Realty, L.P. will contribute its common shares of SubREIT to SMTA, which will contribute such common shares to Spirit MTA REIT, L.P., in exchange for $142.2 million of Series A preferred shares.

 

    Spirit Realty AM Corporation will contribute its interest in Financing JV to SMTA, which will contribute such interest to Spirit MTA REIT, L.P., in exchange for $7.8 million of Series A preferred shares.

Subsequent to the completion of the spin-off, we expect that Spirit MTA REIT, L.P. will contribute the Shopko Entities to Financing JV.



 

8


Table of Contents

Upon completion of the spin-off, we expect to own investments in a portfolio of approximately 903 properties consisting of 897 owned properties and mortgage loans receivable secured by six properties. As of December 31, 2017, 787 of the 897 owned properties were held through Master Trust 2014, with a Real Estate Investment Value of $2.1 billion. Master Trust 2014 had $2.0 billion aggregate principal amount of notes outstanding as of December 31, 2017, including the $674.4 million aggregate principal of notes issued in December 2017. Subsequent to December 31, 2017, $84 million in CMBS debt was raised on one property with a Real Estate Investment Value of $123.3 million. All proceeds from these issuances were distributed to Spirit. The remaining 109 owned properties as of December 31, 2017, with a Real Estate Investment Value of $649.0 million, were unencumbered, predominately consisting of 95 properties leased to Shopko.

The following diagram depicts our ownership structure upon completion of the spin-off and the expected post spin-off contribution of the Shopko Entities:

 

LOGO

Our Manager and Asset Management Agreement

Prior to the completion of the spin-off, we will enter into the Asset Management Agreement with our Manager. Pursuant to the terms of the Asset Management Agreement, our Manager will provide a management team that will be responsible for implementing our business strategy and performing certain services for us, subject to oversight by our board of trustees. We will not have any employees. Our officers and the other individuals who execute our business strategy will be employees of our Manager or its affiliates. Our Manager’s duties, subject to the supervision of our board of trustees, will include: (1) performing all of our day-to-day functions, (2) sourcing, analyzing and executing on investments and dispositions, (3) determining investment criteria, (4) performing liability management duties, including financing and hedging, and (5) performing financial and accounting management. For its services, our Manager will be entitled to an annual management fee and incentive compensation, as well as a termination fee and a promoted interest under certain circumstances, as further described below. Certain terms of the Asset Management Agreement are summarized below and



 

9


Table of Contents

described in more detail under “Our Manager and Asset Management Agreement” elsewhere in this information statement.

 

Type

  

Description

Management Fee

  

$20.0 million per year, payable in equal monthly installments, in arrears; provided, however, that (i) in the event of a Management Fee PIK Event arising under clause (i) of the definition thereof, the portion of the monthly installment of the management fee that is necessary for us to have sufficient funds to declare and pay dividends in cash required to be paid in cash in order for us to maintain our status as a REIT under the Code and to avoid incurring income or excise taxes will, during the occurrence and continuation of any such Management Fee PIK Event, be payable in a number of Series A preferred shares determined by dividing such portion of the management fee by the liquidation preference of the Series A preferred shares rounded down to the nearest whole share and (ii) in the event of a Management Fee PIK Event arising under clause (ii) of the definition thereof, the entire monthly installment of the management fee will, during the occurrence and continuation of any such Management Fee PIK Event, be payable in a number of Series A preferred shares determined by dividing the management fee by the liquidation preference of the Series A preferred shares rounded down to the nearest whole share.

 

A Management Fee PIK Event means (i) the good faith determination by our board of trustees that forgoing the payment of all or any portion of the monthly installment of the management fee is necessary for us to have sufficient funds to declare and pay dividends in cash required to be paid in cash in order for us to maintain our status as a REIT under the Code and to avoid incurring income or excise taxes, or (ii) the occurrence and continuation of an “Early Amortization Event,” “Event of Default” or “Sweep Period,” in each case, as defined pursuant under the Second Amended and Restated Master Indenture, dated as of May 20, 2014, among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., as amended and supplemented from time to time.

Term

   Our Asset Management Agreement has an initial three-year term and will be automatically renewed for one-year terms thereafter unless terminated either by us or by our Manager.

Termination

  

Termination without cause :

 

•   Termination by the Company . We may terminate the Asset Management Agreement at any time upon 180-day written notice to our Manager informing it of our intention to terminate the Asset Management Agreement. Effective on the termination date of the Asset Management Agreement by us without cause, we and our Manager will enter into a transition services agreement, upon mutually acceptable terms, that will be in effect until the date that is eight months after the date of the termination of the Asset Management Agreement. For its services under the transition



 

10


Table of Contents

Type

  

Description

  

services agreement, we will pay our Manager the management fee, pro rated for the eight-month term of the transition services agreement.

 

•   Termination by our Manager . Our Manager may terminate our Asset Management Agreement upon 180-day notice prior to the expiration of the original term or any renewal term.

 

Termination for cause :

 

•   Termination by the Company . We may terminate our Asset Management Agreement upon 30-day notice to our Manager if (i) there is a commencement of any proceeding relating to our Manager’s bankruptcy or insolvency, (ii) our Manager dissolves as an entity or (iii) our Manager commits fraud against us, misappropriates or embezzles our funds or acts in a manner constituting bad faith, willful misconduct or gross negligence in the performance of its duties under our Asset Management Agreement (unless such actions or omissions are caused by an employee of our Manager and our Manager takes appropriate action against such person and cures the damage caused by such actions or omissions within 30 days of our Manager’s actual knowledge of their actions or omissions).

 

•   Termination by our Manager . Our Manager may terminate our Asset Management Agreement upon 60-day prior notice in the event that we are in default in the performance or observance of any material term, condition or covenant contained in our Asset Management Agreement and such default continues for a period of 30 days after such notice specifying such default and requesting that the same be remedied within 30 days. Our Manager may also terminate the Asset Management Agreement in its sole discretion effective immediately concurrently with or within 90 days following a Change in Control or a non-cause termination of the Property Management and Servicing Agreement, in each case upon 30-days’ prior notice to us.

Termination Fee

   In the event that our Asset Management Agreement is terminated (a) by us without cause or (b) by our Manager for cause (including upon a Change in Control), we will pay to our Manager, on the effective termination date or as promptly thereafter as practicable, a termination fee equal to 1.75 times the sum of (x) the management fee for the 12 full calendar months preceding the effective termination date, plus (y) all fees due to the Manager or its affiliates under the Property Management and Servicing Agreement for the 12 full calendar months preceding the effective termination date.

Promote

   Upon the earliest of (a) a termination of our Asset Management Agreement by us without cause, (b) a termination of our Asset Management Agreement by our Manager for cause (including upon a Change in Control), and (c) the date that is 36 full calendar months after the distribution date, we are obligated to pay to our Manager, on the date


 

11


Table of Contents

Type

  

Description

  

of the relevant termination or other event or as promptly thereafter as practicable, a cash promote payment, calculated as follows:

 

(i) to the extent that the Company TSR Percentage exceeds 10% during the Measurement Period, the Promote will equal the product of:

 

(x) the weighted-average number of our common shares outstanding during the Measurement Period (calculated on a fully-diluted basis in accordance with GAAP), multiplied by

 

(y) the product of (A) 10%, multiplied by (B) the difference of (I) the Company TSR Amount not to exceed a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 12.5%, less (II) a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 10%;

 

(ii) to the extent that the Company TSR Percentage exceeds 12.5% during the Measurement Period, the Promote will equal the sum of:

 

(x) the amount under (i) above, plus

 

(y) the product of:

 

(A) the weighted-average number of Common Shares outstanding during the Measurement Period (calculated on a fully-diluted basis in accordance with GAAP), multiplied by

 

(B) the product of (I) 15%, multiplied by (II) the difference of (1) the Company TSR Amount not to exceed a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 15%, less (2) a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 12.5%; and

 

(iii) to the extent that the Company TSR Percentage exceeds 15% during the Measurement Period, the Promote will equal the sum of:

 

(x) the amount under (ii) above, plus

 

(y) the product of:

 

(A) the weighted-average number of our common shares outstanding during the Measurement Period (calculated on a fully-diluted basis in accordance with GAAP), multiplied by

 

(B) the product of (I) 20%, multiplied by (II) the difference of (1) the Company TSR Amount, less (2) a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 15%.

 

See “Our Manager and Asset Management Agreement” for relevant definitions.



 

12


Table of Contents

Type

  

Description

Reimbursement of Expenses

  

Our Manager is responsible for certain enumerated expenses incurred in connection with the performance of its duties under the Asset Management Agreement: (i) employment expenses of the personnel employed by our Manager, including the base salary, cash incentive compensation and other employment expenses of our dedicated chief executive officer and dedicated chief financial officer (excluding any equity compensation granted by us); (ii) fees and travel and other expenses of officers and employees of our Manager, except for (A) fees and travel and other expenses of such persons incurred while performing services on our behalf (provided that, if such fees and travel and other expenses are incurred while providing services on behalf of both us and our affiliates and Spirit and its affiliates, our Manager has the authority to reasonably allocate such fees and travel and other expenses between the entities), and (B) fees and travel and other expenses of such persons who are our trustees or officers incurred in their capacities as such; (iii) rent, telephone, utilities, office furniture, equipment and machinery (including computers, to the extent utilized) and other office expenses of our Manager, except to the extent such expenses relate solely to an office maintained by us separate from the office of our Manager; and (iv) miscellaneous administrative expenses relating to the performance by our Manager of its obligations.

 

We are generally responsible for paying all of our expenses, except those specifically required to be borne by our Manager under the Asset Management Agreement and except with regard to costs, expenses and fees to be paid to our Manager in its capacity as property manager and special servicer under the Property Management and Servicing Agreement.



 

13


Table of Contents

Summary Risk Factors

You should carefully read and consider the risk factors set forth under the “Risk Factors” section of this information statement, as well as all other information contained in this information statement. If any of the following risks occur, our business, financial condition, and results of operations could be materially and adversely affected, and the trading price of our common shares could decline.

 

    Our tenants may fail to successfully operate their businesses, which could adversely affect us.

 

    A substantial number of our properties are leased to one tenant, Shopko, which represented 19.7% of Contractual Rent at December 31, 2017. As such, any default, breach or delay in the payment of rent by Shopko may materially and adversely affect us. Shopko is subject to certain risks that could adversely affect its performance and thus its ability to pay us rent and we continue to be concerned about Shopko’s ongoing ability to meet its obligations to us under its leases.

 

    Our ongoing business strategy involves the selling down of real estate assets leased to Shopko; however, we may be unable to sell such assets at acceptable terms and conditions or to control the timing of such sales, and our sales must be consistent with our qualification and taxation as a REIT.

 

    A substantial portion of our properties are leased to unrated tenants and the tools we use to measure the credit quality of such tenants may not be accurate.

 

    Decrease in demand for traditional retail and restaurant space may materially and adversely affect us.

 

    We may be unable to identify and complete acquisitions of suitable properties, which may impede our growth, or our future acquisitions may not yield the returns we expect.

 

    We face significant competition for tenants, which may decrease or prevent increases of the occupancy and rental rates of our properties, and competition for acquisitions may reduce the number of acquisitions we are able to complete and increase the costs of these acquisitions.

 

    Our growth depends on external sources of capital that are outside of our control and may not be available to us on commercially reasonable terms or at all.

 

    We depend on our Manager to conduct our business and any material adverse change in its financial condition or our relationship with our Manager could have a material adverse effect on our business and ability to achieve our investment objectives.

 

    There are conflicts of interest in our relationship with our Manager.

 

    Certain terms of our Asset Management Agreement with our Manager could make it difficult and costly to terminate our Manager and could delay or prevent a change of control transaction.

 

    We must pay a base management fee to our Manager regardless of our performance.

 

    We have no history operating as an independent company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.

 

    We may be unable to achieve some or all of the benefits that we expect to achieve from our spin-off from Spirit.

 

    Certain of our agreements with Spirit may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties.

 

    The distribution of our common shares will not qualify for tax-free treatment and may be taxable to you as a dividend.


 

14


Table of Contents
    There is currently no public market for our common shares and a trading market that will provide you with adequate liquidity may not develop for our common shares. In addition, once our common shares begin trading, the market price of our shares may fluctuate widely.

 

    We have not established a minimum distribution payment level and we cannot assure you of our ability to pay distributions in the future.

 

    Your percentage ownership in us may be diluted in the future.

 

    Our board of trustees may change our investment and financing policies without shareholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.

 

    Conflicts of interest could arise in the future between the interests of our shareholders and the interests of holders of partnership interests in the Operating Partnership, which may impede business decisions that could benefit our shareholders.

 

    Upon completion of the spin-off, we will have approximately $2.1 billion aggregate principal amount of indebtedness outstanding, which may expose us to the risk of default under our debt obligations, limit our ability to obtain additional financing or affect the market price of our common shares or debt securities.

 

    Current market conditions could adversely affect our ability to refinance existing indebtedness or obtain additional financing for growth on acceptable terms or at all.

 

    Failure to maintain our qualification as a REIT would have significant adverse consequences to us and the value of our common shares.

Our Financing Strategy

We intend to use Master Trust 2014 to periodically raise capital through the issuance of non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans receivable. We also may raise capital by issuing registered debt or equity securities or obtaining asset level financing, when we deem prudent. We expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common shareholders primarily through cash provided by operating activities, proceeds from dispositions of our Shopko Assets and potential future bank borrowings. The form of our indebtedness may vary and could be long-term or short-term, secured or unsecured, or fixed-rate or floating rate. We will not enter into interest rate swaps or caps, or similar hedging transactions or derivative arrangements for speculative purposes, but may do so in order to manage or mitigate our interest rate risks on variable rate debt. For additional information regarding our existing debt, please refer to “Description of Indebtedness.”

Distribution Policy

We anticipate making regular quarterly distributions to holders of our common shares. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay regular U.S. federal corporate income tax to the extent that it annually distributes less than 100% of its REIT taxable income. We generally intend over time to make quarterly distributions in an amount at least equal to our REIT taxable income.

Any distributions we make to our shareholders will be at the discretion of our board of trustees and will depend upon, among other things, our actual and anticipated results of operations and liquidity, which will be affected by various factors, including the income from our portfolio, our operating expenses and any other expenditures. For more information, see “Distribution Policy.”



 

15


Table of Contents

Our Tax Status

We intend to elect to be taxed as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2018. We believe we will be organized and intend to operate in a manner that will allow us to qualify for taxation as a REIT commencing with such taxable year. To qualify as a REIT, we must meet a number of organizational and operational requirements, including requirements related to the nature of our income and assets and the amount of our distributions, among others. See “Material U.S. Federal Income Tax Consequences.”

Restrictions on Ownership and Transfer of Our Common Shares

Our declaration of trust contains restrictions on the ownership and transfer of our common shares that are intended to assist us in complying with the Code’s requirements and continuing to qualify as a REIT. The relevant sections of our declaration of trust provide that no person or entity may actually or beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% in value of the aggregate of our outstanding shares of all classes and series, or more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding common shares or any class or series of our outstanding preferred shares, in each case excluding any of our shares that are not treated as outstanding for federal income tax purposes. Our declaration of trust, however, permits exceptions to be made for shareholders provided that our board of trustees determines such exceptions will not jeopardize our tax status as a REIT. In connection with the spin-off, our board of trustees intends to grant an excepted holder limit to Spirit that will allow Spirit to own up to $150.0 million of perpetual Series A preferred shares, together with any perpetual Series A preferred shares acquired by Spirit as a result of a Management Fee PIK Event pursuant to our Asset Management Agreement.

JOBS Act

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company,” as defined in the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

An emerging growth company may also take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

    not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended;

 

    reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

 

    exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and on any golden parachute payments not previously approved.

We may take advantage of these provisions until we cease to be an emerging growth company. We will, in general, qualify as an emerging growth company until the earliest of (i) the last day of our fiscal year following the fifth anniversary of the date of our spin-off from Spirit; (ii) the last day of our fiscal year in which we have an annual gross revenue of $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and (iv) the date on which we are deemed to be a



 

16


Table of Contents

“large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur at such time as we (1) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (2) have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months and (3) have filed at least one annual report pursuant to the Exchange Act.

As a result of our status as an emerging growth company, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

Our Principal Office

Our principal executive offices are located at 2727 N. Harwood Street, Suite 300, Dallas, Texas 75201. Our telephone number is (972) 476-1900. Our web site is www.spiritmastertrust.com. Information contained in or that can be accessed through our web site is not part of, and is not incorporated into, this information statement. The foregoing information about us is only a general summary and is not intended to be comprehensive. For additional information about us, you should refer to the information under “Where You Can Find More Information” in this information statement.



 

17


Table of Contents

Questions and Answers about Us and the Spin-Off

 

Why is the spin-off structured as a distribution?

Spirit believes that a distribution of our shares is an efficient way to separate our assets from the rest of Spirit’s portfolio and that the spin-off will create benefits and value for us and Spirit. For more information on the reasons for the spin-off, see “Our Spin-Off from Spirit—Reasons for the Spin-Off.”

 

Why am I receiving this document?

Spirit is delivering this document to you because you are a holder of Spirit common stock. If you are a holder of Spirit common stock as of the close of business on May 18, 2018, you are entitled to receive one common share of SMTA for every ten shares of Spirit common stock that you held at the close of business on such date. The number of shares of Spirit common stock you own will not change as a result of the distribution. This document will help you understand how the spin-off will affect your investment in Spirit and your investment in SMTA following the spin-off.

 

How will the spin-off work?

At the time of the spin-off, SMTA will own, through its subsidiaries, investments in a portfolio of approximately 903 properties. Spirit will distribute 100% of the outstanding common shares of SMTA to Spirit’s stockholders on a pro rata basis. Following the spin-off, we will be a separate public company and intend to list our shares on the NYSE.

 

When will the spin-off occur?

We expect that Spirit will distribute our common shares on May 31, 2018 to holders of record of shares of Spirit common stock as of the close of business on May 18, 2018, subject to certain conditions described under “Our Spin-Off from Spirit—Conditions to the Distribution.” No assurance can be provided as to the timing of the spin-off or that all conditions to the spin-off will be met.

 

What do stockholders of Spirit need to do to participate in the spin-off?

Nothing, but we urge you to read this entire information statement carefully. Holders of shares of Spirit common stock as of the distribution record date will not be required to take any action to receive SMTA common shares on the distribution date. No stockholder approval of the spin-off is required or sought. We are not asking you for a proxy, and you are requested not to send us a proxy. You will not be required to make any payment, or to surrender or exchange your shares of Spirit common stock or take any other action to receive your SMTA common shares on the distribution date. If you own shares of Spirit common stock as of the close of business on the distribution record date, Spirit, with the assistance of American Stock Transfer & Trust Company, LLC, the distribution agent, will electronically issue our common shares to you or to your brokerage firm on your behalf by way of direct registration in book-entry form. The distribution agent will mail you a book-entry account statement that reflects your SMTA common shares, or your bank or brokerage firm will credit your account for the shares. If you sell shares of Spirit common stock in the “regular-way” market on or prior to the



 

18


Table of Contents
 

distribution date, you will be selling your right to receive our common shares in the distribution even if you were the record holder of those shares as of the close of business on May 18, 2018, the distribution record date. Following the distribution, shareholders whose shares are held in book-entry form may request that their common shares held in book-entry form be transferred to a brokerage or other account at any time, without charge.

 

Will I be taxed on the common shares of SMTA that I receive in the distribution?

Yes. The distribution will be in the form of a taxable distribution to Spirit stockholders. In the case of a U.S. holder (as defined in “Our Spin-Off From Spirit—Certain U.S. Federal Income Tax Consequences of the Distribution”), an amount equal to the fair market value of our common shares received by you will be treated as a taxable dividend to the extent of your ratable share of any current or accumulated earnings and profits of Spirit allocable to the distribution, with the excess treated as a nontaxable return of capital to the extent of your tax basis in your shares of Spirit common stock and any remaining excess treated as capital gain. Spirit or other applicable withholding agents may be required to withhold on all or a portion of the distribution payable to non-U.S. stockholders. For a more detailed discussion, see “Our Spin-Off From Spirit—Certain U.S. Federal Income Tax Consequences of the Distribution” and “Material U.S. Federal Income Tax Consequences.” You should consult your tax advisor as to the particular tax consequences of the distribution to you, including the applicability of any U.S. federal, state, local and non-U.S. tax laws.

 

Can Spirit decide to cancel the spin-off of our common shares even if all the conditions have been met?

Yes. The distribution is subject to the satisfaction or waiver of certain conditions. See “Our Spin-Off from Spirit—Conditions to the Spin-Off.” Even if all conditions to the spin-off are satisfied, Spirit may terminate and abandon the spin-off at any time prior to the effectiveness of the spin-off in its sole discretion.

 

Do we plan to pay dividends?

We anticipate making regular quarterly distributions to our common shareholders. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay regular U.S. federal corporate income tax to the extent that it annually distributes less than 100% of its REIT taxable income. We generally intend over time to make quarterly distributions in an amount at least equal to our REIT taxable income.

 

  Any distributions we make to our shareholders will be at the discretion of our board of trustees and will depend upon, among other things, our actual and anticipated results of operations and liquidity, which will be affected by various factors, including the income from our portfolio, our operating expenses and any other expenditures. For more information, see “Distribution Policy.”

 

Will we have any debt?

Yes. For information about our financing arrangements, see “Management’s Discussion and Analysis of Financial Condition and



 

19


Table of Contents

Results of Operations—Liquidity and Capital Resources” and “Description of Indebtedness”.

 

What will the spin-off cost?

Spirit intends to incur pre-tax spin-off costs of approximately $31.0 million to $37.0 million. These costs primarily consist of fees paid to our financial advisers and legal adviser, and also include fees paid to our external auditor and other consultants. Spirit will generally be responsible for all fees and expenses associated with the spin-off. However, pursuant to the Separation and Distribution Agreement, SMTA shall reimburse Spirit for certain limited organizational and NYSE-related fees and expenses incurred prior to the distribution date.

 

How will the spin-off affect my tax basis and holding period in shares of Spirit common stock?

Your tax basis in shares of Spirit common stock held at the time of the distribution will be reduced (but not below zero) to the extent the fair market value of our shares distributed to you by Spirit in the distribution exceeds Spirit’s current and accumulated earnings and profits allocable to your shares in the distribution. Your holding period for such Spirit shares will not be affected by the distribution. See “Our Spin-Off from Spirit—Certain U.S. Federal Income Tax Consequences of the Distribution.” You should consult your tax advisor as to the particular tax consequences of the distribution to you, including the applicability of any U.S. federal, state, local and non-U.S. tax laws.

 

What will my tax basis and holding period be for common shares of SMTA that I receive in the distribution?

Your tax basis in our common shares received will equal the fair market value of such shares on the distribution date. Your holding period for such shares will begin the day after the distribution date. See “Our Spin-Off from Spirit—Certain U.S. Federal Income Tax Consequences of the Distribution.” You should consult your tax advisor as to the particular tax consequences of the distribution to you, including the applicability of any U.S. federal, state, local and non-U.S. tax laws.

 

What will be the relationships between Spirit and us following the spin-off?

We have entered into a Separation and Distribution Agreement to effect the spin-off and provide a framework for our relationships with Spirit after the spin-off. This agreement will govern the relationships between us and Spirit subsequent to the completion of the spin-off and provide for the allocation between us and Spirit of Spirit’s assets, liabilities and obligations attributable to periods prior to the spin-off. We cannot assure you that this agreement is on terms as favorable to us as agreements with independent third parties. We will also enter into a Tax Matters Agreement that will govern the respective rights, responsibilities and obligations of Spirit and us after the spin-off with respect to various tax matters, an Insurance Sharing Agreement that, among others, will provide for us to be added as a named insurer under certain of Spirit’s existing insurance policies until expiration and, thereafter, will grant our Manager the authority to obtain joint blanket insurance policies for us and Spirit, and a Registration Rights Agreement that will grant Spirit Realty L.P. the right to require us to file a registration statement with the SEC with respect to our Series A



 

20


Table of Contents
 

preferred shares that will be issued to it and one of its affiliates in connection with the spin-off. Additionally, we will also enter into an Asset Management Agreement with our Manager, a subsidiary of Spirit, in connection with the spin-off, and our Manager will also continue to provide services under the Property Management and Servicing Agreement. See “Certain Relationships and Related Transactions.”

 

What does Spirit intend to do with any of our Series A preferred shares it retains?

Spirit will decide what actions to take with respect to any of our Series A preferred shares it retains, including whether to dispose of or continue to retain such shares, based on what it believes to be in the best interest of Spirit.

 

Will I receive physical certificates representing common shares of SMTA following the spin-off?

No. Following the spin-off, neither Spirit nor we will be issuing physical certificates representing our common shares. Instead, Spirit, with the assistance of American Stock Transfer & Trust Company, LLC, the distribution agent, will electronically issue our common shares to you or to your bank or brokerage firm on your behalf by way of direct registration in book-entry form. The distribution agent will mail you a book-entry account statement that reflects your common shares of SMTA, or your bank or brokerage firm will credit your account for the shares. A benefit of issuing stock electronically in book-entry form is that there will be none of the physical handling and safekeeping responsibilities that are inherent in owning shares represented by physical share certificates.

 

Will I receive a fractional number of SMTA common shares?

No. A fractional number of our common shares will not be issued in the spin-off. If you would be entitled to receive a fractional share in the spin-off, then you will instead receive a cash payment in lieu of the fractional share, which cash payment may be taxable to you. See “Our Spin-Off from Spirit—General—Treatment of Fractional Shares.”

 

What if I want to sell my shares of Spirit common stock or my SMTA common shares?

You should consult with your financial advisors, such as your stockbroker, bank or tax advisor. Neither Spirit nor we make any recommendations on the purchase, retention or sale of shares of Spirit common stock or common shares of SMTA to be distributed.

 

  If you decide to sell any shares of common stock before the spin-off, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your shares of Spirit common stock or our common shares that you will receive in the spin-off, or both.

 

Will I be able to trade common shares of SMTA on a public market?

There is not currently a public market for our common shares. We intend to list our common shares on the NYSE under the symbol “SMTA.” We anticipate that trading in our common shares will begin on a “when-issued” basis on or shortly before the distribution record date and will continue through the distribution date and that a “regular-way” trading in our common shares will begin on the first trading day following the distribution date. If trading begins on a “when-issued” basis, you may purchase or sell our common shares up



 

21


Table of Contents
 

to and including through the distribution date, but your transaction will not settle until after the distribution date. We cannot predict the trading prices for our common shares before, on or after the distribution date.

 

Will the number of Spirit shares I own change as a result of the spin-off?

No. The number of shares of Spirit common stock you own will not change as a result of the spin-off.

 

What will happen to the listing of shares of Spirit common stock?

Nothing. Shares of Spirit common stock will continue to be traded on the NYSE under the symbol “SRC.”

 

Will the spin-off affect the market price of my Spirit shares?

Yes. As a result of the spin-off, we expect the trading price of shares of Spirit common stock immediately following the spin-off to be lower than immediately prior to the spin-off because their market price will no longer reflect the value of our assets. Furthermore, until the market has fully analyzed the value of Spirit without our assets, the market price of Spirit common stock may fluctuate significantly. Although Spirit believes that over time following the spin-off, the common stock of the separated companies should have a higher aggregate market value, on a fully distributed basis and assuming the same market conditions, than if Spirit were to remain under its current configuration, there can be no assurance of this, and thus the combined market prices of Spirit common stock and our common shares after the spin-off may be equal to or less than the market price of Spirit common stock before the spin-off.

 

What will happen to the manner in which I receive dividends from Spirit or that I will receive from SMTA?

You should contact American Stock Transfer & Trust Company, LLC, the transfer agent for both Spirit and SMTA, with any questions regarding how you receive dividends.

 

Are there risks to owning our common shares?

Yes. Our business is subject to various risks including risks relating to the spin-off. These risks are described in the “Risk Factors” section of this information statement beginning on page 29. We encourage you to read that section carefully.

 

Where can Spirit stockholders get more information?

Before the spin-off, if you have any questions relating to the spin-off, you should contact:

 

  Spirit Realty Capital

2727 North Harwood Street, Suite 300

Dallas, TX 75201

Toll Free: 866-557-7474

Phone: 972-476-1900

Fax: 800-973-0850

 

  After the spin-off, if you have any questions relating to our common shares, you should contact:

 

  Spirit MTA REIT

2727 North Harwood Street, Suite 300

Dallas, TX 75201

Phone: 972-476-1409



 

22


Table of Contents

The Spin-Off

 

Distributing company

Spirit Realty Capital, Inc.

 

Distributed company

Spirit MTA REIT

 

  We are a Maryland real estate investment trust and, prior to the spin-off, a wholly-owned subsidiary of Spirit. After the spin-off, we will be a separate, publicly traded company and intend to conduct our business as a REIT for U.S. federal income tax purposes.

 

Distribution ratio

Each holder of shares of Spirit common stock will receive one of our common shares for every ten shares of Spirit common stock held as of the close of business on May 18, 2018. If you would be entitled to a fractional number of our common shares, you will instead receive a cash payment in lieu of the fractional share. See “Our Spin-Off from Spirit—General—Treatment of Fractional Shares.”

 

Distributed securities

Spirit will distribute 100% of our outstanding common shares immediately before the distribution. Based on the approximately 428,500,128 shares of Spirit common stock outstanding as of April 27, 2018, assuming distribution of 100% of our outstanding common shares and applying the distribution ratio (without accounting for cash to be issued in lieu of fractional shares), we expect that approximately 42.9 million of our common shares will be distributed to Spirit stockholders.

 

Record date

The record date is the close of business on May 18, 2018.

 

Distribution date

The distribution date is on or about May 31, 2018.

 

Distribution

On the distribution date, Spirit, with the assistance of American Stock Transfer & Trust Company, LLC, the distribution agent, will electronically issue our common shares to you or to your bank or brokerage firm on your behalf by way of direct registration in book-entry form. You will not be required to make any payment or surrender or exchange your shares of Spirit common stock or take any other action to receive our common shares on the distribution date to which you are entitled. If you sell shares of Spirit common stock in the “regular-way” market on or prior to the distribution date, you will be selling your right to receive our common shares in the distribution, even if you were the record holder on the record date. Registered stockholders will receive additional information from the distribution agent shortly after the distribution date. Following the distribution, stockholders whose shares of Spirit common stock are held in book-entry form may request that their common shares of SMTA be transferred to a brokerage or other account at any time, without charge. Beneficial stockholders that hold shares through brokerage firms will receive additional information from their brokerage firms shortly after the distribution date.


 

23


Table of Contents

Conditions to the spin-off

The spin-off of our common shares by Spirit is subject to the satisfaction of the following conditions:

 

    the SEC shall have declared effective our registration statement on Form 10, of which this information statement is a part, under the Exchange Act, and no stop order relating to the registration statement shall be in effect;

 

    SMTA’s common shares will have been authorized for listing on the NYSE, subject to official notice of issuance;

 

    no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing completion of the spin-off or any of the transactions related thereto, including the transfers of assets and liability contemplated by the Separation and Distribution Agreement, shall be in effect; and

 

    the Separation and Distribution Agreement will not have been terminated.

 

  Even if all conditions to the spin-off are satisfied, Spirit may terminate and abandon the spin-off at any time prior to the effectiveness of the spin-off.

 

Stock exchange listing

We intend to list our common shares on the NYSE under the symbol “SMTA.”

 

Distribution agent

American Stock Transfer & Trust Company, LLC.

 

Tax considerations

The distribution will be in the form of a taxable distribution to Spirit stockholders. For a discussion of certain U.S. federal income tax consequences of the distribution, see “Our Spin-Off From Spirit—Certain U.S. Federal Income Tax Consequences of the Distribution” and “Material U.S. Federal Income Tax Consequences.” You should consult your tax advisor as to the particular tax consequences of the distribution to you, including the applicability of any U.S. federal, state, local and non-U.S. tax laws.

 

Relationship between Spirit and SMTA following the spin-off

We will enter into a Separation and Distribution Agreement to effect the spin-off and provide a framework for certain aspects of our relationship with Spirit after the spin-off. This agreement will govern certain aspects of the relationship between us and Spirit subsequent to the completion of the spin-off and provide for the allocation between us and Spirit of Spirit’s assets, liabilities and obligations attributable to periods prior to the spin-off from Spirit. We will also enter into a Tax Matters Agreement that will govern the respective rights, responsibilities and obligations of Spirit and us after the spin-off with respect to various tax matters, an Insurance Sharing Agreement that will provide for us to be added as a named insured under certain of Spirit’s existing insurance policies, and a Registration Rights Agreement that will grant Spirit Realty L.P. the right to require us to



 

24


Table of Contents
 

file a registration statement with the SEC with respect to our Series A preferred shares that will be issued to it and one of its affiliates in connection with the spin-off. Additionally, we will also enter into an Asset Management Agreement with a subsidiary of Spirit in connection with the spin-off, and our Manager will continue to provide services under the Property Management and Servicing Agreement. See “Certain Relationships and Related Transactions” and “Our Manager and Asset Management Agreement.”



 

25


Table of Contents

Summary Selected Pro Forma and Historical Combined Financial and Other Data

You should read the following summary selected pro forma and historical combined financial and other data together with “Unaudited Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business and Properties” and the combined financial statements, and related notes thereto, of the Predecessor Entities included elsewhere in this information statement.

The following tables set forth summary selected unaudited pro forma combined financial and other data of SMTA after giving effect to the spin-off and related transactions. The unaudited pro forma combined balance sheet data gives effect to the spin-off and related transactions as if they had occurred on December 31, 2017. The unaudited pro forma combined statement of operations gives effect to the spin-off and related transactions as if they had occurred on January 1, 2017. The summary selected unaudited pro forma combined financial data set forth below is presented for illustrative purposes only and is not necessarily indicative of the combined operating results or financial position that would have occurred if the spin-off and related transactions had been consummated on the dates and in accordance with the assumptions described in the unaudited pro forma combined financial statements, including the notes thereto, which are included elsewhere in this information statement, nor is it necessarily indicative of our future operating results or financial position.

The following tables also set forth summary selected historical combined financial and other data of SMTA’s Predecessor Entities as of the dates and for the periods presented. We have not presented historical information of SMTA because it has not had any operating activity since its formation on November 15, 2017, other than its initial capitalization. The summary selected historical combined financial data as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 as set forth below was derived from the Predecessor Entities’ audited combined financial statements, including the notes thereto, which are included elsewhere in this information statement. The historical results set forth below are not necessarily indicative of our operating results expected for any future periods. We believe that the assumptions and estimates used in preparation of the underlying historical results are reasonable.



 

26


Table of Contents
     Pro Forma
Year Ended
December 31,
2017
    Historical
Years Ended December 31,
 
       2017     2016     2015  
    

(Unaudited)

    (In Thousands)        

Operating Data:

      

Revenues:

        

Rentals

   $ 243,368     $ 224,312     $ 234,671     $ 249,036  

Interest income on loans receivable

     4,500       768       2,207       3,685  

Tenant reimbursement income

     2,362       2,274       2,130       2,048  

Other income

     5,711       4,448       6,295       6,394  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     255,941       231,802       245,303       261,163  

Expenses:

        

General and administrative

     7,963       23,857       18,956       20,790  

Related party fees

     26,960       5,500       5,427       5,506  

Restructuring charges

     —         —         2,465       3,036  

Transaction costs

     —         4,354       —         —    

Property costs (including reimbursable)

     8,416       9,130       5,258       5,043  

Interest

     111,784       76,733       77,895       83,719  

Depreciation and amortization

     86,493       80,386       85,761       93,692  

Impairments

     25,896       33,548       26,565       19,935  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     267,512       233,508       222,327       231,721  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before other expense and income tax (expense) benefit

     (11,571     (1,706     22,976       29,442  

Other expense:

        

Loss on debt extinguishment

     (2,223     (2,223     (1,372     (787
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (2,223     (2,223     (1,372     (787
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before income tax (expense) benefit

     (13,794     (3,929     21,604       28,655  

Income tax (expense) benefit

     (348     (179     (181     33  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (14,142     (4,108     21,423       28,688  
  

 

 

   

 

 

   

 

 

   

 

 

 

Discontinued operations:

        

Income from discontinued operations

     —       —       —       98  

Gain on disposition of assets

     —       —       —       590  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

     —       —       —       688  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before gain on disposition of assets

     (14,142     (4,108     21,423       29,376  

Gain on disposition of assets

     —         22,393       26,499       84,111  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (14,142   $ 18,285     $ 47,922     $ 113,487  
  

 

 

   

 

 

   

 

 

   

 

 

 


 

27


Table of Contents
     Pro Forma
Year Ended
December 31,
2017
    Historical
Years Ended December 31,
       
       2017     2016        
     (Unaudited)     (In Thousands)        

Balance Sheet Data (end of period):

        

Gross investments, including related lease intangibles

   $ 2,934,858     $ 2,870,592     $ 2,817,732    

Net investments

     2,282,997       2,212,488       2,226,235    

Cash and cash equivalents

     3,016       6       1,268    

Total assets

     2,444,836       2,357,660       2,325,538    

Mortgages and notes payable, net

     2,018,057       1,926,835       1,339,614    

Total liabilities

     2,060,310       1,966,742       1,380,681    

Total parent company equity

     384,526       390,918       944,857    

Other Data:

        

FFO (1)

   $ 82,347     $ 109,826     $ 133,749    

AFFO (1)

   $ 89,908     $ 126,765     $ 143,560    

Adjusted Debt (2)

   $ 1,983,496     $ 1,914,656     $ 1,354,467    

Adjusted Debt + Preferred  (2)

   $ 2,138,496     $ 1,914,656     $ 1,354,467    

Adjusted EBITDA (1)

   $ 212,602     $ 193,315     $ 217,079    

Leverage (Adjusted Debt / Adjusted EBITDA) (1)(2)

     9.3x       9.9x       6.2x    

Leverage (Adjusted Debt + Preferred / Adjusted EBITDA) (1)(2)

     10.1x       9.9x       6.2x    

FCCR (Adjusted EBITDA / Fixed Charges) (1)

     1.8x       2.7x       3.0x    

Number of properties in investment portfolio

     903       918       982    

Occupancy at period end

     99     99     98  

 

(1)   Please see “Non-GAAP Financial Measures” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for our reconciliation to Net Income and definition.
(2)   Please see “Non-GAAP Financial Measures” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for our reconciliation to total mortgages and notes payable and definition.


 

28


Table of Contents

RISK FACTORS

Owning our common shares involves a high degree of risk. You should consider carefully the following risk factors and all other information contained in this information statement. If any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, occur, our business, financial condition, liquidity and results of operations could be materially and adversely affected. If this were to happen, the market price of our common shares could decline significantly, and you could lose all or a part of the value of your ownership in our common shares. Some statements in this information statement, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section in this information statement entitled “Forward-Looking Statements.”

Risks Related to Our Business

Risks related to commercial real estate ownership could reduce the value of our properties.

Our core business is the ownership of real estate that is leased to retail and service companies on a triple-net basis. Accordingly, our performance is subject to risks inherent to the ownership of commercial real estate, including:

 

    inability to collect rent from tenants due to financial hardship, including bankruptcy;

 

    changes in local real estate markets resulting in the lack of availability or demand for single-tenant retail space;

 

    changes in consumer trends and preferences that reduce the demand for products/services of our tenants;

 

    inability to lease or sell properties upon expiration or termination of existing leases;

 

    environmental risks related to the presence of hazardous or toxic substances or materials on our properties;

 

    subjectivity of real estate valuations and changes in such valuations over time;

 

    illiquid nature of real estate compared to most other financial assets;

 

    changes in laws and regulations, including those governing real estate usage and zoning;

 

    changes in interest rates and the availability of financing; and

 

    changes in the general economic and business climate.

The occurrence of any of the risks described above may cause the value of our real estate to decline, which could materially and adversely affect us.

Credit and capital market conditions may adversely affect our access to and/or the cost of capital.

Periods of volatility in the credit and capital markets negatively affect the amounts, sources and cost of capital available to us. Though we plan to primarily use proceeds from dispositions of the real estate leased to Shopko to fund acquisitions and to refinance indebtedness as it matures, we will also use external debt or equity financing, in particular our Master Trust 2014, for such purposes. If sufficient sources of external financing are not available to us on cost effective terms, we could be forced to limit our acquisition activity and/or to take other actions to fund our business activities and repayment of debt, such as selling assets. To the extent that we access capital at a higher cost (reflected in higher interest rates for debt financing or lower share price for equity financing), our acquisition yields, earnings per share and cash flow could be adversely affected.

Our tenants may fail to successfully operate their businesses, which could adversely affect us.

The success of our investments is materially dependent on the financial stability of our tenants’ financial condition and leasing practices. Adverse economic conditions such as high unemployment levels, interest rates,

 

29


Table of Contents

tax rates and fuel and energy costs may have an impact on the results of operations and financial condition of our tenants and result in a decline in rent or an increased incidence of default under existing leases. Such adverse economic conditions may also reduce overall demand for rental space, which could adversely affect our ability to maintain our current tenants and attract new tenants.

At any given time, our tenants may experience a downturn in their business that may weaken the operating results and financial condition of individual properties or of their business as whole. As a result, a tenant may delay lease commencement, decline to extend a lease upon its expiration, fail to make rental payments when due, become insolvent or declare bankruptcy. We depend on our tenants to operate the properties we own in a manner which generates revenues sufficient to allow them to meet their obligations to us, including their obligations to pay rent, maintain certain insurance coverage and pay real estate taxes and maintain the properties in a manner so as not to jeopardize their operating licenses or regulatory status. The ability of our tenants to fulfill their obligations under our leases may depend, in part, upon the overall profitability of their operations. Cash flow generated by certain tenant businesses may not be sufficient for a tenant to meet its obligations to us. Although our occupied properties are generally operationally essential to our tenants, meaning the property is essential to the tenant’s generation of sales and profits, this does not guarantee that a tenant’s operations at a particular property will be successful or that the tenant will be able to meet all of its obligations to us. Our tenants’ failure to successfully operate their businesses could materially and adversely affect us.

Single-tenant leases involve particular and significant risks related to tenant default.

Our strategy focuses primarily on investing in single-tenant triple-net leased properties throughout the U.S. The financial failure of, or default in payment by, a single tenant under its lease is likely to cause a significant reduction in, or elimination of, our rental revenue from that property and a reduction in the value of the property. We may also experience difficulty or a significant delay in re-leasing or selling such property. This risk is magnified in situations where we lease multiple properties to a single tenant under a master lease, such as our three master leases with Shopko. The failure or default of a tenant under a master lease could reduce or eliminate rental revenue from multiple properties and reduce the value of such properties. Although the master lease structure may be beneficial to us because it restricts the ability of tenants to individually remove underperforming properties from the portfolio of properties leased from us, there is no guarantee that a tenant will not default in its obligations to us or decline to renew its master lease upon expiration. The default of a tenant that leases multiple properties from us could materially and adversely affect us.

A substantial number of our properties are leased to one tenant, Shopko, which may result in increased risk due to tenant and industry concentration.

As of December 31, 2017, we leased 99 properties to Shopko, primarily pursuant to three master leases (relating to 59, 34 and 4 properties, respectively) and two single site leases, under which we received approximately $3.9 million in contractual rent per month. The Shopko leases are guaranteed by Specialty Retail Shops Holding Corp., the parent company of Shopko. Additionally, in January 2018, Spirit Realty, L.P., our Manager, extended a senior secured term loan to Shopko in the amount of $35.0 million, and this loan was contributed by our Manager to us. The term loan matures in June 2020, bears interest at a rate of 12% per annum and requires repayment in consecutive quarterly installments of $583,625 commencing in November 2018. Revenues generated from Shopko represented 19.7% of our Contractual Rent for the month ended December 31, 2017. Furthermore, a significant portion of our estimated cash available for distribution for the year ending December 31, 2018 is derived from rental revenues received from Shopko and reflected in our unaudited pro forma combined statement of operations for the year ended December 31, 2017. Shopko accounted for approximately $47.7 million, or 18.6%, of our revenues and $1.1 million, or 13.0%, of our property costs (including reimbursables) on a pro forma basis for the year ended December 31, 2017. Because a significant portion of our revenues are derived from rental revenues received from Shopko, any default, breach or delay in the payment of rent by Shopko may materially and adversely affect us and could limit or eliminate our ability to make distributions to our common shareholders.

 

30


Table of Contents

As a result of the significant number of properties leased to Shopko, our results of operations and financial condition are significantly impacted by Shopko’s performance under its leases. Shopko operates as a multi-department general merchandise retailer and retail health services provider primarily in mid-size and large communities in the Midwest, Pacific Northwest, North Central and Western Mountain states. Shopko is subject to the following risks, as well as other risks that we are not currently aware of, that could adversely affect its performance and thus its ability to pay rent to us:

 

    The retail industry in which Shopko operates is highly competitive, which could impair its operations and liquidity, limit its growth opportunities and reduce profitability. Shopko competes with other discount retail merchants as well as mass merchants, catalog merchants, internet retailers and other general merchandise, apparel and household merchandise retailers. It faces strong competition from large national discount retailers, such as Walmart, Kmart and Target, and mid-tier merchants such as Kohl’s and J.C. Penney.

 

    Shopko stores are geographically concentrated in the Midwest, Pacific Northwest, North Central and Western Mountain states. As a result, adverse economic conditions in these regions may materially and adversely affect its results of operations and retail sales.

 

    The seasonality in retail operations may cause fluctuations in Shopko’s quarterly performance and results of operations and could adversely affect its cash flows.

 

    Shopko stores are dependent on the efficient functioning of its distribution networks. Problems that cause delays or interruptions in the distribution networks could materially and adversely affect its results of operations.

 

    Shopko stores depend on attracting and retaining quality employees. Many employees are entry-level or part-time with historically high rates of turnover.

Based on our monitoring of Shopko’s financial information and recent liquidity events and other challenges, including bankruptcies, impacting the retail industry generally relative to recent years, we continue to be concerned about Shopko’s ongoing ability to meet its obligations to us under its leases. As of December 31, 2017, our pro forma Adjusted Debt to Adjusted EBITDA ratio was 9.3x, our pro forma Adjusted Debt + Preferred to Adjusted EBITDA ratio was 10.1x and our pro forma Fixed Charge Coverage Ratio was 1.8x. Our pro forma Fixed Charge Coverage Ratio does not reflect the impact of our amortizing debt principal payments. Were Shopko to completely default on its lease payments, our pro forma Adjusted Debt to Adjusted EBITDA ratio as of December 31, 2017 would have been 12.0x, our pro forma Adjusted Debt + Preferred to Adjusted EBITDA ratio would have been 13.0x and our pro forma Fixed Charge Coverage Ratio would have been 1.4x. Although Shopko is current on all of its obligations to us under its lease arrangements with us as of March 5, 2018, we can give you no assurance that this will continue to be the case, particularly if Shopko (not just the stores subject to leases with us) experiences a further decline in its business, financial condition and results of operations or loses access to liquidity. If such events were to occur, Shopko may request discounts or deferrals on the rents it pays to us, seek to terminate its master leases with us or close certain of its stores or file for bankruptcy, all of which could significantly decrease the amount of revenue we receive from it and could reduce cash flow available for distribution on our common shares and Series A preferred shares and could affect our ability to pay the management fee due under the Asset Management Agreement.

While we seek to reduce the tenant concentration of Shopko, we may have difficulty in selling or leasing to other tenants the properties currently leased to Shopko. Our ongoing business strategy involves the selling down of real estate leased to Shopko. As we look to sell these assets, general economic conditions, market conditions, the illiquidity of real estate investments and asset-specific issues may negatively affect the value of such assets and may reduce our return on the investment or prevent us from selling such assets on acceptable terms and conditions, or at all.

Furthermore, we can provide no assurance that we will deploy the proceeds from the disposition of any Shopko properties in a manner that would produce comparable or better yields.

 

31


Table of Contents

A substantial portion of our properties are leased to unrated tenants and the tools we use to measure the credit quality of such tenants may not be accurate.

A substantial portion of our properties are leased to unrated tenants whom we determine, through our internal underwriting and credit analysis, to be creditworthy. Many of our tenants are required to provide financial information, which includes balance sheet, income statement and cash flow statement data, on a quarterly and/or annual basis, and approximately 97.3% of our lease investment portfolio requires the tenant to provide property-level performance information, which includes income statement data on a quarterly and/or annual basis. To assist in our determination of a tenant’s credit quality, we license a product from Moody’s Analytics that provides an EDF and a “shadow rating,” and we evaluate a lease’s property-level rent coverage ratio. An EDF is only an estimate of default probability based, in part, on assumptions incorporated into the product. A shadow rating does not constitute a published credit rating and lacks the extensive company participation that is typically involved when a rating agency publishes a rating; accordingly, a shadow rating may not be as indicative of creditworthiness as a rating published by Moody’s, S&P, or another nationally recognized statistical rating organization. Our calculations of EDFs, shadow ratings and rent coverage ratios are based on financial information provided to us by our tenants and prospective tenants without independent verification on our part, and we must assume the appropriateness of estimates and judgments that were made by the party preparing the financial information. If our measurement of credit quality proves to be inaccurate, we may be subject to defaults, and investors may view our cash flows as less stable.

Decrease in demand for traditional retail and restaurant space may materially and adversely affect us.

As of December 31, 2017, leases representing approximately 39.4% and 20.5% of our Contractual Rent were with tenants in the traditional retail and restaurant industries, respectively, and we may acquire additional traditional retail and restaurant properties in the future. Accordingly, decreases in the demand for traditional retail and/or restaurant spaces adversely impact us. The market for retail and restaurant space has previously been, and could continue to be, adversely affected by weakness in the national, regional and local economies, the adverse financial condition of some large retail and restaurant companies, the ongoing consolidation in the retail and restaurant industries, the excess amount of retail and restaurant space in a number of markets and, in the case of the retail industry, increasing consumer purchases through catalogs or over the Internet. In recent years a number of companies in the retail industry, including some of our tenants, have declared bankruptcy, have gone out of business or have significantly reduced the number of their retail stores. In particular, we have experienced, and expect to continue to experience, challenges with some of our general merchandise retailers through increased credit losses.

To the extent that the adverse conditions listed above continue, they are likely to negatively affect market rents for retail and restaurant space, thereby reducing rents payable to us, and they may lead to increased vacancy rates at our properties and diminish our ability to attract and retain retail and restaurant tenants.

High geographic concentration of our properties could magnify the effects of adverse economic or regulatory developments in such geographic areas on our operations and financial condition.

As of December 31, 2017, 12.0% of our portfolio (as a percentage of Contractual Rent) was located in Texas, representing the highest concentration of our assets. Geographic concentration exposes us to greater economic or regulatory risks than if we owned a more geographically diverse portfolio. We are susceptible to adverse developments in the economic or regulatory environments of the geographic areas in which we concentrate (or in which we may develop a substantial concentration of assets in the future), such as business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes or costs of complying with governmental regulations.

 

32


Table of Contents

We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all.

Our results of operations depend on our ability to strategically lease space in our properties (by renewing or re-leasing expiring leases and leasing vacant space), optimize our tenant mix or lease properties on more economically favorable terms. As of December 31, 2017, leases representing approximately 1.6% of our Contractual Revenue will expire during 2018. As of December 31, 2017, 8 of our properties, representing approximately 0.9% of our total number of owned properties, were Vacant. Current tenants may decline, or may not have the financial resources available, to renew current leases and we cannot guarantee that leases that are renewed will have terms that are as economically favorable to us as the expiring lease terms. If tenants do not renew the leases as they expire, we will have to find new tenants to lease our properties and there is no guarantee that we will be able to find new tenants or that our properties will be re-leased at rental rates equal to or above the current average rental rates or that substantial rent abatements, tenant improvement allowances, early termination rights, below-market renewal options or other lease incentive payments will not be offered to attract new tenants. We may experience significant costs in connection with renewing, leasing or re-leasing a significant number of our properties, which could materially and adversely affect us.

Our ability to realize future rent increases will vary depending on changes in the CPI.

Most of our leases contain rent escalators, or provisions that periodically increase the base rent payable by the tenant under the lease. Although some of our rent escalators increase rent at a fixed amount on fixed dates, as of December 31, 2017, 60.9% of our rent escalators increase rent by the lesser of (a) a multiple of any increase in the CPI over a specified period, (b) a fixed percentage or (c) a fixed schedule. If the product of any increase in the CPI multiplied by the applicable factor is less than the fixed percentage, the increased rent we are entitled to receive will be less than what we otherwise would have been entitled to receive if the rent escalator was based solely on a fixed percentage. Therefore, during periods of low inflation or deflation, small increases or decreases in the CPI will subject us to the risk of receiving lower rental revenue than we otherwise would have been entitled to receive if our rent escalators were based solely on fixed percentages or amounts. Conversely, if the product of any increase in the CPI multiplied by the applicable factor is more than the fixed percentage, the increased rent we are entitled to receive will be less than what we otherwise would have been entitled to receive if the rent escalator was based solely on an increase in CPI. Therefore, periods of high inflation will subject us to the risk of receiving lower rental revenue than we otherwise would have been entitled to receive if our rent escalators were based solely on CPI increases.

The bankruptcy or insolvency of any of our tenants could result in the termination of such tenant’s lease and material losses to us.

The occurrence of a tenant bankruptcy or insolvency could diminish the income we receive from that tenant’s lease or leases. In particular, the traditional retail industry is facing reductions in sales revenues and increased bankruptcies throughout the United States, and revenues generated from traditional retail tenants represented 39.4% of our Contractual Rent for the month ended December 31, 2017. If a tenant becomes bankrupt or insolvent, federal law may prohibit us from evicting such tenant based solely upon such bankruptcy or insolvency. In addition, a bankrupt or insolvent tenant may be authorized to reject and terminate its lease or leases with us. Any claims against such bankrupt tenant for unpaid future rent would be subject to statutory limitations that would likely result in our receipt of rental revenues that are substantially less than the contractually specified rent we are owed under the lease or leases. In addition, any claim we have for unpaid past rent, if any, may not be paid in full. We may also be unable to re-lease a terminated or rejected space or to re-lease it on comparable or more favorable terms.

Moreover, tenants who are considering filing for bankruptcy protection may request that we agree to amendments of their master leases to remove certain of the properties they lease from us under such master leases. We cannot guarantee that we will be able to sell or re-lease such properties or that lease termination fees,

 

33


Table of Contents

if any, received in exchange for such releases will be sufficient to make up for the rental revenues lost as a result of such lease amendments. As a result, tenant bankruptcies may materially and adversely affect us.

Property vacancies could result in significant capital expenditures and illiquidity.

The loss of a tenant, either through lease expiration or tenant bankruptcy or insolvency, may require us to spend significant amounts of capital to renovate the property before it is suitable for a new tenant. Many of the leases we enter into or acquire are for properties that are specially suited to the particular business of our tenants. Because these properties have been designed or physically modified for a particular tenant, if the current lease is terminated or not renewed, we may be required to renovate the property at substantial costs, decrease the rent we charge or provide other concessions in order to lease the property to another tenant. In the event we are required to sell the property, we may have difficulty selling it to a party other than the tenant due to the special purpose for which the property may have been designed or modified. This potential illiquidity may limit our ability to quickly modify our portfolio in response to changes in economic or other conditions, including tenant demand. These limitations may materially and adversely affect us.

We may be unable to identify and complete acquisitions of suitable properties, which may impede our growth, or our future acquisitions may not yield the returns we expect.

Our ability to expand through acquisitions requires us to identify and complete acquisitions or investment opportunities that are compatible with our growth strategy and to successfully integrate newly acquired properties into our portfolio. We continually evaluate investment opportunities and may acquire properties when strategic opportunities exist. Our ability to acquire properties on favorable terms and successfully operate them may be constrained by the following significant risks:

 

    we face competition from other real estate investors with significant capital, including REITs and institutional investment funds, which may be able to accept more risk than we can prudently manage, including risks associated with paying higher acquisition prices;

 

    we face competition from other potential acquirers which may significantly increase the purchase price for a property we acquire, which could reduce our growth prospects;

 

    we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable to complete;

 

    we may acquire properties that are not accretive to our results upon acquisition, and we may be unsuccessful in managing and leasing such properties in accordance with our expectations;

 

    our cash flow from an acquired property may be insufficient to meet our required principal and interest payments with respect to debt used to finance the acquisition of such property;

 

    we may discover unexpected items, such as unknown liabilities, during our due diligence investigation of a potential acquisition or other customary closing conditions may not be satisfied, causing us to abandon an acquisition opportunity after incurring expenses related thereto;

 

    we may fail to obtain financing for an acquisition on favorable terms or at all;

 

    we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;

 

    market conditions may result in higher than expected vacancy rates and lower than expected rental rates; or

 

    we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties, liabilities incurred in the ordinary course of business and claims for indemnification by general partners, trustees, officers and others indemnified by the former owners of the properties.

 

34


Table of Contents

If any of these risks are realized, we may be materially and adversely affected.

Operational risks may disrupt our businesses, result in losses or limit our growth.

We are completely dependent on our Manager’s financial, accounting, communications and other data processing systems. Such systems may fail to operate properly or become disabled as a result of tampering or a breach of the network security systems or otherwise. In addition, such systems are from time to time subject to cyberattacks. Breaches of our Manager’s network security systems could involve attacks that are intended to obtain unauthorized access to our proprietary information or personal identifying information of our shareholders, destroy data or disable, degrade or sabotage our systems, often through the introduction of computer viruses, cyberattacks and other means, and could originate from a wide variety of sources, including unknown third parties. Although our Manager takes various measures to ensure the integrity of such systems, there can be no assurance that these measures will provide adequate protection. If such systems are compromised, do not operate properly or are disabled, we could suffer financial loss, a disruption of our businesses, liability to investors, regulatory intervention or reputational damage.

Finally, our Manager relies on third-party service providers for certain aspects of our business, including for certain information systems, technology and administration. Any interruption or deterioration in the performance of these third parties or failures of their information systems and technology could impair the quality of our operations and could affect our reputation and hence adversely affect our business.

Illiquidity of real estate investments could significantly impede our ability to pursue our ongoing business strategy to sell certain of our assets or respond to adverse changes in the performance of our properties and harm our financial condition.

The real estate investments made, and expected to be made, by us are relatively difficult to sell quickly. As a result, our ability to promptly sell one or more properties in our portfolio pursuant to our ongoing business strategy or in response to changing economic, financial or investment conditions is limited. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinancing of the underlying property. We may be unable to realize our investment objective by sale, other disposition or refinancing at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions and changes in laws, regulations or fiscal policies of the jurisdiction in which a property is located.

In addition, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs effectively require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would be in our best interest. Therefore, we may not be able to vary our portfolio in response to economic or other conditions promptly or on favorable terms, which may materially and adversely affect us.

We face significant competition for tenants, which may decrease or prevent increases of the occupancy and rental rates of our properties, and competition for acquisitions may reduce the number of acquisitions we are able to complete and increase the costs of these acquisitions.

We compete with numerous developers, owners and operators of properties, many of which own properties similar to ours in the same markets in which our properties are located. If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates or to offer more substantial rent abatements, tenant improvements, early termination rights, below-market renewal options or other lease

 

35


Table of Contents

incentive payments in order to retain tenants when our leases expire. Competition for tenants could decrease or prevent increases of the occupancy and rental rates of our properties, which could materially and adversely affect us.

We also face competition for acquisitions of real property from investors, including traded and non-traded public REITs, private equity investors and institutional investment funds, some of which have greater financial resources than we do, a greater ability to borrow funds to acquire properties and the ability to accept more risk than we can prudently manage. This competition may increase the demand for the types of properties in which we typically invest and, therefore, reduce the number of suitable acquisition opportunities available to us and increase the prices paid for such acquisition properties. This competition will increase if investments in real estate become more attractive relative to other types of investment. Accordingly, competition for the acquisition of real property could materially and adversely affect us.

The loss of a borrower or the failure of a borrower to make loan payments on a timely basis will reduce our revenues, which could lead to losses on our investments and reduced returns to our shareholders.

We have and may originate or acquire long-term, commercial mortgage and other loans. The success of our loan investments will be materially dependent on the financial stability of our borrowers. The success of our borrowers will be dependent on each of their individual businesses and their industries, which could be affected by economic conditions in general, changes in consumer trends and preferences and other factors over which neither they nor we have control. A default of a borrower on its loan payments to us that would prevent us from earning interest or receiving a return of the principal of our loan could materially and adversely affect us. In the event of a default, we may also experience delays in enforcing our rights as lender and may incur substantial costs in collecting the amounts owed to us and in liquidating any collateral.

Foreclosure and other similar proceedings used to enforce payment of real estate loans are generally subject to principles of equity, which are designed to relieve the indebted party from the legal effect of that party’s default. Foreclosure and other similar laws may limit our right to obtain a deficiency judgment against the defaulting party after a foreclosure or sale. The application of any of these principles may lead to a loss or delay in the payment on loans we hold, which in turn could reduce the amounts we have available to make distributions. Further, in the event we have to foreclose on a property, the amount we receive from the foreclosure sale of the property may be inadequate to fully pay the amounts owed to us by the borrower and our costs incurred to foreclose, repossess and sell the property which could materially and adversely affect us.

Inflation may materially and adversely affect us and our tenants.

Increased inflation could have a negative impact on variable-rate debt we currently have or that we may incur in the future. Our leases typically contain provisions designed to mitigate the adverse impact of inflation on our results of operations. Because tenants are typically required to pay all property operating expenses, increases in property-level expenses at our leased properties generally do not affect us. However, increased operating expenses at vacant properties and the limited number of properties that are not subject to full triple-net leases could cause us to incur additional operating expenses, which could increase our exposure to inflation. Additionally, the increases in rent provided by many of our leases may not keep up with the rate of inflation. Increased costs may also have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue, which may adversely affect the tenants’ ability to pay rent owed to us.

If we fail to implement and maintain effective internal controls over financial reporting, we may not be able to accurately and timely report our financial results.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports, effectively prevent fraud and operate successfully as a public company. After the spin-off, we will be subject to Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules of the SEC, which generally require our

 

36


Table of Contents

management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Beginning with the second annual report that we will be required to file with the SEC, Section 404 requires an annual management assessment of the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting.

We do not have any employees, and we are completely dependent on our Manager’s financial reporting systems. We cannot assure you that our Manager will be successful in implementing or maintaining adequate internal control over financial reporting. Furthermore, as we grow our business, our internal controls needs will become more complex, and we may require significantly more resources to ensure our internal controls remain effective. In addition, the existence of a material weakness or significant deficiency in our Manager’s internal controls over financial reporting, or any failure to maintain effective controls or timely effect any necessary improvement of internal controls over financial reporting could harm our operating results or cause us to fail to meet our reporting obligations, which could affect the listing of our common shares on the NYSE. Ineffective internal controls over financial reporting and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the per share trading price of our common shares.

Our growth depends on external sources of capital that are outside of our control and may not be available to us on commercially reasonable terms or at all.

In order to maintain our qualification as a REIT, we are required under the Code to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to regular U.S. federal corporate income tax to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gain. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we may rely on third-party sources to fund our capital needs. We may not be able to obtain the financing on favorable terms or at all. Any additional debt we incur will increase our leverage and likelihood of default. Our access to third-party sources of capital depends, in part, on:

 

    general market conditions;

 

    the market’s perception of our growth potential;

 

    our current debt levels;

 

    our current and expected future earnings;

 

    our cash flow and cash distributions; and

 

    the market price per share of our common shares.

If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make the cash distributions to our shareholders necessary to maintain our qualification as a REIT.

Historically, we have raised a significant amount of debt capital through our Master Trust 2014. We have generally used the proceeds from this program to repay debt and fund real estate acquisitions. As of December 31, 2017, we had issued notes under our Master Trust 2014 in seven different series over five separate

 

37


Table of Contents

issuances with $2.0 billion aggregate principal amount outstanding. The Master Trust 2014 notes have a weighted average maturity of 5.4 years as of December 31, 2017. Our obligations under this program are generally secured by liens on certain of our properties. Subject to certain conditions, we may substitute real estate collateral within our securitization trust from time to time. Moreover, we view our ability to substitute collateral under our Master Trust 2014 favorably, and no assurance can be given that financing facilities offering similar flexibility will be available to us in the future.

Dispositions of real estate assets could change the holding period assumption in our valuation analyses, which could result in material impairment losses and adversely affect our financial results.

We evaluate real estate assets for impairment based on the projected cash flow of the asset over our anticipated holding period. If we change our intended holding period due to our intention to sell or otherwise dispose of an asset, we must reevaluate whether that asset is impaired under GAAP. Depending on the carrying value of the property at the time we change our intention and the amount that we estimate we would receive on disposal, we may record an impairment loss that would adversely affect our financial results. This loss could be material to our assets in the period that it is recognized.

We may become subject to litigation, which could materially and adversely affect us.

In the ordinary course of business, we may become subject to litigation, including claims relating to our operations, security offerings and otherwise. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend to vigorously defend ourselves. However, we cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby materially and adversely affecting us. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could materially and adversely impact us, expose us to increased risks that would be uninsured, and materially and adversely impact our ability to attract trustees and officers.

Costs of compliance with, or liabilities related to, environmental laws may materially and adversely affect us.

The properties we own or have owned in the past may subject us to known and unknown environmental liabilities. Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under or migrating from such property, including costs to investigate, clean up such contamination and liability for harm to natural resources. We may face liability regardless of:

 

    our knowledge of the contamination;

 

    the timing of the contamination;

 

    the cause of the contamination; or

 

    the party responsible for the contamination of the property.

There may be environmental liabilities associated with our properties of which we are unaware. We obtain Phase I environmental site assessments on all properties we finance or acquire. The Phase I environmental site assessments are limited in scope and therefore may not reveal all environmental conditions affecting a property. Therefore, there could be undiscovered environmental liabilities on the properties we own. Some of our properties use, or may have used in the past, underground tanks for the storage of petroleum-based products or

 

38


Table of Contents

waste products that could create a potential for release of hazardous substances or penalties if tanks do not comply with legal standards. If environmental contamination exists on our properties, we could be subject to strict, joint and/or several liability for the contamination by virtue of our ownership interest. Some of our properties may contain ACM. Strict environmental laws govern the presence, maintenance and removal of ACM and such laws may impose fines and penalties for failure to comply with these requirements or expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos). Strict environmental laws also apply to other activities that can occur on a property, such as air emissions and water discharges, and such laws may impose fines and penalties for violations.

The presence of hazardous substances on a property may adversely affect our ability to sell, lease or improve the property or to borrow using the property as collateral. In addition, environmental laws may create liens on contaminated properties in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which they may be used or businesses may be operated, and these restrictions may require substantial expenditures.

In addition, although our leases generally require our tenants to operate in compliance with all applicable laws and to indemnify us against any environmental liabilities arising from a tenant’s activities on the property, we could be subject to strict liability by virtue of our ownership interest. We cannot be sure that our tenants will, or will be able to, satisfy their indemnification obligations, if any, under our leases. Furthermore, the discovery of environmental liabilities on any of our properties could lead to significant remediation costs or to other liabilities or obligations attributable to the tenant of that property, which may affect such tenant’s ability to make payments to us, including rental payments and, where applicable, indemnification payments.

Our environmental liabilities may include property damage, personal injury, investigation and clean-up costs. These costs could be substantial. Although we may obtain insurance for environmental liability for certain properties that are deemed to warrant coverage, our insurance may be insufficient to address any particular environmental situation and we may be unable to continue to obtain insurance for environmental matters, at a reasonable cost or at all, in the future. If our environmental liability insurance is inadequate, we may become subject to material losses for environmental liabilities. Our ability to receive the benefits of any environmental liability insurance policy will depend on the financial stability of our insurance company and the position it takes with respect to our insurance policies. If we were to become subject to significant environmental liabilities, we could be materially and adversely affected.

Most of the environmental risks discussed above refer to properties that we own or may acquire in the future. However, each of the risks identified also applies to the owners (and potentially, the lessees) of the properties that secure each of the loans we have made and any loans we may acquire or make in the future. Therefore, the existence of environmental conditions could diminish the value of each of the loans and the abilities of the borrowers to repay the loans and could materially and adversely affect us.

Our properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediation.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, should our tenants or their employees or customers be exposed to mold at any of our properties we could be required to undertake a costly remediation program to contain or remove the mold from the affected property. In addition, exposure to mold by our tenants or others could subject us to liability if property damage or health concerns arise. If we were to become subject to significant mold-related liabilities, we could be materially and adversely affected.

 

39


Table of Contents

Insurance on our properties may not adequately cover all losses, which could materially and adversely affect us.

Our tenants are required to maintain liability and property insurance coverage for the properties they lease from us pursuant to triple-net leases. Pursuant to such leases, our tenants are generally required to name us (and any of our lenders that have a mortgage on the property leased by the tenant) as additional insureds on their liability policies and additional insured and/or loss payee (or mortgagee, in the case of our lenders) on their property policies. All tenants are required to maintain casualty coverage and most carry limits at 100% of replacement cost. Depending on the location of the property, losses of a catastrophic nature, such as those caused by earthquakes and floods, may be covered by insurance policies that are held by our tenant with limitations such as large deductibles or co-payments that a tenant may not be able to meet. In addition, losses of a catastrophic nature, such as those caused by wind/hail, hurricanes, terrorism or acts of war, may be uninsurable or not economically insurable. In the event there is damage to our properties that is not covered by insurance and such properties are subject to recourse indebtedness, we will continue to be liable for the indebtedness, even if these properties are irreparably damaged.

Inflation, changes in building codes and ordinances, environmental considerations, and other factors, including terrorism or acts of war, may make any insurance proceeds we receive insufficient to repair or replace a property if it is damaged or destroyed. In that situation, the insurance proceeds received may not be adequate to restore our economic position with respect to the affected real property. Furthermore, in the event we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications without significant capital expenditures which may exceed any amounts received pursuant to insurance policies, as reconstruction or improvement of such a property would likely require significant upgrades to meet zoning and building code requirements. The loss of our capital investment in or anticipated future returns from our properties due to material uninsured losses could materially and adversely affect us.

Compliance with the ADA and fire, safety and other regulations may require us to make unanticipated expenditures that materially and adversely affect us.

Our properties are subject to the ADA. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Compliance with the ADA requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. While our tenants are obligated by law to comply with the ADA and typically obligated under our leases and financing agreements to cover costs associated with compliance, if required changes involve greater expenditures than anticipated or if the changes must be made on a more accelerated basis than anticipated, our tenants’ ability to cover the costs could be adversely affected. We may be required to expend our own funds to comply with the provisions of the ADA, which could materially and adversely affect us.

In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to our properties. We may be required to make substantial capital expenditures to comply with those requirements and may be required to obtain approvals from various authorities with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. There can be no assurance that existing laws and regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that increase such delays or result in additional costs. Additionally, failure to comply with any of these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. While we intend to only acquire properties that we believe are currently in substantial compliance with all regulatory requirements, these requirements may change and new requirements may be imposed which would require significant unanticipated expenditures by us and could materially and adversely affect us.

 

40


Table of Contents

As a result of acquiring C corporations in carry-over basis transactions, we may inherit material tax liabilities and other tax attributes from such acquired corporations, and we may be required to distribute earnings and profits.

From time to time, we may acquire C corporations in transactions in which the basis of the corporations’ assets in our hands is determined by reference to the basis of the assets in the hands of the acquired corporations, or carry-over basis transactions.

If we acquire any asset from a corporation that is or has been a C corporation in a carry-over basis transaction, and we subsequently recognize gain on the disposition of the asset during the five-year period beginning on the date on which we acquired the asset, then we will be required to pay regular U.S. federal corporate income tax on this gain to the extent of the excess of (1) the fair market value of the asset over (2) our adjusted basis in the asset, in each case determined as of the date on which we acquired the asset. Any taxes we pay as a result of such gain would reduce the amount available for distribution to our shareholders. The imposition of such tax may require us to forgo an otherwise attractive disposition of any assets we acquire from a C corporation in a carry-over basis transaction, and as a result may reduce the liquidity of our portfolio of investments. In addition, in such a carry-over basis transaction, we will succeed to any tax liabilities and earnings and profits of the acquired C corporation. To qualify as a REIT, we must distribute any non-REIT earnings and profits by the close of the taxable year in which such transaction occurs. Any adjustments to the acquired corporation’s income for taxable years ending on or before the date of the transaction, including as a result of an examination of the corporation’s tax returns by the IRS, could affect the calculation of the corporation’s earnings and profits. If the IRS were to determine that we acquired non-REIT earnings and profits from a corporation that we failed to distribute prior to the end of the taxable year in which the carry-over basis transaction occurred, we could avoid disqualification as a REIT by paying a “deficiency dividend.” Under these procedures, we generally would be required to distribute any such non-REIT earnings and profits to our shareholders within 90 days of the determination and pay a statutory interest charge at a specified rate to the IRS. Such a distribution would be in addition to the distribution of REIT taxable income necessary to satisfy the REIT distribution requirement and may require that we borrow funds to make the distribution even if the then-prevailing market conditions are not favorable for borrowings. In addition, payment of the statutory interest charge could materially and adversely affect us.

Changes in accounting standards may materially and adversely affect us.

From time to time the FASB, and the SEC, who create and interpret appropriate accounting standards, may change the financial accounting and reporting standards or their interpretation and application of these standards that will govern the preparation of our financial statements. These changes could materially and adversely affect our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in restating prior period financial statements. Similarly, these changes could materially and adversely affect our tenants’ reported financial condition or results of operations and affect their preferences regarding leasing real estate.

The SEC is currently considering whether issuers in the U.S. should be required to prepare financial statements in accordance with IFRS instead of GAAP. IFRS is a comprehensive set of accounting standards promulgated by the IASB which are rapidly gaining worldwide acceptance. The SEC currently has not finalized the timeframe it expects that U.S. issuers would first report under the new standards. If IFRS is adopted, the potential issues associated with lease accounting, along with other potential changes associated with the adoption or convergence with IFRS, may materially and adversely affect us.

Additionally, the FASB is considering various changes to GAAP, some of which may be significant, as part of a joint effort with the IASB to converge accounting standards. In particular, FASB issued a new accounting standard that requires companies to capitalize all leases on their balance sheets by recognizing a lessee’s rights and obligations. For public companies, this new standard will be effective for fiscal years beginning after

 

41


Table of Contents

December 15, 2018, including interim periods within those fiscal years. Many companies that account for certain leases on an “off balance sheet” basis would be required to account for such leases “on balance sheet” upon adoption of this rule. This change removes many of the differences in the way companies account for owned property and leased property, and could have a material effect on various aspects of our tenants’ businesses, including their credit quality and the factors they consider in deciding whether to own or lease properties. Additionally, it could cause companies that lease properties to prefer shorter lease terms in an effort to reduce the leasing liability required to be recorded on the balance sheet. This new standard could also make lease renewal options less attractive, because, under certain circumstances, the rule would require a tenant to assume that a renewal right will be exercised and accrue a liability relating to the longer lease term.

In the future, we may choose to acquire properties or portfolios of properties through tax deferred contribution transactions, which could result in shareholder dilution and limit our ability to sell such assets.

In the future we may acquire properties or portfolios of properties through tax deferred contribution transactions in exchange for partnership interests in the Operating Partnership, which may result in shareholder dilution. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors’ ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their tax bases. These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.

Our status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we need it.

Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will have an extended transition period for complying with accounting standards newly issued or revised after April 5, 2012, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

Risks Related to Our Relationship with Our Manager

We depend on our Manager to conduct our business and any material adverse change in its financial condition or our relationship with our Manager could have a material adverse effect on our business and ability to achieve our investment objectives.

We have no employees. We are completely reliant on our Manager for the effective operation of our business, which has discretion regarding the implementation of our operating policies and strategies, subject to the supervision of our board of trustees. Our officers and other individuals who perform services for us are employees of our Manager, including certain key employees of our Manager whose continued service is not guaranteed. Our Manager may suffer or become distracted by adverse financial or operational problems in connection with our Manager’s business and activities unrelated to us and over which we have no control. Should our Manager fail to allocate sufficient resources to perform its responsibilities to us for any reason, we may be unable to achieve our investment objectives or to pay distributions to our shareholders.

Lastly, we are subject to the risk that our Manager may terminate the Asset Management Agreement and that we will not be able to find a suitable replacement for our Manager in a timely manner, at a reasonable cost or at all. Our Manager may terminate our Asset Management Agreement without cause upon 180-day notice prior to the expiration of the original term or any renewal term. Our Manager may terminate our Asset Management

 

42


Table of Contents

Agreement upon 60 days’ prior written notice for cause in the event that we are in default in the performance or observance of any material term, condition or covenant contained in our Asset Management Agreement and such default continues for a period of 30 days after such notice specifying such default and requesting that the same be remedied within 30 days, or effective immediately concurrently with or within 90 days following a Change in Control or a non-cause termination of the Property Management and Servicing Agreement, in each case upon 30-days’ notice to us. Furthermore, if the Asset Management Agreement is terminated for any reason, our Manager may resign as property manager and special servicer of Master Trust 2014, subject to certain conditions, which could adversely our results of operations and financial condition.

There are conflicts of interest in our relationship with our Manager.

There are conflicts of interest in our relationship with our Manager insofar as our Manager and its parent, Spirit, have investment objectives that overlap with our investment objectives. Spirit has instituted a proprietary Spirit Property Ranking Model that our Manager will also apply to our portfolio. The Spirit Property Ranking Model is used annually to rank all properties across twelve factors and weightings, consisting of both real estate quality scores and credit underwriting criteria, in order to benchmark property quality, identify asset recycling opportunities and to enhance acquisition or disposition decisions. Spirit also updates the Spirit Heat Map that will be used for us and Spirit, which analyzes tenant industries across Porter’s Five Forces and potential causes of technological disruption to identify tenant industries which Spirit believes to have good fundamentals for future performance. Our Manager will use an “every other” rotation system when considering potential acquisitions by Spirit and us, subject to available liquidity and certain other criteria. As a result, we may not be presented with certain investment opportunities that may be appropriate for us. Additionally, we own real estate assets in the same geographic regions as Spirit and may compete with it for tenants. This competition may affect our ability to attract and retain tenants and may reduce the rent we are able to charge.

The ability of our Manager and its officers and employees to engage in other business activities, subject to the terms of our Asset Management Agreement with our Manager, may reduce the amount of time our Manager, its officers or other employees spend managing us. In addition, we may engage (subject to our investment manual and conflicts of interest policy) in material transactions with our Manager or Spirit, which may present an actual, potential or perceived conflict of interest. In order to avoid any actual, potential or perceived conflicts of interest with our Manager or Spirit, we intend to adopt a conflicts of interest policy to address specifically some of the conflicts relating to our activities. However, there is no assurance that this policy will be adequate to address all of the conflicts of interest that may arise or to address such conflicts in a manner that is favorable to us.

It is possible that actual, potential or perceived conflicts of interest could give rise to investor dissatisfaction, litigation or regulatory enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential, actual or perceived conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially adversely affect our business in a number of ways, including difficulty in raising additional funds, a reluctance of counterparties to do business with us, a decrease in the prices of our equity securities and a resulting risk of litigation and regulatory enforcement actions.

Certain terms of our Asset Management Agreement could make it difficult and costly to terminate our Manager and could delay or prevent a change of control transaction.

The initial term of our Asset Management Agreement will be three years from its effective date, with automatic one-year renewal terms on each anniversary date thereof, unless previously terminated by us or by our Manager. In the event of a termination of our Asset Management Agreement by us without cause or a termination for cause by our Manager for cause (including upon a Change in Control, as defined elsewhere in this information statement), our Manager will be entitled to a termination fee equal to 1.75 times the sum of (x) the

 

43


Table of Contents

management fee for the 12 full calendar months preceding the effective termination date, plus (y) all fees due to the Manager or its affiliates under the Property Management and Servicing Agreement for the 12 full calendar months preceding the effective termination date. Additionally, our Manager will receive a promoted interest pursuant to our Asset Management Agreement based on our performance and our ability to generate total shareholder return, due upon the earlier of (i) a termination of our Asset Management Agreement by us without cause, (ii) a termination of our Asset Management Agreement by our Manager for cause (including upon a Change in Control), and (iii) the date that is 36 full calendar months after the distribution date. The termination fee and promoted interest will increase the cost to us of terminating our Asset Management Agreement and may make termination more difficult. Additionally, the termination fee and promoted interest could have the effect of delaying, deferring or preventing a Change in Control that would otherwise be economically attractive to us.

The offer to purchase feature of the Series A preferred shares owned by our Manager could affect change of control transactions.

Our Manager owns Series A preferred shares, which may give it different incentives from our common shareholders in a change of control transaction. Upon the occurrence of a Change of Control (as defined), we must offer to purchase the Series A preferred shares held by our Manager at the liquidation preference, plus any accrued and unpaid dividends to, but not including, the payment date. As such, our Manager might be incentivized to facilitate a Change of Control even if such Change of Control might not otherwise prove beneficial to our common shareholders. At the same time, the offer to purchase feature of the Series A preferred shares held by our Manager may have the effect of discouraging a third party from making an acquisition proposal for our company or of delaying, deferring or preventing a Change of Control if we do not have sufficient cash to complete such offer to purchase, under circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the then-current market price or that our common shareholders may otherwise believe is in their best interests.

We must pay a base management fee to our Manager regardless of our performance.

Our Manager is entitled to a substantial base management fee from us for the first three years, regardless of the performance of our portfolio. Our Manager’s entitlement to a base fee, which is not based upon performance metrics or goals, might reduce its incentive to devote its time and effort to seeking investments that maximize total returns to our shareholders. This in turn could negatively impact both our ability to make distributions to our shareholders and the market price of our common shares.

We do not own the Spirit name, but we may use it as part of our corporate name pursuant to our Asset Management Agreement. Use of the name by other parties or the termination of our Asset Management Agreement may harm our business.

Under our Asset Management Agreement, we and our affiliates have a royalty-free, non-exclusive and non-transferable license to use the name “Spirit”. Pursuant to the Asset Management Agreement, we have a right to use this name for so long as Spirit Realty, L.P. (or an affiliate thereof) serves as our Manager. Spirit Realty, L.P. and its affiliates retain the right to continue using the “Spirit” name. We will be unable to preclude Spirit Realty, L.P. or its affiliates from licensing or transferring the ownership of the “Spirit” name to third parties, some of whom may compete with us. Consequently, we will be unable to prevent any damage to goodwill that may occur as a result of the activities of Spirit Realty, L.P. or others. Furthermore, in the event that our Asset Management Agreement is terminated, we and our affiliates will be required to, among other things, change our name. Any of these events could disrupt our recognition in the market place, damage any goodwill we may have generated and otherwise harm our business.

 

44


Table of Contents

Risks Related to the Spin-Off

We have no history operating as an independent company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.

We have no experience operating as an independent company. The historical and pro forma financial information we have included in this information statement has been derived from Spirit’s consolidated financial statements and accounting records and does not necessarily reflect what our financial position, results of operation or cash flows would have been had we been a separate, stand-alone company during the periods presented, or those that we will achieve in the future. Factors which could cause our results to differ from those reflected in such historical and pro forma financial information and which may adversely impact our ability to receive similar results in the future may include, but are not limited to, the following:

 

    the financial results in this information statement do not reflect all of the expenses we will incur as a public company; and

 

    our cost structure, management, financing and business operations are significantly different as a result of operating as an independent, externally-managed public company. These changes result in increased costs, including, but not limited to, fees paid to our Manager, legal, accounting, compliance and other costs associated with being a public company with equity securities traded on the NYSE.

Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as an independent, externally-managed public company. For additional information about the past financial performance of our business and the basis of presentation of the historical combined financial statements and the unaudited pro forma combined financial statements of our business, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Selected Pro Forma and Historical Combined Financial and Other Data,” “Unaudited Pro Forma Financial Information” and the notes to those statements included elsewhere in this information statement.

We may be unable to achieve some or all of the benefits that we expect to achieve from our spin-off from Spirit.

We may not be able to achieve the full strategic and financial benefits that we expect will result from our spin-off from Spirit or such benefits may be delayed or may not occur at all. For example, there can be no assurances that investors will place a greater value on our company as a stand-alone REIT than on our business being a part of Spirit. Additionally, we may be more susceptible to market fluctuations and other adverse events than we would have been if we were still a part of Spirit. Following our spin-off from Spirit, we will be a smaller and less diversified company than Spirit.

Certain of our agreements with Spirit may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties.

Certain of the agreements related to the spin-off, including the Separation and Distribution Agreement, were negotiated in the context of the spin-off while we were still part of Spirit and, accordingly, may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties. The terms of the agreements we negotiated in the context of our spin-off related to, among other things, allocation of assets, liabilities, rights, indemnifications and other obligations among Spirit and us. See “Certain Relationships and Related Transactions.”

The ownership by our executive officers and some of our trustees of shares of common stock, options, or other equity awards of Spirit may create, or may create the appearance of, conflicts of interest.

Because some of our trustees, officers and other employees of our Manager also currently hold positions with Spirit, they own Spirit common stock, options to purchase Spirit common stock or other equity awards.

 

45


Table of Contents

Ownership by some of our trustees and officers, after our spin-off, of common stock or options to purchase common stock of Spirit, or any other equity awards, creates, or, may create the appearance of, conflicts of interest when these trustees and officers are faced with decisions that could have different implications for Spirit than they do for us.

The distribution of our common shares will not qualify for tax-free treatment and may be taxable to you as a dividend.

The distribution of our common shares will not qualify for tax-deferred treatment, and an amount equal to the fair market value of our common shares received by you on the distribution date will be treated as a taxable dividend to the extent of your ratable share of any current or accumulated earnings and profits of Spirit. As cash will only be paid in the distribution in lieu of fractional shares, you will need to have alternative sources from which to pay your resulting U.S. federal income tax liability. The amount in excess of earnings and profits will be treated as a non-taxable return of capital to the extent of your tax basis in shares of Spirit common stock and any remaining excess will be treated as capital gain. Your tax basis in shares of Spirit common stock held at the time of the distribution will be reduced (but not below zero) to the extent the fair market value of our common shares distributed by Spirit in the distribution exceeds Spirit’s current and accumulated earnings and profits. Your holding period for such shares of Spirit common stock will not be affected by the distribution. Your holding period for our common shares will begin the day following the distribution of our common shares, and your basis in our common shares will equal the fair market value of our common shares received by you on the distribution date. Spirit will not be able to advise stockholders of the amount of earnings and profits of Spirit until after the end of the 2018 calendar year. Spirit or other applicable withholding agents may be required or permitted to withhold at the applicable rate on all or a portion of the distribution payable to non-U.S. stockholders, and any such withholding would be satisfied by Spirit or such agent by withholding and selling a portion of our common shares otherwise distributable to non-U.S. stockholders. For a more detailed discussion, see “Our Spin-Off from Spirit—Material U.S. Federal Income Tax Consequences of the Distribution” and “Material U.S. Federal Income Tax Consequences.”

Although Spirit will be ascribing a value to our common shares in the distribution for tax purposes, and will report that value to stockholders and the IRS, this valuation is not binding on the IRS or any other tax authority. These taxing authorities could ascribe a higher valuation to our common shares, particularly if our common shares trade at prices significantly above the value ascribed to our shares by Spirit in the period following the distribution. Such a higher valuation may cause you to recognize additional dividend or capital gain income or may cause a larger reduction in the tax basis of your shares of Spirit common stock. You should consult your tax advisor as to the particular tax consequences of the distribution to you.

Risks Related to Ownership of our Common Shares and Our Organizational Structure

There is currently no public market for our common shares and a trading market that will provide you with adequate liquidity may not develop for our common shares. In addition, once our common shares begin trading, the market price of our shares may fluctuate widely.

There has not been any public market for our common shares prior to the spin-off. We intend to have our common shares listed on the NYSE under the trading symbol “SMTA.” However, there can be no assurance that an active trading market for our common shares will develop as a result of the spin-off or be sustained in the future.

We cannot predict the prices at which our common shares may trade after the spin-off, and the market price of our shares may be more volatile than the market price of Spirit common stock. Some of the factors that could negatively affect our share price or result in fluctuations in the market price or trading volume of our common shares include:

 

    actual or anticipated variations in our operating results or distributions or those of our competitors;

 

    publication of research reports about us, our competitors or the real estate industry;

 

46


Table of Contents
    increases in prevailing interest rates that lead purchasers of our common shares to demand a higher yield;

 

    adverse market reaction to any additional indebtedness we incur or equity securities we or our Operating Partnership issue in the future;

 

    additions or departures of our Manager’s key personnel;

 

    changes in credit ratings assigned to us or notes issued by affiliates under our asset-backed securities platform;

 

    the financial condition, performance and prospects of our tenants;

 

    the failure of securities analysts to cover our common shares;

 

    actual or perceived conflicts of interest with our Manager or Spirit; and

 

    general market and economic conditions, including the current state of the credit and capital markets.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common shares.

Changes in market interest rates may adversely impact the value of our common shares.

The market price of our common shares will generally be influenced by the dividend yield on our common shares (as a percentage of the price of our common shares) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of our common shares to expect a higher dividend yield. However, higher market interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our common shares to decrease.

Broad market fluctuations could negatively impact the market price of our common shares.

The stock market has experienced extreme price and volume fluctuations that have affected the market price of the common equity of many companies in industries similar or related to ours and that have been unrelated to these companies’ operating performances. These broad market fluctuations could reduce the market price of our common shares. Furthermore, our operating results and prospects may be below the expectations of public market analysts and investors or may be lower than those of companies with comparable market capitalizations. Either of these factors could lead to a material decline in the per share trading price of our common shares.

We have not established a minimum distribution payment level and we cannot assure you of our ability to pay distributions in the future.

We intend to make quarterly distributions of an amount at least equal to all or substantially all of our REIT taxable income to holders of our common shares out of assets legally available therefore. We have not established a minimum distribution payment level and our ability to pay distributions may be adversely affected by a number of factors, including the risk factors described in this information statement. Distributions will be authorized by our board of trustees and declared by us based upon a number of factors, including actual results of operations, restrictions under Delaware law or any applicable debt covenants, our financial condition, our taxable income, the annual distribution requirements under the REIT provisions of the Code, our operating expenses and other factors our board of trustees deems relevant. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions in the future.

 

47


Table of Contents

Furthermore, while we are required to make distributions in order to maintain our REIT status (as described below under “Risks Related to Taxes and Our Status as a REIT”), we may elect not to maintain our REIT status, subject to the requirements of the Tax Matters Agreement, in which case we would no longer be required to make such distributions. Moreover, even if we do elect to maintain our REIT status, we may elect to comply with the applicable requirements by, after completing various procedural steps, distributing, under certain circumstances, a portion of the required amount in the form of our common shares in lieu of cash. If we elect not to maintain our REIT status or to satisfy any required distributions in shares of common shares in lieu of cash, such action could negatively affect our business and financial condition as well as the price of our common shares. No assurance can be given that we will pay any dividends on our common shares in the future.

Our common shares are ranked junior to our Series A preferred shares.

Our common shares are ranked junior to our Series A preferred shares. Our outstanding Series A preferred shares also have or will have a preference upon our dissolution, liquidation or winding up in respect of assets available for distribution to our common shareholders.

Future offerings of additional debt securities, which would be senior to our common shares upon liquidation, and/or preferred equity securities that may be senior to our common shares for purposes of distributions or upon liquidation, may materially and adversely affect the market price of our common shares.

In the future, we may attempt to increase our capital resources by making offerings of preferred equity securities or additional debt securities (or causing our Operating Partnership to issue debt securities). Upon liquidation, holders of our debt securities and preferred shares and lenders with respect to other borrowings will receive distributions of our available assets prior to our common shareholders. Additionally, any additional convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common shares and may result in dilution to owners of our common shares. Our common shareholders are not entitled to preemptive rights or other protections against dilution. Our preferred shares, if issued, could have a preference on liquidating distributions or a preference on distribution payments that could limit our ability to make distributions to our common shareholders. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Our common shareholders bear the risk of our future offerings reducing the per share trading price of our common shares.

Your percentage ownership in us may be diluted in the future.

Your percentage ownership in us may be diluted in the future because of equity awards that we expect to be granted to our Manager, to the directors, officers and employees of our Manager who perform services for us, and to our trustees and officers, as well as other equity instruments such as debt and equity financing. We expect our board of trustees will approve an equity incentive plan providing for the grant of equity-based awards, and we expect to reserve 3,645,000 of our common shares for issuance under that plan.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may choose to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may choose to take advantage of these reporting exemptions until we are no longer an emerging growth company. We cannot predict if investors will find our common stock less attractive if we choose to rely

 

48


Table of Contents

on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company for up to five years, although we may lose that status sooner. We would cease to qualify as an emerging growth company on the earliest of (i) the last day of any fiscal year in which we have more than $1.07 billion of revenue, (ii) the last day of any fiscal year in which we have more than $700.0 million in market value of our common stock held by non-affiliates as of June 30 of such fiscal year and (iii) the date on which we issue more than $1.07 billion of non-convertible debt over a rolling three-year period.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We may choose to elect to avail ourselves of this exemption from new or revised accounting standards and, if we do, we would be subject to the different new or revised accounting standards than public companies that are not emerging growth companies.

To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our common stock to be less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Our declaration of trust and bylaws and Maryland law contain provisions that may delay, defer or prevent a change of control transaction, even if such a change in control may be in the interest of our shareholders.

Our declaration of trust contains certain restrictions on ownership and transfer of our common shares. Our declaration of trust contains various provisions that are intended to preserve our qualification as a REIT and, subject to certain exceptions, authorize our trustees to take such actions as are necessary or appropriate to preserve our qualification as a REIT. For example, our declaration of trust prohibits the actual, beneficial or constructive ownership by any person of more than 9.8% in value of the aggregate of our outstanding shares of all classes and series, or more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding common shares or any class or series of our outstanding preferred shares. Our board of trustees, in its sole and absolute discretion, may exempt a person, prospectively or retroactively, from these ownership limits if certain conditions are satisfied. The restrictions on ownership and transfer of our common shares may:

 

    discourage a tender offer or other transactions or a change in management or of control that might involve a premium price for our common shares or that our shareholders otherwise believe to be in their best interests; or

 

    result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.

We could increase the number of authorized common shares of beneficial interest, classify and reclassify unissued shares of beneficial interest and issue shares of beneficial interest without shareholder approval. Our board of trustees, without shareholder approval, has the power under our declaration of trust to amend our declaration of trust to increase the aggregate number of shares of beneficial interest or the number of shares of beneficial interest of any class or series that we are authorized to issue, to authorize us to issue authorized but unissued common shares or preferred shares and to classify or reclassify any unissued common shares or preferred shares into one or more classes or series of shares of beneficial interest and to set the terms of such newly classified or reclassified shares. As a result, we may issue one or more series or classes of common shares or preferred shares with preferences, dividends, powers and rights, voting or otherwise, that are senior to, or otherwise conflict with, the rights of our common shareholders. Although our board of trustees has no such intention at the present time, it could establish a class or series of common shares or preferred shares that could,

 

49


Table of Contents

depending on the terms of such series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.

Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a tender offer or seeking other change of control transactions that could involve a premium price for our common shares or that our shareholders otherwise believe to be in their best interest. For more information regarding these provisions, see “Certain Provisions of Maryland Law and Our Declaration of Trust and Bylaws.” Such provisions include the following:

 

    “business combination” provisions that, subject to certain limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or of an affiliate of ours or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting shares at any time within a two-year period immediately prior to the date in question) or any affiliate of an interested stockholder for five years after the most recent date on which the shareholder becomes an interested stockholder, and thereafter impose fair price and/or supermajority and shareholder voting requirements on these combinations; and

 

    “control share” provisions that provide that a holder of “control shares” of our Company (defined as shares that, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of outstanding “control shares”) has no voting rights with respect to those shares except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

As permitted by Maryland law, we have elected, pursuant to provisions in our declaration of trust, to opt out of the Maryland Business Combination Act and to exempt any acquisition of our common shares from the Maryland Control Share Acquisition Act. Any amendment to or repeal of either of these provisions of our declaration of trust must be approved by our shareholders by the affirmative vote of a majority of all the votes entitled to be cast on the matter. In the event that either of these provisions of our declaration of trust are amended or revoked by our shareholders, we would be subject to the Maryland Business Combination Act and/or the Maryland Control Share Acquisition Act, as the case may be.

Certain provisions of Maryland law permit our board of trustees, without shareholder approval and regardless of what is currently provided in our declaration of trust or bylaws, to implement certain corporate governance provisions, some of which (for example, a classified board) are not currently applicable to us. These provisions may have the effect of limiting or precluding a third party from making an unsolicited acquisition proposal for us or of delaying, deferring or preventing a change in control of us under circumstances that otherwise could be in the best interests of our shareholders. Our declaration of trust contains a provision whereby we elect, at such time as we become eligible to do so, to be subject to the provisions of Title 3, Subtitle 8 of the MGCL, or Subtitle 8, relating to the filling of vacancies on our board of trustees. However, we have opted out of the provision of Subtitle 8 that would have permitted our board of trustees to unilaterally divide itself into classes with staggered terms of three years each (also referred to as a classified board) without shareholder approval, and we are prohibited from electing to be subject to such provision of Subtitle 8 unless such election is first approved by our shareholders by the affirmative vote of a majority of all the votes entitled to be cast on the matter. We do not currently have a classified board.

Our board of trustees may change our investment and financing policies without shareholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.

Our investment and financing policies are exclusively determined by our board of trustees. Accordingly, our shareholders do not control these policies. Further, our organizational documents do not limit the amount or

 

50


Table of Contents

percentage of indebtedness, funded or otherwise, that we may incur. Our board of trustees may alter or eliminate our current policy on borrowing at any time without shareholder approval. If this policy changed, we could become more highly leveraged, which could result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes to our policies with regards to the foregoing could materially and adversely affect us.

Our rights and the rights of our shareholders to take action against our trustees and officers are limited.

As permitted by Maryland law, our declaration of trust limits the liability of our trustees and officers to us and our shareholders for money damages, except for liability resulting from:

 

    actual receipt of an improper benefit or profit in money, property or services; or

 

    active and deliberate dishonesty by the trustee or officer that was established by a final judgment as being material to the cause of action adjudicated.

As a result, we and our shareholders have rights against our trustees and officers that are more limited than might otherwise exist. Accordingly, in the event that actions taken in good faith by any of our trustees or officers impede the performance of our company, our shareholders’ and our ability to recover damages from such trustee or officer will be limited. In addition, our declaration of trust authorizes us to obligate our company, and our bylaws require us, to indemnify our trustees and officers (and, with the approval of our board of trustees, any employee or agent of ours) for actions taken by them in those and certain other capacities to the maximum extent permitted by Maryland law.

We are a holding company with no direct operations and will rely on funds received from the Operating Partnership to pay liabilities.

We are a holding company and conduct substantially all of our operations through the Operating Partnership. We do not have, apart from an interest in the Operating Partnership, any independent operations. As a result, we rely on distributions from the Operating Partnership to pay any dividends we might declare on our common shares. We also rely on distributions from the Operating Partnership to meet any of our obligations, including any tax liability on taxable income allocated to us from the Operating Partnership. In addition, because we are a holding company, shareholder claims will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of the Operating Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of the Operating Partnership and its subsidiaries will be able to satisfy the claims of our shareholders only after all of our and the Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.

We own directly or indirectly 100% of the interests in the Operating Partnership. However, in connection with our future acquisition of properties or otherwise, we may issue partnership interests of the Operating Partnership to third parties. Such issuances would reduce our ownership in the Operating Partnership. Because our shareholders will not directly own partnership interests of the Operating Partnership, they will not have any voting rights with respect to any such issuances or other partnership level activities of the Operating Partnership.

Conflicts of interest could arise in the future between the interests of our shareholders and the interests of holders of partnership interests in the Operating Partnership, which may impede business decisions that could benefit our shareholders.

Conflicts of interest could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and the Operating Partnership or any future partner thereof, on the other. Our trustees and officers have duties to our company under applicable Maryland law in connection with the management of our company. At the

 

51


Table of Contents

same time, one of our wholly-owned subsidiaries, OP Holdings, as the general partner of the Operating Partnership, has fiduciary duties and obligations to the Operating Partnership and its future limited partners under Delaware law and the partnership agreement of the Operating Partnership in connection with the management of the Operating Partnership. The fiduciary duties and obligations of OP Holdings, as general partner of the Operating Partnership, and its future partners may come into conflict with the duties of the trustees and officers of our company.

Under the terms of the partnership agreement of the Operating Partnership, if there is a conflict between the interests of our shareholders on one hand and any future limited partners on the other, we will endeavor in good faith to resolve the conflict in a manner not adverse to either our shareholders or any future limited partners; provided, however, that for so long as we own a controlling interest in the Operating Partnership, any conflict that cannot be resolved in a manner not adverse to either our shareholders or any future limited partners shall be resolved in favor of our shareholders.

The partnership agreement also provides that the general partner will not be liable to the Operating Partnership, its partners or any other person bound by the partnership agreement for monetary damages for losses sustained, liabilities incurred or benefits not derived by the Operating Partnership or any future limited partner, except for liability for the general partner’s intentional harm or gross negligence. Moreover, the partnership agreement provides that the Operating Partnership is required to indemnify the general partner and its members, managers, managing members, officers, employees, agents and designees from and against any and all claims that relate to the operations of the Operating Partnership, except (1) if the act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was the result of active or deliberate dishonesty, (2) for any transaction for which the indemnified party received an improper personal benefit, in money, property or services or otherwise in violation or breach of any provision of the partnership agreement or (3) in the case of a criminal proceeding, if the indemnified person had reasonable cause to believe that the act or omission was unlawful.

Risks Related to Our Indebtedness

Upon completion of the spin-off, we will have approximately $2.1 billion aggregate principal amount of indebtedness outstanding, which may expose us to the risk of default under our debt obligations, limit our ability to obtain additional financing or affect the market price of our common shares or debt securities.

Upon completion of the spin-off, we will have approximately $2.1 billion aggregate principal amount of indebtedness outstanding, all of which incurs interest at a fixed rate. We may also incur significant additional debt to finance future investment activities. As of December 31, 2017, our pro forma Adjusted Debt to Adjusted EBITDA ratio was 9.3x, our pro forma Adjusted Debt + Preferred to Adjusted EBITDA ratio was 10.1x and our pro forma Fixed Charge Coverage Ratio was 1.8x. Our pro forma Fixed Charge Coverage Ratio does not reflect the impact of our amortizing debt principal payments. Were Shopko, our largest tenant, to completely default on its lease payments, our pro forma Adjusted Debt to Adjusted EBITDA ratio as of December 31, 2017 would have been 12.0x, our pro forma Adjusted Debt + Preferred to Adjusted EBITDA ratio would have been 13.0x and our pro forma Fixed Charge Coverage Ratio would have been 1.4x. Payments of principal and interest on borrowings may leave us with insufficient cash resources to meet our cash needs or make the distributions to our shareholders necessary to maintain our REIT qualification. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

 

    our cash flow may be insufficient to meet our required principal and interest payments;

 

    cash interest expense and financial covenants relating to our indebtedness may limit or eliminate our ability to make distributions to our common shareholders and the holders of our Series A preferred shares and may adversely affect our ability to pay the asset management fee due under the Asset Management Agreement;

 

    we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to capitalize upon acquisition opportunities or meet operational needs;

 

52


Table of Contents
    we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;

 

    we may be unable to hedge floating rate debt, counterparties may fail to honor their obligations under any hedge agreements we enter into, such agreements may not effectively hedge interest rate fluctuation risk, and, upon the expiration of any hedge agreements we enter into, we would be exposed to then-existing market rates of interest and future interest rate volatility;

 

    we may be forced to dispose of properties, possibly on unfavorable terms or in violation of certain covenants to which we may be subject;

 

    we may default on our obligations and the lenders or mortgagees may foreclose on our properties or our interests in the entities that own the properties that secure their loans and receive an assignment of rents and leases;

 

    we may be restricted from accessing some of our excess cash flow after debt service if certain of our tenants fail to meet certain financial performance metric thresholds;

 

    we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations; and

 

    our default under any loan with cross-default provisions could result in a default on other indebtedness.

Changes in our leverage ratios may also negatively impact the market price of our equity or debt securities. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.

Current market conditions could adversely affect our ability to refinance existing indebtedness or obtain additional financing for growth on acceptable terms or at all.

Over the last few years, the credit markets have experienced significant price volatility, displacement and liquidity disruptions, including the bankruptcy, insolvency or restructuring of certain financial institutions. These circumstances have materially impacted liquidity in the financial markets, making financing terms for borrowers less attractive, and in certain cases, have resulted in the unavailability of various types of debt financing. As a result, we may be unable to obtain debt financing on favorable terms or at all or fully refinance maturing indebtedness with new indebtedness. Reductions in our available borrowing capacity or inability to obtain credit when required or when business conditions warrant could materially and adversely affect us.

Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. Higher interest rates on newly incurred debt may negatively impact us as well. If interest rates increase, our interest costs and overall costs of capital will increase, which could materially and adversely affect us. Total debt service, including scheduled principal maturities and interest, for 2018 and 2019 is $136.0 million and $137.0 million, respectively.

Our financing arrangements involve balloon payment obligations.

Our financings require us to make a lump-sum or “balloon” payment at maturity. In addition, there are principal amortization payments of $477.8 million due under our debt instruments prior to January 1, 2021. Our ability to make any balloon payment is uncertain and may depend on our ability to obtain additional financing or our ability to sell our properties. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell our properties at a price sufficient to make the balloon payment, if at all. If the balloon payment is refinanced at a higher rate, it will reduce or eliminate any income from our properties. Our inability to meet a balloon payment obligation, through refinancing or sale proceeds, or refinancing on less attractive terms could materially and adversely affect us.

 

53


Table of Contents

The agreements governing our indebtedness contain restrictions and covenants which may limit our ability to enter into or obtain funding for certain transactions, operate our business or make distributions to our common shareholders.

The agreements governing our indebtedness contain restrictions and covenants that limit or will limit our ability to operate our business. These covenants, as well as any additional covenants to which we may be subject in the future because of additional indebtedness, could cause us to forgo investment opportunities, reduce or eliminate distributions to our common shareholders or obtain financing that is more expensive than financing we could obtain if we were not subject to the covenants. In addition, the agreements may have cross default provisions, which provide that a default under one of our financing agreements would lead to a default on some or all of our debt financing agreements.

If an event of default occurs under our current or future CMBS loans, if the master tenants at the properties that secure such CMBS loans fail to maintain certain EBITDAR ratios, or if an uncured monetary default exists under the master leases, then a portion of or all of the cash which would otherwise be distributed to us may be restricted by the lenders and unavailable to us until the terms are cured or the debt refinanced. If the financial performance of the collateral for our indebtedness under our Master Trust 2014 fails to achieve certain financial performance criteria, cash from such collateral may be unavailable to us until the terms are cured or the debt refinanced. Such cash sweep triggering events have occurred previously and may be ongoing from time to time. The occurrence of these events limit the amount of cash available to us for use in our business and could limit or eliminate our ability to make distributions to our common shareholders.

The covenants and other restrictions under our debt agreements affect, among other things, our ability to:

 

    sell or substitute assets;

 

    modify certain terms of our leases;

 

    prepay debt with higher interest rates;

 

    manage our cash flows; and

 

    make distributions to equity holders.

Additionally, we must comply with certain covenants in order to incur additional leverage under our Master Trust 2014. All of these restrictions may adversely affect our operating and financial flexibility and may limit our ability to respond to changes in our business or competitive environment, all of which may materially and adversely affect us.

Risks Related to Our Taxes and Our Status as a REIT

Failure to qualify as a REIT would materially and adversely affect us and the value of our common shares.

We will elect to be taxed as a REIT and believe we will be organized and operate in a manner that will allow us to qualify and to remain qualified as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2018. We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT and the statements in this information statement are not binding on the IRS or any court. Therefore, we cannot guarantee that we will qualify as a REIT or that we will remain qualified as such in the future. If we fail to qualify as a REIT or lose our REIT status, we will face significant tax consequences that would substantially reduce our cash available for distribution to our shareholders for each of the years involved because:

 

    we would not be allowed a deduction for distributions to shareholders in computing our taxable income and would be subject to regular U.S. federal corporate income tax;

 

    we could be subject to increased state and local taxes; and

 

54


Table of Contents
    unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.

Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our operations and distributions to shareholders. In addition, if we fail to qualify as a REIT, we will not be required to make distributions to our shareholders. As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and could materially and adversely affect the trading price of our common shares.

Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our common shares, requirements regarding the composition of our assets and a requirement that at least 95% of our gross income in any year must be derived from qualifying sources, such as “rents from real property.” Also, we must make distributions to shareholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. In addition, legislation, new regulations, administrative interpretations or court decisions may materially and adversely affect our investors, our ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.

We own and may acquire direct or indirect interests in one or more entities that have elected or will elect to be taxed as REITs under the Code (each, a “Subsidiary REIT”). A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. If a Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to federal income tax, (ii) shares in such Subsidiary REIT would cease to be qualifying assets for purposes of the asset tests applicable to REITs, and (iii) it is possible that we would fail certain of the asset tests applicable to REITs, in which event we would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions.

Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local income, property and excise taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer. In addition, our TRSs will be subject to income tax as regular corporations in the jurisdictions in which they operate.

If Spirit failed to qualify as a REIT during certain periods prior to the spin-off, we would be prevented from electing to qualify as a REIT.

Under applicable Treasury Regulations, if Spirit failed, or fails, to qualify as a REIT during certain periods prior to the spin-off, unless Spirit’s failure were subject to relief under U.S. federal income tax laws, we would be prevented from electing to qualify as a REIT prior to the fifth calendar year following the year in which Spirit failed to qualify.

If certain of our subsidiaries, including the Operating Partnership, fail to qualify as partnerships or disregarded entities for federal income tax purposes, we would cease to qualify as a REIT and suffer other adverse consequences.

One or more of our subsidiaries may be treated as a partnership or disregarded entity for federal income tax purposes and, therefore, will not be subject to federal income tax on its income. Instead, each of its partners or its owner, as applicable, which may include us, will be allocated, and may be required to pay tax with respect to, such partner’s or owner’s share of its income. We cannot assure you that the IRS will not challenge the status of any subsidiary partnership or limited liability company in which we own an interest as a disregarded entity or partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were

 

55


Table of Contents

successful in treating any subsidiary partnership or limited liability company as an entity taxable as a corporation for federal income tax purposes, we could fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT. Also, the failure of any subsidiary partnerships or limited liability company to qualify as a disregarded entity or partnership for applicable income tax purposes could cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners or members, including us.

Our ownership of TRSs is subject to certain restrictions, and we will be required to pay a 100% penalty tax on certain income or deductions if our transactions with our TRSs are not conducted on arm’s-length terms.

From time to time we may own interests in one or more TRSs. A TRS is a corporation, other than a REIT, in which a REIT directly or indirectly holds stock and that has made a joint election with such REIT to be treated as a TRS. If a TRS owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a TRS. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A TRS is subject to federal income tax as a regular C corporation. In addition, a 100% excise tax will be imposed on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.

A REIT’s ownership of securities of a TRS is not subject to the 5% or 10% asset tests applicable to REITs. Not more than 25% of the value of our total assets may be represented by securities (including securities of TRSs), other than those securities includable in the 75% asset test, and not more than 20% of the value of our total assets may be represented by securities of TRSs. We anticipate that the aggregate value of the stock and securities of any TRS and other nonqualifying assets that we own will be less than 20% of the value of our total assets, and we will monitor the value of these investments to ensure compliance with applicable ownership limitations. In addition, we intend to structure our transactions with any TRSs that we own to ensure that they are entered into on arm’s-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the above limitations or to avoid application of the 100% excise tax discussed above.

We may be forced to borrow funds to maintain our REIT status, and the unavailability of such capital on favorable terms at the desired times, or at all, may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, which could materially and adversely affect us.

To qualify as a REIT, we generally must distribute to our shareholders at least 90% of our REIT taxable income each year, determined without regard to the dividends paid deduction and excluding any net capital gains, and we will be subject to regular corporate income taxes on our undistributed taxable income to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. We could have a potential distribution shortfall as a result of, among other things, differences in timing between the actual receipt of cash and recognition of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. Also, the ability of Master Trust 2014 to make cash distributions is limited and, in some cases, could be eliminated entirely. In addition, as discussed in this information statement, our tenants may experience a downturn in their business, and as a result may delay lease commencement, decline to extend a lease upon its expiration, fail to make rental payments when due, become insolvent or declare bankruptcy. In order to maintain REIT status and avoid the payment of income and excise taxes, we may need to borrow funds to meet the REIT distribution requirements. Our ability to borrow funds, however, may not be available on favorable terms or at all. Our access

 

56


Table of Contents

to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential, our current debt levels, the market price of our common shares, and our current and potential future earnings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and could materially and adversely affect us. Alternatively, we may make taxable in-kind distributions of our own shares, which may cause our shareholders to be required to pay income taxes with respect to such distributions in excess of any cash they receive, or we may be required to withhold taxes with respect to such distributions in excess of any cash our shareholders receive.

The IRS may treat sale-leaseback transactions as loans, which could jeopardize our REIT status or require us to make an unexpected distribution.

The IRS may take the position that specific sale-leaseback transactions that we treat as leases are not true leases for federal income tax purposes but are, instead, financing arrangements or loans. If a sale-leaseback transaction were so re-characterized, we might fail to satisfy the REIT asset tests, the income tests or distribution requirements and consequently lose our REIT status effective with the year of re-characterization unless we elect to make an additional distribution to maintain our REIT status. The primary risk relates to our loss of previously incurred depreciation expenses, which could affect the calculation of our REIT taxable income and could cause us to fail the REIT distribution test that requires a REIT to distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In this circumstance, we may elect to distribute an additional dividend of the increased taxable income so as not to fail the REIT distribution test. This distribution would be paid to all shareholders at the time of declaration rather than the shareholders existing in the taxable year affected by the re-characterization.

Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends, which may negatively affect the value of our shares.

Income from “qualified dividends” payable to U.S. shareholders that are individuals, trusts and estates are generally subject to tax at preferential rates, currently at a maximum federal rate of 20%. Dividends payable by REITs, however, generally are not eligible for the preferential tax rates applicable to qualified dividend income. Under the recently enacted 2017 Tax Legislation, however, U.S. shareholders that are individuals, trusts and estates generally may deduct up to 20% of the ordinary dividends (e.g., dividends not designated as capital gain dividends or qualified dividend income) received from a REIT for taxable years beginning after December 31, 2017 and before January 1, 2026. Although this deduction reduces the effective tax rate applicable to certain dividends paid by REITs (generally to 29.6% assuming the shareholder is subject to the 37% maximum rate), such tax rate is still higher than the tax rate applicable to corporate dividends that constitute qualified dividend income. Accordingly, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could materially and adversely affect the value of the shares of REITs, including the per share trading price of our common shares.

The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors. Accordingly, these rules could limit our ability to execute sales of the Shopko assets or assets that collateralize Master Trust 2014 in accordance with our business strategy outlined herein.

 

57


Table of Contents

Complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise attractive investments.

To qualify as a REIT, we must continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our income and the amounts we distribute to our shareholders. We may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. We also may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution. As a result, having to comply with the distribution requirement could cause us to: (1) sell assets in adverse market conditions; (2) borrow on unfavorable terms; or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt. Accordingly, satisfying the REIT requirements could materially and adversely affect us. Moreover, if we are compelled to liquidate our investments to meet any of these asset, income or distribution tests, or to repay obligations to our lenders, we may be unable to comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting gain if such sales constitute prohibited transactions.

Legislative or other actions affecting REITs could have a negative effect on us.

The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could materially and adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the federal income tax consequences of such qualification, or the federal income tax consequences of an investment in us. Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT.

The 2017 Tax Legislation has significantly changed the U.S. federal income taxation of U.S. businesses and their owners, including REITs and their stockholders. Changes made by the 2017 Tax Legislation that could affect us and our shareholders include:

 

    temporarily reducing individual U.S. federal income tax rates on ordinary income; the highest individual U.S. federal income tax rate has been reduced from 39.6% to 37% for taxable years beginning after December 31, 2017 and before January 1, 2026;

 

    permanently eliminating the progressive corporate tax rate structure, which previously imposed a maximum corporate tax rate of 35%, and replacing it with a flat corporate tax rate of 21%;

 

    permitting a deduction for certain pass-through business income, including dividends received by our shareholders from us that are not designated by us as capital gain dividends or qualified dividend income, which will allow individuals, trusts, and estates to deduct up to 20% of such amounts for taxable years beginning after December 31, 2017 and before January 1, 2026;

 

    reducing the highest rate of withholding with respect to our distributions to non-U.S. shareholders that are treated as attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%;

 

    limiting our deduction for net operating losses arising in taxable years beginning after December 31, 2017 to 80% of our REIT taxable income (determined without regard to the dividends paid deduction);

 

    generally limiting the deduction for net business interest expense in excess of 30% of a business’s “adjusted taxable income,” except for taxpayers that engage in certain real estate businesses (including most equity REITs) and elect out of this rule (provided that such electing taxpayers must use an alternative depreciation system with longer depreciation periods); and

 

    eliminating the corporate alternative minimum tax.

 

58


Table of Contents

Many of these changes that are applicable to us are effective with our 2018 taxable year, without any transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and IRS, any of which could lessen or increase the impact of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities.

While some of the changes made by the tax legislation may adversely affect us in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis. We continue to work with our tax advisors and auditors to determine the full impact that the 2017 Tax Legislation as a whole will have on us.

 

59


Table of Contents

FORWARD-LOOKING STATEMENTS

This information statement contains forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our business and growth strategies, investment, financing and leasing activities and trends in our business, including trends in the market for long-term, triple-net leases of freestanding, single-tenant properties, contain forward-looking statements. When used in this information statement, the words “estimate,” “anticipate,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “seek,” “approximately” or “plan,” or the negative of these words or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management.

Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all).

The following risks and uncertainties, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

 

    industry and economic conditions;

 

    volatility and uncertainty in the financial markets, including potential fluctuations in the consumer price index;

 

    our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate, integrate and manage diversifying acquisitions or investments;

 

    the financial performance of our retail tenants and the demand for retail space, particularly with respect to challenges being experienced by general merchandise retailers;

 

    our ability to diversify our tenant base and reduce the concentration of our significant tenant;

 

    the nature and extent of future competition;

 

    increases in our costs of borrowing as a result of changes in interest rates and other factors;

 

    our ability to access debt and equity capital markets;

 

    our ability to pay down, refinance, restructure and/or extend our indebtedness as it becomes due;

 

    our ability and willingness to renew our leases upon expiration and to reposition our properties on the same or better terms upon expiration in the event such properties are not renewed by tenants or we exercise our rights to replace existing tenants upon default;

 

    the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us or our major tenants;

 

    our ability to manage our expanded operations;

 

    our ability and willingness to maintain our qualification as a REIT;

 

    our relationship with our Manager and its ability to retain qualified personnel;

 

    potential conflicts of interest with our Manager or Spirit;

 

    our ability to achieve the intended benefits from our spin-off from Spirit;

 

    other risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters, illiquidity of real estate investments and potential damages from natural disasters.

 

60


Table of Contents

The factors included in this information statement are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional risk factors, see the factors set forth under “Risk Factors.” All forward-looking statements are based on information that was available, and speak only, as of the date on which they were made. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.

 

61


Table of Contents

OUR SPIN-OFF FROM SPIRIT

General

The board of directors of Spirit determined upon careful review and consideration that the spin-off of our assets and liabilities from the rest of Spirit and our establishment as a separate, publicly-traded company was in the best interests of Spirit and its stockholders.

In furtherance of this plan, Spirit will distribute 100% of our common shares held by Spirit to holders of Spirit common stock, subject to certain conditions. The distribution of our common shares is expected to take place on May 31, 2018. On the distribution date, each holder of Spirit common stock will receive one of our common shares for every ten shares of Spirit common stock held at the close of business on the distribution record date, as described below. You will not be required to make any payment, surrender or exchange your shares of Spirit common stock or take any other action to receive your SMTA common shares to which you are entitled on the distribution date.

The spin-off of our common shares as described in this information statement is subject to the satisfaction or waiver of certain conditions. We cannot provide any assurances that the spin-off will be completed. For a more detailed description of these conditions, see the section entitled “Conditions to the Spin-Off.”

The Number of Shares You Will Receive

For every ten shares of Spirit common stock that you owned as of the close of business on May 18, 2018, the distribution record date, you will receive one of our common shares on the distribution date.

Transferability of Shares You Receive

The SMTA common shares distributed to Spirit stockholders will be freely transferable, subject to the restrictions on ownership and transfer set forth in our declaration of trust, except for shares received by persons who may be deemed to be our “affiliates” under the Securities Act. Persons who may be deemed to be our affiliates after the spin-off generally include individuals or entities that control, are controlled by or are under common control with us and may include trustees and certain officers or principal shareholders of us. Our affiliates will be permitted to sell their SMTA common shares only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Rule 144.

When and How You Will Receive the Distributed Shares

Spirit will distribute our common shares on May 31, 2018, the distribution date. American Stock Transfer & Trust Company, LLC will serve as distribution agent and registrar for our common shares and as distribution agent in connection with the distribution.

If you own Spirit common stock as of the close of business on the distribution record date, the SMTA common shares that you are entitled to receive in the distribution will be issued electronically, as of the distribution date, to you or to your bank or brokerage firm on your behalf by way of direct registration in book-entry form. Registration in book-entry form refers to a method of recording share ownership when no physical share certificates are issued to shareholders, as is the case in the distribution. Unless specifically requested by a shareholder, no physical share certificates of ours will be issued.

If you sell shares of Spirit common stock in the “regular-way” market prior to the distribution date, you will be selling your right to receive our common shares in the distribution. For more information, see the section entitled “—Market for Common Shares—Trading Between the Distribution Record Date and Distribution Date”.

 

62


Table of Contents

Commencing on or shortly after the distribution date, if you hold physical stock certificates that represent your shares of Spirit common stock, or if you hold your shares in book-entry form, and you are the registered holder of such shares, the distribution agent will mail to you an account statement that indicates the number of our common shares that have been registered in book-entry form in your name.

Most Spirit stockholders hold their shares of Spirit common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the stock in “street name” and ownership would be recorded on the bank’s or brokerage firm’s books. If you hold your Spirit common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for our common shares that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having our common shares held in “street name,” we encourage you to contact your bank or brokerage firm.

Treatment of Fractional Shares

The distribution agent will not deliver any fractional shares in connection with the delivery of our common shares pursuant to the spin-off. Instead, the distribution agent will aggregate all fractional shares and sell them on behalf of those stockholders who otherwise would be entitled to receive fractional shares. These sales will occur as soon as practicable after the distribution date. Those stockholders will then receive a cash payment, in the form of a check, in an amount equal to their pro rata share of the total proceeds of those sales. Any applicable expenses, including brokerage fees, will be paid by us.

We expect that all fractional shares held in street name will be aggregated and sold by brokers or other nominees according to their standard procedures, and that brokers or other nominees may request the distribution agent to sell the fractional shares on their behalf. You should contact your broker or other nominee for additional details. None of Spirit, us, or our distribution agent will guarantee any minimum sale price for fractional shares or pay any interest on the proceeds from the sale of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient stockholder. See “Our Spin-Off from Spirit—Certain Material Federal Income Tax Consequences of the Spin-Off.”

Results of the Spin-Off

After the spin-off, we will be a separate, publicly traded company. Immediately following the spin-off, we expect to have approximately 2,529 shareholders of record, based on the number of registered stockholders of Spirit common stock on April 27, 2018, and 42,850,013 of our common shares outstanding. The actual number of shares to be distributed will be determined on the distribution record date and will reflect any changes in the number of shares of Spirit common stock between April 27, 2018 and the distribution record date.

We will enter into a Separation and Distribution Agreement to effect the spin-off and provide a framework for our relationship with Spirit after the spin-off. This agreement will govern the relationship between us and Spirit subsequent to the completion of the spin-off and provide for the allocation between us and Spirit of Spirit’s assets, liabilities and obligations attributable to periods prior to the spin-off from Spirit. We will also enter into a Tax Matters Agreement that will govern the respective rights, responsibilities and obligations of Spirit and us after the spin-off with respect to various tax matters, an Insurance Sharing Agreement that will provide for us to be added as a named insurer under certain of Spirit’s existing insurance policies and authorize our Manager to procure joint blanket insurance policies for us and Spirit thereafter, and a Registration Rights Agreement that will grant Spirit Realty, L.P. the right to require us to file a registration statement with the SEC with respect to our Series A preferred shares that will be issued to it in connection with the spin-off. Additionally, we will also enter into an Asset Management Agreement with our Manager, a subsidiary of Spirit, in connection with the spin-off, and our Manager will also continue to provide services under the Property Management and Servicing Agreement. For a more detailed description of these agreements, see “Certain Relationships and Related Transactions” and “Our Manager and Asset Management Agreement.”

 

63


Table of Contents

The spin-off will not affect the number of outstanding shares of Spirit common stock or any rights of Spirit stockholders.

Certain U.S. Federal Income Tax Consequences of the Distribution

The following discussion is a summary of certain U.S. federal income tax consequences of the distribution, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. For purposes of this discussion, references to “we,” “our” and “us” mean only SMTA and do not include any of its subsidiaries, except as otherwise indicated; and references to “Spirit” include only Spirit Realty Capital, Inc. and not its subsidiaries, except as otherwise indicated. This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the IRS, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a holder of Spirit’s common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the distribution.

This discussion is limited to holders who hold Spirit’s common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a holder’s particular circumstances. In addition, except where specifically noted, it does not address consequences relevant to holders subject to special rules, including, without limitation:

 

    U.S. expatriates and former citizens or long-term residents of the United States;

 

    persons subject to the alternative minimum tax;

 

    U.S. holders (as defined below) whose functional currency is not the U.S. dollar;

 

    persons holding Spirit’s common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;

 

    banks, insurance companies, and other financial institutions;

 

    REITs or regulated investment companies;

 

    brokers, dealers or traders in securities;

 

    “controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;

 

    S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);

 

    tax-exempt organizations or governmental organizations;

 

    persons subject to special tax accounting rules as a result of any item of gross income with respect to Spirit’s common stock being taken into account in an applicable financial statement;

 

    persons deemed to sell Spirit’s common stock under the constructive sale provisions of the Code; and

 

    persons who hold or receive Spirit’s common stock pursuant to the exercise of any employee stock option or otherwise as compensation.

This discussion does not address the U.S. federal income tax consequences of owning and disposing of SMTA common shares received in the distribution. For a discussion of the tax consequences of the ownership and disposition of the SMTA common shares, see “Material U.S. Federal Income Tax Consequences—Material U.S. Federal Income Tax Consequences to Holders of Our Common Shares.”

 

64


Table of Contents

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE DISTRIBUTION ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

For purposes of this discussion, a “U.S. holder” is a beneficial owner of Spirit’s common stock that, for U.S. federal income tax purposes, is or is treated as:

 

    an individual who is a citizen or resident of the United States;

 

    a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;

 

    an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

    a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.

For purposes of this discussion, a “non-U.S. holder” is any beneficial owner of Spirit’s common stock that is neither a U.S. holder nor an entity treated as a partnership for U.S. federal income tax purposes.

If an entity treated as a partnership for U.S. federal income tax purposes holds Spirit’s common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding Spirit’s common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.

Treatment of the Distribution

The distribution will be treated as a taxable distribution to Spirit stockholders. Accordingly, each Spirit stockholder will be treated as receiving an amount equal to the fair market value of the SMTA common shares received by such stockholder (including any fractional shares deemed received by the stockholder, as described below), determined as of the date of the distribution. We refer to such amount as the “distribution amount.”

The distribution will also be a taxable transaction for Spirit in which Spirit will recognize gain, but not loss, based on the difference between its tax basis in the SMTA common shares and its fair market value as of the distribution. Certain transactions entered into in connection with the spin-off are also expected to be taxable to Spirit. To the extent Spirit recognizes gain in connection with the spin-off, such gain generally should constitute qualifying income for purposes of the REIT gross income tests. In addition, Spirit’s earnings and profits will be increased, which may increase the portion of the distribution amount treated as dividend income to Spirit’s stockholders, as described below.

Although Spirit will ascribe a value to the SMTA common shares distributed in the distribution, this valuation is not binding on the IRS or any other tax authority. These taxing authorities could ascribe a higher valuation to the distributed SMTA common shares, particularly if, following the distribution, those common shares trade at prices significantly above the value ascribed to those shares by Spirit. Such a higher valuation may affect the distribution amount and thus the tax consequences of the distribution to Spirit’s stockholders.

Any cash received by a Spirit stockholder in lieu of a fractional SMTA common share will be treated as if such fractional share had been (i) received by the stockholder as part of the spin-off and then (ii) sold by such

 

65


Table of Contents

stockholder, via the distribution agent, for the amount of cash received. As described below, the basis of the fractional share deemed received by a Spirit stockholder will equal the fair market value of such share on the date of the distribution, and the amount paid in lieu of a fractional share will be net of the distribution agent’s brokerage fees.

Tax Basis and Holding Period of SMTA Common Shares Received by Holders of Spirit Common Stock

A Spirit stockholder’s tax basis in SMTA common shares received in the distribution generally will equal the fair market value of such shares on the date of the distribution, and the holding period for such shares will begin the day after the date of the distribution.

Tax Treatment of the Distribution to U.S. Holders of Spirit’s Common Stock

Generally . The portion of the distribution amount that is payable out of Spirit’s current or accumulated earnings and profits will be treated as a dividend and, other than with respect to capital gain dividends and certain amounts which have previously been subject to corporate level tax, as discussed below, will be taxable to Spirit’s taxable U.S. holders as ordinary income when actually or constructively received. See “—Tax Rates” below. As long as Spirit qualifies as a REIT, this portion of the distribution will not be eligible for the dividends-received deduction in the case of U.S. holders that are corporations or, except to the extent described in “—Tax Rates” below, the preferential rates on qualified dividend income applicable to non-corporate U.S. holders, including individuals. For purposes of determining whether distributions to holders of Spirit’s capital stock are out of Spirit’s current or accumulated earnings and profits, Spirit’s earnings and profits will be allocated first to its outstanding preferred stock, if any, and then to Spirit’s outstanding common stock.

To the extent that the distribution amount is in excess of Spirit’s allocable current and accumulated earnings and profits, it will be treated first as a tax-free return of capital to a U.S. holder to the extent of the U.S. holder’s adjusted tax basis in its shares of Spirit’s common stock. This treatment will reduce the U.S. holder’s adjusted tax basis in its shares of Spirit’s common stock by such amount, but not below zero. Distributions in excess of Spirit’s allocable current and accumulated earnings and profits and in excess of a U.S. holder’s adjusted tax basis in its shares will be taxable as capital gain. Such gain will be taxable as long-term capital gain if the shares have been held for more than one year. U.S. holders may not include in their own income tax returns any of Spirit’s net operating losses or capital losses.

Capital Gain Dividends . Dividends that Spirit properly designates as capital gain dividends will be taxable to Spirit’s taxable U.S. holders as a gain from the sale or disposition of a capital asset held for more than one year, to the extent that such gain does not exceed Spirit’s actual net capital gain for the taxable year and may not exceed Spirit’s dividends paid for the taxable year, including dividends paid the following year that are treated as paid in the current year. Spirit anticipates that it will recognize capital gains as a result of the spin-off and that it will designate a portion of its dividends with respect to the taxable year that includes the spin-off as capital gain dividends. U.S. holders that are corporations may, however, be required to treat up to 20% of certain capital gain dividends as ordinary income. If Spirit properly designates any portion of a dividend as a capital gain dividend, then, except as otherwise required by law, Spirit presently intends to allocate a portion of the total capital gain dividends paid or made available to holders of all classes of Spirit’s capital stock for the year to the holders of each class of Spirit’s capital stock in proportion to the amount that Spirit’s total dividends, as determined for U.S. federal income tax purposes, paid or made available to the holders of each such class of Spirit’s capital stock for the year bears to the total dividends, as determined for U.S. federal income tax purposes, paid or made available to holders of all classes of Spirit’s capital stock for the year.

Passive Activity Losses and Investment Interest Limitations . Distributions Spirit makes will not be treated as passive activity income. As a result, U.S. holders generally will not be able to apply any “passive losses” against this income. A U.S. holder generally may elect to treat capital gain dividends and income designated as qualified dividend income, as described in “—Tax Rates” below, as investment income for purposes of computing the

 

66


Table of Contents

investment interest limitation, but in such case, the holder will be taxed at ordinary income rates on such amount. Other distributions made by Spirit, to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation.

Tax Rates . The maximum tax rate for non-corporate taxpayers for (1) long-term capital gains, including certain “capital gain dividends,” generally is 20% (although depending on the characteristics of the assets which produced these gains and on designations which Spirit may make, certain capital gain dividends may be taxed at a 25% rate) and (2) “qualified dividend income” generally is 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that certain holding period requirements have been met and the REIT’s dividends are attributable to dividends received from taxable corporations (such as its TRSs) or to income that was subject to tax at the corporate/REIT level (for example, if the REIT distributed taxable income that it retained and paid tax on in the prior taxable year). Capital gain dividends will only be eligible for the rates described above to the extent that they are properly designated by the REIT as “capital gain dividends.” U.S. holders that are corporations may be required to treat up to 20% of some capital gain dividends as ordinary income. In addition, non-corporate U.S. holders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026.

Tax Treatment of the Distribution to Tax-Exempt Holders of Spirit’s Common Stock

Dividend income from Spirit and gain arising upon the distribution to the extent it is treated as a sale of shares of Spirit common stock generally should not be unrelated business taxable income, or UBTI, to a tax-exempt holder, except to the extent a tax-exempt holder holds its shares as “debt-financed property” within the meaning of the Code. Generally, “debt-financed property” is property the acquisition or holding of which was financed through a borrowing by the tax-exempt holder.

For tax-exempt holders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, or qualified group legal services plans exempt from U.S. federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) or (c)(20) of the Code, respectively, income from an investment in Spirit’s shares will constitute UBTI unless the organization is able to properly claim a deduction for amounts set aside or placed in reserve for specific purposes so as to offset the income generated by its investment in Spirit’s shares. These holders should consult their tax advisors concerning these “set aside” and reserve requirements.

Notwithstanding the above, however, a portion of the dividends paid by a “pension-held REIT” may be treated as UBTI as to certain trusts that hold more than 10%, by value, of the interests in the REIT. A REIT will not be a “pension-held REIT” if it is able to satisfy the “not closely held” requirement without relying on the “look-through” exception with respect to certain trusts or if such REIT is not “predominantly held” by “qualified trusts.” As a result of restrictions on ownership and transfer of Spirit’s stock contained in Spirit’s charter, Spirit does not expect to be classified as a “pension-held REIT,” and as a result, the tax treatment described above should be inapplicable to Spirit’s holders. However, because Spirit’s common stock is (and, Spirit anticipates, will continue to be) publicly traded, Spirit cannot guarantee that this will always be the case.

Tax Treatment of the Distribution to Non-U.S. Holders of Spirit’s Common Stock

The following discussion addresses the rules governing U.S. federal income taxation of the distribution to non-U.S. holders. These rules are complex, and no attempt is made herein to provide more than a brief summary of such rules. Accordingly, the discussion does not address all aspects of U.S. federal income taxation and does not address other federal, state, local or non-U.S. tax consequences that may be relevant to a non-U.S. holder in light of its particular circumstances. We urge non-U.S. holders to consult their tax advisors to determine the impact of U.S. federal, state, local and non-U.S. income and other tax laws and any applicable tax treaty on the distribution, including any reporting requirements.

 

67


Table of Contents

Generally . The portion of the distribution amount that is neither attributable to gains from sales or exchanges by Spirit of United States real property interests, or USRPIs, nor designated by Spirit as a capital gain dividend (except as described below) will be treated as a dividend of ordinary income to the extent it is made out of Spirit’s allocable current or accumulated earnings and profits. This portion of the distribution amount ordinarily will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty, unless the distribution is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividend is attributable). Under certain treaties, however, lower withholding rates generally applicable to dividends do not apply to dividends from a REIT. Certain certification and disclosure requirements must be satisfied for a non-U.S. holder to be exempt from withholding under the effectively connected income exemption. Dividends that are treated as effectively connected with a U.S. trade or business generally will not be subject to withholding but will be subject to U.S. federal income tax on a net basis at the regular graduated rates, in the same manner as dividends paid to U.S. holders are subject to U.S. federal income tax. Any such dividends received by a non-U.S. holder that is a corporation may also be subject to an additional branch profits tax at a 30% rate (applicable after deducting U.S. federal income taxes paid on such effectively connected income) or such lower rate as may be specified by an applicable income tax treaty.

Except as otherwise provided below, Spirit expects to withhold U.S. federal income tax at the rate of 30% on the distribution made to a non-U.S. holder unless:

 

  (1) a lower treaty rate applies and the non-U.S. holder furnishes an IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) evidencing eligibility for that reduced treaty rate; or

 

  (2) the non-U.S. holder furnishes an IRS Form W-8ECI (or other applicable documentation) claiming that the distribution is income effectively connected with the non-U.S. holder’s trade or business.

To the extent the distribution amount is in excess of Spirit’s allocable current and accumulated earnings and profits, it will not be taxable to a non-U.S. holder to the extent that such distributions do not exceed the adjusted tax basis of the holder’s common stock, but rather will reduce the adjusted tax basis of such stock. To the extent that the distribution amount exceeds the non-U.S. holder’s adjusted tax basis in such common stock, it generally will give rise to gain from the sale or exchange of such stock, the tax treatment of which is described below. However, such excess distributions may be treated as dividend income for certain non-U.S. holders. For withholding purposes, Spirit expects to treat all distributions as made out of its current or accumulated earnings and profits. However, amounts withheld may be refundable if it is subsequently determined that the distribution was, in fact, in excess of Spirit’s allocable current and accumulated earnings and profits, provided that certain conditions are met.

Capital Gain Dividends and Distributions Attributable to a Sale or Exchange of United States Real Property Interests . Distributions to a non-U.S. holder that Spirit properly designates as capital gain dividends, other than those arising from the disposition of a USRPI, generally should not be subject to U.S. federal income taxation, unless:

 

  (1) the investment in Spirit’s common stock is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable), in which case the non-U.S. holder will be subject to the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to a branch profits tax of up to 30%, as discussed above; or

 

  (2) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder will be subject to U.S. federal income tax at a rate of 30% on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of such non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.

 

68


Table of Contents

Pursuant to the Foreign Investment in Real Property Tax Act, which is referred to as “FIRPTA,” distributions to a non-U.S. holder that are attributable to gain from sales or exchanges by Spirit of USRPIs (including gain realized in the spin-off), whether or not designated as capital gain dividends, will cause the non-U.S. holder to be treated as recognizing such gain as income effectively connected with a U.S. trade or business. Non-U.S. holders generally would be taxed at the regular graduated rates applicable to U.S. holders, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. Spirit also will be required to withhold and to remit to the IRS 21% of any distribution to non-U.S. holders attributable to gain from sales or exchanges by Spirit of USRPIs. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a non-U.S. holder that is a corporation. The amount withheld is creditable against the non-U.S. holder’s U.S. federal income tax liability. However, any distribution with respect to any class of stock that is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market located in the United States is not subject to FIRPTA, and therefore, not subject to the 21% U.S. withholding tax described above, if the non-U.S. holder did not own more than 10% of such class of stock at any time during the one-year period ending on the date of the distribution. Instead, such distributions generally will be treated as ordinary dividend distributions and subject to withholding in the manner described above with respect to ordinary dividends. In addition, distributions to certain non-U.S. publicly traded shareholders that meet certain record-keeping and other requirements (“qualified shareholders”) are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of Spirit’s capital stock. Furthermore, distributions to “qualified foreign pension funds” or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.

Sale of Spirit’s Common Stock . To the extent the distribution is treated as a sale of Spirit’s common stock, gain realized by a non-U.S. holder generally will not be subject to U.S. federal income tax unless such stock constitutes a USRPI. In general, stock of a domestic corporation that constitutes a “United States real property holding corporation,” or USRPHC, will constitute a USRPI. Spirit believes that it is a USRPHC. Spirit’s common stock will not, however, constitute a USRPI so long as Spirit is a “domestically controlled qualified investment entity.” A “domestically controlled qualified investment entity” includes a REIT in which at all times during a five-year testing period less than 50% in value of its stock is held directly or indirectly by non-United States persons, subject to certain rules. For purposes of determining whether a REIT is a “domestically controlled qualified investment entity,” a person who at all applicable times holds less than 5% of a class of stock that is “regularly traded” is treated as a United States person unless the REIT has actual knowledge that such person is not a United States person. Spirit believes, but cannot guarantee, that it is a “domestically controlled qualified investment entity.” Because Spirit’s common stock is (and, Spirit anticipates, will continue to be) publicly traded, no assurance can be given that Spirit will continue to be a “domestically controlled qualified investment entity.”

Even if Spirit does not qualify as a “domestically controlled qualified investment entity” at the time a non-U.S. holder is treated as selling Spirit’s common stock, gain realized from the sale by a non-U.S. holder of such common stock would not be subject to U.S. federal income tax under FIRPTA as a sale of a USRPI if:

 

  (1) Spirit’s common stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market such as the NYSE; and

 

  (2) such non-U.S. holder owned, actually and constructively, 10% or less of Spirit’s common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the non-U.S. holder’s holding period.

In addition, sales of Spirit’s common stock by qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of Spirit’s capital stock. Furthermore, dispositions of Spirit’s common stock by “qualified foreign pension funds” or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.

 

69


Table of Contents

Notwithstanding the foregoing, gain from the distribution to the extent it is treated as a sale of Spirit’s common stock not otherwise subject to FIRPTA will be taxable to a non-U.S. holder if either (a) the investment in Spirit’s common stock is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable), in which case the non-U.S. holder will be subject to the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to the 30% branch profits tax (or such lower rate as may be specified by an applicable income tax treaty) on such gain, as adjusted for certain items, or (b) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. In addition, even if Spirit is a domestically controlled qualified investment entity, upon disposition of Spirit’s common stock, a non-U.S. holder may be treated as having gain from the sale or other taxable disposition of a USRPI if the non-U.S. holder (1) disposes of such stock within a 30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have been treated as gain from the sale or exchange of a USRPI and (2) acquires, or enters into a contract or option to acquire, or is deemed to acquire, other shares of that stock during the 61-day period beginning with the first day of the 30-day period described in clause (1), unless such stock is “regularly traded” and the non-U.S. holder did not own more than 10% of the stock at any time during the one-year period ending on the date of the distribution described in clause (1).

To the extent the distribution is treated as a sale of Spirit’s common stock and gain were subject to taxation under FIRPTA, the non-U.S. holder would be required to file a U.S. federal income tax return and would be subject to regular U.S. federal income tax with respect to such gain in the same manner as a taxable U.S. holder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals).

Information Reporting and Backup Withholding

U.S. Holders . A U.S. holder may be subject to information reporting and backup withholding when such holder receives the distribution. Certain U.S. holders are exempt from backup withholding, including corporations and certain tax-exempt organizations. A U.S. holder will be subject to backup withholding if such holder is not otherwise exempt and:

 

    the holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social security number;

 

    the holder furnishes an incorrect taxpayer identification number;

 

    the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest or dividends; or

 

    the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and that the IRS has not notified the holder that the holder is subject to backup withholding.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. U.S. holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.

Non-U.S. Holders . The distribution of SMTA common shares generally will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the

 

70


Table of Contents

holder is a United States person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on Spirit’s common stock paid to the non-U.S. holder, regardless of whether any tax was actually withheld. In addition, proceeds of a sale of such stock within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting, if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a sale of such stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.

Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the non-U.S. holder resides or is established.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

Medicare Contribution Tax on Unearned Income

Certain U.S. holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends on stock and capital gains from the sale or other disposition of stock. U.S. holders should consult their tax advisors regarding the effect, if any, of these rules on the distribution.

Additional Withholding Tax on Payments Made to Foreign Accounts

Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on Spirit’s common stock paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

Holders should consult their tax advisors regarding the potential application of withholding under FATCA to the distribution.

Time for Determination of the Tax Consequences of the Distribution

The tax consequences of the distribution will be affected by a number of facts that are yet to be determined, including Spirit’s final earnings and profits for 2018 (including as a result of the income and gain Spirit recognizes in connection with the spin-off), the fair market value of SMTA common shares on the date of the

 

71


Table of Contents

distribution and the extent to which Spirit recognizes gain on the sales of USRPIs or other capital assets. Thus, a definitive calculation of the U.S. federal income tax consequences of the distribution will not be possible until after the end of the 2018 calendar year. Spirit will provide its stockholders with tax information on an IRS Form 1099-DIV, informing them of the character of distributions made during the taxable year, including the distribution.

Market for Common Shares

There is currently no public market for our common shares. A condition to the spin-off is the listing on the NYSE of our common shares. We intend to list our common shares on the NYSE under the symbol “SMTA.”

Trading Between the Distribution Record Date and Distribution Date

Beginning shortly before the distribution record date and continuing up to and through the distribution date, we expect that there will be two markets in Spirit common stock: a “regular-way” market and an “ex-distribution” market. Shares of Spirit common stock that trade on the regular way market will trade with an entitlement to our common shares distributed pursuant to the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to our common shares distributed pursuant to the distribution. Therefore, if you sell shares of Spirit common stock in the “regular-way” market through the distribution date, you will be selling your right to receive our common shares in the distribution. If you own shares of Spirit common stock at the close of business on the distribution record date and sell those shares on the “ex-distribution” market through the distribution date, you will still receive our common shares that you would be entitled to receive pursuant to your ownership of the shares of Spirit common stock on the distribution record date.

Furthermore, beginning on or shortly before the distribution record date and continuing up to and through the distribution date, we expect that there will be a “when-issued” market in our common shares. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for our common shares that will be distributed to Spirit stockholders on the distribution date. If you owned shares of Spirit common stock at the close of business on the distribution record date, you would be entitled to our common shares distributed pursuant to the distribution. You may trade this entitlement to our common shares, without trading the shares of Spirit common stock you own, on the “when-issued” market. On the first trading day following the distribution date, “when-issued” trading with respect to our common shares will end and “regular-way” trading will begin.

Conditions to the Spin-Off

The spin-off of our common shares by Spirit is subject to the satisfaction of the following conditions:

 

    the SEC shall have declared effective our registration statement on Form 10, of which this information statement is a part, under the Exchange Act, and no stop order relating to the registration statement shall be in effect;

 

    SMTA’s common shares will have been authorized for listing on the NYSE, subject to official notice of issuance;

 

    no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing completion of the spin-off or any of the transactions related thereto, including the transfers of assets and liability contemplated by the Separation and Distribution Agreement, shall be in effect; and

 

    the Separation and Distribution Agreement will not have been terminated.

Even if all conditions to the spin-off are satisfied, Spirit may terminate and abandon the spin-off at any time prior to the effectiveness of the spin-off.

 

72


Table of Contents

Reasons for the Spin-Off

Upon careful review and consideration in accordance with the applicable standard of review under Maryland law, Spirit’s board of directors determined that the spin-off is in the best interest of Spirit and its stockholders. The spin-off will enable potential investors and the financial community to evaluate the performance of each company separately, which may result in a higher aggregate market value than the value of the combined company. Spirit’s board of directors’ determination was based on a number of factors and goals, including those set forth below:

 

    Optimize Capital Structure for Both Companies . Upon completion of the spin-off, we believe each company will have a clear capital structure tailored to its needs, and each may be able to attain more favorable financing terms separately. Our capital structure will utilize Master Trust 2014 to access the secured ABS market to fund future growth, while the removal of Master Trust 2014 from Spirit’s capital structure will result in Spirit having meaningfully less secured debt, which we believe will further facilitate Spirit’s access to capital and investment-grade credit markets.

 

    Seek Optimal Long-Term Solution for Shopko Portfolio. The transfer of the unencumbered Shopko Assets to SMTA will allow us to pursue longer term value creation alternatives for them, including sales, out parcel development and redevelopment opportunities. Proceeds from dispositions of Shopko Assets can then be utilized to fund new acquisitions that will serve as collateral for future issuances under Master Trust 2014.

The anticipated benefits of the spin-off are based on a number of assumptions, and there can be no assurance that such benefits will materialize to the extent anticipated, or at all. In the event that the spin-off does not result in such benefits, the costs associated with the spin-off, including an expected increase in general and administrative expenses, could have a material adverse effect on the financial condition, liquidity and results of operations of each company individually and in the aggregate. For more information about the risks associated with the spin-off, see “Risk Factors—Risks Related to the Spin-Off.”

Reasons for Furnishing this Information Statement

This information statement is being furnished solely to provide information to Spirit stockholders who are entitled to receive our common shares in the spin-off. The information statement is not, and is not to be construed as, an inducement or encouragement to buy, hold or sell any of our securities or securities of Spirit. We believe that the information in this information statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither Spirit nor we undertake any obligation to update such information.

 

73


Table of Contents

DISTRIBUTION POLICY

We anticipate making regular quarterly distributions to our common shareholders. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay regular U.S. federal corporate income tax to the extent that it annually distributes less than 100% of its REIT taxable income. We generally intend over time to make quarterly distributions in an amount at least equal to our REIT taxable income, which may not equal our cash available for distribution during any particular period. However, in determining whether we will make a cash distribution to our common shareholders, our board of trustees will consider various factors, including our cash available for distribution to our common shareholders for the applicable period. In estimating our cash available for distribution to our common shareholders for the year ending December 31, 2018, we have made certain assumptions as reflected in the table and footnotes below.

Our estimate of cash available for distribution to our common shareholders for the year ending December 31, 2018 is based on our unaudited pro forma combined financial data for the year ended December 31, 2017 and does not take into account our business and growth strategies, nor does it take into account any unanticipated expenditures we may have to make or any financings to fund such expenditures. Our estimate also does not include the effect of any changes in our working capital resulting from changes in our working capital accounts, the amount of cash estimated to be used for investing activities for acquisition and other similar activities (except as specifically noted below) or the amount of cash estimated to be used for financing activities (except as specifically noted below). Any such activities may materially and adversely affect our estimate of cash available for distribution to our common shareholders. Because we have made the assumptions set forth above in estimating cash available for distribution to our common shareholders, we do not intend this estimate to be a projection or forecast of our actual results of operations, EBITDA, Adjusted EBITDA, FFO, AFFO, liquidity or financial condition. Our estimate of cash available for distribution to our common shareholders should not be considered as an alternative to cash flow from operating activities (computed in accordance with GAAP) or as an indicator of our liquidity or our ability to pay distributions. In addition, the methodology upon which we made the adjustments described below is not necessarily intended to be a basis for determining future dividends or other distributions.

If the financial performance of the collateral for our indebtedness under our Master Trust 2014 fails to achieve certain financial performance criteria, cash from such collateral may be unavailable to us until the terms are cured or the debt refinanced. In addition, if an event of default occurs under our current or future CMBS loans, if the tenants at the properties that secure our current or future CMBS loans fail to maintain certain EBITDAR ratios or if an uncured monetary default exists under the relevant leases, a portion of or all of the cash that would otherwise be distributed to us may be restricted by the lenders and unavailable to us until the terms are cured or the debt refinanced. Such cash sweep triggering events have occurred previously with respect to CMBS loans and may be ongoing from time to time. The occurrence of these events would limit the amount of cash available to us for use in our business and could limit or eliminate our ability to make distributions to our common shareholders. See “Risk Factors—Risks Related to Our Indebtedness—The agreements governing our indebtedness contain restrictions and covenants which may limit our ability to enter into or obtain funding for certain transactions, operate our business or make distributions to our common shareholders.”

Furthermore, a significant portion of our estimated cash available for distribution for the year ending December 31, 2018 is derived from rental revenues received from Shopko and reflected in our unaudited pro forma combined statement of operations for the year ended December 31, 2017. Shopko accounted for approximately $47.7 million, or 18.6%, of our revenues and $1.1 million, or 13.0%, of our property costs (including reimbursables) on a pro forma basis for the year ended December 31, 2017. Although Shopko is current on all of its obligations to us under its lease arrangements with us as of March 5, 2018, we can give you no assurance that this will continue to be the case, particularly if Shopko (not just the stores subject to leases with us) experiences a further decline in its business, financial condition and results of operations or loses access to liquidity. If such events were to occur, Shopko may request discounts or deferrals on the rents it pays to us, seek

 

74


Table of Contents

to terminate its master leases with us or close certain of its stores or file for bankruptcy, all of which could significantly decrease the amount of rental revenue we receive from it without a proportionate or any decrease in the amount of Shopko-related property costs we incur. The occurrence of these events would limit the amount of cash available to us for use in our business and could limit or eliminate our ability to make distributions to our common shareholders. See “Risk Factors—Risks Related to Our Business—A substantial number of our properties are leased to one tenant, Shopko, which may result in increased risk due to tenant and industry concentration.”

No assurance can be given that our estimated cash available for distribution to our common shareholders for the year ending December 31, 2018 will be accurate or that our actual cash available for distribution to our common shareholders will be sufficient to pay distributions to them at any expected level or at any particular yield, in an amount sufficient for us to continue to qualify as a REIT or to reduce or eliminate U.S. federal income taxes or at all. Accordingly, we may need to borrow or rely on other third-party capital to make distributions to our common shareholders, and such third-party capital may not be available to us on favorable terms, or at all. As a result, we may not be able to pay distributions to our common shareholders in the future. In addition, our series A preferred shares initially issued to Spirit Realty, L.P. and one of its affiliates and the SubREIT preferred shares issued by SubREIT to Spirit Realty, L.P. (which will have a binding commitment to sell such shares to third parties) will have a preference on distribution payments. All distributions will be made at the discretion of our board of trustees and will depend on our historical and projected results of operations, liquidity and financial condition, our REIT qualification, our cash available for distribution to our common shareholders, our debt service requirements, operating expenses and capital expenditures, prohibitions and other restrictions under financing arrangements and applicable law and other factors as our board of trustees may deem relevant from time to time. If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution to our common shareholders from what they otherwise would have been.

U.S. federal income tax law requires that a REIT distribute annually at least 90% of its taxable income (determined without regard to the dividends paid deduction and excluding net capital gain) and that it pay regular U.S. federal corporate income tax to the extent that it distributes annually less than 100% of its taxable income (including capital gain). For more information, please see “Material U.S. Federal Income Tax Consequences—Taxation of Our Company—Annual Distribution Requirements.”

The following table sets forth calculations relating to the estimated cash available for distribution to our common shareholders for the year ending December 31, 2018 based on unaudited pro forma combined financial data for the year ended December 31, 2017 and is provided solely for the purpose of illustrating the estimated cash available for distribution to our common shareholders for the year ending December 31, 2018 and is not intended to be a basis for actually determining future distributions. All dollar amounts are in thousands.

 

75


Table of Contents

Pro forma net loss for the year ended December 31, 2017

   $ (14,142

Add: Real estate depreciation and amortization

     86,493  

Less: Net effect of non-cash rental revenue (1)

     (7,000

Add: Other amortization and non-cash charges (2)

     938  

Add: Non-cash interest expense (3)

     9,900  

Less: Incremental general and administrative expenses (4)

     (1,537

Add: Non-cash impairment charges (5)

     25,896  

Add: Loss on extinguishment of debt

     2,223  

Add: Net reduction to interest expense associated with the amortization of indebtedness (6)

     361  

Less: Net decreases in contractual rent due to lease expirations, assuming renewals consistent with historical data (7)

     (6,862

Add: Non-cash compensation expense (8)

     1,500  
  

 

 

 

Estimated cash flow from operating activities for the year ending December 31, 2018

   $ 97,770  

Less: Estimated cash disbursement obligations for property and tenant improvements (9)

     (1,041

Less: Scheduled principal payments on indebtedness (10)

     (34,502
  

 

 

 

Estimated cash available for distribution for the year ending December 31, 2018

   $ 62,227  
  

 

 

 

Dividends to preferred noncontrolling interests in consolidated subsidiaries (11)

   $ (900

Dividends to holders of series A preferred shares (12)

   $ (15,000

Our common shareholder’s share of estimated cash available for distribution

   $ 46,327  

 

 

(1)   Represents the elimination of non-cash rental revenues associated with the straight-line adjustment to rental revenue, net of bad debt expense, for the year ended December 31, 2017.
(2)   Represents the elimination of pro forma amortization associated with above and below-market lease intangibles and other identified tangible and intangible assets for the year ended December 31, 2017.
(3)   Represents the elimination of pro forma non-cash interest expense for the year ended December 31, 2017, including the amortization of deferred finance costs and debt discount.
(4)   Represents estimated incremental general and administrative expenses not reflected in our pro forma net loss for the year ended December 31, 2017 using the mid-point of our estimated range of total cash general and administrative expense of $7.5 million to $8.5 million as discussed in Note II to our unaudited pro forma combined statement of operations included elsewhere in this information statement.
(5)   Represents the elimination of non-cash impairment charges recognized on real estate investments during the year ended December 31, 2017.
(6)   Represents net reductions in contractual interest expense for the year ending December 31, 2018 due to reductions in outstanding principal amount of indebtedness arising from principal amortization payments on our indebtedness described in footnote 10 below.
(7)   Represents (i) the full-year impact of leases that expired or were terminated during the year ended December 31, 2017 or the period January 1, 2018 through April 6, 2018, in each case that were not renewed or re-leased as of April 6, 2018, and (ii) estimated net decreases in contractual rent during the year ending December 31, 2018 due to lease expirations at 26 properties, assuming a renewal rate of 81.5% based on expiring Contractual Rent, which was our weighted average lease renewal rate for the eight quarters ended December 31, 2017 (weighted by Contractual Rent and without giving effect to incremental Contractual Rent under new leases) and rental rates on renewed leases equal to the in-place rates for such leases at expiration. This adjustment gives effect only to expirations net of estimated renewals and does not take into account incremental new leasing.
(8)   Represents the elimination of pro forma non-cash compensation expense related to equity-based awards for the year ended December 31, 2017.
(9)   Represents the expected cash disbursements associated with all known property and tenant improvement obligations projected to be completed during the year ending December 31, 2018.
(10)   Represents scheduled principal amortization during the year ending December 31, 2018 for indebtedness outstanding at December 31, 2017, as well as additional indebtedness incurred through April 6, 2018.

 

76


Table of Contents
(11)   Represents dividends at a rate of 18% per annum on the 5,000 SubREIT preferred shares issued by SubREIT to Spirit Realty, L.P. (which will have a binding commitment to sell such shares to third parties) with an aggregate liquidation preference of $5.0 million, assuming such dividends are paid entirely in cash.
(12)   Represents dividends at a rate of 10% per annum on the Series A preferred shares initially issued to Spirit Realty, L.P. and one of its affiliates with an aggregate liquidation preference of $150.0 million, assuming such dividends are paid entirely in cash.

 

77


Table of Contents

SELECTED PRO FORMA AND HISTORICAL COMBINED FINANCIAL AND OTHER DATA

You should read the following selected pro forma and historical combined financial and other data together with “Unaudited Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business and Properties” and the combined financial statements, and related notes thereto, of the Predecessor Entities included elsewhere in this information statement.

The following tables set forth selected unaudited pro forma combined financial and other data of SMTA after giving effect to the spin-off and related transactions. The unaudited pro forma combined balance sheet data gives effect to the spin-off and related transactions as if they had occurred on December 31, 2017. The unaudited pro forma combined statement of operations gives effect to the spin-off and related transactions as if they had occurred on January 1, 2017. The selected unaudited pro forma combined financial data set forth below is presented for illustrative purposes only and is not necessarily indicative of the combined operating results or financial position that would have occurred if the spin-off and related transactions had been consummated on the dates and in accordance with the assumptions described in the unaudited pro forma combined financial statements, including the notes thereto, which are included elsewhere in this information statement, nor is it necessarily indicative of our future operating results or financial position.

The following tables also set forth selected historical combined financial and other data of SMTA’s Predecessor Entities as of the dates and for the periods presented. We have not presented historical information of SMTA because it has not had any operating activity since its formation on November 15, 2017, other than its initial capitalization. The selected historical combined financial data as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 as set forth below was derived from the Predecessor Entities’ audited combined financial statements, including the notes thereto, which are included elsewhere in this information statement. The historical results set forth below are not necessarily indicative of our operating results expected for any future periods. We believe that the assumptions and estimates used in preparation of the underlying historical results are reasonable.

 

     Pro Forma
Year Ended
December 31,
2017
     Historical
Years Ended December 31,
 
        2017      2016      2015  
     (Unaudited)      (In Thousands)         

Operating Data:

           

Revenues:

           

Rentals

   $ 243,368      $ 224,312      $ 234,671      $ 249,036  

Interest income on loans receivable

     4,500        768        2,207        3,685  

Tenant reimbursement income

     2,362        2,274        2,130        2,048  

Other income

     5,711        4,448        6,295        6,394  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     255,941        231,802        245,303        261,163  

Expenses:

           

General and administrative

     7,963        23,857        18,956        20,790  

Related party fees

     26,960        5,500        5,427        5,506  

Restructuring charges

     —          —          2,465        3,036  

Transaction costs

     —          4,354        —          —    

Property costs (including reimbursable)

     8,416        9,130        5,258        5,043  

Interest

     111,784        76,733        77,895        83,719  

Depreciation and amortization

     86,493        80,386        85,761        93,692  

Impairments

     25,896        33,548        26,565        19,935  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     267,512        233,508        222,327        231,721  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

78


Table of Contents
     Pro Forma
Year Ended
December 31,
2017
    Historical
Years Ended December 31,
 
       2017     2016     2015  
     (Unaudited)     (In Thousands)        

(Loss) income from continuing operations before other expense and income tax (expense) benefit

     (11,571     (1,706     22,976       29,442  

Other expense:

        

Loss on debt extinguishment

     (2,223     (2,223     (1,372     (787
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (2,223     (2,223     (1,372     (787
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before income tax (expense) benefit

     (13,794     (3,929     21,604       28,655  

Income tax (expense) benefit

     (348     (179     (181     33  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (14,142 )       (4,108 )       21,423       28,688  
  

 

 

   

 

 

   

 

 

   

 

 

 

Discontinued operations:

        

Income from discontinued operations

     —         —         —         98  

Gain on disposition of assets

     —         —         —         590  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

     —         —         —         688  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before gain on disposition of assets

     (14,142 )       (4,108 )       21,423       29,376  

Gain on disposition of assets

     —         22,393       26,499       84,111  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (14,142   $ 18,285     $ 47,922     $ 113,487  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Pro Forma
Year Ended
December 31,
2017
    Historical Years Ended
December 31,
 
       2017     2016  
     (Unaudited)     (In Thousands)  

Balance Sheet Data (end of period):

      

Gross investments, including related lease intangibles

   $ 2,934,858     $ 2,870,592     $ 2,817,732  

Net investments

     2,282,997       2,212,488       2,226,235  

Cash and cash equivalents

     3,016       6       1,268  

Total assets

     2,444,836       2,357,660       2,325,538  

Mortgages and notes payable, net

     2,018,057       1,926,835       1,339,614  

Total liabilities

     2,060,310       1,966,742       1,380,681  

Total parent company equity

     384,526       390,918       944,857  

Other Data:

      

FFO (1)

   $ 82,347     $ 109,826     $ 133,749  

AFFO (1)

   $ 89,908     $ 126,765     $ 143,560  

Adjusted Debt (2)

   $ 1,983,496     $ 1,914,656     $ 1,354,467  

Adjusted Debt + Preferred  (2)

   $ 2,138,496     $ 1,914,656     $ 1,354,467  

Adjusted EBITDA (1)

   $ 212,602     $ 193,315     $ 217,079  

Leverage (Adjusted Debt / Adjusted EBITDA) (1)(2)

     9.3x       9.9x       6.2x  

Leverage (Adjusted Debt + Preferred / Adjusted EBITDA)  (1)(2)

     10.1x       9.9x       6.2x  

FCCR (Adjusted EBITDA / Fixed Charges) (1)

     1.8x       2.7x       3.0x  

Number of properties in investment portfolio

     903       918       982  

Occupancy at period end

     99     99     98

 

(1)   Please see “Non-GAAP Financial Measures” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for our reconciliation to Net Income and definition.
(2)   Please see “Non-GAAP Financial Measures” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for our reconciliation to total mortgages and notes payable and definition.

 

79


Table of Contents

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The accompanying unaudited pro forma combined financial statements presented below have been prepared to reflect the effect of certain pro forma adjustments to the historical financial statements of SMTA and the historical financial statements of the Predecessor Entities. All significant pro forma adjustments and their underlying assumptions are described more fully in the notes to the unaudited pro forma combined financial statements, which you should read in conjunction with such unaudited pro forma combined financial statements.

The unaudited pro forma combined financial statements give effect to the spin-off and the related transactions, including:

 

    the creation of a Maryland real estate investment trust, SMTA, which was formed on November 15, 2017 and capitalized on November 17, 2017;

 

    the transfer from Spirit to SMTA of the Predecessor Entities, which include (i) Master Trust 2014, an asset-backed securitization trust comprised of six legal entities that has issued non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans receivable, (ii) three legal entities that own 98 properties primarily leased to Shopko, (iii) one legal entity that owns a single distribution center property leased to a sporting goods tenant and its general partner entity and (iv) two legal entities that own four unencumbered properties;

 

    the contribution by Spirit to SMTA of a $35.0 million B-1 Term Loan made by Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, as part of a syndicated loan and security agreement with Shopko as borrower and several banks as lenders entered into on January 16, 2018;

 

    the incurrence by the Predecessor Entities of $758.4 million of new indebtedness, consisting of the issuance of (i) $674.4 million aggregate principal amount of new Master Trust 2014 notes comprised of $542.4 million aggregate principal amount of net-lease mortgage notes Series 2017-1, Class A Notes, and $132.0 million aggregate principal amount of net-lease mortgage notes Series 2017-1, Class B Notes, on December 14, 2017 and (ii) $84.0 million aggregate principal amount of new CMBS loan on a single distribution center property leased to a sporting goods tenant on January 22, 2018, the proceeds of which, in each case, were distributed to Spirit;

 

    the repayment by the Predecessor Entities of $43.1 million aggregate principal amount of existing Master Trust 2014 notes comprised of net-lease mortgage notes Series 2014-1, Class A-1 Notes, on November 20, 2017;

 

    the issuance of (i) 10% Series A preferred shares by SMTA to Spirit Realty, L.P. and one of its affiliates with an aggregate liquidation preference of $150.0 million, (ii) 18% SubREIT preferred shares by SubREIT to Spirit Realty, L.P. (which will have a binding commitment to sell such shares to third parties) with an aggregate liquidation preference of $5.0 million;

 

    the entry into the Asset Management Agreement between SMTA and Spirit Realty, L.P.; and

 

    the distribution of approximately 42,850,013 SMTA common shares by Spirit to Spirit stockholders, based on the approximately 428,500,128 shares of Spirit common stock outstanding as of April 27, 2018, assuming distribution of 100% of Spirit outstanding common shares and applying the distribution ratio of one common share of SMTA for every ten shares of Spirit common stock (without accounting for cash to be issued in lieu of fractional shares).

As of December 31, 2017, the Predecessor Entities consisted of 907 owned properties with a 99.3% Occupancy. The owned properties were leased to 201 tenants across 45 states and 24 industries. In addition, Master Trust 2014 included mortgage loans receivable secured by an additional 11 properties. The spin-off and the related transactions also include, and the unaudited pro forma combined financial statements reflect, the impact of the following property contribution, acquisition, distribution and disposition transactions that have

 

80


Table of Contents

occurred or are expected to occur in preparation for the spin-off during the period of January 1, 2017 through record date of the spin-off to reflect the real estate assets that will comprise SMTA at the time of the spin-off:

 

    the contribution by Spirit to SMTA or its subsidiaries of ten properties and the acquisition by the Predecessor Entities from a third party of three properties in preparation for the spin-off subsequent to December 31, 2017;

 

    the distribution by the Predecessor Entities to Spirit of three properties and the disposition by the Predecessor Entities to third parties of 25 properties in preparation for the spin-off subsequent to December 31, 2017;

 

    the addition by Spirit to the collateral of Master Trust 2014 of 10 properties on December 14, 2017 in connection with the issuance of $674.4 million aggregate principal amount of Series 2017-1 notes described above;

 

    the acquisition by the Predecessor Entities from a third party of one property and the contribution by Spirit to the Predecessor Entities of one property in the normal course of business during the year ended December 31, 2017; and

 

    the disposition by Predecessor Entities to third parties of 76 properties in the normal course of business during the year ended December 31, 2017.

Upon completion of the spin-off, we expect to own investments in a portfolio of approximately 903 properties, consisting of 897 owned properties and mortgage loans receivable secured by six properties. The unaudited pro forma combined balance sheet assumes the spin-off and the related transactions occurring subsequent to December 31, 2017 had occurred as of that date. The unaudited pro forma combined statement of operations assumes the spin-off and the related transactions occurred on January 1, 2017. The pro forma adjustments are based on currently available information and assumptions we believe are reasonable, factually supportable, directly attributable to the spin-off and the related transactions and, for purposes of the statements of operations, are expected to have a continuing impact on our business.

The following unaudited pro forma combined financial statements were prepared in accordance with Article 11 of Regulation S-X, using the assumptions set forth in the notes to the unaudited pro forma combined financial statements. The unaudited pro forma combined financial statements are presented for illustrative purposes only and do not purport to reflect the results we may achieve in future periods or the historical results that would have been obtained had the above transactions been completed as of December 31, 2017 in the case of the unaudited pro forma combined balance sheet or on January 1, 2017 in the case of the unaudited pro forma statements of operations.

The unaudited pro forma combined financial statements are derived from and should be read in conjunction with the historical balance sheet and accompanying notes of SMTA and the historical combined financial statements and accompanying notes of the Predecessor Entities included elsewhere in this information statement.

 

81


Table of Contents

SMTA

Unaudited Pro Forma Combined Balance Sheet

As of December 31, 2017

(In Thousands, Except Share and Per Share Data)

 

    SMTA
Historical
(A)
    Predecessor
Entities

Historical
(B)
    2018
Contributions
(C)
    2018
Distributions and
Dispositions

(D)
    Other
Adjustments
          Pro Forma
Combined
Total
 

Assets

             

Investments:

             

Real estate investments:

             

Land and improvements

  $      —       $ 973,231     $ 20,200     $ (15,655   $  —         $ 977,776  

Buildings and improvements

    —         1,658,023       47,125       (12,229     —           1,692,919  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total real estate investments

    —         2,631,254       67,325       (27,884     —           2,670,695  

Less: accumulated depreciation

    —         (557,948     (9,733     6,753     —           (560,928
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 
    —         2,073,306       57,592       (21,131     —           2,109,767  

Loans receivable, net

    —         32,307       —         (1,501     35,551     (E     66,357  

Intangible lease assets, net

    —         102,262       1,411       (1,172     —           102,501  

Real estate assets held for sale, net

    —         28,460       —         —         —           28,460  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net investments

    —         2,236,335       59,003       (23,804     35,551         2,307,085  

Cash and cash equivalents

    10     6       —         —         3,000       (F     3,016  

Deferred costs and other assets, net

    —         107,770       (5,116     18,532     —           121,186  

Goodwill

    —         13,549       —         —         —           13,549  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total assets

  $ 10     $ 2,357,660     $ 53,887     $ (5,272   $ 38,551       $ 2,444,836  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Liabilities, mezzanine equity and equity

             

Liabilities:

             

Mortgages and notes payable, net

  $  —       $ 1,926,835     $  —       $  —       $

 

8,216

83,006

 

 

   

(G

(H

)

  $ 2,018,057  

Intangible lease liabilities, net

    —         23,847       884       (643     —           24,088  

Accounts payable, accrued expenses and other liabilities

    —         16,060       900       (795     2,000       (F     16,165  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

    —         1,966,742       1,784       (1,438     93,222         2,060,310  

Mezzanine equity:

             

Series A preferred shares, $0.01 par value, $25.00 per share liquidation preference, authorized: 0 shares issued and outstanding, SMTA historical, and 6,000,000 shares issued and outstanding, pro forma combined total

    —         —         —         —         150,000       (I     150,000  

Preferred noncontrolling interests in consolidated subsidiaries

    —         —         —         —         5,000       (J     5,000  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total mezzanine equity

    —         —         —         —         155,000         155,000  

 

82


Table of Contents
     SMTA
Historical
(A)
     Predecessor
Entities

Historical
(B)
     2018
Contributions
(C)
     2018
Distributions and
Dispositions

(D)
    Other
Adjustments
          Pro Forma
Combined
Total
 

Equity:

                 

Net parent investment

     —          390,918        52,103        (3,834 )    

35,551

1,000

(8,216

(83,006

(150,000

(5,000

(229,516

 

 

   

(E

(F

(G

(H

(I

(J

(K


    —    

Common shares, $0.01 par value, 750,000,000 shares authorized: 10,000 shares issued and outstanding, SMTA historical, and 42,850,013 shares issued and outstanding, pro forma combined total

     —          —          —          —         429       (K     429  

Capital in excess of par value

     10        —          —          —         229,087       (K     229,097  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

     

 

 

 

Total equity

     10      390,918        52,103        (3,834 )     (209,671       229,526  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

     

 

 

 

Total liabilities, mezzanine equity and equity

   $ 10      $ 2,357,660      $ 53,887      $ (5,272   $ 38,551       $ 2,444,836  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

     

 

 

 

See accompanying notes.

 

83


Table of Contents

SMTA

Unaudited Pro Forma Combined Statement of Operations

Year Ended December 31, 2017

(In Thousands, Except Share and Per Share Data)

 

     SMTA
Historical
(AA)
     Predecessor
Entities
(BB)
    2018
Contributions

(CC)
    2018
Distributions
and
Dispositions
(DD)
    Master
Trust
2014

Additions
(EE)
     2017
Acquisitions
and
Contributions

(FF)
     2017
Dispositions
(GG)
    Other
Adjustments
          Pro Forma
Combined
Total
       

Revenues:

                         

Rentals

   $  —      $ 224,312     $ 5,977     $ (2,584   $ 19,323      $ 622    $ (4,282   $  —     $ 243,368    

Interest income on loans receivable

          768         (173 )                 (20     3,925       (HH     4,500    

Tenant reimbursement income

          2,274     168       (34 )                 (54     8       (NN     2,362    

Other income

          4,448     1,300           100             (137           5,711    
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

     

 

 

   

Total revenues

            231,802       7,445       (2,791 )     19,423        622      (4,493     3,933         255,941    

Expenses:

                         

General and administrative

          23,857       375       (10 )     3             (1,356     (14,906     (II     7,963    

Related party fees

          5,500                                   20,000       (JJ     26,960    
                      1,460       (KK    

Transaction costs

          4,354                                   (4,354     (LL        

Property costs (including reimbursable)

            9,130       2,162       (432     20               (2,472     8       (NN     8,416    

Interest

            76,733                                       35,051       (MM     111,784    

Depreciation and amortization

            80,386       2,268       (777     6,174        318        (1,876           86,493    

Impairments

            33,548       7,184       (389                   (14,447           25,896    
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

     

 

 

   

Total expenses

            233,508       11,989       (1,608     6,197        318        (20,151     37,259         267,512    
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

     

 

 

   

(Loss) income before other expense and income tax expense

            (1,706     (4,544     (1,183     13,226      304      15,658       (33,326       (11,571  

Other expense:

                         

Loss on debt extinguishment

            (2,223                                     (2,223  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

     

 

 

   

Total other expense

            (2,223                                     (2,223  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

     

 

 

   

(Loss) income before income tax expense

          (3,929     (4,544     (1,183     13,226      304      15,658     (33,326       (13,794  

Income tax expense

          (179                               (169 ) (NN)        (348  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

     

 

 

   

(Loss) income before gain on disposition of assets

          (4,108     (4,544     (1,183     13,226      304      15,658     (33,495       (14,142  

Gain on disposition of assets

          22,393             15                 (22,408            
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

     

 

 

   

 

84


Table of Contents
     SMTA
Historical
(AA)
     Predecessor
Entities
(BB)
    2018
Contributions

(CC)
    2018
Distributions
and
Dispositions
(DD)
    Master
Trust
2014

Additions
(EE)
     2017
Acquisitions
and
Contributions

(FF)
     2017
Dispositions
(GG)
    Other
Adjustments
          Pro Forma
Combined
Total
       

Net income (loss)

   $      $ 18,285     $ (4,544   $ (1,168   $ 13,226      $ 304      $ (6,750   $ (33,495     $ (14,142  

Net income attributable to preferred noncontrolling interests in consolidated subsidiaries

                      900       (OO     900    

Preferred dividends

                      15,000       (PP     15,000    

Net income (loss) attributable to common shareholders:

   $      $ 18,285     $ (4,544   $ (1,168   $ 13,226      $ 304      $ (6,750   $ (49,395     $ (30,042  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

     

 

 

   

Net loss per share attributable to common shareholders:

                         

Basic

                        $ (0.70     (QQ
                       

 

 

   

Diluted

                        $ (0.70     (QQ
                       

 

 

   

Weighted average common shares outstanding:

                         

Basic

                          42,850,013       (QQ
                       

 

 

   

Diluted

                          42,850,013       (QQ
                       

 

 

   

See accompanying notes.

 

85


Table of Contents

SMTA

Notes to Unaudited Pro Forma Combined Financial Statements

 

1. Adjustments to Unaudited Pro Forma Combined Balance Sheet

 

(A) Reflects the historical balance sheet of SMTA as of December 31, 2017.

 

(B) Reflects the historical combined balance sheet of the Predecessor Entities as of December 31, 2017. The transfer from Spirit to SMTA of the Predecessor Entities are transactions between entities under common control. As a result, the Predecessor Entities’ assets and liabilities are reflected at their historical cost basis.

 

(C) Reflects ten properties contributed by Spirit to SMTA or its subsidiaries and the acquisition by the Predecessor Entities from a third party of three properties in preparation for the spin-off subsequent to December 31, 2017 with an aggregate net book value of $58.1 million as of December 31, 2017.

 

(D) Reflects three properties distributed by the Predecessor Entities to Spirit subsequent to December 31, 2017 and 25 properties disposed of by the Predecessor Entities to third parties in preparation for the spin-off subsequent to December 31, 2017 with an aggregate net book value of $23.2 million as of December 31, 2017.

 

(E) Reflects the contribution to SMTA of a $35.0 million B-1 Term Loan made by Spirit Realty, L.P. as part of a syndicated loan and security agreement with Shopko as borrower and several banks as lenders, resulting in a $35.5 million increase in net parent investment, which is reclassified to shareholder’s equity as discussed in Note I. The B-1 Term Loan is secured by Shopko’s assets in its $784 million asset-backed lending facility and is subordinate to an existing Term B Loan. The B-1 Term Loan matures on June 19, 2020 and bears interest at a rate of 12% per annum.

 

(F) Reflects the cash contribution of $3.0 million to SMTA from Spirit Realty, L.P. at or prior to the spin-off. Additionally, reflects the related liability to be recorded by SMTA as SMTA is required to pay Spirit Realty, L.P. $2.0 million within 60 days of the spin-off for certain estimated rents received with respect to the SMTA assets that relates to the period between May 1, 2018 and the spin-off.

 

(G) The Series 2017-1 Class B Notes issued by Master Trust 2014 were repriced on January 23, 2018 pursuant to a private offering that decreased the interest rate on the Class B Notes from 6.35% to 5.49% per annum. The Series 2017-1 Class A Notes issued by Master Trust 2014 were also repriced on the same date, with no change to their terms. In connection with the repricing, the Predecessor Entities received $8.2 million in additional proceeds that reduced the debt discount. The additional proceeds were distributed to Spirit, resulting in a $8.2 million reduction in net parent investment, which is reclassified to shareholder’s equity as discussed in Note I.

 

(H) Reflects the incurrence of approximately $84.0 million of new indebtedness, net of deferred financing fees of $1.0 million, through issuance of new CMBS loan on a single distribution center property leased to a sporting goods tenant. The CMBS loan matures on February 1, 2028 and has a stated interest rate of 5.14%. The proceeds of the CMBS loan issuance were distributed to Spirit, resulting in a $83.0 million reduction in net parent investment, which is reclassified to shareholder’s equity as discussed in Note I.

 

(I) Reflects the issuance of 10% Series A preferred shares by SMTA to Spirit Realty, L.P. and one of its affiliates with an aggregate liquidation preference of $150.0 million. The Series A preferred shares will be classified as mezzanine equity in the unaudited pro forma combined balance sheet in accordance with ASC 480-10-S99, Distinguishing Liabilities from Equity (which requires mezzanine equity classification for preferred equity issuances with redemption features that are outside of the control of the issuer) because, for so long as any Series A preferred shares are held by Spirit Realty, L.P. (together with one or more of its affiliates), upon the occurrence of an Offer to Purchase Event (as defined), we must offer to purchase the Series A preferred shares held by Spirit Realty, L.P. (together with one or more of its affiliates) at a purchase price equal to $25.00 per share, plus any accrued and unpaid dividends to, but not including, the payment date.

 

86


Table of Contents
(J) Reflects the issuance of 18% SubREIT preferred shares by SubREIT to Spirit Realty, L.P. (which will have a binding commitment to sell such shares to third parties) with an aggregate liquidation preference of $5.0 million. The SubREIT preferred shares will also require mezzanine equity classification.

 

(K) Reflects the reclassification of the net parent investment attributable to the Predecessor Entities to par value and capital in excess of par value in connection with the distribution of 42,850,013 of our common shares to Spirit.

 

2. Adjustments to Unaudited Pro Forma Combined Statement of Operations

 

(AA) Represents the historical statement of operations of SMTA for the year ended December 31, 2017. SMTA has had no operating activity since its formation on November 15, 2017, other than the issuance of 10,000 common shares for an aggregate purchase price of $10,000 in connection with the initial capitalization of SMTA.

 

(BB) Reflects the historical combined statement of operations of the Predecessor Entities for the year ended December 31, 2017. As discussed in Note B, the transfer from Spirit to SMTA of the Predecessor Entities are transactions between entities under common control. As a result, expenses such as depreciation and amortization to be recognized by us are based on the Predecessor Entities’ historical cost basis of the related assets and liabilities.

 

(CC) Reflects the revenue and expenses from ten properties contributed by Spirit to SMTA or its subsidiaries and the acquisition by the Predecessor Entities from a third party of three properties in preparation for the spin-off subsequent to December 31, 2017 as though the contributions were made on January 1, 2017.

 

(DD) Reflects the revenue and expenses from three properties distributed by the Predecessor Entities to Spirit and 25 properties disposed of by the Predecessor Entities to third parties subsequent to December 31, 2017 as though the distributions and dispositions were made on January 1, 2017.

 

(EE) Reflects the revenue and expenses from 10 properties added to the collateral of Master Trust 2014 by Spirit on December 14, 2017 in connection with the issuance of $674.4 million aggregate principal amount of Series 2017-1 notes as though the additions were made on January 1, 2017.

 

(FF) Reflects the revenue and expenses from one property acquired by Predecessor Entities from a third party and one property contributed by Spirit to the Predecessor Entities in the normal course of business during the year ended December 31, 2017 as though the acquisition and contribution were made on January 1, 2017.

 

(GG) Reflects the revenue and expenses from 76 properties disposed of by Predecessor Entities to third parties in the normal course of business during the year ended December 31, 2017 as though the dispositions were made on January 1, 2017.

 

(HH) Reflects interest income related to the $35.0 million B-1 Term Loan made to Shopko as though the loan was made on January 1, 2017, with an interest rate of 12% per annum described in Note E.

 

(II) Reflects (i) the elimination of general and administrative expenses of $16.0 million for the year ended December 31, 2017, as these costs will be incurred by our Manager under the Management Agreement as discussed in Note JJ, partially offset by (ii) equity-based compensation expense associated with grants of restricted shares with an aggregate value of $1.5 million that we expect to make to our independent trustees. These grants are expected to vest over a one-year period. The remaining general and administrative expenses reflect the historical bad debt expense of the Predecessor Entities for the year ended December 31, 2017 and certain other expenses that are expected to be recurring.

We estimate recurring cash general and administrative expenses of approximately $7.5 million to $8.5 million for the year ended December 31, 2018 as a result of being a public company. As we have not yet entered into contracts with third parties to provide the services included within this estimate (other than our expected equity-based compensation expense), approximately $0.8 million to $1.8 million of these estimated expenses do not appear in the unaudited pro forma combined statement of operations.

 

87


Table of Contents
(JJ) Reflects fees associated with the Management Agreement with Spirit of $20 million per year pursuant to which Spirit will provide various services subject to the supervision of our board of trustees, including, but not limited to: (i) performing all of our day-to-day functions, (ii) sourcing, analyzing and executing on investments and dispositions, (iii) determining investment criteria, (iv) performing investment and liability management duties, including financing and hedging, and (v) performing financial and accounting management.

 

(KK) Reflects an increase in fees paid to Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, as property manager and special servicer of Master Trust 2014 as a result of the additional collateral added to Master Trust 2014 in conjunction with the issuance of the Series 2017-1 notes.

 

(LL) Reflects the elimination of transaction costs that are directly attributable to the spin-off that will not have a continuing impact on our results of operations.

 

(MM) Reflects an increase in interest expense of $35.4 million related to the incurrence of approximately $758.4 million of new indebtedness with a weighted average interest rate of approximately 4.8% per annum (including the impact of the repricing of the Series 2017-1 Class B notes as described in Note F), net of a reduction in interest expense of $0.3 million related to the repayment of $43.1 million of existing indebtedness with an interest rate of 5.1% per annum. The adjustments include interest expense paid to a related party of $1.3 million for the year ended December 31, 2017. The adjustment also reflects non-cash interest expense for the amortization of the fees paid to lenders of $3.8 million for the year ended December 31, 2017.

Interest expense was calculated assuming constant debt levels throughout the periods presented, as though the debt was incurred on January 1, 2017. Interest expense may be higher or lower if our amount of debt outstanding changes. A 0.125% change to the annual interest rate would change interest expense by approximately $2.6 million for the year ended December 31, 2017.

 

(NN) Reflects income tax expense associated with our contemplated structure, in connection with the spin-off and related transactions. The portion of these taxes that we can pass through to our tenants under our leases is reflected as tenant reimbursement income and property costs (including reimbursable).

 

(OO) Reflects the allocation of net income to preferred noncontrolling interests in consolidated subsidiaries attributable to the SubREIT preferred shares issued by SubREIT described in Note J.

 

(PP) Represents dividends at a rate of 10% per annum on the Series A preferred shares with an aggregate liquidation preference of $150.0 million described in Note H.

 

(QQ) Our pro forma earnings per share are based upon the distribution of all of the outstanding SMTA common shares owned by Spirit on the basis of one common share of SMTA for every ten shares of Spirit common stock held as of the close of business on the record date, or 42,850,013 shares.

The number of our common shares used to compute basic and diluted earnings per share for the year ended December 31, 2017 is based on the number of our common shares assumed to be outstanding on the distribution date, based on the number of shares of Spirit common stock outstanding on April 27, 2018, assuming a distribution ratio of one common share of SMTA for every ten shares of Spirit common stock outstanding and the shares that were issued and outstanding at the time of our initial capitalization.

 

88


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following is a discussion and analysis of the financial condition of SMTA immediately following the spin-off, as well as the historical results of SMTA’s Predecessor Entities. You should read this discussion in conjunction with the audited historical combined financial information and accompanying notes and the unaudited pro forma combined financial information and accompanying notes, both of which are included elsewhere in this information statement. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted or expected in these forward-looking statements as a result of various factors, including those which are discussed below and elsewhere in this information statement, including “Risk Factors” and “Forward-Looking Statements.” Our financial statements may not necessarily reflect our future financial condition and results of operations, or what they would have been had we been a separate, stand-alone company during the periods presented.

On August 3, 2017, Spirit announced a plan to spin-off its interests in (i) Master Trust 2014, an asset-backed securitization trust comprised of six legal entities, which has issued non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans receivable, (ii) three legal entities which own properties primarily leased to Shopko, (iii) the Sporting Goods Entities, and (iv) two legal entities which own unencumbered properties. As of December 31, 2017, the Predecessor Entities consisted of 907 owned properties, with a 99.3% Occupancy. The owned properties were leased to 201 tenants across 45 states and 24 industries. In addition, Master Trust 2014 included mortgage loans receivable secured by an additional 11 real estate properties.

The spin-off will be effectuated by means of a pro rata distribution by Spirit to its common shareholders of all outstanding SMTA common shares. SMTA was formed for the purpose of receiving, via contribution from Spirit, the legal entities which comprise the Predecessor Entities. To date, SMTA has not conducted any business as a separate company and has no material assets and liabilities.

The accompanying combined financial statements of the Predecessor Entities have been prepared on a carve-out basis in accordance with GAAP. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenues and expenses during the reporting periods. Actual results could differ from these estimates. The historical financial results for the carved-out Predecessor Entities reflect expenses for certain corporate costs which we believe are reasonable. These expenses were based on either actual cost incurred or a proportion of costs estimated to be allocable to SMTA based on the relative property count of the Predecessor Entities to those owned by Spirit as a whole. Such costs do not necessarily reflect what the actual costs would have been if SMTA had been operating as a separate standalone public company. These expenses are discussed further in footnote 5 of the accompanying combined financial statements.

Prior to the spin-off, we raised $674.4 million in new debt through issuance of new Series 2017-1 notes under Master Trust 2014 in December 2017 and an additional $84.0 million of new CMBS debt on the single distribution center property leased to a sporting goods tenant in January 2018. All cash from the proceeds of these debt issuances has been distributed to Spirit prior to the transfer of the Predecessor Entities described above. In January 2018, we also re-priced a private offering of the Series 2017-1 Class B notes with $132.0 million aggregate principal, reducing the interest rate on such notes from 6.35% to 5.49%, and Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, funded a $35.0 million term loan as part of a syndicated loan and security agreement with Shopko as borrower and several banks as lenders that will be contributed to us in connection with the spin-off. In connection with the spin-off, SMTA will issue $150.0 million of Series A preferred shares to Spirit Realty, L.P. and one of its affiliates in exchange for the contribution of certain legal entities. SubREIT will issue common shares and SubREIT preferred shares with an aggregate liquidation preference of $5.0 million to Spirit Realty, L.P. in exchange for the contribution of certain assets, including an interest in Financing JV. Spirit Realty, L.P. will then sell the preferred shares of SubREIT to third parties.

 

89


Table of Contents

SMTA will enter into an Asset Management Agreement with Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, under which Spirit Realty, L.P. will provide various services including, but not limited to: active portfolio management (including underwriting and risk management), financial reporting, and SEC compliance. The fees for these services will be a flat rate of $20 million annually. Additionally, subsequent to the spin-off, Spirit Realty, L.P. will continue as the property manager and special servicer of Master Trust 2014, under which Spirit Realty, L.P. receives property management fees which accrue daily at 0.25% per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets and special servicing fees which accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement. SMTA and Spirit will also enter into an Insurance Sharing Agreement, a Tax Matters Agreement, and a Registration Rights Agreement in connection with the spin-off.

Subsequent to the transfer of entities to SMTA and the distribution of SMTA’s common shares to Spirit’s shareholders, SMTA expects to operate in a manner intended to enable it to qualify as a REIT under the applicable provisions of the Code. To maintain REIT status, SMTA must meet a number of organizational and operational requirements, including a requirement to distribute annually to shareholders at least 90% of SMTA’s REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. Since the Predecessor Entities are disregarded entities for Federal income tax purposes, no provision for Federal income tax has been made in the accompanying combined financial statements. The Predecessor Entities are subject to certain other taxes, including state taxes, which are shown as income tax (expense) benefit in the combined statements of operations.

Presentation of earnings per share information is not applicable in these combined financial statements, since these assets are wholly owned by Spirit.

Critical Accounting Policies and Estimates

Our accounting policies are determined in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that are subjective in nature and, as a result, our actual results could differ materially from our estimates. Estimates and assumptions include, among other things, subjective judgments regarding the fair values and useful lives of our properties for depreciation and lease classification purposes, the collectability of receivables and asset impairment analysis. Set forth below are the more critical accounting policies that require management judgment and estimates in the preparation of our combined financial statements.

Real Estate Investments

Purchase Accounting and Acquisition of Real Estate; Lease Intangibles

We use a number of sources to estimate fair value of real estate acquisitions, including building age, building location, building condition, rent comparables from similar properties, and terms of in-place leases, if any. Lease intangibles, if any, acquired in conjunction with the purchase of real estate represent the value of in-place leases and above or below-market leases. In-place lease intangibles are valued based on our estimates of costs related to tenant acquisition and the carrying costs that would be incurred during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases at the time of the acquisition. We then allocate the purchase price (including acquisition and closing costs) to land, building, improvements and equipment based on their relative fair values. For properties acquired with in-place leases, we allocate the purchase price of real estate to the tangible and intangible assets and liabilities acquired based on their estimated fair values. Above and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition of the real estate and our estimate of current market lease rates for the property, measured over a period equal to the remaining initial term of the lease.

 

90


Table of Contents

Impairment

We review our real estate investments and related lease intangibles quarterly for indicators of impairment, which include the asset being held for sale, tenant bankruptcy, leases expiring in less than 12 months and property vacancy. For assets with indicators of impairment, we then evaluate if its carrying value exceeds its estimated undiscounted cash flows, in which case the asset is considered impaired. Estimating future cash flows and fair values are highly subjective and such estimates could differ materially from actual results. Key assumptions used in estimating future cash flows and fair values include, but are not limited to, revenue growth rates, interest rates, discount rates, capitalization rates, lease renewal probabilities, tenant vacancy rates and other factors.

Impairment is then calculated as the amount by which the carrying value exceeds the estimated fair value. The fair values are estimated by using the following information, depending on availability, in order of preference: signed purchase and sale agreements or letters of intent; recently quoted bid or ask prices, or market prices for comparable properties; estimates of cash flow, which consider, among other things, contractual and forecasted rental revenues, leasing assumptions, and expenses based upon market conditions; and expectations for the use of the real estate.

Allowance for Doubtful Accounts

We review our rent receivables for collectability on a regular basis, taking into consideration factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. If the collectability of a receivable with respect to any tenant is in doubt, a provision for uncollectible amounts will be established or a write-off of the specific receivable will be made. Uncollected accounts receivable are written off against the allowance when all possible means of collection have been exhausted. For deferred rental revenues related to the straight-line method of reporting rental revenue, we establish a provision for losses based on our estimate of uncollectible receivables and our assessment of the risks inherent in our portfolio, giving consideration to historical experience.

Results of Operations

Comparison of the Years Ended December 31, 2017 and 2016

The following discussion includes the results of our continuing operations as summarized in the table below:

 

     Years Ended December 31,  
     2017      2016      Change     % Change  
     (in thousands)        

Revenues:

          

Rentals

   $ 224,312      $ 234,671      $ (10,359     (4.4 )% 

Interest income on loans receivable

     768        2,207        (1,439     (65.2 )% 

Tenant reimbursement income

     2,274        2,130        144       6.8

Other income

     4,448        6,295        (1,847     (29.3 )% 
  

 

 

    

 

 

    

 

 

   

Total revenues

     231,802        245,303        (13,501     (5.5 )% 

Expenses:

          

General and administrative

     23,857        18,956        4,901       25.9

Related party fees

     5,500        5,427        73       1.3

Restructuring charges

            2,465        (2,465     (100.0 )% 

Transaction costs

     4,354               4,354       100.0

Property costs (including reimbursable)

     9,130        5,258        3,872       73.6

Interest

     76,733        77,895        (1,162     (1.5 )% 

Depreciation and amortization

     80,386        85,761        (5,375     (6.3 )% 

Impairment

     33,548        26,565        6,983       26.3
  

 

 

    

 

 

    

 

 

   

Total expenses

     233,508        222,327        11,181       5.0

 

91


Table of Contents
     Years Ended December 31,  
     2017     2016     Change     % Change  
     (in thousands)        

(Loss) income from continuing operations before other expense and income tax expense

     (1,706     22,976       (24,682     NM  

Other expense:

        

Loss on debt extinguishment

     (2,223     (1,372     (851     62.0
  

 

 

   

 

 

   

 

 

   

Total other expense

     (2,223     (1,372     (851     62.0

(Loss) income from continuing operations before income tax expense

     (3,929     21,604       (25,533     NM  

Income tax expense

     (179     (181     2       (1.1 )% 
  

 

 

   

 

 

   

 

 

   

(Loss) income from continuing operations

   $ (4,108   $ 21,423     $ (25,531     NM  
  

 

 

   

 

 

   

 

 

   

Gain on disposition of assets

   $ 22,393     $ 26,499     $ (4,106     (15.5 )% 
  

 

 

   

 

 

   

 

 

   

NM—Percentages over 100% are not displayed.

Revenues

Rentals

For the year ended December 31, 2017, approximately 96.8% of our total revenues were generated from long-term leases of our owned properties. The year-over-year decrease in rental revenue was due primarily to a decrease in contractual rental revenue resulting from the timing of real estate transactions subsequent to December 31, 2016. While the Predecessor Entities increased total Real Estate Investment value by $265.5 million for the year ended December 31, 2017 through the acquisition of two properties and Spirit’s contribution of 10 properties in conjunction with the Master Trust 2014 issuance, the 10 properties were not contributed until December 2017. During the same period, the Predecessor Entities disposed of 76 properties with a Real Estate Investment Value of $145.7 million. As of December 31, 2017, our properties had a 99.3% Occupancy. As of December 31, 2017 and 2016, respectively, 6 and 18 of our properties were Vacant, representing approximately 0.7% and 1.8% of our owned properties. Of the six Vacant properties, none were held for sale as of December 31, 2017.

During the year ended December 31, 2017 and 2016, non-cash rentals were $5.2 million and $4.1 million, respectively, representing approximately 2.3% and 1.7%, respectively, of total rental revenue from continuing operations.

Interest income on loans receivable

The decrease in interest income on loans receivable year over year primarily relates to the timing of change in outstanding loans during the year ended December 31, 2016, where mortgage loans receivable decreased from 79 loans collateralized by 81 properties at the beginning of 2016 to 9 loans collateralized by 11 properties at December 31, 2016. Mortgage loans receivable then remained flat, with 9 loans collateralized by 11 properties still outstanding at December 31, 2017.

Tenant reimbursement income

We have a number of leases that require our tenants to reimburse us for certain property costs we incur, which we record on a gross basis. As such, tenant reimbursement income is driven by the tenant reimbursable property costs described below, less an allowance for reimbursable expenses determined to be uncollectable from our tenants.

 

92


Table of Contents

Other income

Year-over-year other income decreased primarily due to a decrease in lease termination fees received. For the year ended December 31, 2017, other income is primarily attributable to $3.6 million in lease termination fees received from one property with a tenant in the medical office industry and nine properties with tenants in the restaurant – casual dining industry. For the year ended December 31, 2016, other income is primarily attributable to $5.4 million in lease termination fees received from three properties with a tenant in the education industry.

Expenses

General and administrative, Restructuring charges and Transaction costs

General and administrative expenses of $4.0 million and $1.4 million during the years ended December 31, 2017 and 2016, respectively, were specifically identified based on direct usage or benefit. The change in specifically identified expenses is a result of an increase in bad debt expense as a result of certain tenants in the education, sporting goods, specialty retail, medical office and restaurant—casual dining industries for which the straight-line rent has been determined to be uncollectible for the year ended December 31, 2017, whereas there was no bad debt expense recorded for the year ended December 31, 2016. Transaction costs are the expenses associated with the spin-off, and there were no transaction costs incurred for the year ended 2016. For the transaction costs incurred during the year ended December 31, 2017, $3.2 million were specifically identified based on direct usage or benefit.

The remaining general and administrative expenses, restructuring charges and transaction costs have been allocated from Spirit’s financial statements, based on the Predecessor Entities’ property count relative to Spirit’s property count. The Predecessor Entities’ property count decreased from 982 properties at December 31, 2016 to 918 properties at December 31, 2017. Spirit’s property count also decreased from 2,615 properties to 2,480 for the same period. As such, the allocation percentage year over year remained relatively flat. Therefore, the increase in general and administrative expenses is a direct result of Spirit’s increased expenses year-over-year. The relocation of Spirit’s headquarters from Scottsdale, Arizona to Dallas, Texas was completed in 2016 and therefore there were no restructuring charges at recognized at Spirit for the year ended December 31, 2017.

Related party fees

Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, is the property manager and special servicer of Master Trust 2014, under which Spirit Realty, L.P. receives property management fees which accrue daily at 0.25% per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets and special servicing fees which accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement. Collateral value remained relatively flat from $2.0 billion at December 31, 2016 to $1.9 billion at November 31, 2017. In conjunction with the issuance completed in December 2017, collateral value increased to $2.6 billion at December 31, 2017. However, due to the timing of the issuance, the increase in collateral value had little impact on the related party fees for the year ended December 31, 2017, resulting in relatively flat related party fees year-over-year.

Property costs

For the year ended December 31, 2017, property costs were $9.1 million (including $2.8 million of tenant reimbursable expenses) compared to $5.3 million (including $2.0 million of tenant reimbursable expenses) for the same period in 2016. The increase was driven primarily by an increase in non-reimbursable property taxes on operating properties of $2.4 million, which relates primarily to the timing of dispositions of vacant properties during 2017, as well as an increase in tenant credit issues year-over-year.

 

93


Table of Contents

Interest

Interest expense decreased slightly year-over year, primarily due to the timing of debt extinguishment in both 2016 and 2017. For the year ended December 31, 2016, $119.3 million of CMBS debt was extinguished with a weighted average interest rate of 6.0%, however most of the debt was extinguished in the first half of 2016. For the year ended December 31, 2017, $43.1 million of Master Trust 2014 debt was extinguished with an interest rate of 5.1%, however it was not extinguished until November 2017.

The following table summarizes our interest expense on related borrowings from continuing operations:

 

     Years Ended December 31,  
     2017      2016  
     (in thousands)  

Interest expense—Master Trust 2014

   $ 70,664      $ 70,223  

Interest expense—CMBS

     —          2,833  

Non-cash interest expense:

     

Amortization of deferred financing costs

     1,480        1,285  

Amortization of debt discount, net

     4,589        3,554  
  

 

 

    

 

 

 

Total interest expense

   $ 76,733      $ 77,895  
  

 

 

    

 

 

 

Depreciation and amortization

Depreciation and amortization expense relates to the commercial buildings and improvements we own and to amortization of the related lease intangibles. The year-over-year decrease is primarily due to the disposition of 76 properties with a depreciable basis of $145.7 million, during the year ended December 31, 2017. The decrease was partially offset by acquisitions of 12 properties during 2017 with a depreciable basis of $265.5 million, however 10 of these properties were contributed to the Predecessor Entities in conjunction with the Master Trust 2014 issuance in December 2017 and therefore did not contribute significantly to depreciation and amortization expenses for the year ended 2017. The decline in depreciable basis was furthered by impairment charges recorded in 2017 on properties that remain in our portfolio.

The following table summarizes our depreciation and amortization expense from continuing operations:

 

     Years Ended December 31,  
           2017                   2016        
     (in thousands)  

Depreciation of real estate assets

   $ 69,909      $ 73,866  

Amortization of lease intangibles

     10,477        11,895  
  

 

 

    

 

 

 

Total depreciation and amortization

   $ 80,386      $ 85,761  
  

 

 

    

 

 

 

Impairment

During the year ended December 31, 2017, we recorded impairment losses from continuing operations of $33.5 million. These charges included $25.2 million of impairment on 27 vacant properties, of which $21.4 million relates to vacant properties held and used and $3.8 million relates to vacant properties held for sale. $8.0 million of impairment was recorded on underperforming properties, including $6.4 million of impairment on 3 underperforming properties within the education industry classified as held for sale. The remaining $0.3 million of impairment charges related to unrecoverable amounts from loans receivable.

 

94


Table of Contents

During the year ended December 31, 2016, we recorded impairment losses from continuing operations of $26.6 million. These charges included $11.4 million of impairment on 13 properties that were held for sale, including $2.9 million of impairment on vacant held for sale properties. The remaining $15.2 million was recorded on properties held and used, including $6.4 million on 15 vacant held and used properties and $8.8 million on 28 underperforming properties within the general merchandise, restaurants—casual dining, and movie theater industries.

Loss on debt extinguishment

During the year ended December 31, 2017, we extinguished the full outstanding balance of Master Trust 2014 Series 2014-1 Class A1 note of $43.1 million. The loss on the extinguishment was primarily attributable to the $1.6 million pre-payment premium paid in conjunction with this voluntary pre-payment. During the same period in 2016, we extinguished $119.3 million of CMBS debt and recognized a loss on debt extinguishment of $1.4 million. The CMBS debt related to three fixed rate loans collateralized by 56 properties with a weighted average interest rate of 6.0%.

Gain on disposition of assets

During the year ended December 31, 2017, we disposed of 76 properties and recorded gains totaling $22.4 million from continuing operations. Included in these amounts is a $15.0 million gain from the sales of 24 Shopko and former Shopko properties, $2.5 million gain on the sale of 8 properties within the restaurant—quick service industry, $2.4 million gain for the sale of one manufacturing property, and $1.7 million gain on the sale of 4 properties within the restaurant—casual dining industry. During 2016, we disposed of 48 properties and recorded gains totaling $26.5 million from continuing operations. Included in these amounts is a $14.3 million gain from the sales of 14 Shopko and former Shopko properties, $6.1 million gain for the sale of 12 restaurant—casual dining properties, and $4.1 million gain on the sale of 10 properties within the restaurant—quick service industry.

Comparison of the Years Ended December 31, 2016 and 2015

The following discussion includes the results of our continuing operations as summarized in the table below:

 

     Years Ended December 31,  
     2016     2015     Change     % Change  
     (in thousands)        

Revenues:

        

Rentals

   $ 234,671     $ 249,036     $ (14,365     (5.8 )% 

Interest income on loans receivable

     2,207       3,685       (1,478     (40.1 )% 

Tenant reimbursement income

     2,130       2,048       82       4.0

Other income

     6,295       6,394       (99     (1.5 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     245,303       261,163       (15,860     (6.1 )% 

Expenses:

        

General and administrative

     18,956       20,790       (1,834     (8.8 )% 

Related party fees

     5,427       5,506       (79     (1.4 )% 

Restructuring charges

     2,465       3,036       (571     (18.8 )% 

Property costs (including reimbursable)

     5,258       5,043       215       4.3

Interest

     77,895       83,719       (5,824     (7.0 )% 

Depreciation and amortization

     85,761       93,692       (7,931     (8.5 )% 

Impairment

     26,565       19,935       6,630       33.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     222,327       231,721       (9,394     (4.1 )% 

Income from continuing operations before other expense and income tax (expense) benefit

     22,976       29,442       (6,466     (22.0 )% 

Other expense:

        

Loss on debt extinguishment

     (1,372     (787     (585     (74.3 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (1,372     (787     (585     (74.3 )% 

 

95


Table of Contents
     Years Ended December 31,  
     2016     2015      Change     % Change  
     (in thousands)        

Income from continuing operations before income tax (expense) benefit

     21,604       28,655        (7,051     (24.6 )% 

Income tax (expense) benefit

     (181     33        (214     NM  
  

 

 

   

 

 

    

 

 

   

 

 

 

Income from continuing operations

   $ 21,423     $ 28,688      $ (7,265     (25.3 )% 
  

 

 

   

 

 

    

 

 

   

 

 

 

Gain on disposition of assets

   $ 26,499     $ 84,111      $ (57,612     (68.5 )% 
  

 

 

   

 

 

    

 

 

   

 

 

 

NM—Percentages over 100% are not displayed.

Revenues

Rentals

For the year ended December 31, 2016, approximately 95.7% of our total revenues were generated from long-term leases of our owned properties. The year-over-year decrease in rental revenue was due primarily to a decrease in contractual rental revenue resulting from net dispositions of real estate subsequent to December 31, 2015. The Predecessor Entities acquired 17 properties during the year ended December 31, 2016, with a Real Estate Investment Value of $93.9 million, however the Predecessor Entities disposed of 48 properties during the same period, with a Real Estate Investment Value of $145.7 million. As of December 31, 2016, our properties had a 98.2% Occupancy. As of December 31, 2016 and 2015, respectively, 18 and 13 of our properties were Vacant, representing approximately 1.8% and 1.3% of our owned properties. Of the 18 Vacant properties, four were held for sale as of December 31, 2016.

During the year ended December 31, 2016 and 2015, non-cash rentals were $4.1 million and $4.4 million, respectively, representing approximately 1.7% and 1.8%, respectively, of total rental revenue from continuing operations.

Interest income on loans receivable

Mortgage loans receivable held by the company decreased from 79 loans collateralized by 81 properties at December 31, 2015 to 9 loans collateralized by 11 properties at December 31, 2016, resulting in a decrease of 46.2% in loans receivable balances for the comparative period, and therefore a decrease in interest income on loans receivable.

Tenant reimbursement income

We have a number of leases that require our tenants to reimburse us for certain property costs we incur, which we record on a gross basis. As such, tenant reimbursement income is driven by the tenant reimbursable property costs described below, less an allowance for reimbursable expenses determined to be uncollectable from our tenants.

Other income

Year-over-year other income remained relatively flat. For the year ended December 31, 2016, other income is primarily attributable to $5.4 million in lease termination fees received from three properties with a tenant in the education industry. For the year ended December 31, 2015, other income was primarily a result of $5.8 million in lease termination fees on 15 properties with tenants in the education, convenience store and general merchandise industries.

 

96


Table of Contents

Expenses

General and administrative and Restructuring charges

General and administrative expenses of $1.4 million and $1.7 million during the years ended December 31, 2016 and 2015, respectively, were specifically identified based on direct usage or benefit. The remaining general and administrative expenses and restructuring charges have been allocated from Spirit’s financial statements, based on the Predecessor Entities’ property count relative to Spirit’s property count. The Predecessor Entities’ property count decreased from 1,083 properties at December 31, 2015 to 982 properties at December 31, 2016. Spirit’s property count remained relatively flat from 2,629 properties to 2,615 for the same period. Therefore, while general and administrative expenses of Spirit increased year-over-year, the amount allocated to the Predecessor Entities decreased as a result of the change in the Predecessor Entities’ relative property count. Restructuring charges at Spirit decreased over the same period, which in conjunction with the Predecessor Entities’ decrease in relative property count, resulted in a decreased allocation to the Predecessor Entities.

Related party fees

Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, is the property manager and special servicer of Master Trust 2014, under which Spirit Realty, L.P. receives property management fees which accrue daily at 0.25% per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets and special servicing fees which accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement. Collateral value decreased slightly from $2.1 billion at December 31, 2015 to $2.0 billion at December 31, 2016, resulting in a slight decline in related party fees for the years then ended. This decrease in collateral value was due to timing of redeployment of restricted cash from the Master Trust 2014 Release.

Property costs

For the year ended December 31, 2016, property costs were $5.3 million (including $2.0 million of tenant reimbursable expenses) compared to $5.0 million (including $1.9 million of tenant reimbursable expenses) for the same period in 2015. The increase was driven primarily by an increase in non-reimbursable property taxes on non-operating properties of $0.5 million, which relates primarily to the increase in Vacant properties from 13 to 18 from December 31, 2015 to December 31, 2016.

Interest

Year-over-year decrease in interest expense is primarily due to the extinguishment of $119.3 million of CMBS debt with a weighted average interest rate of 6.0% during the year ended December 31, 2016. Additionally, one of the Predecessor Entities had access to a line of credit which expired on March 27, 2016.

The following table summarizes our interest expense on related borrowings from continuing operations:

 

     Years Ended December 31,  
     2016        2015  
     (in thousands)  

Interest expense—Master Trust 2014

   $ 70,223        $ 70,995  

Interest expense—CMBS

     2,833          8,296  

Interest expense—Line of Credit

     —            171  

Non-cash interest expense:

       

Amortization of deferred financing costs

     1,285          1,266  

Amortization of debt discount, net

     3,554          2,991  
  

 

 

      

 

 

 

Total interest expense

   $ 77,895        $ 83,719  
  

 

 

      

 

 

 

 

97


Table of Contents

Depreciation and amortization

Depreciation and amortization expense relates to the commercial buildings and improvements we own and to amortization of the related lease intangibles. The year-over-year decrease is primarily due to the disposition of 48 properties with a depreciable basis of $145.7 million, during the year ended December 31, 2016. The decrease was partially offset by acquisitions of 17 properties during 2016 with a depreciable basis of $93.9 million.

The decline in depreciable basis was furthered by impairment charges recorded in 2016 on properties that remain in our portfolio and a higher real estate value of properties held for sale compared to 2015. Properties held for sale are no longer depreciated.

The following table summarizes our depreciation and amortization expense from continuing operations:

 

     Years Ended December 31,  
     2016      2015  
     (in thousands)  

Depreciation of real estate assets

   $ 73,866      $ 80,213  

Amortization of lease intangibles

     11,895        13,479  
  

 

 

    

 

 

 

Total depreciation and amortization

   $ 85,761      $ 93,692  
  

 

 

    

 

 

 

Impairment

During the year ended December 31, 2016, we recorded impairment losses from continuing operations of $26.6 million. These charges included $11.4 million of impairment on 13 properties that were held for sale, including $2.9 million of impairment on vacant held for sale properties. The remaining $15.2 million was recorded on properties held and used, including $6.4 million on 15 vacant held and used properties and $8.8 million on 28 underperforming properties within the general merchandise, restaurants—casual dining, and movie theater industries.

During the year ended December 31, 2015, we incurred impairment losses from continuing operations of $19.9 million. These charges included $10.2 million of impairment on 20 properties that were held for sale, including $3.5 million of impairment on vacant held for sale properties. The remaining $9.7 million was recorded on properties held and used, including $8.4 million on 7 underperforming properties in the restaurants—casual dining industry.

Loss on debt extinguishment

During the year ended December 31, 2016, we extinguished $119.3 million of CMBS debt and recognized a loss on debt extinguishment of $1.4 million. The CMBS debt related to three fixed rate loans collateralized by 56 properties with a weighted average interest rate of 6.0%. During the same period in 2015, we partially retired the debt of one CMBS fixed rate loan, extinguishing $19.1 million in principal with a stated interest rate of 6.6%. This resulted in a loss on debt extinguishment of $0.7 million.

Gain on disposition of assets

During the year ended December 31, 2016, we disposed of 48 properties and recorded gains totaling $26.5 million from continuing operations. Included in these amounts is a $14.3 million gain from the sales of 14 Shopko and former Shopko properties, $6.1 million gain for the sale of 12 restaurant—casual dining properties, and $4.1 million gain on the sale of 10 properties within the restaurant—quick service industry. During 2015, we disposed of 76 properties and recorded gains totaling $84.1 million from continuing operations. These gains are primarily attributable to a $76.9 million gain from the sale of 32 Shopko properties, $4.1 million gain on the sale of seven properties within the restaurant—quick service industry, and $2.6 million gain on the sale of one automotive dealer property.

 

98


Table of Contents

Liquidity and Capital Resources

Short-term Liquidity and Capital Resources

On a short-term basis, our principal demands for funds will be for operating expenses, including financing of acquisitions, distributions to shareholders and interest and principal on current and any future debt financings. We expect to fund our operating expenses and other short-term liquidity requirements, capital expenditures, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common shareholders, primarily through cash provided by operating activities, continued dispositions of our Shopko assets and potential future bank borrowings.

As of December 31, 2017, we had approximately $2.0 billion aggregate principal amount of indebtedness outstanding, all of which incurs interest at a fixed rate. Subsequent to December 31, 2017, we issued an additional $84.0 million aggregate principal of debt, which incurs interest at a variable rate. If we incur additional debt, the risks associated with our leverage, including our ability to service our debt, would increase.

As discussed under “Risk Factors” in this information statement, a substantial number of our properties are leased to one tenant, Shopko. Although Shopko is current on all obligations to us under its lease arrangements with us as of March 5, 2018, we can give you no assurance that this will continue to be the case, particularly if Shopko (not just the stores subject to leases with us) experiences a further decline in its business, financial condition and results of operations or loses access to liquidity. If such events were to occur, Shopko may request discounts or deferrals on the rents it pays to us, seek to terminate its master leases with us or close certain of its stores or file for bankruptcy, all of which could significantly decrease the amount of revenue we receive from it. As a result, in order to make the distributions to our common shareholders necessary to maintain our REIT qualification and to meet our short-term liquidity needs, we may be required to dispose of assets sooner than anticipated or on potentially disadvantageous terms and/or reduce the amount of our dividends to shareholders. To mitigate these factors, we may borrow to pay dividends or issue stock dividends in order to maintain our status as a REIT.

Long-term Liquidity and Capital Resources

We plan to meet our long-term capital needs, including long-term financing of property acquisitions, by issuing registered debt or equity securities, obtaining asset level financing and occasionally by issuing fixed rate secured or unsecured notes and bonds using the Master Trust 2014 program discussed below. We may issue common shares when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties.

We will continually evaluate alternative financing and believe that we can obtain financing on reasonable terms. However, we cannot assure you that we will have access to the capital markets at times and on terms that are acceptable to us. We expect that our primary uses of capital will be for property and other asset acquisitions and the payment of tenant improvements, operating expenses, including debt service payments on any outstanding indebtedness, and distributions to our shareholders.

Description of Certain Debt

Master Trust 2014

Master Trust 2014 is an asset-backed securitization platform in which we raise capital through the issuance of non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans receivable. Master Trust 2014 allows us to issue notes that are secured by the assets of the special purpose entity note issuers that are pledged to the indenture trustee for the benefit of the noteholders and managed by Spirit as property manager. This collateral pool consists of commercial real estate properties, the issuers’ rights in the leases of such properties and commercial mortgage loans secured by commercial real estate properties. In

 

99


Table of Contents

general, monthly rental and mortgage receipts with respect to the leases and mortgage loans receivable are deposited with the indenture trustee who will first utilize these funds to satisfy the debt service requirements on the notes and any fees and costs associated with the administration of Master Trust 2014. The remaining funds are remitted to the issuers monthly on the note payment date.

In addition, upon satisfaction of certain conditions, the issuers may, from time to time, sell or exchange real estate properties or mortgage loans receivable from the collateral pool. Proceeds from these transactions are held on deposit by the indenture trustee in the Master Trust 2014 Release until a qualifying substitution is made or the amounts are distributed as an early repayment of principal. At December 31, 2017, $66.5 million was held on deposit and classified as restricted cash within deferred costs and other assets, net in our audited historical combined balance sheet included in this information statement.

Master Trust 2014 has multiple bankruptcy-remote, special purpose entities as issuers. Each issuer is an indirect wholly-owned subsidiary of ours. All outstanding series of Master Trust 2014 were investment-grade rated by S&P as of December 31, 2017.

The Master Trust 2014 notes are summarized below:

 

     2017
Effective
Rates (1)
    2017
Stated
Rates  (1)
    2017
Maturity
     December 31,
2017
    December 31,
2016
 
                 (in Years)      (in Thousands)  

Series 2014-1 Class A1

     —         —         —        $ —       $ 53,919  

Series 2014-1 Class A2

     6.2     5.4     2.5        252,437       253,300  

Series 2014-2

     6.3     5.8     3.2        234,329       238,117  

Series 2014-3

     6.2     5.7     4.2        311,336       311,820  

Series 2014-4 Class A1

     4.0     3.5     2.1        150,000       150,000  

Series 2014-4 Class A2

     4.9     4.6     12.1        358,664       360,000  

Series 2017-1 Class A

     3.6     4.4     5.0        542,400       —    

Series 2017-1 Class B

     4.4     6.4     5.0        132,000       —    
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total Master Trust 2014 notes

     5.0     5.0     5.4        1,981,166       1,367,156  
         

 

 

   

 

 

 

Debt discount, net

            (36,342     (18,985

Deferred financing costs, net

            (17,989     (8,557
         

 

 

   

 

 

 

Total Master Trust 2014, net

          $ 1,926,835     $ 1,339,614  
         

 

 

   

 

 

 

 

(1)   Represents the individual series effective and stated interest rates as of December 31, 2017 and the weighted average effective and stated rate of the total Master Trust 2014 notes, based on the collective series outstanding principal balances as of December 31, 2017.

As of December 31, 2016, the Master Trust 2014 notes were secured by 815 owned and financed properties. The notes issued under Master Trust 2014 are cross-collateralized by the assets of all issuers within this trust.

On November 20, 2017, the Company made a voluntary pre-payment of the full outstanding principal balance of Master Trust 2014 Series 2014-1 Class A1 notes of $43.1 million, as well as paid a pre-payment premium of $1.6 million.

On December 14, 2017, the Company completed the issuance of $674.4 million of notes in Master Trust 2014 comprised of $542.4 million aggregate principal amount of net-lease mortgage notes Series 2017-1, Class A Notes, and $132.0 million aggregate principal amount of net-lease mortgage notes Series 2017-1, Class B Notes. Both Class A Notes and Class B Notes have an anticipated repayment date in December 2022 and a legal final payment date in December 2047. The Class A Notes bear interest at a rate of 4.36% and the Class B Notes bear interest at a rate of 6.35%. In conjunction with this issuance, Spirit contributed 10 additional real estate properties

 

100


Table of Contents

to the collateral pool with total appraised value of $282.4 million. All proceeds from this issuance were distributed to Spirit. The revisions to Master Trust 2014, in connection with the issuance of the new notes, generally provide Spirit more administrative flexibility as property manager and special servicer, specifically in expanding the definition of qualifying substitutions to allow Spirit to better redeploy proceeds held on deposit by the indenture trustee.

On January 23, 2018, we re-priced a private offering of the Master Trust 2014 Series 2017-1 notes with $674.4 million aggregate principal amount. As a result, the interest rate on the Class B Notes will be reduced from 6.35% to 5.49%, while the other terms of the Class B Notes will remain unchanged. The terms of the Class A Notes were unaffected by the repricing. In connection with the repricing, we received $8.2 million in additional proceeds that reduced the debt discount. The additional proceeds were distributed to Spirit.

CMBS

We may use long-term, fixed-rate debt to finance our properties on a “match-funded” basis. In such events, we generally seek to use asset level financing that bears annual interest less than the annual rent on the related lease(s) and that matures prior to the expiration of such lease(s). In general, the obligor of our asset level debt is a special purpose entity that holds the real estate and other collateral securing the indebtedness. Each special purpose entity is a bankruptcy remote separate legal entity, and is the sole owner of its assets and solely responsible for its liabilities other than typical non-recurring covenants. As of December 31, 2017, we had no outstanding CMBS loans.

On January 22, 2018, we completed an issuance of CMBS debt on the single distribution center property leased to a sporting goods tenant, with proceeds of approximately $84.0 million. The loan has a term of 10 years to maturity and a stated interest rate of 5.14%. The proceeds were distributed to Spirit.

Debt Maturities

Future principal payments due on our various types of debt outstanding as of December 31, 2017 are as follows (in thousands):

 

     Total      2017      2018      2019      2020      2021      Thereafter  

Master Trust 2014

   $ 1,981,166      $ 33,535      $ 35,321      $ 405,526      $ 243,084      $ 996,244      $ 267,456  

Contractual Obligations

The following table provides information with respect to our commitments (not including any available debt extensions) as well as potential acquisitions under contract as of December 31, 2017 (in thousands):

 

     Payment due by period  

Contractual Obligations

   Total      Less than 1
Year (2018)
     1-3 years
(2019-2020)
     3-5 years
(2021-2022)
     More than
5 years
(after 2021)
 

Debt—Principal

   $ 1,981,166      $ 33,535      $ 440,847      $ 1,239,328      $ 267,456  

Debt—Interest (1)

     448,905        97,908        179,322        111,815        59,860  

Capital Improvements

     3,566        1,041        2,525        —        —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,433,637      $ 132,484      $ 622,694      $ 1,351,143      $ 327,316  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   Debt—Interest has been calculated based on outstanding balances as of December 31, 2017 through their respective maturity dates and excludes unamortized non-cash deferred financing costs of $18.0 million and unamortized debt discount of $36.3 million.

 

101


Table of Contents

The following table provides information with respect to our commitments (not including any available debt extensions) as well as potential acquisitions under contract as of December 31, 2017 on a pro forma basis for the CMBS debt we incurred on January 22, 2018 (in thousands):

 

     Payment due by period  

Contractual Obligations

   Total      Less than 1
Year (2018)
     1-3 years
(2019-2020)
     3-5 years
(2021-2022)
     More than
5 years
(after 2021)
 

Debt—Principal

   $ 2,065,166      $ 34,502      $ 443,296      $ 1,242,058      $ 345,310  

Debt—Interest (1)

     489,246        101,523        187,869        120,081        79,773  

Capital Improvements

     3,566        1,041        2,525        —        —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,557,978      $ 137,066      $ 633,690      $ 1,362,139      $ 425,083  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   Debt—Interest has been calculated based on outstanding balances as of December 31, 2017 through their respective maturity dates and excludes unamortized non-cash deferred financing costs of $19.0 million and unamortized debt discount of $28.1 million.

Non-GAAP Financial Measures

FFO and AFFO

We calculate FFO in accordance with the standards established by NAREIT. FFO represents net income (loss) attributable to common shareholders (computed in accordance with GAAP), excluding real estate-related depreciation and amortization, impairment charges and net (gains) losses from property dispositions. FFO is a supplemental non-GAAP financial measure. We use FFO as a supplemental performance measure because we believe that FFO is beneficial to investors as a starting point in measuring our operational performance. Specifically, in excluding real estate related depreciation and amortization, gains and losses from property dispositions and impairment charges, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year-over-year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of equity REITs, FFO will be used by investors as a basis to compare our operating performance with that of other equity REITs. However, because FFO excludes depreciation and amortization and does not capture the changes in the value of our properties that result from use or market conditions, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. In addition, other equity REITs may not calculate FFO as we do, and, accordingly, our FFO may not be comparable to such other equity REITs’ FFO. Accordingly, FFO should be considered only as a supplement to net income (loss) attributable to common shareholders as a measure of our performance.

AFFO is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. Accordingly, AFFO should be considered only as a supplement to net income (loss) attributable to common shareholders as a measure of our performance. We adjust FFO to eliminate the impact of certain items that we believe are not indicative of our core operating performance, including restructuring costs, other general and administrative costs associated with relocation of our headquarters, transaction costs associated with our proposed spin-off, default interest on non-recourse mortgage indebtedness, debt extinguishment gains (losses), transaction costs incurred in connection with the acquisition of real estate investments subject to existing leases and certain non-cash items. These certain non-cash items include non-cash revenues (comprised of straight-line rents, amortization of above and below market rent on our leases, amortization of lease incentives, amortization of net premium (discount) on loans receivable and amortization of capitalized lease transaction costs), non-cash interest expense (comprised of amortization of deferred financing costs and amortization of net debt discount/premium) and non-cash compensation expense (share-based compensation expense). In addition, other equity REITs may not calculate AFFO as we do, and, accordingly, our AFFO may not be comparable to such other REITs’ AFFO. AFFO does not represent cash generated from operating activities determined in accordance with GAAP, is not necessarily indicative of cash available to fund cash needs and should not be considered as an

 

102


Table of Contents

alternative to net income determined in accordance with GAAP as a performance measure. A reconciliation of our FFO and AFFO to net income (loss) attributable to common shareholders (computed in accordance with GAAP) is included below.

Adjusted EBITDA

Adjusted EBITDA represents EBITDA modified to include other adjustments to GAAP net income (loss) attributable to common shareholders for restructuring charges, transaction costs associated with the spin-off, real estate acquisition costs, impairment losses, gains/losses from the sale of real estate and debt transactions and other items that we do not consider to be indicative of our on-going operating performance. We focus our business plans to enable us to sustain increasing shareholder value. Accordingly, we believe that excluding these items, which are not key drivers of our investment decisions and may cause short-term fluctuations in net income, provides a useful supplemental measure to investors and analysts in assessing the net earnings contribution of our real estate portfolio. Because these measures do not represent net income (loss) that is computed in accordance with GAAP, they should not be considered alternatives to net income (loss) or as an indicator of financial performance. A reconciliation of net income (loss) attributable to common shareholders (computed in accordance with GAAP) to EBITDA and Adjusted EBITDA is included below.

Adjusted Debt

Adjusted Debt represents interest bearing debt (reported in accordance with GAAP) adjusted to exclude unamortized debt discount/premium and deferred financing costs, as further reduced by cash and cash equivalents and cash reserves on deposit with lenders as additional security. By excluding unamortized debt discount/premium and deferred financing costs, cash and cash equivalents, and cash reserves on deposit with lenders as additional security, the result provides an estimate of the contractual amount of borrowed capital to be repaid, net of cash available to repay it. We believe this calculation constitutes a beneficial supplemental non-GAAP financial disclosure to investors in understanding our financial condition.

Adjusted Debt to Adjusted EBITDA is a supplemental non-GAAP financial measure we use to evaluate the level of borrowed capital being used to increase the potential return of our real estate investments, and a proxy for a measure we believe is used by many lenders and ratings agencies to evaluate our ability to repay and service our debt obligations over time. We believe the ratio is a beneficial disclosure to investors as a supplemental means of evaluating our ability to meet obligations senior to those of our equity holders. Our computation of this ratio may differ from the methodology used by other equity REITs, and, therefore, may not be comparable to such other REITs. A reconciliation of interest bearing debt (reported in accordance with GAAP) to Adjusted Debt is included below.

Fixed Charge Coverage Ratio (FCCR)

Fixed Charge Coverage Ratio is the ratio of Adjusted EBITDA to Fixed Charges, a ratio derived from non-GAAP measures that we use to evaluate our liquidity and ability to obtain financing. Fixed Charges consist of interest expense and preferred stock dividends, reported in accordance with GAAP, less non-cash interest expense.

 

103


Table of Contents

FFO and AFFO

 

     Pro Forma
Year Ended
December 31,

2017
       
       Historical Year Ended December 31,  
       2017     2016     2015  
    

(Unaudited, in thousands)

 

Net (loss) income attributable to common shareholders

   $ (30,042   $ 18,285     $ 47,922     $ 113,487  

Add/(less):

        

Portfolio depreciation and amortization

     86,493       80,386       85,761       93,692  

Portfolio impairments

        

Continuing operations

     25,896       33,548       26,565       19,935  

Discontinued operations

     —         —         —         34  

Gain on sales of real estate

     —         (22,393     (26,499     (84,701
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to net (loss) income attributable to common shareholders

     112,389       91,541       85,827       28,960  
  

 

 

   

 

 

   

 

 

   

 

 

 

FFO

   $ 82,347     $ 109,826     $ 133,749     $ 142,447  

Add/(less):

        

Loss on debt extinguishment

     2,223       2,223       1,372       787  

Restructuring charges (1)

     —         —         2,465       3,036  

Other costs included in general and administrative associated with headquarters relocation (1)

     —         —         1,411       —    

Transaction costs

     —         4,354       —         —    

Deal pursuit costs

     —         —         6       201  

Non-cash interest expense

     9,900       6,069       4,839       4,257  

Straight-line rent, net of related bad debt expense

     (7,000     (2,406     (4,266     (4,439

Other amortization and non-cash charges

     938       568       264       206  

Non-cash compensation expense (1)

     1,500       6,131       3,720       5,731  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to FFO

     7,561       16,939       9,811       9,779  
  

 

 

   

 

 

   

 

 

   

 

 

 

AFFO

   $ 89,908     $ 126,765     $ 143,560     $ 152,226  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)   Amounts for historical years are based on the Predecessor Entities’ allocated portion of Spirit’s expense. For further detail on the allocation, see related party transactions as described in footnote 5 to the audited historical combined financial statements within this information statement.

Adjusted Debt, Adjusted EBITDA and Fixed Charges—Leverage and Fixed Charge Coverage Ratio

The following provides a calculation of Adjusted Debt and Fixed Charges and a reconciliation of EBITDA and adjusted EBITDA (dollars in thousands):

 

     Pro Forma
December 31,
2017
    Historical
December 31,
 
       2017     2016  
    

(Unaudited, in thousands)

 

Master Trust 2014, net

   $ 1,935,051     $ 1,926,835     $ 1,339,614  

CMBS, net

     83,006       —         —    
  

 

 

   

 

 

   

 

 

 
   $ 2,018,057     $ 1,926,835     $ 1,339,614  
  

 

 

   

 

 

   

 

 

 

Add/(less):

      

Unamortized debt discount

     28,125       36,342       18,985  

Unamortized deferred financing costs

     18,984       17,989       8,557  

Cash and cash equivalents

     (3,016     (6     (1,268

 

104


Table of Contents
     Pro Forma
December 31,
2017
    Historical
December 31,
 
       2017     2016  
     (Unaudited, in thousands)  

Cash reserves on deposit with lenders as additional security classified as other assets

     (78,654     (66,504     (11,421
  

 

 

   

 

 

   

 

 

 

Total adjustments

     (34,561     (12,179     14,853  
  

 

 

   

 

 

   

 

 

 

Adjusted Debt

   $ 1,983,496     $ 1,914,656     $ 1,354,467  
  

 

 

   

 

 

   

 

 

 

Series A preferred shares

     150,000       —         —    

SubREIT preferred shares

     5,000       —         —    
  

 

 

   

 

 

   

 

 

 

Adjusted Debt + Preferred

   $ 2,138,496     $ 1,914,656     $ 1,354,467  
  

 

 

   

 

 

   

 

 

 

 

     Pro Forma
Year Ended
December 31,
2017
    Historical
Year Ended December 31,
 
       2017     2016  
     (Unaudited, in thousands)  

Net (loss) income

   $ (14,142   $ 18,285     $ 47,922  

Add/(less):

      

Interest

     111,784       76,733       77,895  

Depreciation and amortization

     86,493       80,386       85,761  

Income tax expense

     348       179       181  
  

 

 

   

 

 

   

 

 

 

Total adjustments

     198,625       157,298       163,837  
  

 

 

   

 

 

   

 

 

 

EBITDA

   $ (184,483   $ 175,583     $ 211,759  

Add/(less):

      

Restructuring charges (1)

     —         —         2,465  

Other costs in general and administrative associated with headquarters relocation (1)

     —         —         1,411  

Transaction costs

     —         4,354       —    

Deal pursuit costs

     —         —         6  

Portfolio impairments

     25,896       33,548       26,565  

Gain on sales of real estate assets

     —         (22,393     (26,499

Loss on debt extinguishment

     2,223       2,223       1,372  
  

 

 

   

 

 

   

 

 

 

Total adjustments to EBITDA

     28,119       17,732       5,320  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 212,602     $ 193,315     $ 217,079  
  

 

 

   

 

 

   

 

 

 
     Pro Forma
Year Ended
December 31,
2017
    Historical
Year Ended December 31,
 
       2017     2016  
     (Unaudited, in thousands)  

Interest expense

   $ 111,784     $ 76,733     $ 77,895  

Preferred dividends

     15,900       —         —    

Less: Non-cash interest

     (9,900     (6,069     (4,839
  

 

 

   

 

 

   

 

 

 

Fixed Charges

   $ 117,784     $ 70,664     $ 73,056  

Leverage (Adjusted Debt / Adjusted EBITDA)

     9.3x       9.9x       6.2x  

Leverage (Adjusted Debt + Preferred / Adjusted EBITDA)

     10.1x       9.9x       6.2x  

Fixed Charge Coverage Ratio (Adjusted EBITDA / Fixed Charges)

     1.8x       2.7x       3.0x  

 

(1)   Amounts for historical years are based on the Predecessor Entities’ allocated portion of Spirit’s expense. For further detail on the allocation, see related party transactions as described in footnote 5 to the audited historical combined financial statements within this information statement.

 

105


Table of Contents

Related Party Transactions

Related Party Purchases and Sales

The combined financial statements of the Predecessor Entities include purchases of properties from Spirit and its wholly-owned subsidiaries. For the year ended December 31, 2017, the Predecessor Entities purchased one property from Spirit for $16.0 million. Additionally, during 2017, Spirit contributed 10 real estate properties to the collateral pool of Master Trust 2014 with total appraised value of $282.4 million in conjunction with the issuance of the Series 2017-1 notes. For the year ended December 31, 2016, the Predecessor Entities purchased three properties from Spirit for $12.1 million. For the year ended December 31, 2015, the Predecessor Entities purchased 18 properties from Spirit for $45.6 million. Additionally, for the year ended December 31, 2016, the Predecessor Entities exchanged $11.3 million in cash and two mortgage loans receivable with outstanding principal receivable of $26.6 million to Spirit for four properties with a net book value of $36.9 million. For all of these transactions, due to all entities being under common control, no gain or loss was recognized by the Predecessor Entities and acquired properties were accounted for by the Predecessor Entities at their historical cost basis to Spirit. Any amounts paid in excess of historical cost basis were recognized as distributions to Spirit.

Related Party Loans Receivable

The Predecessor Entities have four mortgage loans receivable where wholly-owned subsidiaries of Spirit are the borrower, and the loans are secured by six single-tenant commercial properties. In total, these mortgage notes had outstanding principal of $30.8 million and $33.9 million at December 31, 2017 and 2016, respectively, which is included in loans receivable, net on the combined balance sheet, and generated $0.3 million of income in the year ended December 31, 2017 and $0.4 million of income in both the years ended December 31, 2016 and 2015, which is included in interest income on loans receivable in the combined statements of operations. These mortgage notes have a weighted average stated interest rate of 1.0% and a weighted average maturity of 9.8 years at December 31, 2017.

Related Party Note Payable

Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, owns notes issued under Master Trust 2014 Series 2014-2. The principal amounts due under the notes are $11.6 million and $11.8 million at December 31, 2017 and 2016, respectively, and is included in mortgages and notes payable, net on the combined balance sheets. The notes have a stated interest rate of 5.8% with a term of 3.2 years to maturity as of December 31, 2017. Subsequent to December 31, 2017, Spirit Realty, L.P. sold its interests in these notes to an unrelated third party. Also, in conjunction with the Series 2017-1 notes issuance completed in December 2017, Spirit Realty, L.P., as sponsor of the issuance, retained a 5% economic interest in the Master Trust 2014 Series 2017-1 notes as required by the risk retention rules issued under 17 CFR Part 246. As such, the principal amounts due under the notes was $33.7 million at December 31, 2017 and is included in the mortgages and notes payable, net on the combined balance sheets. The notes have a weighted average stated interest rate of 4.7% with a term of 5.0 years to maturity as of December 31, 2017.

Related Party Service Agreement

Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, provides property management services and special services for Master Trust 2014. The property management fees accrue daily at 0.25% per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets and the special servicing fees accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement dated May 20, 2014. During the years ended December 31, 2017, 2016 and 2015, property management fees of $4.5 million, $4.7 million and $4.8 million, respectively, were incurred. Special servicing fees of $1.0 million, $0.7 million and $0.7 million were incurred in the years ended December 31, 2017, 2016 and 2015, respectively. The property management fees and special servicing fees are included in related party fees in the combined statements of operations.

 

106


Table of Contents

Prior to the spin-off, SMTA will enter into an Asset Management Agreement with Spirit Realty, L.P. under which Spirit Realty, L.P. will provide various services including, but not limited to: active portfolio management (including underwriting and risk management), financial reporting, and SEC compliance. The fees for these services will be a flat rate of $20 million annually.

Expense Allocations

General and administrative expenses of $4.0 million, $1.4 million and $1.7 million during the years ended December 31, 2017, 2016 and 2015, respectively, and transaction costs of $3.2 million for the year ended December 31, 2017 were specifically identified based on direct usage or benefit. The remaining general and administrative expenses, restructuring costs and transaction costs have been allocated to the Predecessor Entities based on relative property count, which the Company believes to be a reasonable methodology. These allocated expenses are centralized corporate costs borne by Spirit for management and other services, including, but not limited to, executive oversight, asset management, property management, treasury, finance, human resources, tax, accounting, financial reporting, information technology and investor relations, as well as costs from Spirit’s relocation of its headquarters from Scottsdale, Arizona to Dallas, Texas, which was completed in 2016 and transaction costs incurred in connection with the spin-off. A summary of the amounts allocated is provided below:

 

     Years Ended December 31,  
     2017      2016      2015  

Corporate expenses (1)

   $ 19,814      $ 17,533      $ 19,057  

Restructuring charges

   $ —        $ 2,465      $ 3,036  

Transaction costs

   $ 1,180      $ —        $ —    

 

(1)   Corporate expenses have been included within general and administrative expenses in the combined statements of operations.

The allocated amounts above do not necessarily reflect what actual costs would have been if the Predecessor Entities were a separate standalone public company and actual costs may be materially different.

Cash Flows

Comparison of Years Ended December 31, 2017 and 2016

The following table presents a summary of our cash flows for the years ended December 31, 2017 and 2016 (in thousands):

 

     Years Ended December 31,        
           2017                 2016           Change  

Net cash provided by operating activities

   $ 130,900     $ 138,175     $ (7,275

Net cash provided by investing activities

     128,071       82,861       45,210  

Net cash used in financing activities

     (205,150     (218,672     13,522  
  

 

 

   

 

 

   

 

 

 

Net increase in cash, cash equivalents and restricted cash

   $ 53,821     $ 2,364     $ 51,457  
  

 

 

   

 

 

   

 

 

 

As of December 31, 2017, we had $66.5 million of cash, cash equivalents, and restricted cash as compared to $12.7 million as of December 31, 2016.

Operating Activities

Our cash flows from operating activities are primarily dependent upon the occupancy level of our portfolio, the rental rates specified in our leases, the collectability of rent and the level of our operating expenses and other general and administrative costs.

 

107


Table of Contents

The decrease in net cash provided by operating activities was primarily attributable to a decrease in cash rental revenue and interest income on loans receivable of $13.0 million, due to the disposition of 76 properties during 2016 with a Real Estate Investment value of $145.7 million and the payoff of one loan receivable with a principal balance of $2.9 million, which was partially offset by the acquisition of two properties during the same period with a Real Estate Investment Value of $25.0 million. Additionally, there was a $2.4 million decrease in cash interest expense as a result of principal repayments of $53.9 million of Master Trust 2014 during the year ended December 31, 2017.

Investing Activities

Cash used in investing activities is generally used to fund property acquisitions, for investments in loans receivable and, to a limited extent, for capital expenditures. Cash provided by investing activities generally relates to the disposition of real estate and other assets.

Net cash provided by investing activities during 2017 included cash proceeds of $146.6 million from the disposition of 76 properties, partially offset by $26.0 million of cash used to fund the acquisition of two properties (of which one was a related party purchase from Spirit as discussed in footnote 5 in the accompanying historical combined financial statements). Net cash provided by investing activities also included collections on loans receivable during the year ended December 31, 2017 of $8.8 million.

During the same period in 2016, net cash provided by investing activities included cash proceeds of $141.3 million from the disposition of 48 properties, partially offset by $62.7 million of cash used to fund the acquisition of 17 properties (of which seven were related party purchases from Spirit as discussed in footnote 5 in the accompanying historical combined financial statements). Net cash provided by investing activities also included collections on loans receivable during the year ended December 31, 2016 of $6.9 million.

Financing Activities

Generally, our net cash used in financing activities is impacted by our contributions/distributions to Spirit and net borrowings under Master Trust 2014 and CMBS.

Net cash used in financing activities during 2017 was primarily attributable to net distributions to Spirit of $749.3 million, repayments under Master Trust 2014 of $61.1 million, and deferred financing costs of $11.2 million. Net cash provided by financing activities also included borrowings under Master Trust 2014 of $618.1 million

For the same period in 2016, net cash used in financing activities was primarily attributable to net distributions to Spirit of $81.6 million, repayments under Master Trust 2014 of $15.1 million and repayments under CMBS of $119.5 million.

Comparison of Years Ended December 31, 2016 and 2015

The following table presents a summary of our cash flows for the years ended December 31, 2016 and 2015 (in thousands):

 

     Years Ended December 31,        
           2016                 2015           Change  

Net cash provided by operating activities

   $ 138,175     $ 144,100     $ (5,925

Net cash provided by investing activities

     82,861       247,930       (165,069

Net cash used in financing activities

     (218,672     (433,603     214,931  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

   $ 2,364     $ (41,573   $ 43,937  
  

 

 

   

 

 

   

 

 

 

 

108


Table of Contents

As of December 31, 2016, we had $12.7 million of cash, cash equivalents and restricted cash as compared to $10.3 million as of December 31, 2015.

Operating Activities

Our cash flows from operating activities are primarily dependent upon the occupancy level of our portfolio, the rental rates specified in our leases, the collectability of rent and the level of our operating expenses and other general and administrative costs.

The decrease in net cash provided by operating activities was primarily attributable to a decrease in cash rental revenue and interest income on loans receivable of $15.6 million, due to the disposition of 48 properties during 2016 with a Real Estate Investment Value of $145.7 million and the payoff of 70 loans receivable with a principal balance of $33.5 million, which was partially offset by the acquisition of 17 properties during the same period with a Real Estate Investment Value of $93.9 million. Additionally, there was a $6.4 million decrease in cash interest expense as a result of the defeasance of $119.3 million of CMBS during the year ended December 31, 2016.

Investing Activities

Cash used in investing activities is generally used to fund property acquisitions, for investments in loans receivable and, to a limited extent, for capital expenditures. Cash provided by investing activities generally relates to the disposition of real estate and other assets.

Net cash provided by investing activities in 2016 included cash proceeds of $141.3 million from the disposition of 48 properties, partially offset by $62.7 million of cash used to fund the acquisition of 17 properties (of which seven were related party purchases from Spirit as discussed in footnote 5 in the accompanying historical combined financial statements). Net cash provided by investing activities also included collections on loans receivable during the year ended December 31, 2016 of $6.9 million.

During the same period in 2015, net cash provided by investing activities included cash proceeds of $322.3 million from the disposition of 78 properties, partially offset by $79.1 million of cash used to fund the acquisition of 28 properties (of which 18 were related party purchases from Spirit as discussed in footnote 5 in the accompanying historical combined financial statements). Net cash provided by investing activities also included collections on loans receivable during the year ended December 31, 2015 of $9.9 million.

Financing Activities

Generally, our net cash used in financing activities is impacted by our contributions/distributions to Spirit and net borrowings under Master Trust 2014 and CMBS.

Net cash used in financing activities during 2016 was primarily attributable to net distributions to Spirit of $81.6 million, repayments under Master Trust 2014 of $15.1 million and repayments under CMBS of $119.5 million.

For the same period in 2015, net cash used in financing activities was primarily attributable to net distributions to Spirit of $383.1 million, repayments under Master Trust 2014 of $14.3 million, repayments under a line of credit of $15.2 million, and repayments under CMBS of $20.5 million.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial market risks, especially interest rate risk. Interest rates and other factors, such as occupancy, rental rates and the financial condition of our tenants, influence our performance more so than

 

109


Table of Contents

does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. As described above, we generally offer leases that provide for payments of base rent with scheduled increases, based on a fixed amount or the lesser of a multiple of the increase in the CPI over a specified period term or fixed percentage and, to a lesser extent, contingent rent based on a percentage of the tenant’s gross sales to help mitigate the effect of inflation. Because the properties in our portfolio are generally leased to tenants under triple-net leases, where the tenant is responsible for property operating costs and expenses, our exposure to rising property operating costs due to inflation is mitigated.

Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and global economic and political conditions, and other factors which are beyond our control. Our operating results will depend heavily on the difference between the revenue from our assets and the interest expense incurred on our borrowings. We may incur variable rate debt in the future. In addition, decreases in interest rates may lead to additional competition for the acquisition of real estate due to a reduction in desirable alternative income-producing investments. Increased competition for the acquisition of real estate may lead to a decrease in the yields on real estate we have targeted for acquisition. In such circumstances, if we are not able to offset the decrease in yields by obtaining lower interest costs on our borrowings, our results of operations will be adversely affected. Significant increases in interest rates may also have an adverse impact on our earnings if we are unable to acquire real estate with rental rates high enough to offset the increase in interest rates on our borrowings.

In the event interest rates rise significantly or there is an economic downturn, defaults may increase and result in credit losses, which may adversely affect our liquidity and operating results. In a decreasing interest rate environment, borrowers are generally more likely to prepay their loans in order to obtain financing at lower interest rates. Some of our investments in our mortgage loans receivable have significant prepayment protection in the form of yield maintenance provisions, which provide us with yield protection in a decreasing interest rate environment with respect to this portion of our investment portfolio.

The objective of our interest rate risk management policy is to match fund fixed-rate assets with fixed-rate liabilities. As of December 31, 2017, our assets were primarily long-term, fixed-rate leases (though most have scheduled rental increases during the terms of the leases). As of December 31, 2017, all $2.0 billion of our indebtedness consisted of long-term, fixed-rate obligations, consisting of our Master Trust 2014 notes. As of December 31, 2017, the weighted average stated interest rate of the Master Trust 2014 obligations, excluding amortization of deferred financing costs and debt discounts/premiums, was approximately 5.0%. As of December 31, 2017, we had no variable-rate obligations.

The estimated fair value of our Master Trust 2014 notes has been derived based on market quotes for comparable instruments or discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates and credit spreads. The following table discloses the fair value as of December 31, 2017 (in thousands):

 

     Carrying
Value
     Estimated
Fair Value
 

Master Trust 2014, net (1)

   $ 1,926,835      $ 2,030,191  

 

(1)   The carrying value of the debt instruments are net of unamortized deferred financing costs and certain debt discounts/premiums.

 

110


Table of Contents

BUSINESS AND PROPERTIES

Our Company

We are a newly formed, externally-managed REIT with a portfolio of primarily single-tenant properties throughout the U.S. Upon completion of the spin-off, we expect to own investments in a portfolio of approximately 903 properties, approximately 57.8% of which are operated under master leases. At December 31, 2017, our properties had an Occupancy of 99.1%, and their leases had a weighted average non-cancelable remaining lease term (based on Contractual Rent) of approximately 10.6 years. These leases are generally long-term, with non-cancelable initial terms of 15 to 20 years and tenant renewal options for additional terms. As of December 31, 2017, approximately 96.0% of our single-tenant leases (based on Contractual Rent) provided for increases in future annual base rent.

The assets comprising Master Trust 2014 will be the largest component of SMTA. Master Trust 2014 is an investment-grade rated long-term ABS platform through which we are able to raise capital on an ongoing basis by issuing non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans receivable. Additionally, we will own one distribution center property encumbered with CMBS debt, an unencumbered portfolio of properties primarily leased to Shopko, a Midwest retailer operating in the general merchandise industry, and 14 other unencumbered properties.

We will be externally managed by Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, a self-administered and self-managed REIT with in-house capabilities, including acquisition, portfolio management, asset management, credit research, real estate research, legal, finance and accounting and capital markets. Spirit primarily invests in single-tenant, operationally essential real estate throughout the U.S. that is generally acquired through strategic sale-leaseback transactions and subsequently leased on a long-term, triple-net basis to high-quality tenants with business operations within predominantly retail and, to a lesser extent, office and industrial property types. We will not have any employees. All of the services typically provided by employees will be provided to us by our Manager pursuant to an Asset Management Agreement. We believe that our Manager is well-positioned to optimize the operating and financial performance of our portfolio and that the experience, extensive industry relationships and asset management expertise of its senior management team will enable us to compete effectively for acquisitions and help generate attractive returns for our shareholders.

We intend to elect to be taxed as a REIT for federal income tax purposes, and we intend to conduct our business and own substantially all of our assets through the Operating Partnership.

Prior to the completion of the spin-off, we are a wholly-owned subsidiary of Spirit.

Our Mission Statement

Our mission will be to grow and reinforce our asset base through a) our Manager’s active and experienced management of our portfolio, b) pursuing monetization, distribution of proceeds to shareholders and capital recycling of our Shopko Assets, c) redeveloping select Shopko Assets, and d) developing select outparcels of Shopko Assets into quick service restaurants and casual dining restaurants. We intend to utilize Master Trust 2014 to provide long-term financing for redeployed proceeds from dispositions of our Shopko Assets. We plan to redeploy Shopko proceeds into new assets consistent with the Spirit Heat Map and Spirit Property Ranking Model and potentially distribute a portion of these proceeds to shareholders. We will generally focus on entering into new leases with small and medium sized tenants using master lease structures, with contractual rent escalators and requirements to provide unit level financial reporting.

Our Competitive Strengths

 

   

Strong Master Trust 2014 Platform . Master Trust 2014 will be the cornerstone of SMTA. Master Trust 2014 has a long and stable history as one of the first issuers of triple-net ABS notes in the early

 

111


Table of Contents
 

2000s and was investment-grade rated as of December 31, 2017. Since its creation, Master Trust 2014 has issued several series of notes as additional properties have been acquired and added as collateral, including our most recent issuance of approximately $674.4 million aggregate principal amount of notes in December 2017. As of December 31, 2017, Master Trust 2014’s diversified portfolio accounted for 73.2% of our Contractual Rent and consisted of 787 owned properties and mortgage loans receivable secured by an additional six properties, with approximately 196 tenants operating in 44 states across 23 industries, including restaurants—quick service, restaurants—casual dining, movie theaters and medical / other office. We believe it would be difficult for a new competitor to replicate such a diversified portfolio on a comparable scale. The diversity of the Master Trust 2014 portfolio reduces the risks associated with adverse events affecting a particular tenant or an economic decline in any particular industry. Additionally, the scale of this portfolio allows us to make acquisitions without introducing additional concentration risks.

 

    Unencumbered Portfolio to Provide Capital . Master Trust 2014 allows us to issue additional notes as additional properties are acquired and added as collateral, as evidenced by our issuances of several series of notes, including our most recent issuance of approximately $674.4 million aggregate principal amount of notes in December 2017 at a loan-to-value ratio of 75%. We plan to be an active issuer of notes under Master Trust 2014 by aggressively monetizing our Shopko Assets and 14 unencumbered properties and reinvesting the proceeds in properties that will be added to the collateral pool.

 

    Attractive In-Place Long-Term Indebtedness and Liquidity to Support Business . We seek to select funding sources designed to lock in long-term investment spreads and limit interest rate sensitivity. We also seek to balance the use of debt (which includes Master Trust 2014, CMBS and bank borrowings) and equity financing (including possible preferred share issuances). As of December 31, 2017, we had $2.1 billion aggregate principal amount of indebtedness outstanding, with a weighted average maturity of 5.6 years and a weighted average interest rate of 5.0%. Our long-term leases and in-place indebtedness allow us to deliver attractive levered cash-on-cash returns to our shareholders. There are principal amortization payments of $477.8 million due under our debt instruments prior to January 1, 2021, and 86.3% of the principal balance of our indebtedness at December 31, 2017 is fully or partially amortizing, providing for an ongoing reduction in principal prior to maturity.

 

    Long-Term, Triple-Net Leases . Our properties had a 99.1% Occupancy as of December 31, 2017, with a weighted average non-cancelable remaining lease term (based on Contractual Rent) of approximately 10.6 years. Due to the triple-net structure of approximately 94.4% of our leases (based on Contractual Rent) as of December 31, 2017, we do not expect to incur significant capital expenditures. The potential impact of inflation on our operating expenses is also minimal because approximately 96.0% of our leases (based on Contractual Rent) as of December 31, 2017 provided for increases in future contractual base rent.

 

    Experienced Manager with In-House Capabilities Across Asset Management, Investment, Credit and Research Functions . The senior management of our Manager has significant experience in the real estate industry and in managing public companies, including asset management, investment, credit, research, finance, IT and accounting functions. Our Manager’s President and Chief Executive Officer and our trustee, Jackson Hsieh, has been active in the real estate industry for over 25 years, holding numerous leadership positions in real estate investment banking and public real estate companies. Our Manager’s Head of Asset Management, Ken Heimlich, has over 25 years of industry experience.

 

    Operational Continuity . Our Manager has intimate knowledge of our portfolio from providing asset management, property management, investment, credit and research functions for these assets historically, as well as becoming the direct servicer of Master Trust 2014 collateral in the second quarter of 2017. We will benefit from this knowledge base as we transition into a separate public entity. Our Manager has established internal processes for accounting, finance and IT to allow for the effective management of our assets.

 

112


Table of Contents

We intend to have our Manager continue to use the Spirit Heat Map and the proprietary Spirit Property Ranking Model to identify asset recycling opportunities and enhance our acquisition and disposition decisions. Further, we will utilize our Manager’s knowledge of our portfolio and our Manager’s network and infrastructure to manage our properties, source deals, underwrite credit and assist with back office support, including accounting and information technology.

 

    Investment Strategy and Portfolio Rankings . Our Manager’s underwriting and risk management expertise enhances our ability to identify and structure investments that we believe provide superior risk-adjusted returns due to specific investment risks that can be identified and mitigated through intensive credit underwriting and real estate analysis, tailored lease structures (such as master leases) and ongoing tenant monitoring. Spirit has instituted a proprietary Spirit Property Ranking Model that our Manager will also apply to our portfolio. The Spirit Property Ranking Model is used annually to rank all properties in our and Spirit’s portfolio, across twelve factors and weightings consisting of both real estate quality scores and credit underwriting criteria, in order to benchmark property quality, identify asset recycling opportunities and to enhance acquisition and disposition decisions. Spirit also updates the Spirit Heat Map that will be used for us and Spirit, which analyzes tenant industries across Porter’s Five Forces and potential causes of technological disruption to identify tenant industries that Spirit believes to have good fundamentals for future performance. Porter’s Five Forces – threats of new entrants, threats of substitutes, the bargaining power of customers, the bargaining power of suppliers and industry rivalry – is an analytical framework used to examine the attractiveness of an industry and potential for disruption in that industry. We believe that our Manager’s approach to underwriting and risk management provides us with a unique competitive advantage that translates into the potential for attractive levered cash-on-cash returns to our shareholders.

SPIRIT PROPERTY RANKING MODEL 1

LOGO

 

  (1)   Represents properties as of December 31, 2017 of Spirit and the Predecessor Entities that will be contributed to SMTA.

 

113


Table of Contents

SPIRIT HEAT MAP—PORTFOLIO / INVESTMENT METHODOLOGY

 

LOGO

 

    Highly Incentivized Management Structure . We have structured the Asset Management Agreement to incentivize our Manager to drive our growth and total shareholder return. Under the Asset Management Agreement, in addition to an annual $20.0 million flat fee, our Manager will be entitled to receive a promote payment based on meeting certain shareholder return thresholds. The promote payment, due upon the earliest of (i) a termination of the Asset Management Agreement by us without cause, (ii) a termination of the Asset Management Agreement by our Manager for cause (including upon a Change in Control), and (iii) the date that is 36 full calendar months after the distribution date, provides our Manager with additional compensation based on the total shareholder return on our common shares during the relevant period. See “Our Manager and Asset Management Agreement” for a more detailed description of the promote payment. In addition, under the Property Management and Servicing Agreement for Master Trust 2014, our Manager will receive property management fees, which accrue daily at 0.25% per annum of the collateral value of Master Trust 2014 collateral pool, less any specially serviced assets and special servicing fees, which accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced. We believe the relatively stable nature of the asset management and property management fees will allow us to increase our asset base without proportional increases in our general and administrative expenses due to economies of scale.

 

114


Table of Contents
    Attractive Corporate Governance . We will have a governance structure designed to promote the long-term interests of our shareholders. Some of the significant features of our corporate governance structure include:

 

    our Manager is a public company;

 

    our board of trustees is not classified, each of our trustees is subject to re-election annually and we cannot classify our board in the future without the prior approval of our shareholders;

 

    we provide for majority shareholder voting in uncontested trustee elections;

 

    shareholders may alter or repeal any provision of our bylaws or adopt new bylaws with the affirmative vote of a majority of all votes entitled to be cast on the matter by shareholders;

 

    of the five trustees who will serve on our board of trustees immediately after the completion of the spin-off, we expect our board to determine that four of our trustees satisfy the listing standards for independence of the NYSE and Rule 10A-3 under the Exchange Act, with all four of these trustees having no prior affiliations with Spirit;

 

    at least one of our trustees will qualify as an “audit committee financial expert” as defined by the SEC;

 

    we have opted out of the Maryland business combination and control share acquisition statutes, and we cannot opt back in without prior shareholder approval;

 

    we do not have a shareholders rights plan, and we will not adopt a shareholders rights plan in the future without (i) the approval of our shareholders or (ii) seeking ratification from our shareholders within 12 months of adoption of the plan if the board of trustees determines, in the exercise of its duties under applicable law, that it is in our best interest to adopt a rights plan without the delay of seeking prior shareholder approval;

 

    we will not include a “group,” as that term is used for purposes of Rule 13d-5(b) or Section 13(d)(3) of the Exchange Act, in the definition of “person” for purposes of the “ownership limits” set forth in our declaration of trust;

 

    our chief executive officer and chief financial officer will dedicate their services to us; and

 

    our corporate governance policies will establish a comprehensive framework to address conflicts.

Business and Growth Strategies

We will seek to maximize shareholder value through:

 

    Focus on Diversified Assets in Target Industries . Our investment strategy will be to continue to increase our exposure to industries that we determine are attractive based on Spirit’s proprietary Spirit Heat Map and where we believe we are underweight, including health and fitness, distribution centers, auto service, restaurants—quick service and entertainment assets. On the disposition side, we intend to reduce our Shopko concentration, as well as potentially reduce industry concentration based on the Spirit Heat Map and where we believe we are overweight, including restaurants—casual dining and movie theaters.

We monitor and manage the diversification of our real estate investment portfolio in order to reduce the risks associated with adverse developments affecting a particular tenant, property, industry or region. Our strategy emphasizes a portfolio that (i) derives no more than 7%, excluding Shopko, of Contractual Rent from any single tenant or more than 7% of Contractual Rent from any single property, (ii) is leased to tenants operating in various industries and (iii) is geographically diversified. While we consider the foregoing when making investments, we may make opportunistic investments that do not

 

115


Table of Contents

meet one or more of these criteria if we believe the opportunity is sufficiently attractive. As of December 31, 2017, Shopko contributed 19.7% of our Contractual Rent and represented 15.3% of total assets. As of December 31, 2017, no other tenant contributed more than 7% of our Contractual Rent or represented more than 7% of our total assets, and no one single property contributed more than 7% of our Contractual Rent.

 

    Focus on Small and Middle Market Companies . We will primarily focus on investing in properties that we net lease to small and middle market companies with attractive credit characteristics and stable operating histories, but that may not carry a credit rating from a rating agency. This strategy offers us the opportunity to achieve superior risk-adjusted returns when coupled with our intensive credit and real estate analysis, lease structuring and ongoing portfolio management. Small and middle market companies are often willing to enter into leases with structures and terms we consider attractive (such as master leases, leases with rental escalations and leases that require ongoing tenant financial reporting) and that we believe increase the security of rental payments. We may also selectively acquire properties leased to large companies where we believe that we can achieve superior risk-adjusted returns, subject to our investment guidelines and conflicts of interest policy.

 

    Portfolio Management through Proactive Asset Management . Our focus will be on maximizing the value of our assets through proactive asset management, including: seller financing to expedite sales of Shopko Assets, effective asset recycling, and new master lease terms, including increased landlord rights, financial controls and performance-based provisions. Additionally, our Manager has robust tenant surveillance and other established processes. We plan to selectively make acquisitions that contribute to our portfolio’s tenant, industry and geographic diversification through proactive recycling of assets. Given the volume of transactions in the single-tenant market, we believe there will be ample opportunities fitting our acquisition and disposition criteria.

 

    Selling Down Shopko Exposure to Pursue Selective Growth through Acquisitions . Our Shopko Assets represented 19.7% of Contractual Rent at December 31, 2017, and Shopko is subject to risks that could adversely affect its performance and, thus, its ability to pay us rent. Therefore, we plan to aggressively monetize our Shopko Assets through dispositions, select redevelopments and select outparcel restaurant—quick service and casual dining developments. We intend to proactively engage with Shopko to enhance the value of our assets, and have identified 72 outparcels for potential new development, including 64 in the Midwest and eight in the Pacific Northwest. We will use the proceeds from our dispositions of Shopko Assets to pursue growth opportunities to further strengthen and diversify our portfolio. Our Manager has a long relationship with Shopko and has been effective in reducing its exposure to Shopko over the last several years.

 

    Active Issuer Under Master Trust 2014 . We intend to utilize Master Trust 2014 to lever proceeds from dispositions of Shopko Assets to purchase additional assets that we will add to the collateral pool of Master Trust 2014. We will seek to enter into lease structures that we consider attractive, such as master leases, leases with contractual rent escalators and leases that require ongoing tenant financial reporting, which are attractive features that would allow us to further optimize our borrowing capacity under the Master Trust 2014. Master Trust 2014 provides us access to incremental leverage capacity and liquidity to fund our growth and achieve our asset recycling goals. Additionally, we believe that capital recycling will help drive growth, as well as provide our investors attractive cash-on-cash returns and improve portfolio diversification. In December 2017, we completed an issuance of approximately $674.4 million aggregate principal amount of Master Trust 2014 notes and contributed 10 additional real estate properties to the collateral pool with a total appraised value of $282.4 million.

 

116


Table of Contents

Our Portfolio

Property Portfolio Information

Our diverse real estate portfolio will consist of 897 owned properties upon completion of the spin-off. At December 31, 2017, this portfolio was:

 

    leased to 204 tenants;

 

    located in 45 states, with six states contributing 5% or more of our Contractual Rent;

 

    operating in 24 different industries;

 

    with an Occupancy of 99.1%;

 

    with 57.8% of our Contractual Rent from master leases;

 

    with 96.0% of our leases containing contractual rent escalators (based on Contractual Rent); and

 

    with a weighted average remaining lease term of 10.6 years.

Property Portfolio Diversification

The following tables present the diversity of our properties owned at December 31, 2017. The portfolio metrics are calculated based on the percentage of Contractual Rent.

Diversification By Tenant

The following table sets forth information regarding the diversification of our owned real estate properties among different tenants as of December 31, 2017 (total square feet in thousands):

 

Tenant  (1)

   Number of
Properties
     Total Square
Feet
     Percent of
Contractual Rent
 

Shopko

     99        6,701        19.7

AMC Entertainment, Inc.

     14        690        4.6  

Academy, LTD.

     2        1,564        4.2  

Universal Pool Co., Inc.

     14        543        3.0  

Crème De La Crème, Inc.

     9        190        2.3  

Goodrich Quality Theaters

     4        245        2.3  

Casual Male Retail Group Inc.

     1        756        2.2  

Buehler Food Markets Inc.

     5        503        2.2  

Carmax, Inc.

     4        201        2.0  

Heartland Dental Holdings, Inc.

     59        234        1.8  

Other

     678        8,285        55.7  

Vacant

     8        297        —  
  

 

 

    

 

 

    

 

 

 

Total

     897        20,209        100.0
  

 

 

    

 

 

    

 

 

 

 

(1)   Tenants represent legal entities ultimately responsible for obligations under the lease agreements or affiliated entities. Other tenants may operate the same or similar business concepts or brands as those set forth above.

 

117


Table of Contents

Diversification By Industry

The following table sets forth information regarding the diversification of our owned real estate properties among different industries as of December 31, 2017 (total square feet in thousands):

 

Industry

   Number of
Properties
     Total Square
Feet
     Percent of
Contractual Rent
 

General Merchandise

     99        6,701        19.7

Restaurants—Casual Dining

     176        958        11.3  

Movie Theaters

     30        1,545        10.4  

Restaurants—Quick Service

     246        668        9.2  

Medical / Other Office

     82        550        5.9  

Sporting Goods

     4        1,833        5.3  

Specialty Retail

     21        769        4.3  

Education

     18        431        4.3  

Home Furnishings

     17        907        3.8  

Grocery

     19        1,027        3.6  

Automotive Dealers

     13        357        3.6  

Automotive Service

     74        329        3.5  

Entertainment

     6        404        3.3  

Health and Fitness

     14        562        3.3  

Apparel

     2        930        2.3  

Distribution

     4        235        1.1  

Manufacturing

     7        763        1.0  

Professional Services

     1        159        1.0  

Building Materials

     30        539        1.0  

Car Washes

     6        48        1.0  

Drug Stores / Pharmacies

     8        83        *  

Dollar Stores

     6        62        *  

Automotive Parts

     5        33        *  

Home Improvement

     1        19        *  

Vacant

     8        297       
  

 

 

    

 

 

    

 

 

 

Total

     897        20,209        100.0
  

 

 

    

 

 

    

 

 

 

 

* Less than 1%

Diversification By Asset Type

The following table sets forth information regarding the diversification of our owned real estate properties among different asset types as of December 31, 2017 (total square feet in thousands):

 

Asset Type

   Number of
Properties
     Total Square
Feet
     Percent of
Contractual Rent
 

Retail

     775        15,658        83.1

Industrial

     41        3,713        9.1  

Office

     81        838        7.8  
  

 

 

    

 

 

    

 

 

 

Total

     897        20,209        100.0
  

 

 

    

 

 

    

 

 

 

 

118


Table of Contents

Diversification By Geography

The following table sets forth information regarding the geographic diversification of our owned real estate properties as of December 31, 2017 (total square feet in thousands):

 

Location

   Number of
Properties
     Total Square
Feet
     Percent of
Contractual Rent
 

Texas

     64        2,698        12.0

Wisconsin

     37        2,841        9.3  

Illinois

     70        1,461        8.3  

Minnesota

     25        1,398        5.5  

Ohio

     40        1,162        5.3  

Georgia

     73        528        5.1  

Michigan

     64        1,184        4.3  

Indiana

     41        637        4.3  

South Carolina

     16        410        2.7  

Missouri

     36        431        2.6  

Florida

     47        387        2.6  

Pennsylvania

     23        405        2.5  

Arizona

     21        301        2.5  

North Carolina

     20        387        2.3  

Massachusetts

     1        756        2.2  

Tennessee

     48        233        1.9  

Oregon

     6        300        1.9  

Nevada

     3        166        1.9  

Alabama

     32        116        1.8  

California

     13        122        1.7  

Kansas

     19        246        1.5  

Oklahoma

     17        201        1.5  

South Dakota

     7        370        1.5  

Iowa

     20        371        1.4  

Colorado

     7        198        1.4  

Arkansas

     20        316        1.3  

New Mexico

     11        99        1.3  

New York

     11        154        1.2  

Washington

     5        348        1.2  

Virginia

     17        208        1.0  

West Virginia

     8        233        1.0  

Montana

     3        254       

Nebraska

     7        227       

Kentucky

     15        95       

Idaho

     4        227       

Mississippi

     11        60       

Wyoming

     7        145       

Maryland

     12        41       

New Jersey

     3        292       

Louisiana

     7        19       

Utah

     2        97       

Rhode Island

     1        22       

Alaska

     1        50       

North Dakota

     1        8       

Maine

     1        5       
  

 

 

    

 

 

    

 

 

 

Total

     897        20,209        100.0
  

 

 

    

 

 

    

 

 

 

 

* Less than 1%

 

119


Table of Contents

Lease Expirations

The following table sets forth a summary schedule of expiration dates for leases in place as of December 31, 2017. As of December 31, 2017, the weighted average remaining non-cancelable initial term of our leases (based on Contractual Rent) was 10.6 years. The information set forth in the table assumes that tenants do not exercise renewal options and/or any early termination rights (total square feet and Contractual Rent Annualized in thousands):

 

Leases Expiring In:

   Number of
Properties
     Contractual Rent
Annualized  (1)
     Total Square
Feet
     Percent of
Expiring
Contractual
Rent
 

2018

     25      $ 3,821        240        1.6

2019

     73        11,239        988        4.8  

2020

     37        6,483        453        2.7  

2021

     62        11,776        1,212        5.0  

2022

     77        13,079        1,119        5.5  

2023

     16        3,209        324        1.4  

2024

     31        7,076        322        3.0  

2025

     41        16,778        792        7.1  

2026

     110        19,812        1,931        8.4  

2027

     65        38,877        3,420        16.5  

Thereafter

     352        103,645        9,111        44.0  

Vacant

     8        —          297        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total owned properties

     897      $ 235,795        20,209        100.0
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   Contractual Rent multiplied by twelve.

 

120


Table of Contents

Shopko Master Leases

We are party to three master leases with Shopko: (i) the Second Amended and Restated Master Lease between Spirit Master Funding III, LLC, and Pamida Stores Operating Co., LLC, dated June 1, 2016 (as amended, the “Four Site Master Lease”), (ii) the Amended and Restated Master Lease between Spirit SPE Portfolio 2006-1, LLC and Spirit SPE Portfolio 2006-2 LLC and Shopko Stores Operating Co., LLC, dated December 15, 2014 (as amended, the “2014 Master Lease”), and (iii) the Amended and Restated Master Lease between Spirit SPE Portfolio 2006-3, LLC, and Pamida Stores Operating Co., LLC, dated June 1, 2016 (as amended, the “2016 Master Lease,” and together with the Four Site Master Lease and the 2014 Master Lease, the “Shopko Master Leases”). The following table sets forth certain information regarding the Shopko Master leases as of December 31, 2017.

 

Master Lease

   Number
of
Properties
    Total
Square Feet
    Initial Lease
Expiration Date
    Tenant
Extension Rights
    Contractual
Rent
Annualized (1)
    Percent of
Contractual
Rent
    Percent of
Total Assets (2)
 

Four Site Master Lease

     4       127,900       July 31, 2029       4, 5-year successive options     $ 578,707       0.2     0.3

2014 Master Lease

              

Sub-Portfolio 1

     27       2,587,643       December 31, 2035       2, 10-year successive options       22,711,625       9.6     7.5

Sub-Portfolio 2

     10       927,034       December 31, 2035 (3)       2, 10-year successive options       5,954,267       2.6     2.0

Sub-Portfolio 3

     22       1,866,012       December 31, 2031 (4)       2, 10-year successive options       12,089,774       5.1     4.4
  

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

2014 Master Lease Total

     59       5,380,689         $ 40,755,666       17.3     13.9

2016 Master Lease

              

Sub-Portfolio 1

     5       175,566       July 31, 2029       2, 10-year successive options     $ 736,163       0.3     0.2

Sub-Portfolio 2

     9       305,666       May 31, 2031       2, 10-year successive options       1,523,005       0.7     0.5

Sub-Portfolio 3

     20       639,345       May 31, 2021       2, 10-year successive options       2,613,315       1.1     0.8
  

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

2016 Master Lease Total

     34       1,120,577           4,872,483       2.1     1.5
  

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Total

     97       6,629,166         $ 46,206,856       19.6     15.7
  

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

 

(1)   Contractual Rent multiplied by twelve.
(2)   Represents the net book value of properties leased to Shopko as a percentage of total assets of the Predecessor Entities as of December 31, 2017.
(3)   One site in Sub-Portfolio 2 has an expiration date of November 30, 2029.
(4)   Four sites in Sub-Portfolio 3 have an expiration date of May 31, 2026.

Rent Escalators. Each of the Shopko Master Leases contains contractual rent escalators. Base rent under the Four Site Master Lease increases every three years at the rate of the lesser of (a) 5% and (b) 125% of a metric based on the CPI increase over that period. Base rent under the Four Site Master Lease will be adjusted on January 1, 2020. Base rent under the 2014 Master Lease increases annually at the rate of the lesser of (a) 1.95% and (b) 125% of a metric designed to measure the CPI increase over that period. Base rent under the 2014 Master Lease will be adjusted on January 1, 2019. Base rent under the 2016 Master Lease increases every three years at the rate of the lesser of (a) 6% and (b) 125% of a metric designed to measure the CPI increase over that period. Base rent under the 2016 Master Lease will be adjusted on June 1, 2018.

Rent Deferral. Each of the Shopko Master Leases grant the tenant a one-time right, subject to certain conditions including the payment of 11% interest and a grant to us of a second priority lien on the tenant’s interest in its assets and upon 60 days written notice, to defer payment of the monthly base rent for up to three individual months, provided that if the tenant defers monthly base rent for more than one month, such months shall not be consecutive.

 

121


Table of Contents

Guarantees. All tenant payment and performance obligations under each of the Shopko Master Leases are unconditionally guaranteed by Specialty Retail Shops Holding Corp., the parent company of Shopko.

Financial Reporting. Each of the Shopko Master Leases requires the tenant to cause Specialty Retail Shops Holding Corp. to provide Specialty Retail Shops Holding Corp. financial statements (including a consolidated balance sheet, statement of operations, statement of stockholders’ equity and statement of cash flows and all other related schedules) and unit level income and expense statements on a quarterly and annual basis.

Events of Default. Each of the Shopko Master Leases contains customary events of default, including defaults in the payment of rent or other monies due and payable, defaults in compliance with other material covenants, conditions or provisions contained in the respective Shopko Master Lease, the levy upon (or imposition of a lien with respect to) the leasehold interest of the tenant or any property under the respective Shopko Master Lease, bankruptcy or other insolvency events related to the tenant or Specialty Retail Shops Holding Corp. and defaults in compliance with the tenant’s financial reporting obligations.

Assignment and Securitization. Each of the Shopko Master Leases provides that we may assign our interest in the leases in full or in part with respect to one or more property locations. In connection with the most recent amendments of our Shopko Master Leases, we have agreed to pay to Shopko (i) $82,500 in connection with each such assigned property under the 2014 Master Lease and (ii) $20,000 in connection with each such assigned property under the Four Site Master Lease and the 2016 Master Lease. All Shopko Master Leases contain covenants requiring the tenant and guarantor to execute documentation in connection with such assignments. The Shopko Master Leases also allow us to securitize our interest in the properties subject to such leases.

Competition

We face competition for acquisitions from investors, including traded and non-traded public REITs, and private equity and institutional investment funds, some of which have greater financial resources than we do, a greater ability to borrow funds to acquire properties and the ability to accept more risk than we can prudently manage. This competition may increase the demand for the types of properties in which we typically invest and, therefore, reduce the number of suitable acquisition opportunities available to us and increase the prices paid for such. This competition will increase if investments in real estate become more attractive relative to other forms of investment.

As a landlord, we compete in the multi-billion dollar commercial real estate market with numerous developers and owners of properties, many of which own properties similar to ours in the same markets in which our properties are located. In operating and managing our portfolio, we compete for tenants based on a number of factors, including location, rental rates and flexibility. Some of our competitors have greater economies of scale, have lower cost of capital, have access to more resources and have greater name recognition than we do. If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose our tenants or prospective tenants and we may be pressured to reduce our rental rates or to offer substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options in order to retain tenants when our leases expire.

Our Financing Strategy

We intend to use Master Trust 2014 to periodically raise capital through the issuance of non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans. We also may raise capital by issuing registered debt or equity securities or obtaining asset level financing, when we deem prudent. We expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common shareholders primarily through cash provided by operating activities, proceeds from dispositions of our Shopko Assets and potential future bank borrowings. The form of

 

122


Table of Contents

our indebtedness may vary and could be long-term or short-term, secured or unsecured, or fixed-rate or floating rate. We will not enter into interest rate swaps or caps, or similar hedging transactions or derivative arrangements for speculative purposes, but may do so in order to manage or mitigate our interest rate risks on variable rate debt. For additional information regarding our existing debt, please refer to “Description of Indebtedness.”

Investment Guidelines

Our board of trustees will adopt a broad set of investment guidelines to be used by our Manager to evaluate specific investments. Our general investment guidelines prohibit any investment that would cause us to fail to qualify as a REIT. These investment guidelines may be changed by our board of trustees without the approval of our shareholders. For information regarding our policy with respect to approving transactions with affiliates, see “Certain Relationships and Related Party Transactions.”

Policies with Respect to Certain Other Activities

Subject to the approval of our board of trustees, we have the authority to offer our common shares or other equity or debt securities in exchange for property and to repurchase or otherwise reacquire our common shares or any other securities and may engage in such activities in the future. We also may make loans to, or provide guarantees of certain obligations of, our subsidiaries. Subject to the percentage ownership and gross income and asset tests necessary for REIT qualification, we may invest in securities of other REITs, other entities engaged in real estate activities or securities of other issuers, including for the purpose of exercising control over such entities. We may engage in the purchase and sale of investments. Our officers and trustees may change any of these policies and our investment guidelines without a vote of our shareholders. In the event that we determine to raise additional equity capital, our board of trustees has the authority, without shareholder approval (subject to certain NYSE requirements), to issue additional common shares or preferred shares in any manner and on such terms and for such consideration it deems appropriate, including in exchange for property. Decisions regarding the form and other characteristics of the financing for our investments are made by our Manager, subject to the general investment guidelines adopted by our board of trustees.

Conflicts of Interest Policy

Although we will establish certain policies and procedures designed to mitigate conflicts of interest, there can be no assurances that these policies and procedures will be effective in doing so. It is possible that actual, potential or perceived conflicts of interest could give rise to investor dissatisfaction, litigation or regulatory enforcement action. See “Our Manager and Asset Management Agreement” and “Risk Factors—Risks Related to Our Relationship with Spirit, Our Manager” for further discussion.

Regulation

General

Our properties are subject to various covenants, laws, ordinances and regulations, including regulations relating to common areas and fire and safety requirements. We believe that each of our properties has the necessary permits and approvals.

Americans with Disabilities Act

Pursuant to the ADA, our properties are required to meet federal requirements related to access and use by persons with disabilities. Compliance with the ADA, as well as a number of additional federal, state and local laws and regulations, may require modifications to properties we currently own and any properties we purchase, or may restrict renovations of those properties. Noncompliance with these laws or regulations could result in the imposition of fines or an award of damages to private litigants, as well as the incurrence of the costs of making

 

123


Table of Contents

modifications to attain compliance, and future legislation could impose additional financial obligations or restrictions on our properties. Although our tenants are generally responsible for all maintenance and repair costs pursuant to triple-net leases, including compliance with the ADA and other similar laws or regulations, we could be held liable as the owner of the property for a failure of one of our tenants to comply with such laws or regulations.

Environmental Matters

Federal, state and local environmental laws and regulations regulate, and impose liability for, releases of hazardous or toxic substances into the environment. Under various of these laws and regulations, a current or previous owner, operator or tenant of real estate may be required to investigate and clean up hazardous or toxic substances, hazardous wastes or petroleum product releases or threats of releases at the property, and may be held liable to a government entity or to third parties for property damage and for investigation, clean-up and monitoring costs incurred by those parties in connection with actual or threatened contamination. These laws typically impose clean-up responsibility and liability without regard to fault, or whether or not the owner, operator or tenant knew of or caused the presence of the contamination. The liability under these laws may be joint and several for the full amount of the investigation, clean-up and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may seek contributions from other identified, solvent, responsible parties for their fair share toward these costs. These costs may be substantial, and can exceed the value of the property. The presence of contamination, or the failure to properly remediate contamination, on a property may adversely affect the ability of the owner, operator or tenant to sell or rent that property or to borrow using the property as collateral and may adversely impact our investment in that property.

Some of our properties contain, have contained, or are adjacent to or near other properties that have contained or currently contain storage tanks for the storage of petroleum products or other hazardous or toxic substances. Similarly, some of our properties are or were used for commercial or industrial purposes that involve or involved the use of petroleum products or other hazardous or toxic substances, or are adjacent to or near properties that have been or are used for similar commercial or industrial purposes. These operations create a potential for the release of petroleum products or other hazardous or toxic substances, and we could potentially be required to pay to clean up any contamination. In addition, strict environmental laws regulate a variety of activities that can occur on a property, including the storage of petroleum products or other hazardous or toxic substances, air emissions and water discharges. Such laws may impose fines or penalties for violations. As a result of the foregoing, we could be materially and adversely affected.

Environmental laws also govern the presence, maintenance and removal of ACM. Federal regulations require building owners and those exercising control over a building’s management to identify and warn, through signs and labels, of potential hazards posed by workplace exposure to installed ACM in their building. The regulations also have employee training, record keeping and due diligence requirements pertaining to ACM. Significant fines can be assessed for violation of these regulations. As a result of these regulations, building owners and those exercising control over a building’s management may be subject to an increased risk of personal injury lawsuits by workers and others exposed to ACM. The regulations may affect the value of a building containing ACM in which we have invested. Federal, state and local laws and regulations also govern the removal, encapsulation, disturbance, handling and/or disposal of ACM when those materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. These laws may impose liability for improper handling or a release into the environment of ACM and may provide for fines to, and for third parties to seek recovery from, owners or operators of real properties for personal injury or improper work exposure associated with ACM.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen,

 

124


Table of Contents

viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air quality issues at our properties that have not been previously addressed or remediated by us.

Before completing any property acquisition, we obtain environmental assessments in order to identify potential environmental concerns at the property. These assessments are carried out in accordance with the Standard Practice for Environmental Site Assessments (ASTM Practice E 1527-05) as set by ASTM International, formerly known as the American Society for Testing and Materials, and generally include a physical site inspection, a review of relevant federal, state and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property’s chain of title and review of historical aerial photographs and other information on past uses of the property. These assessments are limited in scope, however, if recommended in the initial assessments, we may undertake additional assessments such as soil and/or groundwater samplings or other limited subsurface investigations and ACM or mold surveys to test for substances of concern. A prior owner or operator of a property or historic operations at our properties may have created a material environmental condition that is not known to us or the independent consultants preparing the site assessments. Material environmental conditions may have arisen after the review was completed or may arise in the future, and future laws, ordinances or regulations may impose material additional environmental liability. If environmental concerns are not satisfactorily resolved in any initial or additional assessments, we may obtain environment insurance policies to insure against potential environmental risk or loss depending on the type of property, the availability and cost of the insurance and various other factors we deem relevant (i.e., an environmental occurrence affects one of our properties where our lessee may not have the financial capability to honor its indemnification obligations to us).

Generally, our leases provide that the lessee will indemnify us for any loss or expense we incur as a result of the presence, use or release of hazardous materials on our property. However, our ultimate liability for environmental conditions may exceed the policy limits on any environmental insurance policies we obtain, if any. If we are unable to enforce the indemnification obligations of our lessees or if the amount of environmental insurance we carry is inadequate, our results of operations would be adversely affected.

Insurance

Our tenants are generally required to maintain liability and property insurance coverage for the properties they lease from us pursuant to triple-net leases. Under such leases, our tenants are generally required to name us (and any of our lenders that have a mortgage on the property leased by the tenant) as additional insureds on their liability policies and additional insured and/or loss payee (or mortgagee, in the case of our lenders) on their property policies. Tenants are required to maintain casualty coverage and most carry limits at 100% of replacement cost. Depending on the location of the property, losses of a catastrophic nature, such as those caused by earthquakes and floods, may be covered by insurance policies that are held by our tenant with limitations such as large deductibles or co-payments that a tenant may not be able to meet. In addition, losses of a catastrophic nature, such as those caused by wind/hail, hurricanes, terrorism or acts of war, may be uninsurable or not economically insurable. In the event there is damage to our properties that is not covered by insurance and such properties are subject to recourse indebtedness, we will continue to be liable for the indebtedness, even if these properties are irreparably damaged. See “Risk Factors—Risks Related to our Business and Properties— Insurance on our properties may not adequately cover all losses and uninsured losses could materially and adversely affect us.

 

125


Table of Contents

In addition to being generally named as additional insureds on our tenants’ liability policies, we separately maintain commercial general liability coverage with limits of $1.0 million for each occurrence and $2.0 million general aggregate. We also maintain primary property coverage on (i) all unleased properties, (ii) all properties for which such coverage is not required to be carried by a tenant and (iii) all properties for which we obtain such coverage but the costs of which are reimbursed by tenants. In addition, we maintain excess property coverage on all remaining properties and other property coverage as may be required by our lenders. We intend to enter into an Insurance Sharing Agreement with Spirit and our Manager. See “Certain Relationships and Related Transactions.”

Employees

We are managed by our Manager pursuant to the Asset Management Agreement between our Manager and us. All of our officers are employees of our Manager or an affiliate of our Manager. We do not have any employees.

Legal Proceedings

From time-to-time, we may be subject to certain claims and lawsuits in the ordinary course of business, the outcome of which cannot be determined at this time. In the opinion of management, any liability we might incur upon the resolution of these claims and lawsuits will not, in the aggregate, have a material adverse effect on our combined financial position or results of operations.

 

126


Table of Contents

OUR MANAGER AND ASSET MANAGEMENT AGREEMENT

We will be externally managed by Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, which we refer to as our Manager, pursuant to the terms of the Asset Management Agreement that we will enter into prior to the completion of the spin-off. Under the Asset Management Agreement, our Manager will provide a management team that will be responsible for implementing our business strategy and performing certain services for us, subject to oversight by our board of trustees. We will not have any employees. Our officers and the other individuals who execute our business strategy will be employees of our Manager or its affiliates. These individuals will not be required to dedicate their services to us and may provide services for other entities affiliated with our Manager, including Spirit. The Asset Management Agreement will become effective upon completion of the spin-off.

Manager Duties

Our Manager, subject to the supervision, direction and management of our board of trustees, will be responsible for managing our assets and day-to-day operations and will perform (or cause to be performed) such services and activities relating to our assets and operations as it determines may be appropriate, including, without limitation:

 

  (i) sourcing, investigating and evaluating prospective investments and dispositions of investments, subject to and consistent with the investment manual, and making recommendations with respect thereto to our board of trustees, where applicable;

 

  (ii) subject to and consistent with the investment manual, conducting negotiations with brokers, sellers and purchasers, and their respective agents and representatives, investment bankers and owners of privately and publicly held real estate or related assets, regarding the purchase, sale, exchange or other disposition of any investments;

 

  (iii) managing and monitoring the operating performance of investments and providing periodic reports to our board of trustees, including comparative information with respect to such operating performance and budgeted or projected operating results;

 

  (iv) assisting us in developing criteria that are specifically tailored to our investment objectives and making available to us our Manager’s knowledge and experience with respect to our target assets;

 

  (v) engaging and supervising independent contractors that provide services relating to us or our investments, including, but not limited to, investment banking, legal or regulatory advisory, tax advisory, accounting advisory, securities brokerage, property management/operations, property condition, real estate and leasing advisory and brokerage, and other financial and consulting services reasonably necessary for our Manager to perform its duties (it being understood that our board of trustees and its audit committee will retain authority to determine our independent public accountant and that our independent trustees and any committee of our board of trustees will retain the authority to hire its or their own attorneys or other advisors);

 

  (vi) negotiating, on our behalf, the terms of loan documents for our financings;

 

  (vii) enforcing, monitoring and managing compliance with loan documents to which we are a party on our behalf;

 

  (viii) coordinating and managing operations of any joint venture or co-investment interests held by us and conducting all matters with our joint venture or co-investment partners;

 

  (ix) coordinating and supervising all property managers, tenant operators, leasing agents and developers for the administration, leasing, management and/or development of any of our investments;

 

  (x) providing executive and administrative personnel, office space and office services required in rendering services to us;

 

127


Table of Contents
  (xi) administering bookkeeping and accounting functions as are required for our management and operation, contracting for audits and preparing or causing to be prepared such periodic reports and filings as may be required by any governmental authority in connection with the ordinary conduct of our business, and otherwise advising and assisting us with compliance with applicable legal and regulatory requirements, including, without limitation, periodic reports, returns or statements required under the Exchange Act, the Code and any regulations or rulings thereunder, the securities and tax statutes of any jurisdiction in which we are obligated to file such reports, or the rules and regulations promulgated under any of the foregoing;

 

  (xii) advising and assisting in the preparation and filing of all offering documents, registration statements, prospectuses, proxies, and other forms or documents filed with the SEC pursuant to the Securities Act or any state securities regulators (it being understood that we are responsible for the content of any and all of its offering documents, SEC filings or state regulatory filings and that our Manager will not be held liable for any costs or liabilities arising out of any misstatements or omissions in our offering documents, SEC filings, state regulatory filings or other filings referred to in this subparagraph, whether or not material (except by reason of acts constituting bad faith, willful misconduct or gross negligence of our Manager’s duties under our Asset Management Agreement);

 

  (xiii) causing us to retain qualified accountants and legal counsel, as applicable, to assist in developing appropriate accounting procedures, compliance procedures and testing systems with respect to financial reporting obligations and compliance with the provisions of the Code applicable to REITs (it being understood that our board of trustees and its audit committee will retain authority to determine our independent public accountant and that our independent trustees and any committee of our board of trustees will retain the authority to hire its or their own attorneys or other advisors);

 

  (xiv) taking all necessary actions to enable us to make required tax filings and reports, including soliciting shareholders for required information to the extent required by the provisions of the Code applicable to REITs;

 

  (xv) counseling us regarding the maintenance of our status as a REIT and monitoring compliance with the various REIT qualification tests and other rules set out in the Code and Treasury Regulations thereunder;

 

  (xvi) counseling us regarding the maintenance of our exemption from the Investment Company Act and monitoring compliance with the requirements for maintaining an exemption from the Investment Company Act;

 

  (xvii) counseling us in connection with policy decisions to be made by our board of trustees;

 

  (xviii) evaluating and recommending to our board of trustees modifications to any hedging strategies in effect on the date hereof and engaging in hedging activities;

 

  (xix) communicating with our investors and analysts as required to satisfy reporting or other requirements of any governing body or exchange on which our securities are traded and to maintain effective relations with such investors;

 

  (xx) investing and re-investing our moneys and securities (including investing in short-term investments, payment of fees, costs and expenses, or payments of dividends or distributions to our shareholders and partners) and advising us as to our capital structure and capital raising;

 

  (xxi) causing us to qualify to do business in all applicable jurisdictions and to obtain and maintain all appropriate licenses;

 

  (xxii) handling and resolving all claims, disputes or controversies (including all litigation, arbitration, settlement or other proceedings or negotiations) in which we may be involved or to which we may be subject arising out of our day-to-day operations, subject to such limitations or parameters as may be imposed from time to time by our board of trustees;

 

128


Table of Contents
  (xxiii) using commercially reasonable efforts to cause expenses incurred by or on our behalf to be within any expense guidelines set by our board of trustees from time to time;

 

  (xxiv) performing such other services as may be required from time to time for management and other activities relating to our assets as our board of trustees and our Manager will agree from time to time; and

 

  (xxv) using commercially reasonable efforts to cause us to comply with all applicable laws and regulations in all material respects, subject to us providing appropriate, necessary and timely funding of capital.

We specifically reserve to a simple majority of our independent trustees the following powers:

 

  (i) the authority to determine or change the strategic direction of the company at any time and in the sole discretion of our board of trustees;

 

  (ii) the approval of prospective investments, to the extent required by the investment manual, or the conflicts of interest policy, which may not be amended in a manner that is detrimental to us without approval by a majority of our independent trustees; it being understood that our board of trustees will have the power to reject prospective investments, even if such investments comply with the criteria outlined in the investment manual;

 

  (iii) the approval or disapproval of prospective dispositions of investments, to the extent required by the investment manual, as it may be amended by our board of trustees from time to time;

 

  (iv) the approval of the terms of loan documents for our financings;

 

  (v) the approval of our annual budget (which shall address in reasonable detail, among other matters, financing plans and capital planning; it being understood that our Manager will submit such budget in advance to our board of trustees for review and approval and will provide quarterly updates of performance against the annual budget to our board of trustees);

 

  (vi) the approval of the retention of our registered public accountants;

 

  (vii) the approval of any material transaction between us and our Manager and its affiliates, other than transactions pursuant to the Asset Management Agreement, the property management agreement and other transactions in effect as of the distribution date;

 

  (viii) the issuance of equity or debt securities by us;

 

  (ix) the grant of equity incentive awards by us;

 

  (x) the entry into joint venture agreements by us or our subsidiaries;

 

  (xi) the approval of entry into any transaction that would constitute a change in control (as defined in the Asset Management Agreement); and

 

  (xii) such other matters as may be determined by our board of trustees from time to time.

Our board of trustees has dispositive power in the event of any conflict between our board of trustees and our Manager with respect to the functions and authority delegated to our Manager.

Management Team

Pursuant to the terms of the Asset Management Agreement, our Manager will provide us with a management team, including a dedicated chief executive officer. The members of our management team will devote such of their time to the management of our Company as is reasonably necessary and appropriate, commensurate with our level of activity from time to time.

 

129


Table of Contents

Management Fee

We will pay our Manager a management fee equal to $20.0 million per year, payable in equal monthly installments, in arrears; provided, however, that (i) in the event of a Management Fee PIK Event arising under clause (i) of the definition thereof, the portion of the monthly installment of the management fee that is necessary for us to have sufficient funds to declare and pay dividends in cash required to be paid in cash in order for us to maintain our status as a REIT under the Code and to avoid incurring income or excise taxes will, during the occurrence and continuation of any such Management Fee PIK Event, be payable in a number of Series A preferred shares determined by dividing such portion of the management fee by the liquidation preference of the Series A preferred shares rounded down to the nearest whole share and (ii) in the event of a Management Fee PIK Event arising under clause (ii) of the definition thereof, the entire monthly installment of the management fee will, during the occurrence and continuation of any such Management Fee PIK Event, be payable in a number of Series A preferred shares determined by dividing the management fee by the liquidation preference of the Series A preferred shares rounded down to the nearest whole share.

A Management Fee PIK Event means (i) the good faith determination by our board of trustees that forgoing the payment of all or any portion of the monthly installment of the management fee is necessary for us to have sufficient funds to declare and pay dividends in cash required to be paid in cash in order for us to maintain our status as a REIT under the Code and to avoid incurring income or excise taxes, or (ii) the occurrence and continuance of an “Early Amortization Event,” “Event of Default” or “Sweep Period,” in each case, as defined pursuant under the Second Amended and Restated Master Indenture, dated as of May 20, 2014, among Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC and Citibank, N.A., as amended and supplemented from time to time.

Incentive Compensation

To incentivize employees, officers, consultants, affiliates or representatives of our Manager and our dedicated chief executive officer, chief financial officer and non-employee trustees to achieve our goals and business objectives as established by our board of trustees, in addition to the management fee, our board of trustees will have the authority to make recommendations of annual equity awards to our Manager or its affiliates or directly to employees, officers, consultants, affiliates or representatives of our Manager and to our dedicated chief executive officer, chief financial officer and non-employee trustees, based on the achievement by us of certain financial or other objectives established by our board of trustees; provided that, no equity awards by us to employees or officers of our Manager (including our dedicated chief executive officer and chief financial officer) shall be made without our Manager’s prior consent. We may, at our option, choose to issue such compensation in the form of equity awards in our securities or those of our operating partnership, unless and to the extent that receipt of such equity awards would adversely affect our status as a REIT, in which case, the equity awards will be limited to equity awards in our operating partnership, unless and to the extent that receipt of such equity awards would adversely affect our operating partnership’s status as a partnership for U.S. federal income tax purposes or ourstatus as a REIT, in which case, the grant of equity awards shall not be made.

Term

Our Asset Management Agreement has an initial three-year term and will be automatically renewed for one-year terms thereafter unless terminated either by us or by our Manager.

Termination

Termination without Cause

(a) Termination by the Company . We may terminate the Asset Management Agreement at any time upon 180-day written notice to our Manager informing it of our intention to terminate the Asset Management Agreement. Effective on the termination date of the Asset Management Agreement by us without cause, we and

 

130


Table of Contents

our Manager will enter into a transition services agreement, upon mutually acceptable terms, that will be in effect until the date that is eight months after the date of the termination of the Asset Management Agreement. For its services under the transition services agreement, we will pay our Manager the management fee, pro rated for the eighth-month term of the transition services agreement.

(b) Termination by our Manager . Our Manager may terminate our Asset Management Agreement upon 180-day notice prior to the expiration of the original term or any renewal term.

Termination for Cause

(a) Termination by the Company . We may terminate our Asset Management Agreement upon 30-day notice to our Manager if (i) there is a commencement of any proceeding relating to our Manager’s bankruptcy or insolvency, (ii) our Manager dissolves as an entity, or (iii) our Manager commits fraud against us, misappropriates or embezzles our funds, or acts in a manner constituting bad faith, willful misconduct or gross negligence in the performance of its duties under our Asset Management Agreement (unless such actions or omissions are cause by an employee of our Manager and our Manager takes appropriate action against such person and cures the damage caused by such actions or omissions within 30 days of our Manager’s actual knowledge of their actions or omissions).

(b) Termination by our Manager . Our Manager may terminate our Asset Management Agreement upon 60-day prior notice in the event that we are in default in the performance or observance of any material term, condition or covenant contained in our Asset Management Agreement and such default continues for a period of 30 days after such notice specifying such default and requesting that the same be remedied within 30 days. Our Manager may also terminate the Asset Management Agreement in its sole discretion effective immediately concurrently with or within 90 days following a Change in Control or a non-cause termination of the Property Management and Servicing Agreement, in each case upon 30-days’ prior notice to us.

“Change in Control” means the occurrence of any of the following events:

(i) a transaction or series of transactions whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than us or any of our subsidiaries) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of our securities possessing more than 50% of the total combined voting power of our securities outstanding immediately after such acquisition; or

(ii) during any period of two consecutive years, individuals who, at the beginning of such period, constitute our board of trustees together with any new trustee(s) (other than a trustee designated by a person who has entered into an agreement with us to effect a transaction described in the preceding clause (i) or the succeeding clause (iii) of this definition) whose election by our board of trustees or nomination for election by our shareholders was approved by a vote of at least two-thirds of the trustees then still in office who either were trustees at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(iii) the consummation by us (whether directly involving us or indirectly involving us through one or more intermediaries) of (A) a merger, consolidation, reorganization, or business combination, (B) a sale or other disposition of all or substantially all of our assets in any single transaction or series of related transactions or (C) the acquisition of assets or stock of another entity, in each case, other than a transaction:

(1) which results in our voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into our voting securities or the person that, as a result of the transaction, controls us, directly or indirectly, or owns, directly or indirectly, all or substantially all of our assets or otherwise succeeds to our business (we or such person, a successor entity) directly or indirectly, at least a majority of the combined voting power of the successor entity’s outstanding voting securities immediately after the transaction, and following which the successor entity continues to own all or substantially all the assets that we owned immediately before the transaction and succeeds to our business, and

 

131


Table of Contents

(2) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the successor entity; provided, however, that no person or group shall be treated for purposes of this clause (iii)(2) as beneficially owning 50% or more of the combined voting power of the successor entity solely as a result of the voting power held our securities prior to the consummation of the transaction; or

(iv) approval by our shareholders of a liquidation or dissolution of us.

Termination Fee

In the event that our Asset Management Agreement is terminated (a) by us without cause or (b) by our Manager for cause (including upon a Change in Control), we will pay to our Manager, on the effective termination date or as promptly thereafter as practicable, a termination fee equal to 1.75 times the sum of (x) the management fee for the 12 full calendar months preceding the effective termination date, plus (y) all fees due to the Manager or its affiliates under the Property Management and Servicing Agreement for the 12 full calendar months preceding the effective termination date.

Promote

Upon the earlier of (a) a termination of our Asset Management Agreement by us without cause, (b) a termination of our Asset Management Agreement by our Manager for cause, and (c) the date that is 36 full calendar months after the distribution date, we are obligated to pay to our Manager, on the date of the relevant termination or other event or as promptly thereafter as practicable, a cash promote payment, calculated as follows:

(i) to the extent that the Company TSR Percentage exceeds 10% during the Measurement Period, the Promote will equal the product of:

(x) the weighted-average number of our common shares outstanding during the Measurement Period (calculated on a fully-diluted basis in accordance with GAAP), multiplied by

(y) the product of (A) 10%, multiplied by (B) the difference of (I) the Company TSR Amount not to exceed a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 12.5%, less (II) a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 10%;

(ii) to the extent that the Company TSR Percentage exceeds 12.5% during the Measurement Period, the Promote will equal the sum of:

(x) the amount under (i) above, plus

(y) the product of:

(A) the weighted-average number of Common Shares outstanding during the Measurement Period (calculated on a fully-diluted basis in accordance with GAAP), multiplied by

(B) the product of (I) 15%, multiplied by (II) the difference of (1) the Company TSR Amount not to exceed a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 15%, less (2) a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 12.5%; and

(iii) to the extent that the Company TSR Percentage exceeds 15% during the Measurement Period, the Promote will equal the sum of:

(x) the amount under (ii) above, plus

(y) the product of:

(A) the weighted-average number of our common shares outstanding during the Measurement Period (calculated on a fully-diluted basis in accordance with GAAP), multiplied by

 

132


Table of Contents

(B) the product of (I) 20%, multiplied by (II) the difference of (1) the Company TSR Amount, less (2) a Hurdle TSR Amount implied by a Company TSR Percentage during the Measurement Period of 15%.

Company TSR Percentage means the XIRR, expressed as a percentage (rounded to the nearest tenth of a percent (0.1%)), during the Measurement Period due to the appreciation in the price per common share, plus dividends declared during the Measurement Period, assuming dividends are reinvested in common shares on the date that they were paid (at a price equal to the closing price per common share on the applicable dividend payment date); provided, however, that for purposes of calculating the Company TSR Percentage, the initial share price will equal the Initial Price Per Share and the final share price as of any given date will equal the Share Value.

Company TSR Amount means the sum of the price per common share on the last day of the Measurement Period, plus the sum of all dividends declared during the Measurement Period, assuming dividends are reinvested in common shares on the date that they were paid (at a price equal to the closing price per common share on the applicable dividend payment date); provided, however, that for purposes of calculating the Company TSR Amount, the initial share price will equal the Initial Price Per Share and the final share price as of any given date will equal the Share Value.

Hurdle TSR Amount means an indicative price per common share on the last day of the Measurement Period calculated assuming appreciation in the price per common share based on a specified Company TSR Percentage during the Measurement Period; provided, however, that for purposes of calculating the Hurdle TSR Amount, the initial share price will equal the Initial Price Per Share.

Initial Price Per Share means the VWAP per common share for the 30 consecutive trading days on the principal exchange on which such shares are then traded immediately following the distribution date.

Measurement Period means the period commencing on the distribution date and ending upon the earlier of (i) the effective termination date of the Asset Management Agreement and (ii) the date that is 36 full calendar months after the distribution date.

Share Value , as of any given date, means the VWAP per common share for the 10 consecutive trading days on the principal exchange on which such shares are then traded immediately preceding such date; provided, however, that if a Change in Control causes the end of the Measurement Period, Share Value will mean the price per common share paid by the acquiror in the Change in Control transaction or, to the extent that the consideration in the Change in Control transaction is paid in stock of the acquiror or its affiliates, the Share Value will mean the value of the consideration paid per common share based on the VWAP per share of such acquiror stock for the 10 consecutive trading days on the principal exchange on which such shares are then traded immediately preceding the date on which a Change in Control occurs.

VWAP means the volume weighted average price.

XIRR means the Extended Internal Rate of Return as calculated by using the “=XIRR” function in Microsoft Excel.

 

133


Table of Contents

Reimbursement of Expenses

Except as otherwise approved by a majority vote of our independent trustees, our Manager is responsible for the following expenses incurred in connection with the performance of its duties under the Asset Management Agreement:

 

  (i) base salary, cash incentive compensation and other employment expenses (excluding equity awards granted by us) of our dedicated chief executive officer and dedicated chief financial officer;

 

  (ii) employment expenses of other personnel employed by our Manager, including, but not limited to, salaries, wages, payroll taxes and the cost of employee benefit plans;

 

  (iii) fees and travel and other expenses of officers and employees of our Manager, except for (A) fees and travel and other expenses of such persons incurred while performing services on our behalf (provided that, if such fees and travel and other expenses are incurred while providing services on behalf of both us and our affiliates and Spirit and its affiliates, our Manager has the authority to reasonably allocate such fees and travel and other expenses between the entities), and (B) fees and travel and other expenses of such persons who are our trustees or officers incurred in their capacities as such;

 

  (iv) rent, telephone, utilities, office furniture, equipment and machinery (including computers, to the extent utilized) and other office expenses of our Manager, except to the extent such expenses relate solely to an office maintained by us separate from the office of our Manager; and

 

  (v) miscellaneous administrative expenses relating to the performance by our Manager of its obligations.

We are generally responsible for paying all of our expenses, except those specifically required to be borne by our Manager under the Asset Management Agreement, including the following:

 

  (i) the cost of borrowed money;

 

  (ii) taxes on income and taxes and assessments on real and personal property, if any, and all other taxes applicable to us or our subsidiaries;

 

  (iii) legal, auditing, accounting, underwriting, brokerage, listing, reporting, registration and other fees, and printing, engraving and other expenses and taxes incurred in connection with the issuance, distribution, transfer, trading, registration and listing of our or our subsidiaries’ securities on the stock exchange, including transfer agent’s, registrar’s and indenture trustee’s fees and charges;

 

  (iv) expenses related to our or our subsidiaries’ organization, restructuring, reorganization or liquidation, or expenses of revising, amending, converting or modifying our or such subsidiaries’ organizational documents;

 

  (v) fees and travel and other expenses of members of our board of trustees and our officers or those of individuals in similar positions with any of our subsidiaries in their capacities as such (but not in their capacities as officers or employees of our Manager) and fees and travel and other expenses paid to advisors, contractors, mortgage servicers, consultants, and other agents and independent contractors employed by or on our or our subsidiaries’ behalf;

 

  (vi) expenses directly connected with the investigation, acquisition, disposition or ownership of real estate interests or other property (including third-party property diligence costs, appraisal reporting, the costs of foreclosure, insurance premiums, legal services, brokerage and sales commissions, maintenance, repair, improvement and local management of property), other than expenses with respect thereto of employees of our Manager, to the extent that our Manager is responsible for such expenses;

 

  (vii) all insurance costs that we or our subsidiaries incur (including officer and trustee liability insurance) or in connection with any officer and trustee indemnity agreement to which we or our subsidiaries are a party;

 

134


Table of Contents
  (viii) expenses connected with payments of dividends or interest or contributions in cash or any other form made or caused to be made by our trustees to holders of our securities or those of our subsidiaries;

 

  (ix) all expenses connected with communications to holders of our securities or those of our subsidiaries and other bookkeeping and clerical work necessary to maintaining relations with holders of securities, including the cost of any transfer agent, the cost of preparing, printing, posting, distributing and mailing certificates for securities and proxy solicitation materials and reports to holders of our securities or those of our subsidiaries;

 

  (x) any other legal, accounting and auditing fees and expenses, in addition to those described in subsection (iii) above;

 

  (xi) filing and recording fees for regulatory or governmental filings, approvals and notices;

 

  (xii) expenses relating to any office or office facilities maintained by us or by our subsidiaries separate from the office of our Manager; and

 

  (xiii) software licensing fees and other fees and costs associated with proprietary software and programs used separately by the Company;

 

  (xiv) the costs and expenses of all equity award or compensation plans or arrangements established by us or by any of our subsidiaries, including the value of awards made by us or by any of our subsidiaries to our Manager or its employees, if any, and payment of any employment or withholding taxes in connection therewith;

 

  (xv) the equity portion of the compensation of our dedicated chief executive officer and dedicated chief financial officer, which we are solely responsible for determining and paying; and

 

  (xvi) all of our or our subsidiaries’ costs and expenses, other than those to be specifically borne by our Manager pursuant to the Asset Management Agreement.

Notwithstanding the foregoing, nothing in the Asset Management Agreement shall be deemed to amend or modify the Property Management Agreement.

Indemnification

Pursuant to the Asset Management Agreement, our Manager assumes no responsibility other than to render its services called in good faith and is not responsible for any action of our board of trustees in following or declining to follow any of its advice or recommendations. Our Manager, its members, managers, officers and employees are not liable to us or any of our subsidiaries, to our board of trustees, or our or any of our subsidiaries shareholders or partners for any acts or omissions by our Manager, its affiliates, members, managers, officers or employees, pursuant to or in accordance with the Asset Management Agreement, except by reason of acts constituting bad faith, willful misconduct or gross negligence. We will, to the full extent lawful, reimburse, indemnify and hold our Manager, its affiliates, members, managers, officers and employees, sub-advisers and each other person, if any, controlling our Manager, harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) in respect of or arising from any acts or omissions of such indemnified party made in good faith in the performance of our Manager’s duties under the Asset Management Agreement and not constituting such indemnified party’s bad faith, willful misconduct or gross negligence.

Our Manager will, to the full extent lawful, reimburse, indemnify and hold us, our shareholders, trustees, officers and employees and each other person, if any, controlling us, harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) in respect of or arising from any acts or omissions of our Manager constituting bad faith, willful misconduct or gross negligence.

 

135


Table of Contents

Assignment

Our Asset Management Agreement will terminate automatically in the event of an assignment, in whole or in part, by our Manager, unless such assignment is made with the consent of a majority of our independent trustees. No consent is required in the case of an assignment by our Manager to an entity whose business and operations are managed or supervised by Spirit Realty Capital, Inc. Our Manager will continue to be liable to us for all errors or omissions of any assignee that is managed or supervised by Spirit Realty Capital, Inc. but will not be liable for errors or omissions of any other successor manager.

We may not assign the Asset Management Agreement without the prior written consent of our Manager, except in the case of assignment to another REIT or other organization that is our successor (by merger, consolidation or purchase of assets).

 

136


Table of Contents

MANAGEMENT

Our Trustees and Executive Officers

Currently Jackson Hsieh is our only trustee. Upon completion of the spin-off, our board of trustees is expected to be comprised of five members, one of whom, Mr. Hsieh, will be an executive of our Manager’s parent, Spirit. We expect to expand our board to six members once a permanent chief executive officer has been identified and to have such individual serve as an additional trustee. Each of our trustees will serve until the first annual meeting of our shareholders and until his or her successor is duly elected and qualifies. Thereafter, each of our trustees will be elected by our common shareholders to serve until the next annual meeting of our shareholders and until his or her successor is duly elected and qualifies. We expect our board of trustees to determine that each of the four trustee nominees listed in the table below satisfy the listing standards for independence of the NYSE. Our bylaws provide that a majority of the entire board of trustees may at any time increase or decrease the number of trustees. However, the number of trustees may never be less than the minimum number required by Maryland law nor, unless our bylaws are amended, more than 15.

The following table sets forth certain information regarding our executive officers and trustees, including those who are expected to serve upon completion of the spin-off:

 

Name

   Age   

Position

Jackson Hsieh

   57    Chairman of the Board

Ricardo Rodriguez

   41    Interim Chief Executive Officer, Interim President, Chief Financial Officer and Treasurer

Steven G. Panagos

   56    Trustee Nominee

Steven H. Shepsman

   65    Trustee Nominee

Richard J. Stockton

   47    Trustee Nominee

Thomas J. Sullivan

   55    Trustee Nominee

Biographical Information for Executive Officers

The following is the biographical summary of the experience of Mr. Rodriguez, who will serve upon the completion of the spin-off as our Chief Financial Officer and interim Chief Executive Officer.

Ricardo Rodriguez , 41, will serve as our Interim Chief Executive Officer, Interim President, Chief Financial Officer and Treasurer upon completion of the spin-off. Mr. Rodriguez joined us from Morgan Stanley, where he served as Executive Director since 2011 and spent over 17 years in a variety of roles, most recently responsible for the term ABS banking and origination business within Global Capital Markets. During his tenure at Morgan Stanley, Mr. Rodriguez managed and executed over $70 billion in public and private capital markets transactions across the capital structure using a variety of products in all major geographic regions within all key industry groups in which Morgan Stanley participates. During this time, he also helped Morgan Stanley in investing in, managing and disposing of a diverse set of real estate, infrastructure and energy assets. Mr. Rodriguez graduated from the U.S. Naval Academy in Annapolis, Maryland where he received Bachelor of Science degrees in Economics and in Weapons & Systems Engineering.

Biographical Information for Non-Employee Trustees and Trustee Nominees

The following are the biographical summaries of Mr. Hsieh, our Chairman of the Board, and the persons expected to serve as our non-employee trustees upon completion of the spin-off.

Jackson Hsieh , 57, has served as a trustee since our formation in November 2017. Mr. Hsieh has been Chief Executive Officer and President of Spirit Realty Capital, Inc. since May 8, 2017, and first joined Spirit as President and Chief Operating Officer on September 7, 2016. Mr. Hsieh joined Spirit from Morgan Stanley

 

137


Table of Contents

(NYSE:MS), where he served as Managing Director and a Vice Chairman of Investment Banking, primarily focusing on the firm’s real estate clients. Prior to this, Mr. Hsieh was Vice Chairman and Sole/Co-Global Head of UBS’s Real Estate Investment Banking Group, managing a team of over 70 professionals in six offices worldwide. During his career, including a prior period at Morgan Stanley and tenures at Bankers Trust Company and Salomon Brothers, Inc., he served as senior lead banker on over $285 billion of real estate and lodging transactions. Mr. Hsieh is a graduate of the University of California at Berkeley (1983), and earned a master’s degree in Architecture from Harvard University (1987). Mr. Hsieh was selected to serve as a trustee based on his extensive experience in the real estate industry, including his current service as Chief Executive Officer and President of Spirit, and his strong familiarity with our portfolio.

Steven G. Panagos , 56, will serve as a member of our board of trustees and as the chairperson of the nominating and corporate governance committee of our board of trustees upon completion of the spin-off. Steve Panagos has served as Managing Director and Vice Chairman of the Recapitalization & Restructuring Group at Moelis & Company since April 2009. Mr. Panagos has a long and distinguished career of leading complex bankruptcies and reorganizations for both companies and their creditors across a broad spectrum of industries. To date, Mr. Panagos has restructured more than $100 billion worth of debt across more than 80 situations and has provided expert testimony regarding valuation and restructuring matters. Prior to joining Moelis & Company, Mr. Panagos was the National Practice Leader of Kroll Zolfo Cooper’s Corporate Advisory & Restructuring Practice where, among other roles, served as interim chief executive officer and chief restructuring officer of Penn Traffic Supermarkets (2003-2004); president and chief operating officer of Krispy Kreme Doughnuts (2005-2006) and chief restructuring officer and member of the special committee of the board of directors of Metromedia Fiber Network (2002-2003). Mr. Panagos received a Bachelor of Science degree in Accounting and Finance from the University of Michigan. He was formerly a certified public accountant. Mr. Panagos was selected to serve as a trustee based on his extensive experience with restructurings and his other qualifications and skills.

Steven H. Shepsman , 65, will serve as a member of our board of trustees and as the chairperson of the audit committee of our board of trustees prior to the commencement of “when-issued” trading in our shares. Mr. Shepsman has been an executive managing director of New World Realty Advisors, a real estate investment and advisory firm specializing in real estate restructurings, development and finance, since its inception in 2009. Amongst his other assignments, Mr. Shepsman served as chair of the Official Committee of Equity Holders in the Chapter 11 bankruptcy proceedings of General Growth Properties, Inc. Previously, as a principal at the manager of a real estate fund, Mr. Shepsman had oversight responsibility for the fund’s due diligence and acquisition of investment platforms and subsequent asset acquisitions, financings and dispositions. Mr. Shepsman currently serves as a member of the board of directors of the Howard Hughes Corporation and as chairperson of the audit committee and as a member of the nominating and corporate governance committee and risk committee. Mr. Shepsman also served as a director of Rouse Properties, Inc. from January 2012 to May 2013. Earlier in his career, Mr. Shepsman, a certified public accountant, was a managing partner of Kenneth Leventhal and Company and of Ernst & Young LLP’s Real Estate Practice. Mr. Shepsman is a trustee of The University of Buffalo Foundation and a member of the Dean’s Advisory Council for its School of Management. Mr. Shepsman received a Bachelor of Science degree in Management from the University of Buffalo. Mr. Shepsman was selected to serve as a trustee based on his extensive professional accounting and financial experience and expertise, including in the real estate industry, which enable him to provide key contributions to the board of trustees on financial, accounting, corporate governance and strategic matters.

Richard J. Stockton , 47, will serve as a member of our board of trustees and as lead independent trustee upon completion of the spin-off. Mr. Stockton has served as Chief Executive Officer of Braemar Hotels & Resorts (formally Ashford Hospitality Prime) since November 2016 and as President since April 2017. Mr. Stockton spent over 15 years at Morgan Stanley in real estate investment banking where he rose from associate to managing director and regional group head. At Morgan Stanley, he was head of EMEA Real Estate Banking in London, executing business across Europe, the Middle East and Africa. He was also appointed co-head of the Asia Pacific Real Estate Banking Group, where he was responsible for a team across Hong Kong,

 

138


Table of Contents

Singapore, Sydney and Mumbai. He left Morgan Stanley in 2013 to become president and chief executive officer—Americas for OUE Limited, a publicly listed Singaporean property company with over $5 billion in assets. Most recently, Mr. Stockton served as global chief operating officer for Real Estate at Carval Investors, a subsidiary of Cargill with approximately $1 billion in real estate investments in the United States, Canada, United Kingdom and France. Mr. Stockton received a Bachelor of Science degree from the School of Hotel Administration at Cornell University and a Masters in Business Administration in Finance and Real Estate from The Wharton School at the University of Pennsylvania. Mr. Stockton was selected to serve as a trustee based on his extensive experience in the real estate industry and his other qualifications and skills

Thomas J. Sullivan , 55, will serve as a member of our board of trustees and as the chairperson of the compensation committee of the board of trustees upon completion of the spin-off. Mr. Sullivan has served as a partner with Standard General L.P., a New York-based investment firm that manages event-driven opportunity funds, since June 2016 where he is responsible for portfolio management of Standard General’s SG Special Situations Fund L.P. Prior to joining Standard General L.P., Mr. Sullivan was the managing partner of Smallwood Partners, LLC, a financial advisory services firm (2009-2015) and a managing director of Investcorp International, Inc., a global middle market private equity firm (1996-2008). He has served on numerous boards and committees over the prior twenty years. Most recently, Mr. Sullivan served as a member of the board of directors, including as a member of the audit committee, finance committee and budget advisory committee, of Media General Inc. from November 2013 to February 2017. Additionally, Mr. Sullivan served as a member of the board of directors, lead director of the suitability committee and chairperson of the nominating and governance committee of American Apparel Inc. from August 2014 to March 2016. Mr. Sullivan received a Bachelor of Business Studies from Villanova University. Mr. Sullivan was selected to serve as a trustee based on his extensive operating and financial management experience, including in the financial services industry.

Corporate Governance—Board of Trustees and Committees

Our business is managed by our Manager, subject to the supervision and oversight of our board of trustees, which has established investment guidelines for our Manager to follow in its day to day management of our business. Upon completion of the spin-off, a majority of our board of trustees will be “independent,” with independence being defined in the manner established by our board of trustees and in a manner consistent with listing standards established by the NYSE.

Upon completion of the spin-off, our board will establish an audit committee, compensation committee and a nominating and corporate governance committee and adopt charters for each of these committees. Each of these committees will be composed exclusively of independent trustees, as defined by the listing standards of the NYSE. Moreover, the compensation committee will be comprised exclusively of individuals intended to be, to the extent provided by Rule 16b-3 of the Exchange Act, non-employee trustees and will, at such times as we are subject to Section 162(m) of the Code, qualify as outside trustees for purposes of Section 162(m) of the Code.

Audit Committee

Our audit committee will be composed of three independent trustees, Steven Shepsman, Tom Sullivan, and Richard Stockton. Steven Shepsman will serve as the chairperson of the audit committee. We expect that Steven Shepsman will be designated as our audit committee financial expert, as that term is defined by the SEC. Each of the audit committee members will be “financially literate” under the rules of the NYSE. The audit committee assists the board in overseeing:

 

    our financial reporting, auditing and internal control activities, including the integrity of our financial statements;

 

    our compliance with legal and regulatory requirements;

 

    the independent registered public accounting firm’s qualifications and independence; and

 

    the performance of our internal audit function and independent registered public accounting firm.

 

139


Table of Contents

The audit committee is also responsible for engaging our independent registered public accounting firm, reviewing with the independent registered public accounting firm the plans and results of the audit engagement, approving professional services provided by the independent registered public accounting firm, reviewing the independence of the independent registered public accounting firm, considering the range of audit and non-audit fees and reviewing the adequacy of our internal accounting controls.

Compensation Committee

Our compensation committee will be composed of three independent trustees, Steven Panagos, Thomas Sullivan, and Richard Stockton. Thomas Sullivan will serve as the chairperson of the compensation committee.

The principal functions of the compensation committee will be to:

 

    evaluate the performance of our officers;

 

    review and approve the officer compensation plans;

 

    evaluate the performance of our Manager;

 

    review the compensation and fees payable to our Manager under the Asset Management Agreement;

 

    prepare compensation committee reports; and

 

    oversee the equity incentive plan.

The compensation committee has the authority to retain and terminate any compensation consultant to be used to assist in the evaluation of officer compensation.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee will be composed of three independent trustees, Steven Panagos, Steven Shepsman, and Richard Stockton. Steven Panagos will serve as the chairperson of the nominating and corporate governance committee.

The nominating and corporate governance committee is responsible for seeking, considering and recommending to the board qualified candidates for election as trustees and recommending a slate of nominees for election as trustees at the annual meeting. The nominating and corporate governance committee will also periodically prepare and submit to the board for adoption the committee’s selection criteria for trustee nominees. It will review and make recommendations on matters involving the general operation of the board and our corporate governance and will annually recommend to the board nominees for each committee of the board. In addition, the committee annually facilitates the assessment of the board of trustees’ performance as a whole and of the individual trustees and reports thereon to the board. The committee has the sole authority to retain and terminate any search firm to be used to identify trustee candidates.

Compensation Committee Interlocks and Insider Participation

The members of the compensation committee of the board of trustees will be independent trustees. Upon completion of the spin-off, none of these trustees, or any of our executive officers, will serve as a member of a board of directors or board of trustees or any compensation committee of any entity that has one or more executive officers serving as a member of our board.

Trustee Compensation

Prior to the distribution, we did not compensate our trustees for service in their capacity as our trustees; however, in connection with the distribution, we adopted a compensation program (the “Trustee

 

140


Table of Contents

Compensation Program”) for our trustees who are not employees of SMTA or Spirit, or any of our respective affiliates (our “Non-Employee Trustees”) which enables us to attract and retain individuals of the highest quality to serve as our trustees, while also aligning trustee interests with the long-term interests of our stockholders. The Trustee Compensation Program consists of a combination of cash annual retainer fees and long-term equity-based compensation. Each of these components is described below. We also expect to reimburse each Non-Employee Trustee for travel and other expenses associated with attending board and committee meetings and other board-related activities. The Trustee Compensation Program will be effective upon the completion of the distribution.

Cash Compensation

Under the Trustee Compensation Program, each Non-Employee Trustee will to receive an annual cash retainer of $125,000. Annual retainers generally will be paid in four equal quarterly cash payments; each payment will be paid at the end of the applicable calendar quarter, but the final calendar quarter payment made prior to the end of the fiscal year. In addition to the annual cash retainer, after the occurrence of six trustee meetings, each Non-Employee Trustee will be paid $1,500 for each meeting of our board of trustees attended in person or telephonically. We do not currently expect to pay any supplemental retainers to the chair of our board of trustees, nor to any individual trustee for service on any committee of our board of trustees.

Equity Compensation

Under the Trustee Compensation Program, will grant each Non-Employee Trustee who is serving on our Board as of the distribution restricted common shares of our common stock with a dollar-denominated value of approximately $375,000 (the “Distribution Restricted Share Award”). Each Distribution Restricted Share Award will be granted following a 30 consecutive trading day period following the distribution, and the number of shares subject to the award will be determined based on the volume weighted average price per share of our common shares during such period. Each Distribution Restricted Share Award will vest on the earlier of (i) the first anniversary of the distribution date or (ii) the next annual meeting following the grant date, subject to continued service.

Each Non-Employee Trustee who is initially elected or appointed to serve on our Board after the distribution automatically will receive restricted common shares with a dollar-denominated value of approximately $375,000 (the “Initial Restricted Share Award”) on the date of such initial election or appointment. Each Initial Restricted Share Award will vest on the first anniversary of the date of such initial election or appointment, subject to continued service.

Each Non-Employee Trustee serving on our board of trustees as of the date of each annual shareholder meeting automatically will receive restricted common shares of our common stock with a dollar-denominated value of approximately $125,000 (the “Annual Restricted Share Award”) on the date of the applicable annual shareholder meeting. Each Annual Restricted Share Award will vest on the earlier of (i) the first anniversary of the grant date or (ii) the next annual meeting following the grant date, subject to continued service.

Executive Compensation

We are externally managed by our Manager and currently have no employees. Our Manager will provide us with a dedicated chief executive officer, who will be an employee of our Manager. Our other executive officers are also employees of our Manager, and, in such capacity, devote a portion of their time to our affairs as is required pursuant to the Asset Management Agreement. We currently do not pay our executive officers any cash or other compensation, and we have no compensation agreements with our executive officers. Additionally, we do not determine compensation amounts payable to our executive officers. Instead, our Manager or its affiliates have discretion to determine the form and level of compensation paid to and earned by our executive officers.

 

141


Table of Contents

We, in turn, pay our Manager the management fee described in “Our Manager and Asset Management Agreement.” We will be responsible for determining and issuing the equity portion of the compensation of our dedicated chief executive officer and chief financial officer.

The Asset Management Agreement does not require that our executive officers, other than our chief executive officer, dedicate a specific amount of time to fulfilling our Manager’s obligations to us under the Asset Management Agreement and does not require a specified amount or percentage of the management fee we pay to our Manager to be allocated to our executive officers. Instead, members of our management team are required to devote such amount of their time to our management as reasonably necessary and appropriate.

We have adopted an incentive plan as described below, under which we may award equity-based and cash-based awards to our and our subsidiaries’ trustees, directors, officers, employees, consultants and directors, consultants and employees of our Manager and its affiliates that are providing services to us and our subsidiaries. In addition, we expect that the plan will permit us to grant awards to our Manager, which may in turn grant awards to employees, consultants or directors of it and its affiliates. As described below under “—Incentive Award Plan,” these awards are designed to align the interests of such individuals with those of our shareholders and enable our Manager and its affiliates that provide services to us and our subsidiaries to attract, motivate and retain talented individuals.

Incentive Award Plan

In May 2018, we adopted the Spirit MTA REIT and Spirit MTA REIT, L.P. 2018 Incentive Award Plan (the “Plan”), under which we may grant cash and equity incentive awards to eligible service providers in order to attract, motivate and retain such service providers. The material terms of the Plan are summarized below.

Eligibility and  Administration.   Trustees, directors, officers, employees, and consultants of the Company, the Manager and our respective affiliates are eligible to receive awards under the Plan; in addition, our Manager and its affiliates are eligible to receive awards under the Plan and in turn issue such awards to their employees, consultants or directors.

Upon completion of the spin-off, the Plan will be administered by our board of trustees with respect to awards to non-employee trustees, but will be administered by our compensation committee with respect to other participants, each of which may delegate its duties and responsibilities to committees of our trustees and/or officers (referred to collectively as the “plan administrator”), subject to certain limitations that may be imposed under Section 16 of the Exchange Act and/or stock exchange rules, as applicable. The plan administrator has the authority to administer the Plan, including the authority to select award recipients, determine the nature and amount of each award, and determine the terms and conditions of each award. The plan administrator also has the authority to make all determinations and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the Plan, subject to its express terms and conditions.

Size of Share  Reserve; Limitations  on Awards . The total number of common shares reserved for issuance pursuant to awards under the Plan is 3,645,000. The maximum number of common shares that may be issued in connection with awards of incentive stock options (“ISOs”) under the Plan is 3,645,000. The maximum aggregate cash compensation and grant-date fair value of all equity-based awards granted during any calendar year to a non-employee trustee for services as a trustee is $750,000 (the “Trustee Limit”).

If an award under the Plan is forfeited, expires, or is settled for cash, any shares subject to such award may, to the extent of such forfeiture, expiration or cash settlement, be used again for new grants under the Plan. However, the following shares will not be used again for grant under the Plan: (1) shares tendered or withheld to satisfy grant or exercise price or tax withholding obligations associated with an award; (2) shares subject to a share appreciation right (“SAR”) that are not issued in connection with the share settlement of the SAR on its exercise; and (3) shares purchased on the open market with the cash proceeds from the exercise of options.

 

142


Table of Contents

To the extent permitted under Section 422 of the Code or applicable securities exchange rules without shareholder approval, awards granted under the Plan in connection with the assumption, replacement, conversion or adjustment of outstanding equity awards in the context of a corporate acquisition or merger will not reduce the shares authorized for grant under the Plan, but will reduce the shares authorized for issuance in connection with ISOs.

Awards. The Plan provides for the grant of stock options, including ISOs and nonqualified stock options (“NSOs”), restricted shares, performance awards, dividend equivalents, share payments, restricted share units (“RSUs”), performance shares, long-term incentive plan units (“LTIP units”), other incentive awards and SARs. All awards under the Plan will be set forth in award agreements, which will detail all terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. Awards other than cash awards will generally be settled in common shares, but the plan administrator may provide for cash settlement of any award. A brief description of each award type follows.

 

    Stock Options . Stock options provide for the purchase of common shares in the future at an exercise price set on the grant date. The exercise price of a stock option may not be less than 100% of the fair market value of the underlying share on the date of grant (or 110% in the case of ISOs granted to certain significant shareholders), except with respect to certain substitute options granted in connection with a corporate transaction. The term of a stock option may not be longer than ten years (or five years in the case of ISOs granted to certain significant shareholders). Vesting conditions determined by the plan administrator may apply to stock options and may include continued service, performance and/or other conditions.

 

    Share Appreciation Rights . SARs entitle their holder, upon exercise, to receive an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The exercise price of a SAR may not be less than 100% of the fair market value of the underlying share on the date of grant (except with respect to certain substitute SARs granted in connection with a corporate transaction) and the term of a SAR may not be longer than ten years. Vesting conditions determined by the plan administrator may apply to SARs and may include continued service, performance and/or other conditions.

 

    Restricted Shares, RSUs and Performance Shares . Restricted Shares are awards of nontransferable common shares that remain forfeitable unless and until specified conditions are met, and that may be subject to a purchase price. RSUs are contractual promises to deliver common shares in the future, which may also remain forfeitable unless and until specified conditions are met. Delivery of the shares underlying RSUs may be deferred under the terms of the award or at the election of the participant, if the plan administrator permits such a deferral. Performance shares are contractual rights to receive a range of common shares in the future based on the attainment of specified performance goals, in addition to other conditions that may apply to these awards. Conditions applicable to restricted shares, RSUs and performance shares may be based on continuing service, the attainment of performance goals and/or such other conditions as the plan administrator may determine

 

    Share Payments, Other Incentive Awards and LTIP Units . Share payments are awards of fully vested common shares that may, but need not, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who is eligible to receive awards. Other incentive awards are awards other than those enumerated in this summary that are denominated in, linked to or derived from common shares or value metrics related to common shares, and may remain forfeitable unless and until specified conditions are met. LTIP units are awards of units of the Operating Partnership intended to constitute “profits interests” within the meaning of the relevant Internal Revenue Service Revenue Procedure guidance, which may be convertible into shares of our common stock pursuant to our partnership agreement.

 

   

Dividend Equivalents . Dividend equivalents represent the right to receive the equivalent value of dividends paid on common shares and may be granted alone or in tandem with awards other than stock

 

143


Table of Contents
 

options or SARs. Dividend equivalents are credited as of dividend payments dates during the period between a specified date (or such other date as may be determined by the administrator) and the date such award terminates or expires, as determined by the plan administrator.

 

    Performance Awards . Performance awards are cash bonus awards that are granted subject to vesting and/or payment based on the attainment of specified performance goals.

Certain Transactions .   The plan administrator will have broad discretion to take action under the Plan, as well as make adjustments to the terms and conditions of existing and future awards, to prevent the dilution or enlargement of intended benefits and facilitate necessary or desirable changes in the event of certain transactions and events affecting our common shares, such as share dividends, share splits, mergers, acquisitions, consolidations and other corporate transactions. In addition, in the event of certain non-reciprocal transactions with our shareholders known as “equity restructurings,” the plan administrator will make equitable adjustments to the Plan and outstanding awards. In the event of a “change in control” of our company (as defined in the Plan), to the extent that the surviving entity declines to continue, convert, assume or replace outstanding awards, then all such awards will become fully vested and exercisable in connection with the transaction.

Foreign Participants, Claw-Back Provisions, Transferability, and Participant Payments . The plan administrator may modify award terms, establish subplans and/or adjust other terms and conditions of awards, subject to the share limits described above, in order to facilitate grants of awards subject to the laws and/or stock exchange rules of countries outside of the United States. All awards will be subject to the provisions of any claw-back policy implemented by our company to the extent set forth in such claw-back policy and/or in the applicable award agreement (whether such claw-back policy is implemented prior to or after the grant of the applicable award). With limited exceptions for estate planning, domestic relations orders, certain beneficiary designations and the laws of descent and distribution and transfers from the Manager and/or its affiliates to their employees, consultants and directors, awards under the Plan generally will be non-transferable prior to vesting, and are exercisable only by the participant, unless otherwise provided by the plan administrator. Subject to certain restrictions, awards granted to the Manager or its affiliates may be transferred to an employee, consultant or director or any of its affiliates. The transfer of any award is subject to the terms and conditions of the Asset Management Agreement and our partnership agreement. With regard to tax withholding, exercise price and purchase price obligations arising in connection with awards under the Plan, the plan administrator may, in its discretion, accept cash or check, common shares that meet specified conditions, a “market sell order” or such other consideration as it deems suitable.

Plan Amendment and Termination . Our board of trustees may amend or terminate the Plan at any time; however, except in connection with certain changes in our capital structure, shareholder approval will be required for any amendment that increases the aggregate number of shares available under the Plan or the Trustee Limit, “reprices” any stock option or SAR, or cancels any stock option or SAR in exchange for cash or another award when the option or SAR price per share exceeds the fair market value of the underlying shares. In addition, no amendment, suspension or termination of the Plan may, without the consent of the affected participant, impair any rights or obligations under any previously-granted award, unless the award itself otherwise expressly so provides. No award may be granted under the Plan after the tenth anniversary of the date on which our board of trustees adopted the Plan.

Additional REIT Restrictions . The Plan provides that no participant will be granted, become vested in the right to receive or acquire or be permitted to acquire, or will have any right to acquire, shares under an award if such acquisition would be prohibited by the restrictions on ownership and transfer of our shares contained in our declaration of trust or would impair our status as a REIT.

 

144


Table of Contents

Code of Business Conduct and Ethics

Our code of business conduct and ethics applies to our officers and trustees and to our Manager’s personnel when such individuals are acting for us or on our behalf. Among other matters, our code of business conduct and ethics is designed to deter wrongdoing and to promote:

 

    honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

    full, fair, accurate, timely and understandable disclosure in our public communications;

 

    compliance with applicable governmental laws, rules and regulations;

 

    prompt internal reporting of violations of the code to appropriate persons identified in the code; and

 

    accountability for adherence to the code.

Any waiver of the code of business conduct and ethics for our officers or trustees may be made only by our board of trustees or one of the committees of our board of trustees and will be promptly disclosed if and to the extent required by law or stock exchange regulations.

 

145


Table of Contents

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Asset Management Agreement

Prior to the completion of our spin-off, we will enter into an Asset Management Agreement with our Manager pursuant to which our Manager will provide the day-to-day management of our operations. Pursuant to the terms of the Asset Management Agreement, our Manager will provide a management team that will be responsible for implementing our business strategy and performing certain services for us. See “Our Manager and Asset Management Agreement.”

Property Management and Servicing Agreement

Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, provides property management services and special services for Master Trust 2014. The property management fees accrue daily at 0.25% per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets and the special servicing fees accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement. During the years ended December 31, 2017, 2016 and 2015, property management fees of $4.5 million, $4.7 million and $4.8 million, respectively, were incurred. Special servicing fees of $1.0 million, $0.7 million and $0.7 million were incurred in the years ended December 31, 2017, 2016 and 2015, respectively. The property management fees and special servicing fees are included in related party fees in the combined statements of operations.

Separation and Distribution Agreement

We will enter into a Separation and Distribution Agreement with Spirit that will effectuate the spin-off, provide a framework for the relationship between us and Spirit after the spin-off and provide for the allocation between us and Spirit of Spirit’s assets, liabilities and obligations attributable to the period prior to, at and after our spin-off from Spirit. The Separation and Distribution Agreement will be filed as an exhibit to the registration statement on Form 10, of which this information statement is a part, and the summary below is qualified in its entirety by reference to the full text of the agreement, which is incorporated by reference into this information statement.

The Separation and Distribution Agreement sets forth our agreements with Spirit regarding the principal transactions necessary to separate us from Spirit. It also sets forth other agreements that govern certain aspects of our relationship with Spirit after the completion of the separation plan. For purposes of the Separation and Distribution Agreement: (1) the “SMTA Group” means us and our subsidiaries; and (2) the “Spirit Group” means Spirit and its subsidiaries other than us and our subsidiaries.

Transfer of Assets and Assumption of Liabilities

The Separation and Distribution Agreement identifies the assets and liabilities to be retained by, transferred to, assumed by, or assigned to, as the case may be, each of us and Spirit as part of the separation of Spirit into two companies, and describes when and how these transfers, assumptions and assignments will occur, although, many of the transfers, assumptions and assignments may have already occurred prior to the parties’ entering into the Separation and Distribution Agreement. In particular, the Separation and Distribution Agreement provides that, subject to the terms and conditions contained in the Separation and Distribution Agreement immediately prior to the time of effectiveness of the Separation and Distribution Agreement, Spirit and we will take all actions necessary so that the SMTA Group will:

(1) own, to the extent it does not already own, Master Trust 2014, the Shopko Entities, the Sporting Goods Entities, two additional legal entities and ten additional properties; and

(2) assume, to the extent it is not already liable for:

(a) any liabilities relating to or arising out of our initial portfolio of assets described under (1) above whether arising prior to, at the time of, or after, the effectiveness of the Separation and Distribution Agreement;

 

146


Table of Contents

(b) all liabilities recorded on SMTA’s Unaudited Pro Forma Combined Balance Sheet as of December 31, 2017, as included herein, subject to the satisfaction of any liabilities subsequent to the date of such balance sheet, provided that the amounts set forth on such balance sheet with respect to any liabilities shall not be treated as minimum or maximum amounts or limitations on the amount of such liabilities;

(c) any potential liabilities related to Spirit’s Exchange Act reports relating to disclosures about our initial portfolio of assets described under (1) above;

(d) any liabilities arising out of claims by our trustees, officers and affiliates arising after the time of effectiveness of the Separation and Distribution Agreement against either Spirit or us to the extent they relate to our initial portfolio of assets described under (1) above as of the date of the Separation and Distribution Agreement; and

(e) any liabilities expressly created by the Separation and Distribution Agreement or any ancillary agreements as liabilities to be assumed or retained by SMTA or any member of the SMTA Group, and all agreements, obligations and liabilities of any member of the SMTA Group under the Separation and Distribution Agreement or any ancillary agreement.

In addition, at or prior to the spin-off, Spirit Realty, L.P. shall make a cash contribution of $3.0 million to SMTA and, to the extent directed by Spirit in its discretion, SMTA shall have distributed to Spirit or Spirit Realty, L.P. all other cash held by SMTA or its subsidiaries, other than any cash held in restricted escrows. SMTA shall also reimburse Spirit for post-spin for certain expenses and shall reimburse Spirit upon the sale of certain Shopko Assets, in the amount of $82,500 per asset, as reimbursement for certain fees previously paid by Spirit to Shopko. Additionally, SMTA will pay Spirit Realty, L.P. $2.0 million within 60 days of the spin-off for certain estimated rents received with respect to the SMTA assets that relates to the period between May 1, 2018 and the spin-off.

Except as otherwise provided in the Separation and Distribution Agreement, Spirit will retain all other assets and liabilities.

Except as may expressly be set forth in the Separation and Distribution Agreement or any ancillary agreement, all assets will be transferred on an “as is,” “where is” basis without representation or warranty.

Information in this information statement with respect to the assets and liabilities of the parties following the separation is presented based on the allocation of such assets and liabilities as set forth in the Separation and Distribution Agreement, unless the context otherwise requires. Certain of the liabilities and obligations to be assumed by one party or for which one party will have an indemnification obligation under the Separation and Distribution Agreement are, and following the separation may continue to be, the legal or contractual liabilities or obligations of another party. Each such party that continues to be subject to such legal or contractual liability or obligation will rely on the applicable party that assumed the liability or obligation or the applicable party that undertook an indemnification obligation with respect to the liability or obligation, as applicable, under the Separation and Distribution Agreement, to satisfy the performance and payment obligations or indemnification obligations with respect to such legal or contractual liability or obligation.

Further Assurances

Each party will cooperate with the other and use commercially reasonable efforts, prior to, on and after the distribution date, to take promptly, or cause to be taken promptly, all actions to do promptly, or cause to be done promptly, all things reasonably necessary, proper or advisable on its part to consummate and make effective the transactions contemplated by, and the intent and purposes of, the Separation and Distribution Agreement. In addition, neither party will, nor will either party allow its respective subsidiaries to, without the prior consent of the other party, take any action which would reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by the Separation and Distribution Agreement and the ancillary

 

147


Table of Contents

agreements thereto, if any. Both parties will also use commercially reasonable efforts to cause third parties, such as insurers or trustees, to fulfill any obligations they are required to fulfill under the Separation and Distribution Agreement.

The Distribution

The Separation and Distribution Agreement also governs the rights and obligations of the parties regarding the proposed distribution. We have agreed to distribute to Spirit, as a share dividend, (or take such other appropriate actions to ensure that Spirit has the requisite number of our common shares) the number of our common shares distributable in the distribution to effectuate the separation. In addition, Spirit has agreed to cause its agent to distribute to Spirit stockholders that hold shares of Spirit common stock as of the applicable distribution record date all of our common shares.

Additionally, the Separation and Distribution Agreement provides that the distribution is subject to several conditions that must be satisfied or waived by Spirit in its sole discretion. For further information regarding the separation, see “Our Separation from Spirit—Conditions to the Spin-Off.”

Termination of Other Arrangements

The Separation and Distribution Agreement provides that, other than the Separation and Distribution Agreement, the ancillary agreements to the Separation and Distribution Agreement (if any), the Property Management and Servicing Agreement, certain confidentiality and non-disclosure agreements among any members of the SMTA Group, the Spirit Group or employees of our Manager, all prior agreements and arrangements, whether written or not, between any member of the Spirit Group on the one hand, and any member of the SMTA Group on the other hand (except to the extent any person that is not a member of the SMTA Group or Spirit Group is also a party to such agreements or arrangements), are terminated and will cease to be of further force and effect as of the time of effectiveness of the Separation and Distribution Agreement. At the time of such termination, all parties will be released from liability under such agreements and arrangements, other than with respect to the settlement of intercompany accounts, which will be satisfied and/or settled in full in cash or otherwise cancelled and terminated or extinguished by the relevant members of the SMTA Group or Spirit Group prior to the time of effectiveness of the Separation and Distribution Agreement.

Releases and Indemnification

Subject to certain exceptions, including with respect to liabilities assumed by, or allocated to, us or Spirit, the Separation and Distribution Agreement provides that we and Spirit will generally agree to release each other from all liabilities existing or arising from acts or events prior to or on the distribution date.

In addition, the Separation and Distribution Agreement provides that, except as otherwise provided for in other documents related to the separation, we will indemnify Spirit and its affiliates and representatives against losses arising from:

(1) any SMTA liabilities as described under “—Transfer of Assets and Assumption of Liabilities” above;

(2) any failure by any member of the SMTA Group or any other person to pay, perform or otherwise promptly discharge any liability listed under (1) above in accordance with their respective terms, whether prior to, at or after the time of effectiveness of the Separation and Distribution Agreement;

(3) any breach by any member of the SMTA Group of any provision of the Separation and Distribution Agreement and any agreements ancillary thereto (if any), subject to any limitations of liability provisions and other provisions applicable to any such breach set forth therein;

 

148


Table of Contents

(4) any liability related to the Master Trust 2014 performance undertaking, as described under “—Performance Undertaking” below;

(5) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in this information statement or the registration statement of which this information statement is a part other than information that relates solely to any assets owned, directly or indirectly by Spirit, excluding the assets that will comprise our initial portfolio

Spirit shall indemnify us and our affiliates and representatives against losses arising from:

(1) any liability of Spirit or its subsidiaries (excluding any liabilities related to us);

(2) any failure of any member of the Spirit Group or any other person to pay, perform or otherwise promptly discharge any liability listed under (1) above in accordance with their respective terms, whether prior to, at or after the time of effectiveness of the Separation and Distribution Agreement;

(3) any breach by any member of the Spirit Group of any provision of the Separation and Distribution Agreement and any agreements ancillary thereto (if any), subject to any limitations of liability provisions and other provisions applicable to any such breach set forth therein; and

(4) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in this information statement or the registration statement of which this information statement is a part that relates solely to any assets owned, directly or indirectly by Spirit, other than our initial portfolio of assets.

Indemnification obligations shall generally be net of any insurance proceeds actually received by the indemnified person. The Separation and Distribution Agreement provides that we and Spirit will waive any right to special, indirect, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages provided that any such liabilities with respect to third party claims shall be considered direct damages.

Competition

The Separation and Distribution Agreement does not include any non-competition or other similar restrictive arrangements with respect to the range of business activities that may be conducted, or investments that may be made, by either the Spirit Group or the SMTA Group. Each of the parties will agree that nothing set forth in the agreement shall be construed to create any restriction or other limitation on the ability of any of the Spirit Group or SMTA Group to engage in any business or other activity that overlaps or competes with the business of any other party.

Insurance

Prior to the distribution date, Spirit and we shall use commercially reasonable efforts to obtain separate insurance policies for us on commercially reasonable terms, except for those policies addressed under the Insurance Sharing Agreement described below. We will be responsible for all premiums, costs and fees associated with any new insurance policies placed for our benefit.

Dispute Resolution

In the event of any dispute arising out of the Separation and Distribution Agreement, the parties, each having designated a representative for such purpose, will negotiate in good faith for 30 days to resolve any disputes between the parties. If the parties are unable to resolve disputes in this manner within 30 days, the disputes will be resolved through binding arbitration.

 

149


Table of Contents

Other Matters Governed by the Separation and Distribution Agreement

Other matters governed by the Separation and Distribution Agreement include, amongst others, access to financial and other information and confidentiality.

Tax Matters Agreement

We will enter into a Tax Matters Agreement with Spirit that will govern the respective rights, responsibilities and obligations of Spirit and us after the spin-off with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and certain other matters regarding taxes.

Our obligations under the Tax Matters Agreement are not limited in amount or subject to any cap. Further, even if we are not responsible for tax liabilities of Spirit and its subsidiaries under the Tax Matters Agreement, we nonetheless could be liable under applicable law for such liabilities if Spirit were to fail to pay them. If we are required to pay any liabilities under the circumstances set forth in the Tax Matters Agreement or pursuant to applicable tax law, the amounts may be significant.

Under the Tax Matters Agreement and subject to certain exceptions, we generally will be liable for, and will indemnify Spirit against, taxes attributable to the ownership and operation of our assets after the spin-off, and Spirit will generally be liable for, and will indemnify us against, taxes attributable to the ownership and operation of such assets prior to and as a result of the spin-off.

The form of this agreement will be filed as an exhibit to the registration statement on Form 10 of which this information statement is a part.

Insurance Sharing Agreement

Upon completion of the spin-off, we will enter into an Insurance Sharing Agreement with our Manager and Spirit, which will provide for our addition as a named insured under Spirit’s existing insurance policies until their expiration, and will give our Manager the authority to procure joint blanket insurance policies for us and Spirit thereafter. Such blanket insurance policies will include, without limitation, general liability, automobile liability, umbrella liability, property and environmental liability policies. The premiums for the insurance policies will be allocated between us and Spirit in accordance with the methodology set forth in the Insurance Sharing Agreement. Additionally, our Manager will have the authority to procure separate director and officer insurance policies with separate premiums for us and Spirit. Our Manager will not receive any compensation for the services provided under the Insurance Sharing Agreement. The Insurance Sharing Agreement will have an initial three-year term and will be automatically renewed for one-year terms thereafter unless terminated by either us or Spirit. The Insurance Sharing Agreement will be fully assignable by our Manager to one of its affiliates but will not be assignable by any other party without the written consent of all of the other parties thereto. The Insurance Sharing Agreement has been filed as an exhibit to the registration statement on Form 10, of which this information statement is a part, and the summary above is qualified in its entirety by reference to the full text of the Insurance Sharing Agreement, which is incorporated by reference into this information statement.

Registration Right Agreement

In connection with issuance of the Series A preferred shares to Spirit Realty, L.P. and one of its affiliates, we will enter into a registration rights agreement with Spirit Realty, L.P., pursuant to which we will provide for customary registration rights with respect to the Series A preferred shares, including the following:

Shelf Registration

We will prepare and file not later than June 1, 2019, a “shelf registration statement” with respect to the resale of all Series A preferred shares held by Spirit Realty, L.P. or its affiliates (or their permitted assignees or

 

150


Table of Contents

transferees) (collectively, the “holders”) on an appropriate form that we are then eligible to use for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. Unless the shelf registration statement becomes automatically effective, we will use our reasonable best efforts to cause it to be declared effective as promptly as reasonably practicable after the filing thereof, and, subject to certain limitations, to keep it continuously effective for a period ending when all Series A preferred shares are no longer registrable securities under the registration rights agreement.

Demand Registrations

Beginning on August 1, 2019 and from time to time so long as there are any registrable Series A preferred shares outstanding, if we are not eligible to file a shelf registration statement, if we have not caused a shelf registration statement to be declared effective or if the shelf registration statement ceases to be effective, the holders may require that we register their Series A preferred shares pursuant to a registration statement on an appropriate form that we are then eligible to use (a “demand registration statement”). We will use our reasonable best efforts to cause the demand registration statement to be declared effective as promptly as reasonably practicable after the filing thereof.

Qualified Offerings

If requested by the holders, we will undertake one or more registered offerings to an underwriter on a firm commitment basis for reoffering and resale to the public, in a “bought deal” with an investment bank or in a block trade with a broker-dealer. Unless consented to by the holders, neither we nor any shareholder of ours (other than the holders) may include securities in such offerings.

Listing

We will use our reasonable best efforts to cause all Series A preferred shares covered by a shelf registration statement or a demand registration statement to be listed on a securities exchange or national quotation system, subject to listing standards of such securities exchange or national quotation system.

Expenses and Indemnification

We will pay all third-party registration expenses related to the registration of Series A preferred shares under the registration rights agreement and the performance of our obligations thereunder (including the fees and disbursements of counsel to Spirit Realty, L.P.), other than any underwriting fees, discounts or commissions related to sales Series A preferred shares. We will also indemnify the holders against certain liabilities that may arise under the Securities Act.

Other Related Party Transactions

SubREIT 18% Series A Preferred Shares

In connection with the formation transactions, SubREIT will issue 5,000 18% Series A preferred shares with an aggregate liquidation preference of $5.0 million to our Manager in exchange for the contribution of certain assets, including an interest in Financing JV. Our Manager will then sell the Series A preferred shares to third parties.

The Series A preferred shares will pay cumulative cash dividends at the rate of 18% per annum on the liquidation preference of $1,000.00 per share (equivalent to $180.0 per share on an annual basis). SubREIT may not redeem the Series A preferred shares prior to April 30, 2023, except in limited circumstances to preserve its status as a REIT and pursuant to the special optional redemption provision described below.

 

151


Table of Contents

Upon a change of control or a delisting of common securities of Spirit MTA REIT, SubREIT may, at its option, redeem the Series A preferred shares, in whole, on or within 60 days after the date on which the change of control or delisting occurred, for a redemption price equal to (i) $1,000.00 per share, plus , (ii) in the case of a redemption prior to April 30, 2023, the greater of (x) 1.0% of the liquidation preference of the Series A preferred shares, and (y) the present value at such redemption date of the full cumulative dividends on the Series A preferred shares for all future dividend periods through April 30, 2023 (excluding accrued but unpaid dividends to the redemption date), computed using a discount rate equal to the treasury rate as of such redemption date, plus 50 basis points (the “Applicable Premium”) as of the redemption date, plus (iii) accrued and unpaid dividends, if any, to, but not including, the redemption date.

Additionally, upon a change of control, SubREIT must offer to purchase all of the Series A preferred shares on or within 60 days after the date on which the change of control occurred at a purchase price equal to (i) $1,000.00 per share, plus , (ii) in the case of a redemption prior to April 30, 2023, the Applicable Premium of, but not including, the payment date, plus (iii) accrued and unpaid dividends, if any, to, but not including, the payment date.

The Series A preferred shares have no conversion rights. Holders of Series A preferred shares will generally have no voting rights, except for limited voting rights regarding certain matters affecting the rights and preferences of Series A preferred shares.

Master Trust 2014 Notes Risk Retention

Each issuance of notes under Master Trust 2014 is required to comply with the risk retention rules issued under 17 CFR Part 246, which obligate the sponsor of a securitization to retain a 5% economic interest with respect to the ABS interests issued following the effective date of the risk retention rule. In the case of Master Trust 2014, in consideration of various factors, including SMTA’s discretionary authority to determine which assets will be selected for acquisition by the Master Trust 2014 issuers and whether and on what terms additional notes will be issued, we expect that SMTA will be the sponsor with respect to future issuances of notes by the issuers and will comply with the risk retention rule by holding the membership interests in the issuers through a majority owned affiliate or pursuant to another permissible method of risk retention. However, Spirit will remain the sponsor with respect to the Series 2017-1 notes and has agreed to comply with the risk retention rule with respect to such Series 2017-1 notes by retaining 5% of each class thereof. See “Description of Indebtedness—Master Trust Notes.”

Performance Undertaking

In connection, with the issuance of notes under Master Trust 2014, Spirit has agreed and may be required to continue to agree to act as support provider, undertaking contingent financial and other liability, both relating to asset transfers that occurred in the past and to asset transfers that may occur in the future. Pursuant to the new indenture, the notes issuer is not able to acquire new assets unless they are covered by a performance undertaking from Spirit or an eligible replacement support provider.

Pursuant to this performance undertaking, Spirit will (i) guarantee the payment and performance of the cure, repurchase, exchange and indemnification obligations of the applicable originators under property transfer agreements, (ii) be deemed to have made the same representations each issuer made on each series closing date with respect to the assets that were in the collateral pool as of such date, (iii) be deemed to make the same representations each issuer is required to make with respect to each transfer of assets from time to time and (iv) agree to perform all covenants, agreements, terms, conditions and indemnities to be performed and observed by each issuer pursuant to the applicable environmental indemnity agreement with respect to environmental violations arising or existing on or prior to the date of the transfer of the relevant property to the collateral pool. In the case of a breach of a deemed representation relating to (ii) or (iii) above, or if there is another defect relating to the affected property (e.g., missing documentation) and such breach or defect materially and adversely

 

152


Table of Contents

affects the value of the related property, Spirit is required to cure such defect or repurchase the property. With respect to the obligations described under (iv), the obligation to remedy any environmental violations are direct obligations of Spirit.

Pursuant to the performance undertaking, at any time following the earlier of the second anniversary of the spin-off or the occurrence of certain other events, including a qualified deleveraging event (described under “Description of Indebtedness”) Spirit’s support provider obligations may be transferred to a successor that satisfies certain criteria. Following such transfer, Spirit will be released from all obligations with respect thereto.

Related Party Purchases and Sales

The combined financial statements of the Predecessor Entities include purchases of properties from Spirit and its wholly-owned subsidiaries. For the year ended December 31, 2017, the Predecessor Entities purchased one property from Spirit for $16.0 million. Additionally, during 2017, Spirit contributed 10 real estate properties to the collateral pool of Master Trust 2014 with total appraised value of $282.4 million in conjunction with the issuance of the Series 2017-1 notes. For the year ended December 31, 2016, the Predecessor Entities purchased three properties from Spirit for $12.1 million. For the year ended December 31, 2015, the Predecessor Entities purchased 18 properties from Spirit for $45.6 million. Additionally, for the year ended December 31, 2016, the Predecessor Entities exchanged $11.3 million in cash and two mortgage loans with outstanding principal receivable of $26.6 million to Spirit for four properties with a net book value of $36.9 million. For all of these transactions, due to all entities being under common control, no gain or loss was recognized by the Predecessor Entities and acquired properties were accounted for by the Predecessor Entities at their historical cost basis to Spirit. Any amounts paid in excess of historical cost basis were recognized as distributions to Spirit.

Related Party Loans Receivable

The Predecessor Entities have four mortgage loans receivable where wholly-owned subsidiaries of Spirit are the borrower, and the loans are secured by six single-tenant commercial properties. In total, these mortgage notes had outstanding principal of $30.8 million and $33.9 million at December 31, 2017 and 2016, respectively, which is included in loans receivable, net on the combined balance sheet, and generated $0.3 million of income in the year ended December 31, 2017 and $0.4 million of income in both the years ended December 31, 2016 and 2015, which is included in interest income on loans receivable in the combined statements of operations. These mortgage notes have a weighted average stated interest rate of 1.0% and a weighted average maturity of 9.8 years at December 31, 2017.

Related Party Note Payable

Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, owns notes issued under Master Trust 2014 Series 2014-2. The principal amounts due under the notes are $11.6 million and $11.8 million at December 31, 2017 and 2016, respectively, and is included in mortgages and notes payable, net on the combined balance sheets. The notes have a stated interest rate of 5.8% with a term of 3.2 years to maturity as of December 31, 2017. Subsequent to December 31, 2017, Spirit Realty, L.P. sold its interests in these notes to an unrelated third party. Also, in conjunction with the Series 2017-1 notes issuance completed in December 2017, Spirit Realty, L.P., as sponsor of the issuance, retained a 5% economic interest in the Master Trust 2014 Series 2017-1 notes as required by the risk retention rules issued under 17 CFR Part 246. As such, the principal amounts due under the notes was $33.7 million at December 31, 2017 and is included in the mortgages and notes payable, net on the combined balance sheets. The notes have a weighted average stated interest rate of 4.7% with a term of 5.0 years to maturity as of December 31, 2017.

Expense Allocations

General and administrative expenses of $4.0 million, $1.4 million and $1.7 million during the years ended December 31, 2017, 2016 and 2015, respectively, and transaction costs of $3.2 million for the year ended

 

153


Table of Contents

December 31, 2017 were specifically identified based on direct usage or benefit. The remaining general and administrative expenses, restructuring costs and transaction costs have been allocated to the Predecessor Entities based on relative property count, which the Company believes to be a reasonable methodology. These allocated expenses are centralized corporate costs borne by Spirit for management and other services, including, but not limited to, executive oversight, asset management, property management, treasury, finance, human resources, tax, accounting, financial reporting, information technology and investor relations, as well as costs from Spirit’s relocation of its headquarters from Scottsdale, Arizona to Dallas, Texas, which was completed in 2016 and transaction costs incurred in connection with the spin-off. A summary of the amounts allocated is provided below:

 

     Years Ended December 31,  
     2017      2016      2015  

Corporate expenses (1)

   $ 19,814      $ 17,533      $ 19,057  

Restructuring charges

   $ —        $ 2,465      $ 3,036  

Transaction costs

   $ 1,180      $ —        $ —    

 

(1)   Corporate expenses have been included within general and administrative expenses in the combined statements of operations.

The allocated amounts above do not necessarily reflect what actual costs would have been if the Predecessor Entities were a separate standalone public company and actual costs may be materially different.

Statement of Policy Regarding Transactions with Related Persons

Our board of trustees will adopt a policy regarding the approval of any “related person transaction,” which is any transaction or series of transactions in which we or any of our subsidiaries is or are to be a participant, the amount involved exceeds $120,000, and a “related person” (as defined under SEC rules) has a direct or indirect material interest. Under the policy, a related person would need to promptly disclose to the legal department of our Manager any proposed related person transaction and all material facts about the proposed transaction. The legal department would then assess and promptly communicate that information to our independent trustees. Based on their consideration of all of the relevant facts and circumstances, our independent trustees will decide whether or not to approve such transaction and will generally approve only those transactions that are in, or are not inconsistent with, our best interests, as determined by at least a majority of the independent trustees acting with ordinary care and in good faith. If we become aware of an existing related person transaction that has not been pre-approved under this policy, the transaction will be referred to our independent trustees, who will evaluate all options available, including ratification, revision or termination of such transaction. Our policy requires any trustee who may be interested in a related person transaction to recuse himself or herself from any consideration of such related person transaction.

 

154


Table of Contents

PRINCIPAL SHAREHOLDERS

As of the date hereof, all of our outstanding common shares are owned by Spirit Realty, L.P. Immediately after the spin-off, neither Spirit nor Spirit Realty, L.P. will own any of our common shares.

The following table provides information with respect to the expected beneficial ownership of our common shares immediately after the spin-off by (i) each person who we believe will be a beneficial owner of more than 5% of our outstanding common shares, (ii) each of our expected trustees, trustee nominees and named executive officers, and (iii) all expected trustees and executive officers as a group. We based the share amounts on each person’s beneficial ownership of Spirit common stock as of April 27, 2018, unless we indicate some other basis for the share amounts, and assuming a distribution ratio of one of our common shares for every ten shares of Spirit common stock. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission.

To the extent our trustees and officers own Spirit common stock at the time of the spin-off, they will participate in the spin-off on the same terms as other holders of Spirit common stock.

Except as otherwise noted in the footnotes below, each person or entity identified below has sole voting and investment power with respect to such securities. Following the spin-off, we expect to have outstanding an aggregate of 42,850,013 common shares based upon (i) 428,500,128 shares of Spirit common stock outstanding on April 27, 2018, (ii) distribution by Spirit of 100% of our common shares on the distribution date, and (iii) applying the distribution ratio of one of our common shares for every ten shares of Spirit common stock held as of the record date.

Unless otherwise indicated, the address of each named person is c/o Spirit MTA REIT, 2727 North Harwood Street, Suite 300, Dallas, Texas 75201. No shares beneficially owned by any executive officer, trustee or trustee nominee have been pledged as security.

 

Beneficial Owner

   Number
of Shares
     % of Shares
Outstanding  (1)
 

5% or greater shareholders (2) :

     

The Vanguard Group, Inc. and affiliates (3)

     7,206,158        16.8

FMR LLC (4)

     4,265,103        10.0

BlackRock Fund Advisors (5)

     3,464,079        8.1

Scopia Capital Management, L.P. (6)

     2,764,664        6.5

Trustees and Named Executive Officers:

     

Jackson Hsieh

     134,812        *  

Ricardo Rodriguez

     —          —    

Steven G. Panagos

     —          —    

Steven H. Shepsman

     —          —    

Richard J. Stockton

     —          —    

Thomas J. Sullivan

     —          —    

All Executive Officers and Trustees as a Group (6 persons)

     134,812        *  

 

* Represents less than 1%.
(1)   Based on 42,850,013 of our common shares, which is calculated by applying the distribution ratio of one our common shares for every ten shares of Spirit common stock to the number of shares of Spirit common stock outstanding as of April 27, 2018.
(2)   Based upon information available as of April 27, 2018 as to those persons who beneficially own more than five percent of Spirit common stock and assuming that for every ten shares of Spirit common stock held by such persons they will receive one SMTA common share.
(3)  

Based solely on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February 2, 2018, The Vanguard Group, Inc. (“Vanguard”) has sole power to vote or direct the vote, and

 

155


Table of Contents
  sole power to dispose or direct the disposition of 776,620 and 71,207,098 shares of Spirit common stock, respectively; and has shared power to vote or direct the vote, and shared power to dispose or direct the disposition of 649,917 and 854,483 shares of Spirit common stock, respectively. As of December 31, 2017, Vanguard was the beneficial owner of 72,061,581 shares of Spirit common stock as a result of its servicing as an investment manager of collective accounts. The number of shares of Spirit common stock reported as beneficially owned by Vanguard in the Schedule 13G/A includes 30,863,923 shares, representing 6.76% of Spirit’s outstanding common stock that Vanguard Specialized Funds - Vanguard REIT Index Fund separately reported as beneficially owned in a Schedule 13G/A filed on February 2, 2018 with the SEC. The address for Vanguard is 100 Vanguard Blvd. Malvern, Pennsylvania 19355.
(4)   Based solely on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February 13, 2018, FMR LLC has sole power to vote or direct the vote, and sole power to dispose or direct the disposition of 18,184,684 and 42,651,039 shares of Spirit common stock, respectively. As of December 31, 2017, FMR LLC, was the beneficial owner of 42,651,039 shares of Spirit’s common stock as a result of its servicing as an investment manager of collective trust accounts. The principal address for FMR LLC is 245 Summer Street, Boston, Massachusetts 02210.
(5)   Based solely on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February 8, 2018 BlackRock, Inc. (“BlackRock”) has sole power to vote or direct the vote, and sole power to dispose or direct the disposition of 31,905,850 and 34,623,209 shares of Spirit common stock, respectively. As of December 31, 2017, BlackRock was the beneficial owner of 34,640,793 shares of Spirit common stock as a result of its servicing as an investment manager of collective trust accounts. The address for BlackRock is 55 East 52nd Street, New York, New York 10055.
(6)   Based solely on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February 14, 2018, Scopia Capital Management LP (“Scopia”) does not have any sole power to vote or direct the vote, nor does it have sole power to dispose or direct the disposition of shares of Spirit common stock, respectively; and has shared power to vote or direct the vote, and shared power to dispose or direct the disposition of 27,646,645 and 27,646,645 shares of Spirit common stock, respectively. As of December 31, 2017, Scopia was the beneficial owner of 27,646,645 shares of Spirit common stock as a result of its servicing as an investment manager of collective accounts, representing 6.00% of Spirit’s outstanding common stock. The address for Scopia is 152 West 57th Street, New York, New York 10019.

 

156


Table of Contents

DESCRIPTION OF INDEBTEDNESS

Master Trust 2014

Master Trust 2014 is an asset-backed securitization platform through which SMTA raises capital through the issuance of non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans. Specifically, SMTA owns the beneficial interest in six special purpose limited liability Delaware companies that are structured to be bankruptcy-remote from SMTA that, in turn, own the applicable commercial real estate assets. Master Trust 2014 allows SMTA to issue notes that are secured by the assets of such special purpose entity note issuers that are pledged to the indenture trustee for the benefit of the noteholders. Master Trust 2014 permits the note issuers to issue multiple series of notes, in each case, subject to the satisfaction of certain conditions, but without the consent of the noteholders of any other series. All series of notes are the joint and several obligations of all of the note issuers and secured by the same collateral on a pro rata basis. From time to time, SMTA may add an additional issuer to Master Trust 2014, which issuer will become jointly and severally liable for all series of notes and whose assets will secure all series of notes on the same pro rata basis as the assets of the other note issuers (each, a “note issuer, and, collectively, the “note issuers”). The notes issued and outstanding under Master Trust 2014 as of December 31, 2017 are summarized below:

 

     Stated
Rates  (1)
    Remaining
Anticipated
Term
     Remaining
Legal
Term
     December 31,
2017
    December 31,
2016
 
                  (in Years)      (in Thousands)  

Series 2014-1 Class A1

     —         —          —        $ —       $ 53,919  

Series 2014-1 Class A2

     5.4     2.5        22.6        252,437       253,300  

Series 2014-2

     5.8     3.2        23.2        234,329       238,117  

Series 2014-3

     5.7     4.2        24.2        311,336       311,820  

Series 2014-4 Class A1

     3.5     2.1        27.1        150,000       150,000  

Series 2014-4 Class A2

     4.6     12.1        27.1        358,664       360,000  

Series 2017-1 Class A

     4.4     5.0        30.0        542,400       —    

Series 2017-1 Class B

     6.4     5.0        30.0        132,000       —    
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total Master Trust 2014 notes

     5.0     5.4        26.6        1,981,166       1,367,156  
          

 

 

   

 

 

 

Debt discount, net

             (36,342     (18,985

Deferred financing costs, net

             (17,989     (8,557
          

 

 

   

 

 

 

Total Master Trust 2014, net

           $ 1,926,835     $ 1,339,614  
          

 

 

   

 

 

 

 

(1)   Represents the individual series stated interest rates as of December 31, 2017 and the weighted average stated rate of the total Master Trust 2014 notes, based on the collective series outstanding principal balances as of December 31, 2017.

On November 20, 2017, the Company made a voluntary pre-payment of the full outstanding principal balance of Master Trust 2014 Series 2014-1 Class A1 notes. On December 14, 2017, the Company completed the issuance of $674.4 million of notes in Master Trust 2014 comprised of $542.4 million aggregate principal amount of net-lease mortgage notes Series 2017-1, Class A Notes, and $132.0 million aggregate principal amount of net-lease mortgage notes Series 2017-1, Class B Notes. Both Class A Notes and Class B Notes have an anticipated repayment date in December 2022 and a legal final payment date in December 2047. The proceeds of this issuance were distributed to Spirit. The Class A Notes bear interest at a rate of 4.36% and the Class B Notes bear interest at a rate of 6.35%. On January 23, 2018, we re-priced a private offering of the Master Trust 2014 Series 2017-1 notes with $674.4 million aggregate principal amount. As a result, the interest rate on the Class B Notes was reduced from 6.35% to 5.49%, while the other terms of the Class B Notes remained unchanged. The terms of the Class A Notes were unaffected by the repricing. In connection with the repricing, we received $8.2 million in additional proceeds that reduced the debt discount. We distributed the additional proceeds to Spirit.

 

157


Table of Contents

The Series 2017-1 notes are (and each subsequent series of notes issued under Master Trust 2014 will be) required to comply with the risk retention rules issued under 17 CFR Part 246, which obligate the sponsor of a securitization to retain a 5% economic interest with respect to the ABS interests issued following the effective date of the risk retention rule. In the case of Master Trust 2014, in consideration of various factors, including SMTA’s discretionary authority to determine which assets will be selected for acquisition by the MTA issuers and whether and on what terms additional notes will be issued, we expect that SMTA will be the sponsor with respect to future issuances of notes by the issuers and will comply with the risk retention rule by holding the membership interests in the issuers through a majority owned affiliate or pursuant to another permissible method of risk retention. However, Spirit will remain the sponsor with respect to the Series 2017-1 notes and has agreed to comply with the risk retention rule with respect to such Series 2017-1 notes by retaining 5% of each class thereof.

Property Manager and Special Servicer

Spirit provides property management services for the mortgaged properties, services the mortgage loans and leases and specially services the mortgage loans and leases on behalf of the note issuers pursuant to the Property Management and Servicing Agreement, as amended, supplemented, amended and restated or otherwise modified, among the note issuers, Spirit, as “property manager” and as “special servicer,” the indenture trustee, the back-up manager and any co-issuer becoming party as a joining party. Among other responsibilities, the property manager is required to make certain advances in the case of shortfalls in amounts available to pay principal and interest or with respect to customary out-of-pocket expenses in order to protect the mortgaged properties of the note issuers, such as insurance premiums, tenant eviction costs and expenses necessary to preserve the security interest of the indenture trustee; provided that the property manager is not required to make such advances if it determines that such amounts will not be ultimately recoverable from the collateral or collections received by the note issuers.

Following the proposed spin-off, Spirit may elect to be replaced as property manager and special servicer by a direct or indirect wholly owned subsidiary, subject to the satisfaction of certain conditions. Generally, Spirit (or any applicable affiliate) may be terminated as property manager and special servicer only for cause following the occurrence of a property manager replacement event (described below) and may not resign except in the case of illegality. However, following a qualified deleveraging event (described below) or upon termination of the Asset Management Agreement, Spirit (or the TRS) may resign or be replaced as property manager and special servicer, subject to the satisfaction of certain conditions.

“Qualified deleveraging event” means either (i) a firm commitment underwritten public offering of the equity interests of SMTA or any direct or indirect parent entity of SMTA pursuant to a registration statement under the Securities Act, which results in aggregate cash proceeds to SMTA or any direct or indirect parent entity of SMTA of at least $75.0 million (net of underwriting discounts and commissions), (ii) an acquisition (whether by merger, consolidation or otherwise) of greater than 50% of the voting equity interests of SMTA, or any direct or indirect parent of SMTA by any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or (iii) SMTA or any direct or indirect parent or subsidiary of SMTA sells or transfers (whether by merger, consolidation or otherwise) all of its interests in the note issuers or the note issuers convey or transfer all or substantially all the collateral pool (described below) in accordance with the applicable restrictions in the indenture (in each case, other than a sale, transfer or other conveyance to a direct or indirect parent or wholly owned subsidiary of SMTA).

A “property manager replacement event” will occur if: (a) either the property manager or the special servicer fails to remit or deposit moneys, as required under the transaction documents, which failure remains unremedied for a specified period; (b) the property manager fails to make any advance covering shortfalls in principal and interest as required by the Property Management and Servicing Agreement; (c) the property manager fails to make any property protection advance or fails to pay any emergency property expenses from funds on deposit in the collection account, in each case as required by the transaction documents, which failure

 

158


Table of Contents

remains unremedied for a specified period; (d) either the property manager or the special servicer fails to comply in any material respect with any other of the covenants or agreements on the part of the property manager or the special servicer, as the case may be, contained in the Property Management and Servicing Agreement, which failure continues unremedied for a specified period; (e) any breach on the part of the property manager or the special servicer of any representation or warranty contained in the Property Management and Servicing agreement that materially and adversely affects the interests of the note issuers or the noteholders and that continues unremedied for a specified period; (f) certain events indicating the insolvency of the property manager or special servicer; (g) either the property manager or special servicer assigns any of its obligations to any third party other than as permitted under the transaction documents and does not remedy such breach within a specified period; (h) either the property manager or the special servicer fails to observe any material reporting requirements under the Property Management and Servicing Agreement, which failure remains unremedied for a specified period; (i) any note issuer or the indenture trustee has received notice in writing from any nationally recognized statistical ratings organization then rating any notes at the request of any note issuer citing servicing concerns and stating that the continuation of the property manager or the special servicer in such capacity would, in and of itself, result in a downgrade, qualification or withdrawal of any of the ratings then assigned by such rating agency or other nationally recognized statistical ratings organization to such notes; (j) the declaration of an event of default (described below); (k) an early amortization event occurs and is continuing that is reasonably determined by the back-up manager or the requisite noteholders to be primarily attributable to acts or omissions of the property manager or the special servicer rather than general market factors; or (l) the property manager or the special servicer has engaged in fraud, gross negligence or willful misconduct in connection with its performance under the Property Management and Servicing Agreement and such event could reasonably be expected to have a material adverse effect on the use, value or operation of the collateral pool (taken as a whole), and remains unremedied for a specified period.

Upon the occurrence of a property manager replacement event of which the indenture trustee has knowledge, the indenture trustee is required to notify the noteholders thereof and the requisite noteholders may direct the removal of the property manager or special servicer.

Support Provider and Performance Undertaking

Spirit has agreed and may be required to continue to agree to act as the “support provider” under Master Trust 2014. Pursuant to a performance undertaking, the support provider is obligated to repurchase commercial real estate assets from the note issuers if certain representations and warranties made with respect to such assets at the time such assets were transferred to or acquired by the note issuers prove to be inaccurate. Specifically, pursuant to the performance undertaking, the support provider, (i) has guaranteed the cure, repurchase, exchange and indemnification obligations of its affiliates that have sold commercial real estate assets to the note issuers pursuant to certain property transfer agreements (including, in the case of any such affiliates which cease to exist for any reason, by accepting primary liability for such obligations), (ii) has comparable obligations to the obligations of the note issuers with respect to certain environmental indemnities provided by them with respect to each mortgaged property (described below), but only to the extent that such obligations arose as a result of events, facts or circumstances which existed as of (1) the applicable series closing date, with respect to any such property added to the collateral (described below) on such series closing date or (2) the date such mortgaged property was acquired by the applicable note issuer, with respect to mortgaged properties contributed to the collateral pool on a date other than a series closing date and (iii) has made certain representations and warranties with respect to the mortgaged properties and related leases and mortgage loans (described below) included in the collateral pool and have repurchase, substitution or cure obligations with respect to breaches of such representations or warranties.

Spirit has the right to transfer its obligations to an eligible successor support provider (described below, which is expected to be SMTA) on or after the date that is two years following the completion of the proposed spin-off or at any time following the occurrence of certain other events, including a qualified deleveraging event (described below). An “eligible successor support provider” means SMTA, an entity which owns, directly or

 

159


Table of Contents

indirectly, all of the equity interests of SMTA or an operating partnership subsidiary of SMTA; provided that, in each case, such entity has, among other specified requirements, net assets (defined below) of not less than $750.0 million (and covenants with the trustee to maintain net assets of at least such amount at all times), such entity owns directly or indirectly 100% of the limited liability company interests of the note issuers and such entity’s appointment as successor support provider has satisfied the rating condition. “Net assets” means, with respect to any entity, the difference between (i) the fair value of such entity’s assets, but excluding accumulated depreciation, and (ii) such entity’s liabilities determined in accordance with GAAP.

Collateral Pool

The commercial real estate assets of the note issuers consist primarily of:

 

    fee or leasehold title to commercial real estate properties (together with fee or leasehold title to any commercial real estate property acquired by a note issuer and any commercial real estate property or leasehold interest in a commercial real estate property securing a mortgage loan owned by a note issuer, as the context indicates, the “mortgaged properties”) together with the applicable note issuer’s rights in the leases of such mortgaged properties and all payments required thereunder; and

 

    monthly pay, first lien, fixed rate commercial mortgage loans secured by fee title to, or leasehold interest in, commercial real estate properties (together with any similarly secured monthly pay, first lien, fixed- or adjustable-rate mortgage loan acquired by a note issuer, as the context indicates, the “mortgage loans”) and all payments required thereunder.

The assets described in the preceding sentence, together with various other assets of the note issuers, are referred to individually as the “collateral” and collectively as the “collateral pool.” As of December 31, 2017, such assets consist of 804 mortgaged properties and 11 mortgaged loans.

The Mortgaged Properties and Leases

The mortgaged properties are generally single tenant, operationally essential real estate operated in various “business sectors,” including Apparel, Automobile Dealers, Automotive Parts and Service, Building Materials, Car Washes, Convenience Stores, Distribution, Dollar Stores, Drug Stores / Pharmacies, Education, Entertainment, General Merchandise, Grocery, Health and Fitness, Home Furnishings, Multi-Tenant, Manufacturing, Medical / Other Office, Movie Theatres, Other, Restaurant—Casual Dining, Restaurant—Quick Service, Specialty Retail and Sporting Goods. Additional business sectors may be added upon the issuance of a news series of notes under Master Trust 2014. Further, within each business sector, certain sub-sectors may exist. Certain properties in the Restaurants—Casual Dining or Restaurant—Quick Service business sectors may constitute part of a chain of properties that share substantially the same characteristics. We refer to each such chain as a “restaurant concept.”

The Mortgage Loans

Each of the mortgage loans is secured by fee title to, or a ground leasehold interest in, a mortgaged property. Each of the mortgage loans included in the collateral pool is made without recourse to the related borrower, is evidenced by a note made by the related borrower and is secured by a mortgage creating a first lien on the fee simple or leasehold interest of the related borrower in the related mortgaged property. The mortgage loans included in the collateral pool made to the same borrower or borrower group will generally be cross-defaulted and cross-collateralized. The mortgage loans will not be insured or guaranteed by us, the note issuers, Spirit (as property manager, special servicer or support provider), the indenture trustee, the back-up manager, the collateral agent or any governmental entity or private insurer or by any of their respective affiliates. No such party will be required to advance any delinquent payment of principal or interest in respect of the mortgage loans.

 

160


Table of Contents

Collateral Value

The “collateral value” means, as of any determination date, (i) with respect to each mortgaged property (that does not otherwise secure a mortgage loan) owned by a note issuer, the appraised value of such mortgaged property as of the date such asset was added to the collateral pool; provided that, in the event that the property manager has caused all mortgaged properties to be re-appraised and determined that the collateral values should be revised, then the collateral value of each mortgaged property will be such re-appraised value, or (ii) with respect to each mortgage loan, the lesser of (a) the appraised value of the related property securing such mortgage loan and (b) the outstanding principal balance of such mortgage loan.

Release of Collateral

Subject to certain conditions, any note issuer may obtain the release of mortgaged properties or mortgage loans it owns from the lien of the indenture in connection with (i) the exercise of a third party purchase option, (ii) the purchase or substitution of a delinquent asset or defaulted asset by the special servicer or the property manager or any assignee thereof, (iii) the repurchase or substitution of a mortgaged property or mortgage loan by an applicable cure party due to a collateral defect, (iv) the sale of a mortgaged property or mortgage loan to the support provider or to a special purpose, bankruptcy remote subsidiary of the support provider, to Spirit or to a special purpose, bankruptcy remote subsidiary of Spirit, or to a third party unaffiliated with the support provider or Spirit, (v) the exchange of a mortgaged property or mortgage loan with the support provider, a purpose, bankruptcy remote subsidiary of the support provider, Spirit, a special purpose, bankruptcy remote subsidiary of Spirit or a third party unaffiliated with the support provider or Spirit or (vi) an early refinancing prepayment (described below). Except in connection with the release of a mortgaged property or mortgage loan in exchange for a qualified substitute mortgage loan or a qualified substitute mortgaged property or a release in connection with an early refinancing prepayment, the applicable note issuer will be required to obtain a specified release price in order to obtain the release of a mortgaged property or mortgage loan. In general, the aggregate collateral value of all released mortgaged properties and mortgage loans sold or exchanged since the last issuance of notes may not exceed a specified percentage of the aggregate collateral value determined as of the date of such last issuance, unless a “rating condition” (described below) is satisfied.

Sale or Exchange of Collateral

Upon satisfaction of certain conditions, the note issuers may, from time to time, sell or exchange mortgaged properties or mortgage loans in return for either a specified release price or a qualifying substitute property. Proceeds from the sale of the mortgaged properties or mortgage loans of the note issuers are held on deposit by the indenture trustee until a qualifying substitution is made or such amounts are distributed as an early repayment of principal together with a make whole payment, as described below. In order to constitute a qualifying substitute property, the applicable mortgaged properties or mortgage loans must satisfy certain criteria, including a minimum value requirement, a fixed charge coverage ratio test and minimum rent test in the case of leased mortgaged property and a minimum interest rate in the case of mortgage loans.

The note issuers may not acquire any mortgage property or mortgage loan unless, after giving effect to the acquisition of such mortgage property or mortgage loan, either no asset concentration will exceed the applicable maximum asset concentration (described below) or, if any asset concentration (described below) on the date of such transfer exceeds the related maximum asset concentration, such asset concentration will be reduced or remain unchanged after giving effect to such substitution.

 

161


Table of Contents

The “maximum asset concentrations” with respect to any determination date are set forth below:

 

Concentration

   Maximum
Asset
Concentration
    Master Trust 2014
Concentrations as of
December 31, 2017
 

Business Sectors

    

Automotive parts and services

     20.0     4.7

Grocery

     15.0     4.7

Movie theaters

     20.0     11.4

Medical office and specialty medical facilities

     15.0     6.9

Multi-tenant properties

     2.0     0.3

Other business sectors (1)

     10.0     5.4

Single tenant

     10.0     3.6

Five largest tenants

     25.0     15.8

Mortgaged properties on which a gasoline station or gasoline pumping station is located

     20.0     —  

Mortgaged properties located in any particular state (other than in Georgia and Texas)

     15.0     8.4

Mortgaged properties located in Georgia and Texas

     20.0     10.0

Mortgaged properties subject to only percentage rent and leasehold mortgaged properties

     1.0     —  

Mortgaged properties subject to ground leases (excluding any leasehold mortgaged property)

     2.0     0.7

Mortgage loans that bear an adjustable rate

     5.0     —  

Total mortgage loans (2)

     20.0     1.3

 

(1)   Excludes the Restaurants—Casual Dining business sector or the Restaurants—Quick Service business sector, so long as no related restaurant concept exceeds a percentage equal to 10.0%.
(2)   Any mortgage loans with respect to which Spirit or an affiliate thereof is the borrower and that were acquired by any note issuer in lieu of such note issuer acquiring the mortgaged property or mortgaged properties securing such mortgage loan in order to reduce or eliminate any actual or potential liability that such note issuer would have had in the event that such mortgaged property or mortgaged properties were acquired by such note issuer shall not be included for purposes of determining such maximum asset concentration.

The maximum asset concentrations have been modified in the past and will be subject to change in the future in accordance with the provisions regarding amendments and other modifications to the indenture, including in connection with the issuance of a new series of notes under Master Trust 2014. Additional business sectors may be added at any time subject to a 10% maximum asset concentration with no requirement to obtain consent from noteholders, provided the rating condition is satisfied. In addition, any maximum asset concentration percentage may be increased by up to 15.0% at the direction of any note issuer, without an amendment to the indenture or the consent of the noteholders, provided that a rating condition (described below) is satisfied with respect to such increase.

“Asset concentrations” consist of concentrations, stated as a percentage, of (i) business sectors, (ii) mortgaged properties on which a gasoline station or other gasoline pumping facility is located, (iii) tenants

 

162


Table of Contents

(including affiliates of any tenant), (iv) mortgaged properties located in any particular state, (v) mortgaged properties which are subject to leases pursuant to which tenants only pay percentage rent and mortgaged properties that are leasehold mortgaged properties, (vi) mortgaged properties that are subject to ground leases, (vii) mortgage loans that bear interest at an adjustable rate and (viii) mortgage loans, and are calculated as of each determination date, by dividing the aggregate collateral value of the mortgage loans and the mortgaged properties (that do not otherwise secure a mortgage loan) in the collateral pool, as applicable, with respect to all (a) mortgaged properties operated in any single business sector (or applicable group of business sectors), (b) mortgaged properties on which a gasoline station or other gasoline pumping facility is located, (c) leases to any single tenant (including affiliates of such tenant), (d) mortgaged properties located within any state, (e) mortgaged properties which are subject to leases pursuant to which tenants only pay percentage rent and mortgaged properties that are leasehold mortgaged properties, (f) mortgaged properties which are subject to ground leases, (g) mortgage loans that bear interest at an adjustable rate and (h) mortgage loans, in each case, by the sum of (i) the aggregate collateral value and (ii) the amounts on deposit in the release account that are available to notes issuer to purchase or otherwise acquire qualified substitute mortgaged properties or qualified substitute mortgage loans.

A “rating condition” will be satisfied with respect to any action or event or proposed action or event (i) upon the provision by the rating agency (if then rating any notes at the request of the note issuers) and each other rating agency then rating any notes at the request of the note issuers of confirmation in writing that such action or event, or proposed action or event will not result in the downgrade, qualification or withdrawal of its then current ratings of any notes, in either case, that it is then rating at the request of the note issuers, as applicable, or (ii) with respect to any series, if 100% of the noteholders of such series or 100% of the holders of the related series notes of such series, as applicable, consent to or approve the action or proposed action or event or proposed event.

Allocation of Available Amount

In general, monthly rental and mortgage receipts with respect to the leases and mortgage loans constituting the “available amount” are deposited with the indenture trustee who will first utilize these funds to satisfy the debt service requirements on the notes and any fees and costs associated with the administration of Master Trust 2014. The remaining available amount is remitted to the note issuers monthly on the note payment date. If the available amount from the commercial real estate assets of the note issuers fall short of a specified level, the available amounts otherwise payable to the note issuers may be trapped in an account for the benefit of the noteholders unless the relevant cash flow ratio is subsequently satisfied as further described below. In certain circumstances, if the available amount declines significantly, an early amortization of the notes may result and all available proceeds of the collateral (together with any cash trapped as a result of any prior failure of a cash flow trigger), will be paid to the noteholders to reduce the outstanding principal amount of the notes as further described below.

In general, the available amount on any payment date will be applied first to pay the expenses of the note issuers related to the notes. The available amount remaining for any payment date after payment of such expenses will be allocated among each series of notes under Master Trust 2014 in the following manner:

 

    pro rata, based on amounts owing to each series of notes with respect to the Class A notes of such series, the aggregate interest due on such Class A notes of such series for such payment date plus unpaid note interest in respect of such notes from any prior payment date (together with interest thereon at the applicable note interest rate), in each case, plus or minus, as applicable, any net payment due or proceeds received (excluding any termination payments due from a note issuer as a result of a default or termination event with respect to any hedge counterparty) in respect of such payment date pursuant to any hedge agreement related to the Class A notes of any series;

 

   

pro rata, based on amounts owing to each series of notes with respect to the Class B notes of such series, the aggregate interest due on such Class B notes of such series for such payment date plus

 

163


Table of Contents
 

unpaid note interest in respect of such notes from any prior payment date (together with interest thereon at the applicable note interest rate), in each case, plus or minus, as applicable, any net payment due or proceeds received (excluding any termination payments due from a note issuer as a result of a default or termination event with respect to any hedge counterparty) in respect of such payment date pursuant to any hedge agreement related to the Class B notes of any series;

 

    so long as no early amortization event (described below) has occurred and is continuing: first, (a) pro rata, based on amounts owing to each series, the applicable scheduled senior principal payment due on the Class A notes of such series for such payment date (and any unpaid scheduled principal payments that were due on any prior payment dates); and second, (b) to each series, its senior pro rata share (described below) (calculated after giving effect to the application of the allocations described in clause (a) above) of the amount of the unscheduled principal payments for such payment date, if any;

 

    so long as no early amortization event (described below) has occurred and is continuing: first, (a) pro rata, based on amounts owing to each series, the applicable scheduled junior principal payment due on the Class B notes of such series for such payment date (and any unpaid scheduled principal payments that were due on any prior payment dates); and second, (b) to each series, its junior pro rata share (described below) (calculated after giving effect to the application of the allocations described in clause (a) above) of the amount of the unscheduled principal payments for such payment date, if any;

 

    during the continuance of an early amortization event, pro rata, based on amounts owing to each series, in reduction of the outstanding principal balance of the Class A notes of such series until reduced to zero;

 

    during the continuance of an early amortization event, pro rata, based on amounts owing to each series, (i) in reduction of the outstanding principal balance of the Class B notes of such series until reduced to zero and (ii) in payment of deferred interest on the Class B notes of such series plus unpaid deferred interest on such Class B notes from any prior payment date;

 

    (i) if a sweep period (described below) is in effect (but the average cashflow coverage ratio (described below) equals or exceeds the early amortization threshold) and no early amortization event has otherwise occurred and is continuing, to the cashflow coverage reserve account (described below), the sum of (a) the amount that would be required to be added to the cashflow coverage ratio numerator (described below) in respect of the applicable determination date to achieve a cashflow coverage ratio equal to the sweep period threshold (described below) on such determination date plus (b) the aggregate shortfalls, if any, of the amount that would have been deposited into the cashflow coverage reserve account on any prior payment date but for there being insufficient available amounts in respect of such payment date; or (ii) if the average cashflow coverage ratio is below the early amortization threshold and the requisite noteholders waive the related early amortization event, (x) first, to each series, its senior pro rata share, in reduction of the outstanding principal balance of the Class A notes of each series until reduced to zero (calculated after giving effect to the application of the allocations described in the third bullet above)) of an amount equal to the sum of (a) all amounts on deposit in the cashflow coverage reserve account as of such payment date (immediately prior to any release of amounts from such cashflow coverage reserve account in respect of such payment date) plus (b) the aggregate shortfalls, if any, of the amount that would have been deposited into the cashflow coverage reserve account on any prior payment date but for there being insufficient available amounts in respect of such payment date (the “cashflow coverage amounts”) and (y) second, to each series, its junior pro rata share, in reduction of the outstanding principal balance of the Class B notes of each series until reduced to zero (calculated after giving effect to the application of the allocations described in the third bullet above)) of an amount equal to any remaining cashflow coverage amounts;

 

   

to any hedge counterparty for the notes, any and all amounts (including any termination payments due from a note issuer as a result of the default or termination event with respect to any hedge counterparty) due on such payment date to such hedge counterparty for the notes not paid pursuant to the allocation

 

164


Table of Contents
 

described in first bullet above, pro rata, based on such amounts due to such hedge counterparties pursuant to this bullet;

 

    pro rata, based on amounts owing to each series, the make whole payments (described below), if any, due on the Class A notes of such series in respect of such payment date plus any unpaid make whole payments in respect of such Class A notes from any prior payment date;

 

    pro rata, based on amounts owing to each series, the make whole payments (described below), if any, due on the Class B notes of such series in respect of such payment date plus any unpaid make whole payments in respect of such Class B notes from any prior payment date;

 

    to each series, pro rata, based on amounts owing to each series, the aggregate unpaid post-ARD additional interest (described below) and deferred post-ARD additional interest (described below), if any, accrued on the Class A notes of such series as of such payment date; and

 

    to each series, pro rata, based on amounts owing to each series, the aggregate unpaid post-ARD additional interest and deferred post-ARD additional interest, if any, accrued on the Class B notes of such series as of such payment date.

The available amount remaining on any payment date after the allocations described above will be applied, first, to the payment of the junior qualified intermediary fee, second, to the payment of any note issuer expenses and extraordinary expenses not paid from the available amount in accordance with the foregoing allocations and, third, to the note issuers (such amounts to be released from the lien of the indenture) or, at the option of the applicable notes issuer, to the release account.

“Cashflow coverage reserve account” means the segregated account established in the name of the indenture trustee under the indenture to reserve payments during any sweep period. If on any determination date, the indenture trustee has determined that the available amount for the related payment date is not sufficient to make, in full, the payments set forth in in the first two bullets under “—Allocation of Available Amounts” (any such insufficiency, the “cashflow shortfall amount”) for the related payment date, the indenture trustee will transfer an amount equal to the lesser of (x) such cashflow shortfall amount and (y) the amount then on deposit in the cashflow coverage reserve account to the payment account, to be applied as part of the available amounts in respect of such payment date.

“Early amortization threshold” means an amount equal to 1.10, provided that the note issuers may in their sole discretion increase such amount, provide the rating agency notification condition (described below) is satisfied with respect to such increase.

“Senior pro rata share” means, with respect to any series and any amount, the product of (i) such amount and (ii) the result of (x) the note principal balance of the Class A notes of such series divided by (y) the aggregate series senior principal balance.

“Junior pro rata share” means, with respect to any series and any amount, the product of (i) such amount and (ii) the result of (x) the note principal balance of the Class B notes of such series divided by (y) the aggregate series junior principal balance.

“Aggregate series senior principal balance” on any date of determination is the aggregate principal balances of the Class A notes of all series, as of such date of determination after giving effect to all payments of principal on such date.

“Aggregate series junior principal balance” on any date of determination is the aggregate principal balances of the Class B notes of all series, as of such date of determination after giving effect to all payments of principal on such date.

 

165


Table of Contents

A “rating agency notification condition” will be satisfied with respect to any action or event, or proposed action or event, if (i) written notice is provided to each rating agency then rating any notes at the request of any note issuer prior to such action or event, or such proposed action or event, and (ii) each such rating agency, within fifteen business days of such notification, has not responded to such notification with a written statement (including in the form of electronic mail or a press release) indicating that the occurrence of such action or event would result in the downgrade, withdrawal or qualification of the then-current rating assigned to any class of notes then rated by such rating agency at the request of a notes issuer.

“Sweep period” means any period (a) commencing on the determination date, if any, on which the current cashflow coverage ratio is less than or equal to the sweep period threshold but greater than the early amortization threshold and (b) continuing until the current cashflow coverage ratio is greater than the sweep period threshold for each of three consecutive determination dates, at which time all of the funds on deposit in the cashflow coverage reserve account will be transferred to the payment account and treated as available amount in respect of the payment date relating to such third consecutive determination date.

“Sweep period threshold” means an amount equal to 1.25; provided that the note issuers may in their sole discretion increase such amount subject to satisfaction of the rating agency notification condition with respect to such increase.

Interest

The “note interest” for any class of notes on any payment date will equal interest accrued during the related accrual period at the applicable note rate, applied to the principal balance of such class of notes on such payment date before giving effect to any payments of principal on such payment date; provided that if the Class A notes are not repaid in full by a certain period of time following their anticipated repayment date, note interest on the Class B notes will be deferred.

“Post-ARD additional interest” will begin to accrue on any class of notes on the applicable anticipated repayment date for such class of notes and continue to accrue on any payment date following such anticipated repayment date and will be an amount equal to (X) the class principal balance of such class of notes on such payment date before giving effect to any payments of principal on such payment date multiplied by (Y) a per annum rate (each, a “post-ARD additional interest rate”) equal to the rate determined by the property manager to be the greater of (i) 5.0% and (ii) the amount, if any, by which the sum of the following exceeds the note rate for such class of notes: (A) the yield to maturity (adjusted to a “mortgage equivalent basis” pursuant to the standards and practices of the Securities Industry and Financial Markets Association) on such anticipated repayment date of the United States Treasury Security having a term closest to the anticipated repayment date for such class of notes, plus (B) specified spread for such class of notes, plus (C) the post-ARD spread for such class of notes. Accrued post-ARD additional interest (and any accrued deferred post-ARD additional interest) will not be due or payable on any payment date until all scheduled principal payments on the notes, accrued note interest, in each case for such payment date (and any such amounts that were not paid on any previous payment date) have been paid in full. Prior to such time, the post-ARD additional interest accruing on any class of notes will be deferred and added to any post-ARD additional interest previously deferred and remaining unpaid on such class (“deferred post-ARD additional interest”). Deferred post-ARD additional interest will not bear interest.

Early Amortization Event

An “early amortization event” will occur with respect to the notes: (A) as of any determination date, if the average cashflow coverage ratio for such determination date is less than the early amortization threshold; provided that, following the occurrence of any such early amortization event, if as of any date of determination, the cashflow coverage ratio as of the three most recent determination dates (including any determination date occurring on such date of determination) equaled or exceeded the early amortization threshold as of such date of determination, then such early amortization event will be deemed to be cured for all purposes and no longer continuing as of such date of determination; (B) if an event of default under the indenture shall have occurred

 

166


Table of Contents

and shall not have been cured or waived in accordance with the indenture; (C) if the notes issuers do not repay the class principal balance of any class of notes in full on or prior to the applicable anticipated repayment date for such class of notes; provided that, if the class principal balance of each class of notes for which the anticipated repayment date has occurred is subsequently repaid, then such early amortization event will be deemed to have been cured for all purposes and no longer continuing; or (D) if any other “early amortization event” occurs as may be set forth in a series supplement relating to a series of notes. An early amortization event under clause (A) of the definition above may be cured no more than five times in total (after which such early amortization event may no longer be cured).

With respect to any determination date and the collateral pool, the “cashflow coverage ratio” is the ratio, expressed as a fraction, the numerator (the “cashflow coverage ratio numerator”) of which is the sum of (i) the monthly loan payments and the monthly lease payments received during the collection period ending on such determination date, plus (ii) any income earned from the investment of funds on deposit in the collection account and the release account during the collection period ending on such determination date, plus (iii) any liquidity reserve amounts, plus (iv) any net payments received by the note issuers under any applicable hedge agreements related to the notes and the denominator of which is the total debt service for such determination date. The cashflow coverage ratio numerator and cashflow coverage ratio were $18.9 million and 1.81 as of January 8, 2018, respectively.

With respect to any determination date, the “total debt service” is the sum of (a) the aggregate scheduled principal payment and note interest with respect to each class of notes, in each case due on the payment date relating to such determination date (but excluding any principal payment due on the applicable anticipated repayment date with respect to any such notes), (b)(i) the property management fee, (ii) the special servicing fee, if any, (iii) the back-up fee and (iv) the indenture trustee fee, each as accrued during the collection period ending on such determination date and (c) any net payment due from the note issuers to any hedge counterparty under any applicable hedge agreements related to the notes for the related payment date (other than termination payments due as a result of a default or termination event with respect to any hedge counterparty). Class B deferred interest, post-ARD additional interest and deferred post-ARD additional interest are not included in the calculation of total debt service. The total debt service was $10.4 million as of January 8, 2018.

For any determination date, the “average cashflow coverage ratio” is the average of the cashflow coverage ratios for such determination date and each of the two immediately preceding determination dates. On any date of determination, the “current cashflow coverage ratio” is the cashflow coverage ratio for the determination date for the collection period most recently ended. The average cashflow coverage ratio was 1.69 as of January 9, 2018.

Make Whole Payments

For any class of notes, on any business day occurring prior to the end make whole payment date for such class of notes on which a voluntary prepayment is made on such class of notes (other than an early refinancing prepayment and provided that no early amortization event has occurred and is continuing as of such payment date), a “make whole payment” will be due to the holders of such class of notes being redeemed, in an amount equal to:

 

    using the reinvestment yield (described below), the sum of the present values of the scheduled payments of principal and interest remaining on such class of notes until the end make whole payment date for such class of notes (assuming for such purpose that the entire principal amount of such class of notes remaining after such scheduled payments of principal is due and payable on such end make whole payment date), calculated prior to the application of such voluntary prepayment to such class of notes, minus

 

   

the sum of (i) using the reinvestment yield, the sum of the present values of the scheduled payments of principal and interest remaining on such class of notes until the end make whole payment date for such class of notes (assuming for such purpose that the entire principal amount of such class of notes

 

167


Table of Contents
 

remaining after such scheduled payments of principal is due and payable on such end make whole payment date), calculated after the application of such voluntary prepayment to such class of notes, and (ii) the amount of the voluntary prepayment that will be allocated on such payment date to such class of notes.

“End make whole payment date” generally means, with respect to any class of notes, the payment date that is 12 months prior to the anticipated repayment date for such class.

“Reinvestment yield” means, with respect to any class of notes, the yield on United States Treasury Securities having the closest maturity (month and year) to the end make whole payment date for such class of notes (prior to the application of any voluntary prepayment with respect thereto) plus a specified spread for such class of notes. Should more than one United States Treasury Security be quoted as maturing on such date, then the yield of the United States Treasury Security quoted closest to par will be used in such calculation. In the event that a voluntary prepayment is made with respect to any class of notes (x) on or after the end make whole payment for such class of notes or (y) while an early amortization event is continuing, the make whole payment for such class of notes shall be zero.

“Voluntary prepayment” means any (i) voluntary redemption of any class of notes, in whole or in part, in accordance with the indenture (including an early refinancing prepayment) or (ii) payment actually made in respect of principal on any class of notes on any payment date in connection with the application of any unscheduled principal payment (using amounts described in clause (a) of the definition thereof), other than any portion thereof consisting of insurance proceeds, condemnation proceeds and amounts received in respect of a specially serviced asset, a repurchase due to a collateral defect or the application of any Post-Closing Unscheduled Principal Amount. Each class of notes is subject to voluntary redemption, in whole or in part, on any business day prior to the applicable legal final payment date.

“Early refinancing prepayment” is a voluntary prepayment of the Series 2017-1 notes (i) that occurs on a business day that is greater than 36 months after the closing date of the Series 2017-1 notes, (ii) made with funds obtained from a qualified deleveraging event (as described above), (iii) where the note issuers have provided no less than 30 days’ notice to the indenture trustee (such date, the “early refinancing notice date”) and (iv) where such voluntary prepayment occurs no later than 12 months following the early refinancing notice date; provided, however, that the maximum amount of an early refinancing prepayment that can be made on any business day is an amount equal to (A) 35% of the aggregate initial class principal balance of the Series 2017-1 notes, minus (B) the aggregate principal balance of the notes repaid with the proceeds of release amounts and early refinancing prepayments since the closing date of the Series 2017-1 notes. No make whole payment will be payable in connection with an early refinancing prepayment.

Events of Default

The indenture provides that each of the following will constitute an “event of default”: (a) a default in the payment of any interest on any c lass of notes of any series on any applicable payment date (not including any post-ARD additional interest, deferred post-ARD additional interest or Class B deferred interest); (b) a failure to pay the principal balance of any c lass of notes of any series and any Class B deferred interest in full on the applicable legal final payment date; (c) any material default in the observance or performance of any material covenant or agreement of the note issuers made in the indenture or any related mortgage (other than a covenant or agreement, a default in the observance or performance of which is elsewhere in this paragraph specifically dealt with), which default shall continue unremedied for a specified period; (d) the impairment of the validity or effectiveness of the i ndenture or the lien of the indenture or any mortgages, the subordination of the lien of any mortgage, the creation of any lien or other encumbrance on any part of the collateral pool in addition to the lien of any such mortgage or the failure of the lien of any such mortgage to constitute a valid first priority security interest in the collateral, in each case subject to liens expressly permitted under the terms of the transaction documents and the related mortgages which impairments, subordinations, creations or failures, shall, individually

 

168


Table of Contents

or in the aggregate, simultaneously apply to collateral with an aggregate value in excess of $1.0 million; provided, that, if susceptible of cure, no event of default shall arise until the continuation of any such impairments, subordinations, creations or failures for a specified period; (e) a breach of the representations and warranties of the note issuers with respect to certain matters, and such breach has a material adverse effect on the noteholders; (f) certain events of bankruptcy, insolvency and reorganization or similar proceedings with respect to the note issuers or the member of a note issuer; or (g) the mortgaged properties are transferred or encumbered other than as provided in the transaction documents.

If an event of default should occur and be continuing, the indenture trustee shall, at the written direction of the requisite noteholders, declare all of the notes to be immediately due and payable. If the notes are not paid in full following such acceleration, the trustee may, among other things, liquidate all or any portion of the collateral among other remedies available to the trustee.

CMBS

On January 22, 2018, we completed an issuance of CMBS debt on the single distribution center property leased to a sporting goods tenant, with proceeds of approximately $84 million. The loan has a term of 10 years to maturity and a stated interest rate of 5.14%. We distributed all of the proceeds to Spirit.

 

169


Table of Contents

DESCRIPTION OF SHARES

The following is a summary of the material terms of the shares of beneficial interest of our Company. For a complete description, you are urged to review in their entirety our declaration of trust and our bylaws, which are filed as exhibits to the registration statement of which this information statement is a part, and applicable Maryland law. See “Where You Can Find More Information .”

General

Our declaration of trust authorizes us to issue 750,000,000 common shares of beneficial interest, $0.01 par value per share, which are referred to in this information statement as “common shares” and 20,000,000 preferred shares of beneficial interest, $0.01 par value per share, which are referred to in this information statement as our “preferred shares.” Our board of trustees has the power, without shareholder approval, to amend our declaration of trust to increase or decrease the aggregate number of common shares or the number of common shares of any class or series we are authorized to issue. Upon completion of the spin-off, we expect to have approximately 42,850,013 of our common shares outstanding on a fully diluted basis. 6,000,000 of our preferred shares will be outstanding upon the completion of the spin-off.

Under Maryland law and our declaration of trust, our shareholders generally are not liable for our debts or obligations solely as a result of their status as shareholders.

Our declaration of trust provides that, subject to the provisions of any class or series of shares then outstanding, our shareholders are entitled to vote only on the following matters: (i) election and removal of trustees; (ii) amendment of the declaration of trust (other than an amendment to increase or decrease the number of authorized shares or the number of shares of any class or series or to qualify as a REIT under the Code or as a real estate investment trust under Maryland law) or amendment of our bylaws to the extent provided therein; (iii) our termination; (iv) a merger or consolidation of us, or the sale or other disposition of all or substantially all of our assets; and (v) such other matters with respect to which our board of trustees has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the shareholders for approval or ratification. Except with respect to these matters, no action taken by our shareholders at any meeting will bind our board of trustees.

Common Shares

All of our common shares covered by this information statement will be duly authorized, fully paid and nonassessable. Shareholders are entitled to receive dividends when, as and if authorized by our board of trustees and declared by us out of assets legally available for the payment of dividends. Shareholders are also entitled to share ratably in our assets legally available for distribution to our shareholders in the event of our liquidation, dissolution or winding up, after payment of, or adequate provision for, all of our known debts and liabilities. These rights are subject to the preferential rights of any other class or series of our shares and to the provisions of our declaration of trust regarding restrictions on ownership and transfer of our shares.

Subject to our declaration of trust restrictions on ownership and transfer of our shares, each of our outstanding common shares entitles the holder thereof to one vote on all matters submitted to a vote of shareholders, including the election of trustees. Except as provided with respect to any other class or series of shares, our common shareholders will possess exclusive voting power. Cumulative voting in the election of trustees is not permitted. Our bylaws provide for the election of trustees, in uncontested elections, by a majority of the votes cast. In contested elections, the election of trustees shall be by a plurality of the votes cast. This means that the holders of a majority of our outstanding common shares can effectively elect all of the trustees then standing for election, and the holders of the remaining shares will not be able to elect any trustees.

Our common shareholders have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any of our shares. Our declaration of trust provides that our

 

170


Table of Contents

shareholders generally have no appraisal rights unless our board of trustees determines prospectively that appraisal rights will apply to one or more transactions in which our common shareholders would otherwise be entitled to exercise such rights. Subject to our declaration of trust restrictions on ownership and transfer of our shares, holders of our common shares will initially have equal dividend, liquidation and other rights.

Under Maryland law, a Maryland real estate investment trust generally cannot dissolve, amend its declaration of trust, merge, sell all or substantially all of its assets, engage in a statutory share exchange or engage in similar transactions unless declared advisable by the board of trustees and approved by the affirmative vote of shareholders entitled to cast at least two-thirds of all of the votes entitled to be cast on the matter unless a lesser percentage (but not less than a majority of the votes entitled to be cast on the matter) is set forth in the corporation’s declaration of trust. Our declaration of trust provides for approval of these matters by the affirmative vote of shareholders entitled to cast a majority of the votes entitled to be cast on such matter, except that the affirmative vote of shareholders holding at least two-thirds of the shares entitled to vote on such matter is required to amend the provisions of our declaration of trust relating to the removal of trustees, which also requires two-thirds of all votes entitled to be cast on the matter, and to amend the provisions of our declaration of trust relating to the vote required to amend the removal provisions. In addition, because our operating assets may be held by our operating partnership or its wholly-owned subsidiaries, these subsidiaries may be able to merge or transfer all or substantially all of their assets without the approval of our shareholders.

Our declaration of trust authorizes our board of trustees to reclassify any of our unissued common shares into other classes or series of shares, to establish the designation and number of shares of each such class or series and to set, subject to the provisions of our declaration of trust regarding the restrictions on ownership and transfer of our shares, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of each such class or series. Thus, our board of trustees could authorize the issuance of common shares or preferred shares with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for our common shares or that our common shareholders otherwise believe to be in their best interests.

Preferred Shares

Under the terms of our declaration of trust, our board of trustees is authorized to classify any of our unissued preferred shares and to reclassify any previously classified but unissued preferred shares into other classes or series of shares. Before the issuance of shares of each class or series, our board of trustees is required by Maryland law and by our declaration of trust to set, subject to our declaration of trust restrictions on ownership and transfer of shares, the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption for each class or series.

General

Prior to the completion of the spin-off, we expect that our board of trustees will authorize and designate 6,000,000 of our preferred shares as 10% Series A preferred shares of beneficial interest, par value $0.01 per share. When issued, the Series A preferred shares will be validly issued, fully paid and nonassessable. All of the Series A preferred shares will be issued to Spirit, and such shares will not be listed on the NYSE.

Ranking

The Series A preferred shares will rank, with respect to dividend rights and rights upon our liquidation, dissolution or winding up:

 

    senior to all classes or series of our common shares and to any other class or series of our share capital expressly designated as ranking junior to the Series A preferred shares;

 

    on parity with any class or series of our share capital expressly designated as ranking on parity with the Series A preferred shares; and

 

171


Table of Contents
    junior to any other class or series of our share capital expressly designated as ranking senior to the Series A preferred shares.

“Share capital” does not include convertible or exchangeable debt securities, which, prior to conversion or exchange, rank senior in right of payment to the Series A preferred shares. The Series A preferred shares will also rank junior in right of payment to our other existing and future debt obligations.

Dividend Rate and Payment Date

Holders will be entitled to receive cumulative cash dividends on the Series A preferred shares from and including the date of original issue, payable quarterly in arrears on or about the last calendar day of March, June, September and December of each year, beginning on June 30, 2018, at a rate of 10% per annum of the $25.00 liquidation preference per share (equivalent to an annual amount of $2.50 per share). Dividends on the Series A preferred shares will accrue whether or not we have earnings, whether or not there are funds legally available for payment of such dividends and whether or not such dividends are authorized or declared.

Liquidation Preference

If we liquidate, dissolve or wind up, holders of the Series A preferred shares will have the right to receive $25.00 per share, plus accrued and unpaid dividends (whether or not earned or declared) up to but excluding the date of payment, before any payment is made to holders of our common shares and any other class or series of shares ranking junior to the Series A preferred shares with respect to liquidation rights. The rights of holders of the Series A preferred shares to receive their liquidation preference will be subject to the proportionate rights of any other class or series of our shares ranking on parity with the Series A preferred shares as to liquidation. We may only issue equity securities ranking senior to the Series A preferred shares with respect to liquidation rights if we obtain the affirmative vote of the holders of at least two-thirds of the outstanding Series A preferred shares together with each other class or series of preferred shares ranking on parity with the Series A preferred shares as to liquidation.

Optional Redemption

We may not redeem the Series A preferred shares prior to May 31, 2023, except to preserve our status as a REIT and pursuant to the special optional redemption rights described below. On and after May 31, 2023, the Series A preferred shares will be redeemable at our option, in whole or in part any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends (whether or not authorized or declared) up to but excluding the redemption date. However, unless full cumulative dividends on the Series A preferred shares for all past dividend periods have been, or contemporaneously are, paid or an amount in cash sufficient for the payment thereof is set apart by us, no Series A preferred shares may be redeemed unless all outstanding shares of Series A preferred shares are simultaneously redeemed; provided, that the foregoing restriction does not prevent us from taking action necessary to preserve our status as a REIT. Any partial redemption will be on a pro rata basis.

Special Optional Redemption

Upon the occurrence of a Change of Control (as defined below), we may, at our option, redeem the Series A preferred shares, in whole or in part on or within 120 days after the first date on which such Change of Control occurred, by paying $25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption. If, prior to the Change of Control Conversion Date (as defined below), we exercise any of our redemption rights relating to the Series A preferred shares (whether our optional redemption right or our special optional redemption right), the holders of Series A preferred shares will not have the conversion right described below with respect to the shares called for redemption.

 

172


Table of Contents

A “Change of Control” is when, after the original issuance of the Series A preferred shares, the following have occurred and are continuing:

 

    acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of our shares entitling that person to exercise more than 50% of the total voting power of all SMTA shares entitled to vote generally in the election of its trustees (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and

 

    following the closing of any transaction referred to in the bullet point above, neither we nor the acquiring or surviving entity has a class of common securities (or ADRs representing such securities) listed on the NYSE, the NYSE American or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American or NASDAQ.

The “Change of Control Conversion Date” is the date the Series A preferred shares are converted, which will be a business day that is no fewer than 20 days nor more than 35 days after the date on which we provide notice to the holders of Series A preferred shares.

Offer to Purchase

For so long as any Series A preferred shares are held by the Specified Holder (as defined below), upon the occurrence of an Offer to Purchase Event (as defined below), we must offer to purchase the Series A preferred shares held by the Specified Holder, on or within 30 days after the first date on which such Offer to Purchase Event occurred, at a purchase price equal to $25.00 per share, plus any accrued and unpaid dividends to, but not including, the payment date.

We will not be required to make an offer to purchase the Series A preferred shares held by the Specified Holder upon an Offer to Purchase Event if a related person of ours within the meaning of Section 351(g)(2) of the Code makes an offer to purchase the Series A preferred shares held by the Specified Holder in the manner, at the times and otherwise in compliance with the requirements set forth in the articles supplementary applicable to an offer to purchase made by us and purchases all the Series A preferred shares tendered for purchase by the Specified Holder.

Notwithstanding anything to the contrary set forth above, an offer to purchase may be made in advance of an Offer to Purchase Event and conditioned upon the completion of such Offer to Purchase Event, if a definitive agreement is in place for the Offer to Purchase Event at the time the offer to purchase is made.

If the terms of any of our indebtedness prohibit us from making an offer to purchase the Series A preferred shares held by the Specified Holder or from purchasing the Series A preferred shares tendered for purchase pursuant thereto, within 60 days following any Offer to Purchase Event, we covenant to:

 

    repay in full all such indebtedness; or

 

    obtain the requisite consent under such indebtedness to permit the purchase of the Series A preferred shares held by the Specified Holder as described above.

We must first comply with the covenant described above before we will be required to purchase the Series A preferred shares held by the Specified Holder in the event of an Offer to Purchase Event.

Our obligation to make the offer to purchase described above may be waived, in whole or in part, by the Specified Holder in the Specified Holder’s sole and absolute discretion.

The “Specified Holder” is Spirit Realty Capital, Inc. (or one or more of its subsidiaries or affiliates).

 

173


Table of Contents

An “Offer to Purchase Event” means the occurrence of any of the following events: (i) a Change of Control, (ii) the merger, consolidation, sale of all or substantially all of the assets (which for the avoidance of doubt shall include a sale of the assets comprising Master Trust A) or other similar transaction of us (including through our subsidiaries) with or into any other person in conjunction with which or within 12 months following the closing of which the Asset Management Agreement is terminated, (iii) during any period of two consecutive years, individuals who, at the beginning of such period, constitute our board of trustees together with any new trustee(s) (other than a trustee designated by a person who entered into an agreement with us to effect a transaction described in the preceding clauses (i) or (ii) of this definition) whose election by our board of trustees or nomination for election by our shareholders was approved by a vote of at least two-thirds of the trustees then still in office who either were trustees at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, and (iv) the approval by our shareholders of a liquidation or dissolution of us. If, prior to the Offer to Purchase Date (as defined below), we exercise any of our redemption rights relating to the Series A preferred shares (whether our optional redemption right or our special optional redemption right), we will not have the obligation to make the offer to purchase described above with respect to the shares called for redemption.

The “Offer to Purchase Date” is the date the Series A preferred shares are tendered to us for purchase, which will be a business day that is no fewer than two days nor more than 30 days after the date on which we provide notice to the Specified Holder of its offer to purchase.

No Maturity, Sinking Fund or Mandatory Redemption

The Series A preferred shares have no stated maturity date and we are not required to redeem the Series A preferred shares at any time. Accordingly, the Series A preferred shares will remain outstanding indefinitely, unless we decide, at our option, to exercise our redemption right or, under the limited circumstances where we have an obligation to make an offer to purchase to the Specified Holder, such holder decides to tender the Series A preferred share for purchase, or, under the circumstances where the holder of the Series A preferred shares have a conversion right, such holders decide to convert the Series A preferred shares into our common shares. The Series A preferred shares are not subject to any sinking fund.

Voting Rights

Holders of Series A preferred shares generally have no voting rights. However, if we are in arrears on dividends on the Series A preferred shares for six or more quarterly periods, whether or not consecutive, holders of the Series A preferred shares (voting together as a class with the holders of all other classes or series of parity preferred shares upon which like voting rights have been conferred and are exercisable) will be entitled to vote at a special meeting called upon the written request of at least 10% of such holders or at our next annual meeting and each subsequent annual meeting of shareholders for the election of two additional trustees to serve on our board of trustees until all unpaid dividends with respect to the Series A preferred shares and any other class or series of parity preferred shares have been paid or declared and a sum sufficient for the payment thereof set aside for payment. In addition, we may not make certain material and adverse changes to the terms of the Series A preferred shares or authorize or issue any class or series of shares ranking senior to the Series A preferred shares without the affirmative vote of the holders of at least two-thirds of the outstanding Series A preferred shares and all other shares of any class or series ranking on parity with the Series A preferred shares that are entitled to similar voting rights (voting as a single class).

Conversion

From and after a transfer of Series A preferred shares to a party that is not the Specified Holder, upon the occurrence of a Change of Control, each such holder of Series A preferred shares (other than the Specified Holder) will have the right (unless, prior to the Change of Control Conversion Date, we have provided or provide notice of our election to redeem the Series A preferred shares) to convert some or all of the Series A preferred

 

174


Table of Contents

shares held by such holder on the date the Series A preferred shares are to be converted, which we refer to as the Change of Control Conversion Date, into a number of our common shares per Series A preferred share to be converted equal to the lesser of:

 

    the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a Series A preferred share dividend payment and prior to the corresponding Series A preferred share dividend payment date, in which case no additional amount for such accrued and unpaid dividends will be included in this sum) by (ii) the Common Share Price (as defined below); and

 

    3.3333 (i.e., the Share Cap), subject to certain adjustments;

subject, in each case, to provisions for the receipt of alternative consideration as described in the articles supplementary relating to the Series A preferred shares. The Specified Holder will not have any such conversion right.

The “Common Share Price” will be (i) if the consideration to be received in the Change of Control by the holders of our common shares is solely cash, the amount of cash consideration per common share or (ii) if the consideration to be received in the Change of Control by holders of our common shares is other than solely cash (x) the average of the closing sale prices per SMTA common share (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control as reported on the principal U.S. securities exchange on which our common shares are then traded, or (y) the average of the last quoted bid prices for our common shares in the over-the-counter market as reported by Pink Sheets LLC or a similar organization for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control, if our common shares are not then listed for trading on a U.S. securities exchange.

If, prior to the Change of Control Conversion Date, we have provided or provide a redemption notice, whether pursuant to our special optional redemption right in connection with a Change of Control or our optional redemption right, holders of Series A preferred shares will not have any right to convert the Series A preferred shares into our common shares in connection with the Change of Control and any of the Series A preferred shares selected for redemption that have been tendered for conversion will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date.

Except as provided above in connection with a Change of Control, the Series A preferred shares are not convertible into or exchangeable for any other securities or property.

Power to Issue Additional Shares of Common Shares and Preferred Shares

We believe that the power to issue additional common shares or preferred shares and to classify or reclassify unissued common shares or preferred shares and to issue the classified or reclassified shares provides us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs which might arise. These actions can be taken without action by our shareholders, unless shareholder approval is required by applicable law or the rules of any stock exchange or automated quotation system on which our shares may be listed or traded. Although we have no present intention of doing so, we could issue a class or series of shares that could delay, defer or prevent a transaction or a change in control of our Company that might involve a premium price for our common shares or that our common shareholders otherwise believe to be in their best interest. In addition, our issuance of additional shares in the future could dilute the voting and other rights of your shares. See “Certain Provisions of Maryland Law and Our Declaration of Trust and Bylaws—Anti-takeover Effect of Certain Provisions of Maryland Law and of Our Declaration of Trust and Bylaws.”

 

175


Table of Contents

Meetings and Special Voting Requirements

Our bylaws provide that an annual meeting of our shareholders for the election of trustees and the transaction of any business within our powers will be held at a convenient location and on proper notice, at such date and time as will be designated by our board of trustees and stated in the notice of the meeting, beginning with the year 2018. Special meetings of shareholders may be called by our board of trustees, the chairman of our board of trustees, our president or our chief executive officer. Additionally, subject to the provisions of our bylaws, special meetings of the shareholders must be called by our secretary upon the written request of shareholders entitled to cast not less than a majority of the votes entitled to be cast at such meeting who have requested the special meeting in accordance with the procedures set forth in, and provided the information and certifications required by, our bylaws. The presence at a meeting, either in person or by proxy, of shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting of shareholders will constitute a quorum. Generally, the affirmative vote of a majority of all votes cast is necessary to take shareholder action, except that a plurality of the votes cast at a meeting at which a quorum is present is sufficient to elect a trustee in a contested election and a majority of the votes entitled to be cast is required to approve certain extraordinary matters such as mergers, certain amendments to our declaration of trust or the sale of all or substantially all of our assets. Cumulative voting of shares is not permitted.

Restrictions on Ownership and Transfer

In order for us to qualify as a REIT under the Code, our shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares (taking into account certain options to acquire shares) may be owned, directly or through certain constructive ownership rules by five or fewer individuals (as defined in the Code to include certain entities such as private foundations) at any time during the last half of a taxable year.

Our declaration of trust contains restrictions on the ownership and transfer of our shares that are intended to assist us in complying with these requirements and continuing to qualify as a REIT. The relevant sections of our declaration of trust provide that, subject to the exceptions described below, no person or entity may actually or beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% in value of the aggregate of our outstanding shares of all classes and series, or more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding common shares or any class or series of our outstanding preferred shares, in each case excluding any of our shares that are not treated as outstanding for federal income tax purposes. We refer to each of these restrictions as an “ownership limit” and collectively as the “ownership limits.” A person or entity that would have acquired actual, beneficial or constructive ownership of our shares but for the application of the ownership limits or any of the other restrictions on ownership and transfer of our shares discussed below is referred to as a “prohibited owner.” For purposes of this provision, we will not include a “group” as that term is used for purposes of Rule 13d-5(b) or Section 13(d)(3) of the Exchange Act in the definition of “person.”

The constructive ownership rules under the Code are complex and may cause shares owned actually or constructively by a group of related individuals and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% of our common shares or preferred shares (or the acquisition of an interest in an entity that owns, actually or constructively, our common shares or preferred shares) by an individual or entity could, nevertheless, cause that individual or entity, or another individual or entity, to own constructively in excess of 9.8% (in value or in number of shares, whichever is more restrictive) of our outstanding common shares or preferred shares and thereby violate the applicable ownership limit.

Our declaration of trust provides that our board of trustees, subject to certain limits including the trustees’ duties under applicable law, may exempt (prospectively or retroactively) a person from either or both of the

 

176


Table of Contents

ownership limits and, if necessary, establish a different limit on ownership for such person if it determines that such exemption could not cause or permit:

 

    five or fewer individuals to actually or beneficially own more than 49% in value of the outstanding shares of all classes or series of our shares; or

 

    us to own, actually or constructively, an interest in a tenant of ours (or a tenant of any entity owned in whole or in part by us).

As a condition of the exception, our board of trustees may require an opinion of counsel or a ruling from the IRS, in either case in form and substance satisfactory to our board of trustees, in its sole and absolute discretion, in order to determine or ensure our status as a REIT and such representations, covenants and/or undertakings as are necessary or prudent to make the determinations above. Notwithstanding the receipt of any ruling or opinion, our board of trustees may impose such conditions or restrictions as it deems appropriate in connection with such an exception.

In connection with a waiver of an ownership limit or at any other time, our board of trustees may, in its sole and absolute discretion, increase or decrease one or both of the ownership limits for one or more persons, except that a decreased ownership limit will not be effective for any person whose actual, beneficial or constructive ownership of our shares exceeds the decreased ownership limit at the time of the decrease until the person’s actual, beneficial or constructive ownership of our shares equals or falls below the decreased ownership limit, although any further acquisition of our shares will violate the decreased ownership limit. Our board of trustees may not increase or decrease any ownership limit if the new ownership limit would allow five or fewer persons to actually or beneficially own more than 49% in value of our outstanding shares or could cause us (or any direct or indirect subsidiary of ours that intends to qualify as a REIT) to be “closely held” under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise cause us (or any such subsidiary) to fail to qualify as a REIT. In connection with the spin-off, our board of trustees intends to grant an excepted holder limit to Spirit that will allow Spirit to own up to $150.0 million of the perpetual Series A preferred shares, together with any perpetual Series A preferred shares acquired by Spirit as a result of a Management Fee PIK Event pursuant to our Asset Management Agreement.

Our declaration of trust further prohibits:

 

    any person from actually, beneficially or constructively owning our shares that could result in us (or any direct or indirect subsidiary of ours that intends to qualify as a REIT) being “closely held” under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise cause us (or any such subsidiary) to fail to qualify as a REIT (including, but not limited to, actual, beneficial or constructive ownership of our shares that could result in us owning (actually or constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income we derive from such tenant, taking into account our other income that would not qualify under the gross income requirements of Section 856(c) of the Code, would cause us to fail to satisfy any the gross income requirements imposed on REITs); and

 

    any person from transferring our shares if such transfer would result in our shares being beneficially owned by fewer than 100 persons (determined without reference to any rules of attribution).

Any person who acquires or attempts or intends to acquire actual, beneficial or constructive ownership of our shares that will or may violate the ownership limits or any of the other restrictions on ownership and transfer of our shares described above must give written notice immediately to us or, in the case of a proposed or attempted transaction, provide us at least 15 days prior written notice, and provide us with such other information as we may request in order to determine the effect of such transfer on our status as a REIT.

The ownership limits and other restrictions on ownership and transfer of our shares described above will not apply if our board of trustees determines that it is no longer in our best interests to continue to qualify as a REIT or that compliance is no longer required in order for us to qualify as a REIT.

 

177


Table of Contents

Pursuant to our declaration of trust, if any purported transfer of our shares or any other event would otherwise result in any person violating the ownership limits or such other limit established by our board of trustees, or could result in us (or any direct or indirect subsidiary of ours that intends to qualify as a REIT) being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise failing to qualify as a REIT, then the number of shares causing the violation (rounded up to the nearest whole share) will be automatically transferred to, and held by, a trust for the exclusive benefit of one or more charitable beneficiaries selected by us. The prohibited owner will have no rights in our shares held by the trustee. The automatic transfer will be effective as of the close of business on the business day prior to the date of the violative transfer or other event that results in the transfer to the trust. Any dividend or other distribution paid to the prohibited owner, prior to our discovery that the shares had been automatically transferred to a trust as described above, must be repaid to the trustee upon demand. If the transfer to the trust as described above is not automatically effective, for any reason, to prevent violation of the applicable restriction on ownership and transfer of our shares, then the transfer of the number of shares that otherwise would cause any person to violate the above restrictions will be void and of no force or effect and the intended transferee will acquire no rights in the shares. Pursuant to our declaration of trust, if any transfer of our shares would result in our shares being beneficially owned by fewer than 100 persons (determined without reference to any rules of attribution), then any such purported transfer will be void and of no force or effect and the intended transferee will acquire no rights in the shares.

Our declaration of trust provides that our shares transferred to the trustee are deemed offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the price per share in the transaction that resulted in the transfer of the shares to the trust (or, in the event of a gift, devise or other such transaction, the last sale price reported on the NYSE on the day of the transfer or other event that resulted in the transfer of such shares to the trust) and (2) the last sale price reported on the NYSE on the date we accept, or our designee accepts, such offer. We must reduce the amount payable to the prohibited owner by the amount of dividends and distributions paid to the prohibited owner and owed by the prohibited owner to the trustee and pay the amount of such reduction to the trustee for the benefit of the charitable beneficiary. We have the right to accept such offer until the trustee has sold our shares held in the trust. Upon a sale to us, the interest of the charitable beneficiary in the shares sold terminates and the trustee must distribute the net proceeds of the sale to the prohibited owner and any dividends or other distributions held by the trustee with respect to such shares will be paid to the charitable beneficiary.

If we do not buy the shares, the trustee must, within 20 days of receiving notice from us of the transfer of shares to the trust, sell the shares to a person or persons designated by the trustee who could own the shares without violating the ownership limits or other restrictions on ownership and transfer of our shares. Upon such sale, the trustee must distribute to the prohibited owner an amount equal to the lesser of (1) the price paid by the prohibited owner for the shares (or, if the prohibited owner did not give value in connection with the transfer or other event that resulted in the transfer to the trust (e.g., a gift, devise or other such transaction), the last sale price reported on the NYSE on the day of the transfer or other event that resulted in the transfer of such shares to the trust) and (2) the sales proceeds (net of commissions and other expenses of sale) received by the trustee for the shares. The trustee must reduce the amount payable to the prohibited owner by the amount of dividends and other distributions paid to the prohibited owner and owed by the prohibited owner to the trustee. Any net sales proceeds in excess of the amount payable to the prohibited owner will be immediately paid to the charitable beneficiary, together with any dividends or other distributions thereon. In addition, if prior to discovery by us that our shares have been transferred to the trustee, such shares are sold by a prohibited owner, then our declaration of trust provides that such shares shall be deemed to have been sold on behalf of the trust and, to the extent that the prohibited owner received an amount for or in respect of such shares that exceeds the amount that such prohibited owner was entitled to receive, such excess amount shall be paid to the trustee upon demand.

The trustee will be designated by us and will be unaffiliated with us and with any prohibited owner. Our declaration of trust provides that prior to the sale of any shares by the trust, the trustee will receive, in trust for the beneficiary, all dividends and other distributions paid by us with respect to such shares, and may exercise all voting rights with respect to such shares for the exclusive benefit of the charitable beneficiary.

 

178


Table of Contents

Subject to Maryland law, effective as of the date that the shares have been transferred to the trust, the trustee may, at the trustee’s sole discretion:

 

    rescind as void any vote cast by a prohibited owner prior to our discovery that the shares have been transferred to the trust; and

 

    recast the vote in accordance with the desires of the trustee acting for the benefit of the beneficiary of the trust.

However, if we have already taken irreversible corporate action, then the trustee may not rescind and recast the vote.

If our board of trustees determines in good faith that a proposed transfer or other event has taken place that violates the restrictions on ownership and transfer of our shares set forth in our declaration of trust, our board of trustees may take such action as it deems advisable in its sole discretion to refuse to give effect to or to prevent such transfer, including, but not limited to, causing us to redeem shares, refusing to give effect to the transfer on our books or instituting proceedings to enjoin the transfer.

Every owner of 5% or more (or such lower percentage as required by the Code or the Treasury Regulations promulgated thereunder) of our outstanding shares, within 30 days after the end of each taxable year, must give written notice to us stating the name and address of such owner, the number of shares of each class and series of our shares that the owner actually or beneficially owns and a description of the manner in which the shares are held. Each such owner also must provide us with any additional information that we request in order to determine the effect, if any, of the person’s actual or beneficial ownership on our status as a REIT and to ensure compliance with the ownership limits and the other restrictions on ownership and transfer of our shares set forth in our declaration of trust. In addition, any person that is an actual, beneficial owner or constructive owner of our shares and any person (including the shareholder of record) who is holding our shares for an actual, beneficial owner or constructive owner must, on request, disclose to us in writing such information as we may request in good faith in order to determine our status as a REIT and comply with requirements of any taxing authority or governmental authority or to determine such compliance.

Any certificates representing our shares will bear a legend referring to the restrictions on ownership and transfer of our shares described above.

These restrictions on ownership and transfer could delay, defer or prevent a transaction or a change of control of our Company that might involve a premium price for our common shares that our shareholders believe to be in their best interest.

Transfer Agent and Registrar

The transfer agent and registrar for our shares of common shares is American Stock Transfer & Trust Company, LLC.

Stock Exchange Listing

We intend to list our common shares on the NYSE under the symbol “SMTA”.

 

179


Table of Contents

CERTAIN PROVISIONS OF MARYLAND LAW AND OUR DECLARATION OF TRUST AND BYLAWS

The following summary of certain provisions of Maryland law and our declaration of trust and bylaws does not purport to be complete and is subject to and qualified in its entirety by reference to Maryland law and to our declaration of trust and bylaws, copies of which are filed as exhibits to the registration statement of which this information statement is a part. See “Where You Can Find More Information.”

Duration

Under our declaration of trust, we have a perpetual term of existence and will continue perpetually subject to the authority of our board of trustees to terminate our existence and liquidate our assets and subject to termination pursuant to Maryland law.

Our Board of Trustees

Pursuant to our declaration of trust and bylaws, the number of trustees of our Company may be established, increased or decreased only by a majority of our entire board of trustees but may not be fewer than one, nor, unless our bylaws are amended, more than 15. The number of trustees is currently fixed at five. We expect to expand our board to six members once a permanent chief executive officer has been identified and to have such individual serve as an additional trustee. Our declaration of trust provides that, at such time as we have a class of securities registered under the Exchange Act and at least three independent trustees (which we expect to have upon the completion of the spin-off), we elect to be subject to a provision of Maryland law requiring that vacancies on our board of trustees may be filled only by an affirmative vote of a majority of the remaining trustees and that any individual elected to fill a vacancy will serve for the remainder of the full term of the trusteeship in which the vacancy occurred and until his or her successor is duly elected and qualifies.

Each of our trustees will be elected by our common shareholders to serve until the next annual meeting of our shareholders and until his or her successor is duly elected and qualifies under Maryland Law. Our bylaws provide for the election of trustees, in uncontested elections, by a majority of the votes cast. In contested elections, the election of trustees shall be by a plurality of the votes cast. Holders of our common shares will have no right to cumulative voting in the election of trustees.

Removal of Trustees

Our declaration of trust provides that, subject to the rights of holders of one or more classes or series of preferred shares to elect or remove one or more trustees, a trustee may be removed only for cause (as defined in our declaration of trust) and only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of trustees. This provision, when coupled with the exclusive power of our board of trustees to fill vacant trusteeships, precludes shareholders from removing incumbent trustees and filling the vacancies created by such removal with their own nominees.

Business Combinations

Under the Maryland Business Combinations Act, certain “business combinations” (including a merger, consolidation, statutory share exchange or, in certain circumstances specified under the statute, an asset transfer or issuance or reclassification of equity securities) between a Maryland real estate investment trust and any interested stockholder, or an affiliate of such an interested stockholder, are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Maryland law defines an interested stockholder as:

 

    any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the real estate investment trust’s outstanding voting shares; or

 

180


Table of Contents
    an affiliate or associate of the real estate investment trust who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting shares of the real estate investment trust.

A person is not an interested stockholder under the Maryland Business Combination Act if the board of trustees approved in advance the transaction by which the person otherwise would have become an interested stockholder. In approving a transaction, the board of trustees may provide that its approval is subject to compliance, at or after the time of the approval, with any terms and conditions determined by it.

After such five-year period, any such business combination must be recommended by the board of trustees of the real estate investment trust and approved by the affirmative vote of at least:

 

    80% of the votes entitled to be cast by holders of outstanding voting shares of the real estate investment trust; and

 

    two-thirds of the votes entitled to be cast by holders of voting shares of the real estate investment trust other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These supermajority approval requirements do not apply if, among other conditions, the corporation’s common shareholders receive a minimum price (as defined in the Maryland Business Combinations Act) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares.

These provisions of the Maryland Business Combinations Act do not apply, however, to business combinations that are approved or exempted by a real estate investment trust’s board of trustees prior to the time that the interested stockholder becomes an interested stockholder. Our declaration of trust provides that we expressly elect not to be governed by the Maryland Business Combinations Act, in whole or in part, as to any business combination between us and any interested stockholder or any affiliate of an interested stockholder. Any amendment to or repeal of this provision of our declaration of trust must be approved by our shareholders by the affirmative vote of a majority of all the votes entitled to be cast on the matter. In the event that this provision of our declaration of trust is amended or revoked by our shareholders, we would be subject to the Maryland Business Combinations Act.

However, an alteration or repeal of this provision of our declaration of trust will not have any effect on any business combinations that have been consummated prior to or upon any agreements existing at the time of such modification or repeal.

Control Share Acquisitions

The Maryland Control Share Acquisition Act provides that a holder of “control shares” of a Maryland real estate investment trust acquired in a “control share acquisition” has no voting rights with respect to those shares except to the extent approved by the affirmative vote of at least two-thirds of the votes entitled to be cast by shareholders entitled to exercise or direct the exercise of the voting power in the election of trustees generally but excluding: (1) the person who has made or proposes to make the control share acquisition; (2) any officer of the real estate investment trust; or (3) any employee of the real estate investment trust who is also a trustee of the real estate investment trust. “Control shares” are voting shares of beneficial interest that, if aggregated with all other such shares of beneficial interest previously acquired by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing trustees within one of the following ranges of:

 

    one-tenth or more but less than one-third;

 

    one-third or more but less than a majority; or

 

    a majority or more of all voting power.

 

181


Table of Contents

Control shares do not include shares that the acquiring person is then entitled to vote as a result of having previously obtained shareholder approval. A “control share acquisition” means the acquisition, directly or indirectly, of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses and making an “acquiring person statement” as described in the Maryland Business Combinations Act), may compel the board of trustees of the real estate investment trust to call a special meeting of shareholders to be held within 50 days of demand to consider the voting rights of the control shares. If no request for a special meeting is made, the real estate investment trust may itself present the question at any shareholders meeting.

If voting rights of control shares are not approved at the meeting or if the acquiring person does not deliver an “acquiring person statement” as required by the statute, then, subject to certain conditions and limitations, the real estate investment trust may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or of any meeting of shareholders at which the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at a shareholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.

The control share acquisition statute does not apply (1) to shares acquired in a merger, consolidation or statutory share exchange if the real estate investment trust is a party to the transaction or (2) to acquisitions approved or exempted by the declaration of trust or bylaws of the real estate investment trust.

Our declaration of trust provides that the Maryland Control Share Acquisition Act will not apply to any acquisition by any person of our shares of beneficial interest. Any amendment to or repeal of this provision of our declaration of trust must be approved by our shareholders by the affirmative vote of a majority of all the votes entitled to be cast on the matter. In the event that this provision of our declaration of trust is amended or revoked by our shareholders, we would be subject to the Maryland Control Share Acquisition Act.

Unsolicited Takeovers

Subtitle 8 of Title 3 of the MGCL permits a Maryland real estate investment trust with a class of equity securities registered under the Exchange Act and at least three independent trustees (which we expect to have upon the completion of the spin-off) to elect to be subject, by provision in its declaration of trust or bylaws or a resolution of its board of trustees and notwithstanding any contrary provision in the declaration of trust or bylaws, to any or all of the following five provisions:

 

    a classified board;

 

    a two-thirds vote requirement for removing a trustee;

 

    a requirement that the number of trustees be fixed only by vote of the trustees;

 

    a requirement that a vacancy on the board be filled only by the remaining trustees and for the remainder of the full term of the class of trustees in which the vacancy occurred; or

 

    a majority requirement for the calling of a special meeting of shareholders.

Our declaration of trust provides that, at such time as we become eligible to make a Subtitle 8 election, we elect to be subject to the provisions of Subtitle 8 relating to the filling of vacancies on our board of trustees.

 

182


Table of Contents

Through provisions in our declaration of trust and bylaws unrelated to Subtitle 8, we already (1) require a two-thirds vote for the removal of any trustee from our board of trustees, which removal must be for cause, (2) vest in our board of trustees the exclusive power to fix the number of trusteeships, subject to limitations set forth in our declaration of trust and bylaws, and (3) require, unless called by the chairman of our board of trustees, our president, our chief executive officer or our board of trustees, the request of shareholders entitled to cast not less than a majority of all votes entitled to be cast on a matter at such meeting to call a special meeting. We have opted out of the provision of Subtitle 8 of Title 3 of the MGCL that would have permitted our board of trustees to unilaterally divide itself into classes with staggered terms of three years each (also referred to as a classified board) without shareholder approval, and we are prohibited from electing to be subject to such provision of the MGCL unless such election is first approved by our shareholders by the affirmative vote of a majority of all the votes entitled to be cast on the matter. We do not currently have a classified board.

Amendments to Our Declaration of Trust and Bylaws

Our declaration of trust may be amended by our board of trustees without the consent of the holders of our shares of beneficial interest to qualify as a REIT under the Code or as a real estate investment trust under Maryland law and as otherwise provided in our declaration of trust. Our declaration of trust generally may be amended only if such amendment is declared advisable by our board of trustees and approved by the affirmative vote of shareholders entitled to cast a majority of the votes entitled to be cast on the matter, except that amendments to the provisions of our declaration of trust relating to the removal of trustees and the vote required to amend the removal provision may be amended only with the approval of shareholders entitled to cast at least two-thirds of all of the votes entitled to be cast on the matter. Our board of trustees, and our shareholders by the affirmative vote of a majority of votes entitled to be cast on the matter, each have the power to adopt, alter or repeal any provision of our bylaws or to make new bylaws.

No Shareholder Rights Plan

We do not have a shareholder rights plan, and will not adopt a shareholder rights plan in the future without (i) the prior approval of our shareholders by the affirmative vote of a simple majority of our shareholders or (ii) seeking ratification from our shareholders within 12 months of adoption of such a rights plan if our board of trustees determines, in the exercise of its duties under applicable law, that it is in our best interest to adopt a rights plan without the delay of seeking prior shareholder approval.

Meetings of Shareholders

Our bylaws provide that an annual meeting of our shareholders for the election of trustees and the transaction of any business within our powers will be held at a convenient location and on proper notice, at such date and time as will be designated by our board of trustees and stated in the notice of the meeting, beginning with the year 2018. Special meetings of shareholders may be called by our board of trustees, the chairman of our board of trustees, our president or our chief executive officer. Additionally, subject to the provisions of our bylaws, special meetings of the shareholders must be called by our secretary upon the written request of shareholders entitled to cast not less than a majority of the votes entitled to be cast at such meeting who have requested the special meeting in accordance with the procedures set forth in, and provided the information and certifications required by, our bylaws. Only matters set forth in the notice of the special meeting may be considered and acted upon at such a meeting.

Advance Notice of Trustee Nominations and New Business

Our bylaws provide that:

 

    with respect to an annual meeting of shareholders, nominations of individuals for election to our board of trustees and the proposal of business to be considered by shareholders at the annual meeting may be made only:

 

    pursuant to our notice of the meeting;

 

183


Table of Contents
    by or at the direction of our board of trustees; or

 

    by a shareholder who was a shareholder of record both at the time of giving of the notice of the meeting and at the time of the annual meeting, who is entitled to vote at the meeting and who has complied with the advance notice procedures set forth in, and provided the information and certifications required by, our bylaws; and

 

    with respect to special meetings of shareholders, only the business specified in our Company’s notice of meeting may be brought before the special meeting of shareholders, and nominations of individuals for election to our board of trustees may be made only:

 

    by or at the direction of our board of trustees; or

 

    provided that the meeting has been called in accordance with our bylaws for the purpose of electing trustees, by a shareholder who is a shareholder of record both at the time of giving of the notice required by our bylaws and at the time of the meeting, who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the advance notice provisions set forth in, and provided the information and certifications required by, our bylaws.

The purpose of requiring shareholders to give advance notice of nominations and other proposals is to afford our board of trustees and our shareholders the opportunity to consider the qualifications of the proposed nominees or the advisability of the other proposals and, to the extent considered necessary by our board of trustees, to inform shareholders and make recommendations regarding the nominations or other proposals. Although our bylaws do not give our board of trustees the power to disapprove timely shareholder nominations and proposals, our bylaws may have the effect of precluding a contest for the election of trustees or proposals for other action if the proper procedures are not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of trustees to our board of trustees or to approve its own proposal.

Anti-takeover Effect of Certain Provisions of Maryland Law and Our Declaration of Trust and Bylaws

The restrictions on ownership and transfer of our shares, the supermajority vote required to remove trustees, our election to be subject to the provision of Subtitle 8 vesting in our board of trustees the exclusive power to fill vacancies on our board of trustees and the shareholder-requested special meeting requirements and advance notice provisions of our bylaws could delay, defer or prevent a transaction or a change of control of our Company that might involve a premium price for our common shares or that our common shareholders otherwise believe to be in their best interests. Likewise, if our shareholders were to vote to amend our declaration of trust to repeal the prohibition on electing to be subject to the Maryland Business Combination Act, the Maryland Control Share Acquisition Act or the provisions of Subtitle 8 to which we are not already subject, such provisions of Maryland law could have similar anti-takeover effects.

Limitation of Liability and Indemnification of Trustees and Officers

Maryland law permits a Maryland real estate investment trust to include in its declaration of trust a provision limiting the liability of its trustees and officers to the real estate investment trust and its shareholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty that is established by a final judgment adverse to the trustee or officer and is material to the cause of action. Our declaration of trust contains such a provision that eliminates such liability to the maximum extent permitted by Maryland law.

The MGCL requires a Maryland corporation (unless its charter provides otherwise, which our declaration of trust does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made or threatened to be made a party by reason of his or her service in that capacity. The MGCL permits a Maryland corporation to indemnify its present and former directors

 

184


Table of Contents

and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or are threatened to be made a party by reason of their service in those or other capacities unless it is established that:

 

    the act or omission of the director or officer was material to the matter giving rise to the proceeding and:

 

    was committed in bad faith; or

 

    was the result of active and deliberate dishonesty;

 

    the director or officer actually received an improper personal benefit in money, property or services; or

 

    in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.

However, under the MGCL, a Maryland corporation may not indemnify a director or officer for an adverse judgment in a suit by or in the right of the corporation or if the director or officer was adjudged liable on the basis that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received.

In addition, the MGCL permits a Maryland corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of:

 

    a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation; and

 

    a written undertaking, which may be unsecured, by the director or officer or on the director’s or officer’s behalf to repay the amount paid if it shall ultimately be determined that the standard of conduct has not been met.

Our declaration of trust authorizes us to obligate our Company and our bylaws obligate us, to the fullest extent permitted by Maryland law in effect from time to time, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding without requiring a preliminary determination of the trustee’s or officer’s ultimate entitlement to indemnification to:

 

    any present or former trustee or officer who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity; or

 

    any individual who, while a trustee or officer of our Company and at our request, serves or has served as a director, officer, partner, member, manager, trustee, employee or agent of another corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity.

Our declaration of trust and bylaws also permit us, with the approval of our board of trustees, to indemnify and advance expenses to any person who served a predecessor of ours in any of the capacities described above and to any employee or agent of our Company or a predecessor of our Company.

Indemnification Agreements

We have entered into indemnification agreements with each of our trustees and executive officers that obligate us to indemnify them to the maximum extent permitted by Maryland law as discussed under “Certain Provisions of Maryland Law and Our Declaration of Trust and Bylaws—Limitation of Liability and

 

185


Table of Contents

Indemnification of Trustees and Officers.” The indemnification agreements provide that, if a trustee or executive officer is a party or is threatened to be made a party to any proceeding by reason of his or her service as a trustee, officer, employee or agent of our Company or as a director, officer, partner, member, manager or trustee of any other foreign or domestic corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that he or she is or was serving in such capacity at our request, we must indemnify the trustee or executive officer for all expenses and liabilities actually and reasonably incurred by him or her, or on his or her behalf, to the maximum extent permitted under Maryland law, including in any proceeding brought by the trustee or executive officer to enforce his or her rights under the indemnification agreement, to the extent provided by the agreement. The indemnification agreements also require us to advance reasonable expenses incurred by the indemnitee within ten days of the receipt by us of a statement from the indemnitee requesting the advance, provided the statement evidences the expenses and is accompanied or preceded by:

 

    a written affirmation of the indemnitee’s good faith belief that he or she has met the standard of conduct necessary for indemnification; and

 

    a written undertaking, which may be unsecured, by the indemnitee or on his or her behalf to repay the amount paid if it shall ultimately be established that the standard of conduct has not been met.

The indemnification agreements also provide for procedures for the determination of entitlement to indemnification, including requiring such determination be made by independent counsel after a change of control of us.

Our declaration of trust will permit us, and our bylaws obligate us, to the maximum extent permitted by Maryland law, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (1) any of our present or former trustees or officers who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or (2) any individual who, while serving as our trustees or officer and at our request, serves or has served as a director, officer, partner, member, manager, trustee, employee or agent of another corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity, as discussed under “Certain Provisions of Maryland Law and Our Declaration of Trust and Bylaws—Limitation of Liability and Indemnification of Trustees and Officers.”

In addition, our trustees and officers are entitled to indemnification pursuant to the terms of the partnership agreement of our Operating Partnership.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to trustees, officers or persons controlling our Company pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Restrictions on Ownership and Transfer of our Shares

Our declaration of trust contains restrictions on the ownership and transfer of our shares that are intended to assist us in continuing to qualify as a REIT. Subject to certain exceptions, our declaration of trust provides that no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% in value of the aggregate of our outstanding shares of all classes and series, or more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding common shares or any class or series of our outstanding preferred shares. For more information regarding these and other restrictions on the ownership and transfer of our shares imposed by our declaration of trust, see “Description of Shares—Restrictions on Ownership and Transfer.”

 

186


Table of Contents

REIT Qualification

Our declaration of trust provides that our board of trustees may revoke or otherwise terminate our REIT election, without approval of our shareholders, if it determines that it is no longer in our best interest to continue to be qualified as a REIT. Our declaration of trust also provides that our board of trustees may determine that compliance with the restrictions on ownership and transfer of our shares is no longer required for us to qualify as a REIT.

Exclusive Forum

Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of any duty owed by any trustee, officer or other employee of ours to us or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the Maryland REIT Law, the Maryland General Corporation Law, our declaration of trust or our bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be the Circuit Court for Baltimore City, Maryland or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. Our bylaws further provide that any person or entity purchasing or otherwise acquiring any interest in our shares of beneficial interest shall be deemed to have notice of and consented to the exclusive forum provisions of our bylaws.

 

187


Table of Contents

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following is a general summary of certain material U.S. federal income tax considerations regarding our election to be taxed as a REIT and the ownership or disposition of our common shares. For purposes of this discussion, references to “we,” “our” and “us” mean only SMTA and do not include any of its subsidiaries, except as otherwise indicated. This summary is for general information only and is not tax advice. The information in this summary is based on:

 

    the Code;

 

    current, temporary and proposed Treasury Regulations promulgated under the Code;

 

    the legislative history of the Code;

 

    administrative interpretations and practices of the IRS; and

 

    court decisions;

in each case, as of the date of this information statement. In addition, the administrative interpretations and practices of the IRS include its practices and policies as expressed in private letter rulings that are not binding on the IRS except with respect to the particular taxpayers who requested and received those rulings. The sections of the Code and the corresponding Treasury Regulations that relate to qualification and taxation as a REIT are highly technical and complex. The following discussion sets forth certain material aspects of the sections of the Code that govern the U.S. federal income tax treatment of a REIT and its shareholders. This summary is qualified in its entirety by the applicable Code provisions, Treasury Regulations promulgated under the Code, and administrative and judicial interpretations thereof. Potential tax reforms may result in significant changes to the rules governing U.S. federal income taxation. New legislation, Treasury Regulations, administrative interpretations and practices and/or court decisions may significantly and adversely affect our ability to qualify as a REIT, the U.S. federal income tax consequences of such qualification, or the U.S. federal income tax consequences of an investment in us, including those described in this discussion. Moreover, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT. Any such changes could apply retroactively to transactions preceding the date of the change. We have not requested, and do not plan to request, any rulings from the IRS that we qualify as a REIT, and the statements in this information statement are not binding on the IRS or any court. Thus, we can provide no assurance that the tax considerations contained in this discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS. This summary does not discuss any state, local or non-U.S. tax consequences, or any tax consequences arising under any U.S. federal tax laws other than U.S. federal income tax laws, associated with the ownership or disposition of our common shares or our election to be taxed as a REIT.

You are encouraged to consult your tax advisor regarding the tax consequences to you of:

 

    the ownership or disposition of our common shares, including the U.S. federal, state, local, non-U.S. and other tax consequences;

 

    our election to be taxed as a REIT for U.S. federal income tax purposes; and

 

    potential changes in applicable tax laws.

Taxation of Our Company

General . We intend to elect to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our taxable year ending December 31, 2018. We believe we will be organized and intend to operate in a manner that will allow us to qualify for taxation as a REIT under the Code commencing with such taxable year, and we intend to continue to be organized and operate in this manner. However, qualification and taxation as a

 

188


Table of Contents

REIT depend upon our ability to meet the various qualification tests imposed under the Code, including through actual operating results, asset composition, distribution levels and diversity of share ownership. Accordingly, no assurance can be given that we will be organized or operate in a manner so as to qualify or remain qualified as a REIT. See “—Failure to Qualify” for potential tax consequences if we fail to qualify as a REIT.

Latham & Watkins LLP has acted as our tax counsel in connection with this information statement and our intended election to be taxed as a REIT. In connection with the spin-off, Latham & Watkins LLP will render an opinion to us to the effect that, commencing with our taxable year ending December 31, 2018, we have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and our proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the Code. It must be emphasized that this opinion will be based on various assumptions and representations as to factual matters, including representations made by us in a factual certificate provided by one of our officers. In addition, this opinion will be based upon our factual representations set forth in this information statement. Moreover, our qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, which are discussed below, including through actual operating results, asset composition, distribution levels and diversity of share ownership, the results of which have not been and will not be reviewed by Latham & Watkins LLP. Accordingly, no assurance can be given that our actual results of operation for any particular taxable year will satisfy those requirements. Further, the anticipated U.S. federal income tax treatment described herein may be changed, perhaps retroactively, by legislative, administrative or judicial action at any time. Latham & Watkins LLP has no obligation to update its opinion subsequent to the date of such opinion.

Provided we qualify for taxation as a REIT, we generally will not be required to pay U.S. federal corporate income taxes on our REIT taxable income that is currently distributed to our shareholders. This treatment substantially eliminates the “double taxation” that ordinarily results from investment in a C corporation. A C corporation is a corporation that generally is required to pay tax at the corporate level. Double taxation means taxation once at the corporate level when income is earned and once again at the shareholder level when the income is distributed. We will, however, be required to pay U.S. federal income tax as follows:

 

    First, we will be required to pay regular U.S. federal corporate income tax on any undistributed REIT taxable income, including undistributed capital gain.

 

    Second, if we have (1) net income from the sale or other disposition of “foreclosure property” held primarily for sale to customers in the ordinary course of business or (2) other nonqualifying income from foreclosure property, we will be required to pay regular U.S. federal corporate income tax on this income. To the extent that income from foreclosure property is otherwise qualifying income for purposes of the 75% gross income test, this tax is not applicable. Subject to certain other requirements, foreclosure property generally is defined as property we acquired through foreclosure or after a default on a loan secured by the property or a lease of the property.

 

    Third, we will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited transactions are, in general, sales or other taxable dispositions of property, other than foreclosure property, held as inventory or primarily for sale to customers in the ordinary course of business.

 

    Fourth, if we fail to satisfy the 75% gross income test or the 95% gross income test, as described below, but have otherwise maintained our qualification as a REIT because certain other requirements are met, we will be required to pay a tax equal to (1) the greater of (A) the amount by which we fail to satisfy the 75% gross income test and (B) the amount by which we fail to satisfy the 95% gross income test, multiplied by (2) a fraction intended to reflect our profitability.

 

    Fifth, if we fail to satisfy any of the asset tests (other than a de minimis failure of the 5% or 10% asset tests), as described below, due to reasonable cause and not due to willful neglect, and we nonetheless maintain our REIT qualification because of specified cure provisions, we will be required to pay a tax equal to the greater of $50,000 or the U.S. federal corporate income tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail such test.

 

189


Table of Contents
    Sixth, if we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT (other than a violation of the gross income tests or certain violations of the asset tests, as described below) and the violation is due to reasonable cause and not due to willful neglect, we may retain our REIT qualification but we will be required to pay a penalty of $50,000 for each such failure.

 

    Seventh, we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of (1) 85% of our ordinary income for the year, (2) 95% of our capital gain net income for the year, and (3) any undistributed taxable income from prior periods.

 

    Eighth, if we acquire any asset from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset is less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, and we subsequently recognize gain on the disposition of the asset during the five-year period beginning on the date on which we acquired the asset, then we generally will be required to pay regular U.S. federal corporate income tax on this gain to the extent of the excess of (1) the fair market value of the asset over (2) our adjusted tax basis in the asset, in each case determined as of the date on which we acquired the asset. The results described in this paragraph with respect to the recognition of gain assume that the C corporation will refrain from making an election to receive different treatment under applicable Treasury Regulations on its tax return for the year in which we acquire the asset from the C corporation. Under applicable Treasury Regulations, any gain from the sale of property we acquired in an exchange under Section 1031 (a like-kind exchange) or Section 1033 (an involuntary conversion) of the Code generally is excluded from the application of this built-in gains tax.

 

    Ninth, our subsidiaries that are C corporations, including our TRSs described below, generally will be required to pay regular U.S. federal corporate income tax on their earnings.

 

    Tenth, we will be required to pay a 100% tax on any “redetermined rents,” “redetermined deductions,” “excess interest,” or “redetermined TRS service income,” as described below under “—Penalty Tax.” In general, redetermined rents are rents from real property that are overstated as a result of services furnished to any of our tenants by a TRS of ours. Redetermined deductions and excess interest generally represent amounts that are deducted by a TRS of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm’s-length negotiations. Redetermined TRS service income generally represents income of a TRS that is understated as a result of services provided to us or on our behalf.

 

    Eleventh, we may elect to retain and pay income tax on our net capital gain. In that case, a shareholder would include its proportionate share of our undistributed capital gain (to the extent we make a timely designation of such gain to the shareholder) in its income, would be deemed to have paid the tax that we paid on such gain, and would be allowed a credit for its proportionate share of the tax deemed to have been paid, and an adjustment would be made to increase the tax basis of the shareholder in our common shares.

 

    Twelfth, if we fail to comply with the requirement to send annual letters to our shareholders holding at least a certain percentage of our shares, as determined by Treasury Regulations, requesting information regarding the actual ownership of our shares, and the failure is not due to reasonable cause or due to willful neglect, we will be subject to a $25,000 penalty, or if the failure is intentional, a $50,000 penalty.

We and our subsidiaries may be subject to a variety of taxes other than U.S. federal income tax, including payroll taxes and state and local income, property and other taxes on our assets and operations.

Requirements for Qualification as a REIT . The Code defines a REIT as a corporation, trust or association:

 

  (1) that is managed by one or more trustees or directors;

 

  (2) that issues transferable shares or transferable certificates to evidence its beneficial ownership;

 

190


Table of Contents
  (3) that would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code;

 

  (4) that is not a financial institution or an insurance company within the meaning of certain provisions of the Code;

 

  (5) that is beneficially owned by 100 or more persons;

 

  (6) not more than 50% in value of the outstanding shares of which is owned, actually or constructively, by five or fewer individuals, including certain specified entities, during the last half of each taxable year; and

 

  (7) that meets other tests, described below, regarding the nature of its income and assets and the amount of its distributions.

The Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. Conditions (5) and (6) do not apply until after the first taxable year for which an election is made to be taxed as a REIT. For purposes of condition (6), the term “individual” includes a supplemental unemployment compensation benefit plan, a private foundation or a portion of a trust permanently set aside or used exclusively for charitable purposes, but generally does not include a qualified pension plan or profit sharing trust.

We believe that we will be organized and will operate in a manner that allows us, and will continue to allow us, to satisfy conditions (1) through (7) inclusive, during the relevant time periods. In addition, our declaration of trust provides for restrictions regarding ownership and transfer of our shares that are intended to assist us in continuing to satisfy the share ownership requirements described in conditions (5) and (6) above. A description of the share ownership and transfer restrictions relating to our shares is contained in the discussion in this information statement under the heading “Description of Shares—Restrictions on Ownership and Transfer.” These restrictions, however, do not ensure that we will, in all cases, be able to satisfy the share ownership requirements described in conditions (5) and (6) above. If we fail to satisfy these share ownership requirements, except as provided in the next sentence, our status as a REIT will terminate. If, however, we comply with the rules contained in applicable Treasury Regulations that require us to ascertain the actual ownership of our shares and we do not know, or would not have known through the exercise of reasonable diligence, that we failed to meet the requirement described in condition (6) above, we will be treated as having met this requirement. See “—Failure to Qualify.”

In addition, we may not maintain our status as a REIT unless our taxable year is the calendar year. We will have a calendar taxable year.

Ownership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries . In the case of a REIT that is a partner in a partnership or a member in a limited liability company treated as a partnership for U.S. federal income tax purposes, Treasury Regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership or limited liability company, as the case may be, based on its interest in partnership capital, subject to special rules relating to the 10% asset test described below. Also, the REIT will be deemed to be entitled to its proportionate share of the income of that entity. The assets and gross income of the partnership or limited liability company retain the same character in the hands of the REIT for purposes of Section 856 of the Code, including satisfying the gross income tests and the asset tests. Thus, our pro rata share of the assets and items of income of our Operating Partnership, including our Operating Partnership’s share of these items of any partnership or limited liability company treated as a partnership or disregarded entity for U.S. federal income tax purposes in which it owns an interest is treated as our assets and items of income for purposes of applying the requirements described in this discussion, including the gross income and asset tests described below. A brief summary of the rules governing the U.S. federal income taxation of partnerships and limited liability companies is set forth below in “—Tax Aspects of Our Operating Partnership, the Subsidiary Partnerships and the Limited Liability Companies.”

 

191


Table of Contents

We have control of our Operating Partnership and the subsidiary partnerships and limited liability companies and intend to operate them in a manner consistent with the requirements for our qualification as a REIT. If we become a limited partner or non-managing member in any partnership or limited liability company and such entity takes or expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action which could cause us to fail a gross income or asset test, and that we would not become aware of such action in time to dispose of our interest in the partnership or limited liability company or take other corrective action on a timely basis. In that case, we could fail to qualify as a REIT unless we were entitled to relief, as described below.

We may from time to time own and operate certain properties through wholly-owned subsidiaries that we intend to be treated as “qualified REIT subsidiaries” under the Code. A corporation will qualify as our qualified REIT subsidiary if we own 100% of the corporation’s outstanding stock and do not elect with the subsidiary to treat it as a TRS, as described below. A qualified REIT subsidiary is not treated as a separate corporation, and all assets, liabilities and items of income, gain, loss, deduction and credit of a qualified REIT subsidiary are treated as assets, liabilities and items of income, gain, loss, deduction and credit of the parent REIT for all purposes under the Code, including all REIT qualification tests. Thus, in applying the U.S. federal tax requirements described in this discussion, any qualified REIT subsidiaries we own are ignored, and all assets, liabilities and items of income, gain, loss, deduction and credit of such corporations are treated as our assets, liabilities and items of income, gain, loss, deduction and credit. A qualified REIT subsidiary is not subject to U.S. federal income tax, and our ownership of the stock of a qualified REIT subsidiary will not violate the restrictions on ownership of securities, as described below under “—Asset Tests.”

Ownership of Interests in TRSs . In connection with the spin-off, we and our Operating Partnership may acquire interests in companies that will elect, together with us, to be treated as our TRSs, and we may acquire securities in additional TRSs in the future. A TRS is a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS. If a TRS owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a TRS. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A TRS is subject to U.S. federal income tax as a regular C corporation. A REIT’s ownership of securities of a TRS is not subject to the 5% or 10% asset test described below. See “—Asset Tests.” For taxable years beginning after December 31, 2017, taxpayers are subject to a limitation on their ability to deduct net business interest generally equal to 30% of adjusted taxable income, subject to certain exceptions. See “—Annual Distribution Requirements.” While not certain, this provision may limit the ability of our TRSs to deduct interest, which could increase their taxable income.

Ownership of Interests in Subsidiary REITs . In connection with the spin-off, we will acquire, and in the future may acquire, direct or indirect interests in one or more Subsidiary REITs. A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. If a Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to U.S. federal income tax and (ii) the Subsidiary REIT’s failure to qualify could have an adverse effect on our ability to comply with the REIT income and asset tests, and thus could impair our ability to qualify as a REIT unless we could avail ourselves of certain relief provisions.

Income Tests . We must satisfy two gross income requirements annually to maintain our qualification as a REIT. First, in each taxable year we must derive directly or indirectly at least 75% of our gross income (excluding gross income from prohibited transactions, certain hedging transactions and certain foreign currency gains) from investments relating to real property or mortgages on real property, including “rents from real property,” dividends from other REITs and, in certain circumstances, interest, or certain types of temporary investments. Second, in each taxable year we must derive at least 95% of our gross income (excluding gross

 

192


Table of Contents

income from prohibited transactions, certain hedging transactions and certain foreign currency gains) from the real property investments described above or dividends, interest and gain from the sale or disposition of stock or securities, or from any combination of the foregoing. For these purposes, the term “interest” generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount depends in any way on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term “interest” solely by reason of being based on a fixed percentage or percentages of receipts or sales.

Rents we receive from a tenant will qualify as “rents from real property” for the purpose of satisfying the gross income requirements for a REIT described above only if all of the following conditions are met:

 

    The amount of rent is not based in whole or in part on the income or profits of any person. However, an amount we receive or accrue generally will not be excluded from the term “rents from real property” solely because it is based on a fixed percentage or percentages of receipts or sales;

 

    Neither we nor an actual or constructive owner of 10% or more of our shares actually or constructively owns 10% or more of the interests in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting power of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock of the tenant. Rents we receive from such a tenant that is a TRS of ours, however, will not be excluded from the definition of “rents from real property” as a result of this condition if at least 90% of the space at the property to which the rents relate is leased to third parties, and the rents paid by the TRS are substantially comparable to rents paid by our other tenants for comparable space. Whether rents paid by a TRS are substantially comparable to rents paid by other tenants is determined at the time the lease with the TRS is entered into, extended, and modified, if such modification increases the rents due under such lease. Notwithstanding the foregoing, however, if a lease with a “controlled taxable REIT subsidiary” is modified and such modification results in an increase in the rents payable by such TRS, any such increase will not qualify as “rents from real property.” For purposes of this rule, a “controlled taxable REIT subsidiary” is a TRS in which the parent REIT owns stock possessing more than 50% of the voting power or more than 50% of the total value of the outstanding stock of such TRS;

 

    Rent attributable to personal property, leased in connection with a lease of real property, is not greater than 15% of the total rent received under the lease. If this condition is not met, then the portion of the rent attributable to personal property will not qualify as “rents from real property.” To the extent that rent attributable to personal property, leased in connection with a lease of real property, exceeds 15% of the total rent received under the lease, we may transfer a portion of such personal property to a TRS; and

 

    We generally may not operate or manage the property or furnish or render services to our tenants, subject to a 1% de minimis exception and except as provided below. We may, however, perform services that are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not otherwise considered “rendered to the occupant” of the property. Examples of these services include the provision of light, heat, or other utilities, trash removal and general maintenance of common areas. In addition, we may employ an independent contractor from whom we derive no revenue to provide customary services to our tenants, or a TRS (which may be wholly or partially owned by us) to provide both customary and non-customary services to our tenants without causing the rent we receive from those tenants to fail to qualify as “rents from real property.”

We generally do not intend, and, as the sole owner of the general partner of our Operating Partnership, we do not intend to permit our Operating Partnership, to take actions we believe will cause us to fail to satisfy the rental conditions described above. However, we may intentionally fail to satisfy some of these conditions to the extent we determine, based on the advice of our tax counsel, that the failure will not jeopardize our tax status as a REIT. In addition, with respect to the limitation on the rental of personal property, we generally have not obtained appraisals of the real property and personal property leased to tenants. Accordingly, there can be no assurance that the IRS will not disagree with our determinations of value.

 

193


Table of Contents

From time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase these items, and futures and forward contracts. Income from a hedging transaction, including gain from the sale or disposition of such a transaction, that is clearly identified as a hedging transaction as specified in the Code will not constitute gross income under, and thus will be exempt from, the 75% and 95% gross income tests. The term “hedging transaction,” as used above, generally means (A) any transaction we enter into in the normal course of our business primarily to manage risk of (1) interest rate changes or fluctuations with respect to borrowings made or to be made by us to acquire or carry real estate assets, or (2) currency fluctuations with respect to an item of qualifying income under the 75% or 95% gross income test or any property which generates such income and (B) new transactions entered into to hedge the income or loss from prior hedging transactions, where the property or indebtedness which was the subject of the prior hedging transaction was extinguished or disposed of. To the extent that we do not properly identify such transactions as hedges or we hedge with other types of financial instruments, the income from those transactions is not likely to be treated as qualifying income for purposes of the gross income tests. We intend to structure any hedging transactions in a manner that does not jeopardize our status as a REIT.

To the extent our TRSs pay dividends or interest, our allocable share of such dividend or interest income will qualify under the 95%, but not the 75%, gross income test (except to the extent the interest is paid on a loan that is adequately secured by real property).

We will monitor the amount of the dividend and other income from our TRSs and will take actions intended to keep this income, and any other nonqualifying income, within the limitations of the gross income tests. Although we expect these actions will be sufficient to prevent a violation of the gross income tests, we cannot guarantee that such actions will in all cases prevent such a violation.

If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the year if we are entitled to relief under certain provisions of the Code. We generally may make use of the relief provisions if:

 

    following our identification of the failure to meet the 75% or 95% gross income tests for any taxable year, we file a schedule with the IRS setting forth each item of our gross income for purposes of the 75% or 95% gross income tests for such taxable year in accordance with Treasury Regulations to be issued; and

 

    our failure to meet these tests was due to reasonable cause and not due to willful neglect.

It is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income tests because nonqualifying income that we intentionally accrue or receive exceeds the limits on nonqualifying income, the IRS could conclude that our failure to satisfy the tests was not due to reasonable cause. If these relief provisions do not apply to a particular set of circumstances, we will not qualify as a REIT. As discussed above in “—General,” even if these relief provisions apply, and we retain our status as a REIT, a tax would be imposed with respect to our nonqualifying income. We may not always be able to comply with the gross income tests for REIT qualification despite periodic monitoring of our income.

Prohibited Transaction Income . Any gain that we realize on the sale of property held as inventory or otherwise held primarily for sale to customers in the ordinary course of business, including our share of any such gain realized by our Operating Partnership, either directly or through its subsidiary partnerships and limited liability companies, will be treated as income from a prohibited transaction that is subject to a 100% penalty tax, unless certain safe harbor exceptions apply. This prohibited transaction income may also adversely affect our ability to satisfy the gross income tests for qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. As the sole owner of the

 

194


Table of Contents

general partner of our Operating Partnership, we intend to cause our Operating Partnership to hold its properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning its properties and to make occasional sales of the properties as are consistent with our investment objectives. We do not intend, and do not intend to permit our Operating Partnership or its subsidiary partnerships or limited liability companies, to enter into any sales that are prohibited transactions. However, the IRS may successfully contend that some or all of the sales made by our Operating Partnership or its subsidiary partnerships or limited liability companies are prohibited transactions. We would be required to pay the 100% penalty tax on our allocable share of the gains resulting from any such sales. The 100% penalty tax will not apply to gains from the sale of assets that are held through a TRS, but such income will be subject to regular U.S. federal corporate income tax.

Penalty Tax . Any redetermined rents, redetermined deductions, excess interest or redetermined TRS service income we generate will be subject to a 100% penalty tax. In general, redetermined rents are rents from real property that are overstated as a result of any services furnished to any of our tenants by a TRS of ours, redetermined deductions and excess interest represent any amounts that are deducted by a TRS of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm’s-length negotiations, and redetermined TRS service income is income of a TRS that is understated as a result of services provided to us or on our behalf. Rents we receive will not constitute redetermined rents if they qualify for certain safe harbor provisions contained in the Code.

We do not expect to be subject to this penalty tax, although any rental or service arrangements we enter into from time to time may not satisfy the safe-harbor provisions described above. These determinations are inherently factual, and the IRS has broad discretion to assert that amounts paid between related parties should be reallocated to clearly reflect their respective incomes. If the IRS successfully made such an assertion, we would be required to pay a 100% penalty tax on any overstated rents paid to us, or any excess deductions or understated income of our TRSs.

Asset Tests . At the close of each calendar quarter of our taxable year, we must also satisfy certain tests relating to the nature and diversification of our assets. First, at least 75% of the value of our total assets must be represented by real estate assets, cash, cash items and U.S. government securities. For purposes of this test, the term “real estate assets” generally means real property (including interests in real property and interests in mortgages on real property or on both real property and, to a limited extent, personal property), shares (or transferable certificates of beneficial interest) in other REITs, any stock or debt instrument attributable to the investment of the proceeds of a stock offering or a public offering of debt with a term of at least five years (but only for the one-year period beginning on the date the REIT receives such proceeds), debt instruments of publicly offered REITs, and personal property leased in connection with a lease of real property for which the rent attributable to personal property is not greater than 15% of the total rent received under the lease.

Second, not more than 25% of the value of our total assets may be represented by securities (including securities of TRSs), other than those securities includable in the 75% asset test.

Third, of the investments included in the 25% asset class, and except for certain investments in other REITs, our qualified REIT subsidiaries and TRSs, the value of any one issuer’s securities may not exceed 5% of the value of our total assets, and we may not own more than 10% of the total vote or value of the outstanding securities of any one issuer except, in the case of the 10% value test, securities satisfying the “straight debt” safe-harbor or securities issued by a partnership that itself would satisfy the 75% income test if it were a REIT. Certain types of securities we may own are disregarded as securities solely for purposes of the 10% value test, including, but not limited to, any loan to an individual or an estate, any obligation to pay rents from real property and any security issued by a REIT. In addition, solely for purposes of the 10% value test, the determination of our interest in the assets of a partnership or limited liability company in which we own an interest will be based on our proportionate interest in any securities issued by the partnership or limited liability company, excluding for this purpose certain securities described in the Code. From time to time we may own securities (including

 

195


Table of Contents

debt securities) of issuers that do not qualify as a REIT, a qualified REIT subsidiary or a TRS. We intend that our ownership of any such securities will be structured in a manner that allows us to comply with the asset tests described above.

Fourth, not more than 20% of the value of our total assets may be represented by the securities of one or more TRSs. We and our Operating Partnership may own interests in companies that will elect, together with us, to be treated as our TRSs, and we may acquire securities in additional TRSs in the future. So long as each of these companies qualifies as a TRS of ours, we will not be subject to the 5% asset test, the 10% voting securities limitation or the 10% value limitation with respect to our ownership of the securities of such companies. We believe that the aggregate value of our TRSs will not exceed 20% of the aggregate value of our gross assets. We generally do not obtain independent appraisals to support these conclusions. In addition, there can be no assurance that the IRS will not disagree with our determinations of value.

Fifth, not more than 25% of the value of our total assets may be represented by debt instruments of publicly offered REITs to the extent those debt instruments would not be real estate assets but for the inclusion of debt instruments of publicly offered REITs in the meaning of real estate assets, as described above (e.g., a debt instrument issued by a publicly offered REIT that is not secured by a mortgage on real property).

The asset tests must be satisfied at the close of each calendar quarter of our taxable year in which we (directly or through any partnership, limited liability company or qualified REIT subsidiary) acquire securities in the applicable issuer, and also at the close of each calendar quarter in which we increase our ownership of securities of such issuer (including as a result of an increase in our interest in any partnership or limited liability company that owns such securities). For example, our indirect ownership of securities of each issuer will increase as a result of our capital contributions to our Operating Partnership or as limited partners exercise any redemption/exchange rights. Also, after initially meeting the asset tests at the close of any quarter, we will not lose our status as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If we fail to satisfy an asset test because we acquire securities or other property during a quarter (including as a result of an increase in our interest in any partnership or limited liability company), we may cure this failure by disposing of sufficient nonqualifying assets within 30 days after the close of that quarter. We intend to maintain adequate records of the value of our assets to ensure compliance with the asset tests. If we fail to cure any noncompliance with the asset tests within the 30-day cure period, we would cease to qualify as a REIT unless we are eligible for certain relief provisions discussed below.

Certain relief provisions may be available to us if we discover a failure to satisfy the asset tests described above after the 30-day cure period. Under these provisions, we will be deemed to have met the 5% and 10% asset tests if the value of our nonqualifying assets (i) does not exceed the lesser of (a) 1% of the total value of our assets at the end of the applicable quarter or (b) $10,000,000, and (ii) we dispose of the nonqualifying assets or otherwise satisfy such tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued. For violations of any of the asset tests due to reasonable cause and not due to willful neglect and that are, in the case of the 5% and 10% asset tests, in excess of the de minimis exception described above, we may avoid disqualification as a REIT after the 30-day cure period by taking steps including (i) the disposition of sufficient nonqualifying assets, or the taking of other actions, which allow us to meet the asset tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued, (ii) paying a tax equal to the greater of (a) $50,000 or (b) the U.S. federal corporate income tax rate multiplied by the net income generated by the nonqualifying assets, and (iii) disclosing certain information to the IRS.

Although we believe we will satisfy the asset tests described above and plan to take steps to ensure that we satisfy such tests for any quarter with respect to which retesting is to occur, there can be no assurance that we will always be successful, or will not require a reduction in our Operating Partnership’s overall interest in an issuer (including in a TRS). If we fail to cure any noncompliance with the asset tests in a timely manner, and the relief provisions described above are not available, we would cease to qualify as a REIT.

 

196


Table of Contents

Annual Distribution Requirements . To maintain our qualification as a REIT, we are required to distribute dividends, other than capital gain dividends, to our shareholders in an amount at least equal to the sum of:

 

    90% of our REIT taxable income; and

 

    90% of our after-tax net income, if any, from foreclosure property; minus

 

    the excess of the sum of certain items of non-cash income over 5% of our REIT taxable income.

For these purposes, our REIT taxable income is computed without regard to the dividends paid deduction and our net capital gain. In addition, for purposes of this test, non-cash income generally means income attributable to leveled stepped rents, original issue discount, cancellation of indebtedness, or a like-kind exchange that is later determined to be taxable.

In addition, our REIT taxable income will be reduced by any taxes we are required to pay on any gain we recognize from the disposition of any asset we acquired from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset is less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, provided such disposition occurs within the five-year period following our acquisition of such asset, as described above under “—General.”

For taxable years beginning after December 31, 2017, and except as provided below, our deduction for net business interest expense will generally be limited to 30% of our taxable income, as adjusted for certain items of income, gain, deduction or loss. Any business interest deduction that is disallowed due to this limitation may be carried forward to future taxable years. If we are subject to this interest expense limitation, our REIT taxable income for a taxable year may be increased. Taxpayers that conduct certain real estate businesses may elect not to have this interest expense limitation apply to them, provided that they use an alternative depreciation system to depreciate certain property. We believe that we will be eligible to make this election. If we make this election, although we would not be subject to the interest expense limitation described above, our depreciation deductions may be reduced and, as a result, our REIT taxable income for a taxable year may be increased.

We generally must pay, or be treated as paying, the distributions described above in the taxable year to which they relate. At our election, a distribution will be treated as paid in a taxable year if it is declared before we timely file our tax return for such year and paid on or before the first regular dividend payment after such declaration, provided such payment is made during the 12-month period following the close of such year. These distributions are treated as received by our shareholders in the year in which they are paid. This is so even though these distributions relate to the prior year for purposes of the 90% distribution requirement. In order to be taken into account for purposes of our distribution requirement, except as provided below, the amount distributed must not be preferential—i.e., every shareholder of the class of shares to which a distribution is made must be treated the same as every other shareholder of that class, and no class of shares may be treated other than according to its dividend rights as a class. This preferential limitation will not apply to distributions made by us, provided we qualify as a “publicly offered REIT.” We believe that, upon completion of the distribution, we will be, and expect we will continue to be, a “publicly offered REIT.” However, Subsidiary REITs we may own from time to time may not be publicly offered REITs. To the extent that we do not distribute all of our net capital gain, or distribute at least 90%, but less than 100%, of our REIT taxable income, as adjusted, we will be required to pay regular U.S. federal corporate income tax on the undistributed amount. We intend to make timely distributions sufficient to satisfy these annual distribution requirements and to minimize our corporate tax obligations. In this regard, the partnership agreement of our Operating Partnership authorizes us, as the sole owner of the general partner of our Operating Partnership, to take such steps as may be necessary to cause our Operating Partnership to distribute to its partners an amount sufficient to permit us to meet these distribution requirements and to minimize our corporate tax obligation.

We expect that our REIT taxable income will be less than our cash flow because of depreciation and other non-cash charges included in computing REIT taxable income. Accordingly, we anticipate that we generally will

have sufficient cash or liquid assets to enable us to satisfy the distribution requirements described above.

 

197


Table of Contents

However, from time to time, we may not have sufficient cash or other liquid assets to meet these distribution requirements due to timing differences between the actual receipt of income and actual payment of deductible expenses, and the inclusion of income and deduction of expenses in determining our taxable income. In addition, we may decide to retain our cash, rather than distribute it, in order to repay debt or for other reasons. If these timing differences occur, we may borrow funds to pay dividends or pay dividends in the form of taxable share distributions in order to meet the distribution requirements, while preserving our cash.

From time to time, we may distribute interests in other entities to our shareholders. In such a case, and assuming the distribution does not qualify as a tax-free spinoff under the Code, we would generally recognize taxable income equal to the excess, if any, of the value of such interests over our tax basis in such interests, and we would be treated as making a distribution to shareholders equal to the fair market value of such interests.

Under some circumstances, we may be able to rectify an inadvertent failure to meet the 90% distribution requirement for a year by paying “deficiency dividends” to our shareholders in a later year, which may be included in our deduction for dividends paid for the earlier year. In that case, we may be able to avoid being taxed on amounts distributed as deficiency dividends, subject to the 4% excise tax described below. However, we will be required to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends. While the payment of a deficiency dividend will apply to a prior year for purposes of our REIT distribution requirements, it will be treated as an additional distribution to our shareholders in the year such dividend is paid.

Furthermore, we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of 85% of our ordinary income for such year, 95% of our capital gain net income for the year and any undistributed taxable income from prior periods. Any ordinary income and net capital gain on which corporate income tax is imposed for any year is treated as an amount distributed during that year for purposes of calculating this excise tax.

For purposes of the 90% distribution requirement and excise tax described above, dividends declared during the last three months of the taxable year, payable to shareholders of record on a specified date during such period and paid during January of the following year, will be treated as paid by us and received by our shareholders on December 31 of the year in which they are declared.

Like-Kind Exchanges . We may dispose of real property that is not held primarily for sale in transactions intended to qualify as like-kind exchanges under the Code. Such like-kind exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes. The failure of any such transaction to qualify as a like-kind exchange could require us to pay U.S. federal income tax, possibly including the 100% prohibited transaction tax, depending on the facts and circumstances surrounding the particular transaction.

Tax Liabilities and Attributes Inherited in Connection with Acquisitions . From time to time, we or our Operating Partnership may acquire other corporations or entities and, in connection with such acquisitions, we may succeed to the historical tax attributes and liabilities of such entities. For example, if we acquire a C corporation and subsequently dispose of its assets within five years of the acquisition, we could be required to pay the built-in gain tax described above under “—General.” In addition, in order to qualify as a REIT, at the end of any taxable year, we must not have any earnings and profits accumulated in a non-REIT year. As a result, if we acquire a C corporation, we must distribute the corporation’s earnings and profits accumulated prior to the acquisition before the end of the taxable year in which we acquire the corporation. We also could be required to pay the acquired entity’s unpaid taxes even though such liabilities arose prior to the time we acquired the entity.

Moreover, we may from time to time acquire other REITs through a merger or acquisition. If any such REIT failed to qualify as a REIT for any of its taxable years, such REIT would be liable for (and we, as the surviving corporation in the merger or acquisition, would be obligated to pay) regular U.S. federal corporate income tax on its taxable income, and if the merger or acquisition is a transaction in which our tax basis in the assets of such

 

198


Table of Contents

REIT is less than the fair market value of the assets, in each case, determined at the time of the merger or acquisition, we would be subject to tax on the built-in gain on each asset of such REIT as described above if we were to dispose of the asset in a taxable transaction during the five-year period following the merger or acquisition. Moreover, even if such REIT qualified as a REIT at all relevant times, we would similarly be liable for other unpaid taxes (if any) of such REIT (such as the 100% tax on gains from any sales treated as “prohibited transactions” as described above under “—Prohibited Transaction Income”).

Furthermore, after our acquisition of another corporation or entity, the asset and income tests will apply to all of our assets, including the assets we acquire from such corporation or entity, and to all of our income, including the income derived from the assets we acquire from such corporation or entity. As a result, the nature of the assets that we acquire from such corporation or entity and the income we derive from those assets may have an effect on our tax status as a REIT.

Failure to Qualify . If we discover a violation of a provision of the Code that would result in our failure to qualify as a REIT, certain specified cure provisions may be available to us. Except with respect to violations of the gross income tests and asset tests (for which the cure provisions are described above), and provided the violation is due to reasonable cause and not due to willful neglect, these cure provisions generally impose a $50,000 penalty for each violation in lieu of a loss of REIT status. If we fail to satisfy the requirements for taxation as a REIT in any taxable year, and the relief provisions do not apply, we will be required to pay regular U.S. federal corporate income tax on our taxable income. Distributions to shareholders in any year in which we fail to qualify as a REIT will not be deductible by us. As a result, we anticipate that our failure to qualify as a REIT would reduce the cash available for distribution by us to our shareholders. In addition, if we fail to qualify as a REIT, we will not be required to distribute any amounts to our shareholders and all distributions to shareholders will be taxable as regular corporate dividends to the extent of our current and accumulated earnings and profits. In such event, corporate distributees may be eligible for the dividends-received deduction. In addition, non-corporate shareholders, including individuals, may be eligible for the preferential tax rates on qualified dividend income. Non-corporate shareholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026. If we fail to qualify as a REIT, such shareholders may not claim this deduction with respect to dividends paid by us. Unless entitled to relief under specific statutory provisions, we would also be ineligible to elect to be treated as a REIT for the four taxable years following the year for which we lose our qualification. It is not possible to state whether in all circumstances we would be entitled to this statutory relief.

Tax Aspects of Our Operating Partnership, the Subsidiary Partnerships and the Limited Liability Companies

General . All of our investments are held indirectly through our Operating Partnership. In addition, our Operating Partnership holds certain of its investments indirectly through subsidiary partnerships and limited liability companies that we believe are and will continue to be treated as partnerships or disregarded entities for U.S. federal income tax purposes. In general, entities that are treated as partnerships or disregarded entities for U.S. federal income tax purposes are “pass-through” entities which are not required to pay U.S. federal income tax. Rather, partners or members of such entities are allocated their shares of the items of income, gain, loss, deduction and credit of the partnership or limited liability company, and are potentially required to pay tax on this income, without regard to whether they receive a distribution from the partnership or limited liability company. We will include in our income our share of these partnership and limited liability company items for purposes of the various gross income tests, the computation of our REIT taxable income, and the REIT distribution requirements. Moreover, for purposes of the asset tests, we will include our pro rata share of assets held by our Operating Partnership, including its share of the assets of its subsidiary partnerships and limited liability companies, based on our capital interests in each such entity. See “—Taxation of Our Company.”

 

199


Table of Contents

Entity Classification . Our interests in our Operating Partnership and the subsidiary partnerships and limited liability companies involve special tax considerations, including the possibility that the IRS might challenge the status of these entities as partnerships or disregarded entities. For example, an entity that would otherwise be treated as a partnership for U.S. federal income tax purposes may nonetheless be taxable as a corporation if it is a “publicly traded partnership” and certain other requirements are met. A partnership or limited liability company would be treated as a publicly traded partnership if its interests are traded on an established securities market or are readily tradable on a secondary market or a substantial equivalent thereof, within the meaning of applicable Treasury Regulations. We do not anticipate that our Operating Partnership or any subsidiary partnership or limited liability company will be treated as a publicly traded partnership that is taxable as a corporation. However, if any such entity were treated as a corporation, it would be required to pay an entity-level tax on its income. In this situation, the character of our assets and items of gross income would change and could prevent us from satisfying the REIT asset tests and possibly the REIT income tests. See “—Taxation of Our Company—Asset Tests” and “—Income Tests.” This, in turn, could prevent us from qualifying as a REIT. See “—Failure to Qualify” for a discussion of the effect of our failure to meet these tests. In addition, a change in the tax status of our Operating Partnership or a subsidiary partnership or limited liability company to a corporation might be treated as a taxable event. If so, we might incur a tax liability without any related cash payment. We believe our Operating Partnership and each of the subsidiary partnerships and limited liability companies are and will continue to be treated as partnerships or disregarded entities for U.S. federal income tax purposes.

Allocations of Income, Gain, Loss and Deduction . A partnership agreement (or, in the case of a limited liability company treated as a partnership for U.S. federal income tax purposes, the limited liability company agreement) generally will determine the allocation of income and loss among partners. These allocations, however, will be disregarded for tax purposes if they do not comply with the provisions of Section 704(b) of the Code and the Treasury Regulations thereunder. Generally, Section 704(b) of the Code and the Treasury Regulations thereunder require that partnership allocations respect the economic arrangement of the partners. If an allocation of partnership income or loss does not comply with the requirements of Section 704(b) of the Code and the Treasury Regulations thereunder, the item subject to the allocation will be reallocated in accordance with the partners’ interests in the partnership. This reallocation will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item. The allocations of taxable income and loss of our Operating Partnership and any subsidiaries that are treated as partnerships for U.S. federal income tax purposes are intended to comply with the requirements of Section 704(b) of the Code and the Treasury Regulations thereunder.

Tax Allocations With Respect to the Properties . Under Section 704(c) of the Code, income, gain, loss and deduction attributable to appreciated or depreciated property that is contributed to a partnership (including a limited liability company treated as a partnership for U.S. federal income tax purposes) in exchange for an interest in the partnership, must be allocated in a manner so that the contributing partner is charged with the unrealized gain or benefits from the unrealized loss associated with the property at the time of the contribution. The amount of the unrealized gain or unrealized loss generally is equal to the difference between the fair market value or book value and the adjusted tax basis of the contributed property at the time of contribution (this difference is referred to as a book-tax difference), as adjusted from time to time. These allocations are solely for U.S. federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners.

Our Operating Partnership may, from time to time, acquire interests in property in exchange for interests in our Operating Partnership. In that case, the tax basis of these property interests generally will carry over to our Operating Partnership, notwithstanding their different book (i.e., fair market) value. The partnership agreement requires that income and loss allocations with respect to these properties be made in a manner consistent with Section 704(c) of the Code. Treasury Regulations issued under Section 704(c) of the Code provide partnerships (including limited liability companies treated as partnerships for U.S. federal income tax purposes) with a choice of several methods of accounting for book-tax differences. Depending on the method we choose in connection with any particular contribution, the carryover basis of each of the contributed interests in the properties in the

 

200


Table of Contents

hands of our Operating Partnership (1) could cause us to be allocated lower amounts of depreciation deductions for tax purposes than would be allocated to us if any of the contributed properties were to have a tax basis equal to its respective fair market value at the time of the contribution and (2) could cause us to be allocated taxable gain in the event of a sale of such contributed interests or properties in excess of the economic or book income allocated to us as a result of such sale, with a corresponding benefit to the other partners in our Operating Partnership. An allocation described in clause (2) above might cause us or the other partners to recognize taxable income in excess of cash proceeds in the event of a sale or other disposition of property, which might adversely affect our ability to comply with the REIT distribution requirements. See “—Taxation of Our Company—Requirements for Qualification as a REIT” and “—Annual Distribution Requirements.”

Any property acquired by our Operating Partnership in a taxable transaction will initially have a tax basis equal to its fair market value, and Section 704(c) of the Code generally will not apply.

Partnership Audit Rules . The Bipartisan Budget Act of 2015 changed the rules applicable to U.S. federal income tax audits of partnerships. Under the new rules (which are generally effective for taxable years beginning after December 31, 2017), among other changes and subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and any partner’s distributive share thereof) is determined, and taxes, interest, or penalties attributable thereto are assessed and collected, at the partnership level. Although it is uncertain how certain aspects of these new rules will be implemented, it is possible that they could result in partnerships in which we directly or indirectly invest, including our Operating Partnership, being required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though we, as a REIT, may not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment. The changes created by these new rules are sweeping and in many respects dependent on the promulgation of future regulations or other guidance by the U.S. Department of the Treasury. Investors are urged to consult their tax advisors with respect to these changes and their potential impact on their ownership of our common shares.

Material U.S. Federal Income Tax Consequences to Holders of Our Common Shares

The following discussion is a summary of the material U.S. federal income tax consequences to you of owning and disposing of our common shares. This discussion is limited to holders who hold our common shares as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a holder’s particular circumstances. In addition, except where specifically noted, it does not address consequences relevant to holders subject to special rules, including, without limitation:

 

    U.S. expatriates and former citizens or long-term residents of the United States;

 

    persons subject to the alternative minimum tax;

 

    U.S. holders (as defined below) whose functional currency is not the U.S. dollar;

 

    persons holding our common shares as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;

 

    banks, insurance companies, and other financial institutions;

 

    REITs or regulated investment companies;

 

    brokers, dealers or traders in securities;

 

    “controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;

 

    S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);

 

201


Table of Contents
    tax-exempt organizations or governmental organizations;

 

    persons subject to special tax accounting rules as a result of any item of gross income with respect to our common shares being taken into account in an applicable financial statement;

 

    persons deemed to sell our common shares under the constructive sale provisions of the Code; and

 

    persons who hold or receive our common shares pursuant to the exercise of any employee share option or otherwise as compensation.

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

For purposes of this discussion, a “U.S. holder” is a beneficial owner of our common shares that, for U.S. federal income tax purposes, is or is treated as:

 

    an individual who is a citizen or resident of the United States;

 

    a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;

 

    an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

    a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.

For purposes of this discussion, a “non-U.S. holder” is any beneficial owner of our common shares that is neither a U.S. holder nor an entity treated as a partnership for U.S. federal income tax purposes.

If an entity treated as a partnership for U.S. federal income tax purposes holds our common shares, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common shares and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.

Taxation of Taxable U.S. Holders of Our Common Shares

Distributions Generally . Distributions out of our current or accumulated earnings and profits will be treated as dividends and, other than with respect to capital gain dividends and certain amounts which have previously been subject to corporate level tax, as discussed below, will be taxable to our taxable U.S. holders as ordinary income when actually or constructively received. See “—Tax Rates” below. As long as we qualify as a REIT, these distributions will not be eligible for the dividends-received deduction in the case of U.S. holders that are corporations or, except to the extent described in “—Tax Rates” below, the preferential rates on qualified dividend income applicable to non-corporate U.S. holders, including individuals. For purposes of determining whether distributions to holders of our shares are out of our current or accumulated earnings and profits, our earnings and profits will be allocated first to our outstanding preferred shares, if any, and then to our outstanding common shares.

To the extent that we make distributions on our common shares in excess of our current and accumulated earnings and profits allocable to such shares, these distributions will be treated first as a tax-free return of capital

 

202


Table of Contents

to a U.S. holder to the extent of the U.S. holder’s adjusted tax basis in such shares. This treatment will reduce the U.S. holder’s adjusted basis in such shares by such amount, but not below zero. Distributions in excess of our current and accumulated earnings and profits and in excess of a U.S. holder’s adjusted tax basis in its shares will be taxable as capital gain. Such gain will be taxable as long-term capital gain if the shares have been held for more than one year. Dividends we declare in October, November, or December of any year and which are payable to a holder of record on a specified date in any of these months will be treated as both paid by us and received by the holder on December 31 of that year, provided we actually pay the dividend on or before January 31 of the following year. U.S. holders may not include in their own income tax returns any of our net operating losses or capital losses.

U.S. holders that receive taxable share distributions, including distributions partially payable in our common shares and partially payable in cash, would be required to include the full amount of the distribution (i.e., the cash and the share portion) as a dividend (subject to limited exceptions) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes, as described above. The amount of any distribution payable in our common shares generally is equal to the amount of cash that could have been received instead of the common shares. Depending on the circumstances of a U.S. holder, the tax on the distribution may exceed the amount of the distribution received in cash, in which case such U.S. holder would have to pay the tax using cash from other sources. If a U.S. holder sells the common shares it received in connection with a taxable share distribution in order to pay this tax and the proceeds of such sale are less than the amount required to be included in income with respect to the share portion of the distribution, such U.S. holder could have a capital loss with respect to the share sale that could not be used to offset such income. A U.S. holder that receives common shares pursuant to such distribution generally has a tax basis in such common shares equal to the amount of cash that could have been received instead of such common shares as described above, and has a holding period in such common shares that begins on the day immediately following the payment date for the distribution.

Capital Gain Dividends . Dividends that we properly designate as capital gain dividends will be taxable to our taxable U.S. holders as a gain from the sale or disposition of a capital asset held for more than one year, to the extent that such gain does not exceed our actual net capital gain for the taxable year and may not exceed our dividends paid for the taxable year, including dividends paid the following year that are treated as paid in the current year. U.S. holders that are corporations may, however, be required to treat up to 20% of certain capital gain dividends as ordinary income. If we properly designate any portion of a dividend as a capital gain dividend, then, except as otherwise required by law, we presently intend to allocate a portion of the total capital gain dividends paid or made available to holders of all classes of our shares for the year to the holders of each class of our shares in proportion to the amount that our total dividends, as determined for U.S. federal income tax purposes, paid or made available to the holders of each such class of our shares for the year bears to the total dividends, as determined for U.S. federal income tax purposes, paid or made available to holders of all classes of our shares for the year. In addition, except as otherwise required by law, we will make a similar allocation with respect to any undistributed long-term capital gains which are to be included in our shareholders’ long-term capital gains, based on the allocation of the capital gain amount which would have resulted if those undistributed long-term capital gains had been distributed as “capital gain dividends” by us to our shareholders.

Retention of Net Capital Gains . We may elect to retain, rather than distribute as a capital gain dividend, all or a portion of our capital gain. If we make this election, we would pay tax on our retained net capital gains. In addition, to the extent we so elect, our earnings and profits (determined for U.S. federal income tax purposes) would be adjusted accordingly, and a U.S. holder generally would:

 

    include its pro rata share of our undistributed net capital gains in computing its long-term capital gains in its return for its taxable year in which the last day of our taxable year falls, subject to certain limitations as to the amount that is includable;

 

    be deemed to have paid its share of the capital gains tax imposed on us on the designated amounts included in the U.S. holder’s income as long-term capital gain;

 

    receive a credit or refund for the amount of tax deemed paid by it;

 

203


Table of Contents
    increase the adjusted tax basis of its common shares by the difference between the amount of includable gains and the tax deemed to have been paid by it; and

 

    in the case of a U.S. holder that is a corporation, appropriately adjust its earnings and profits for the retained capital gains in accordance with Treasury Regulations to be promulgated by the IRS.

Passive Activity Losses and Investment Interest Limitations . Distributions we make and gain arising from the sale or exchange by a U.S. holder of our common shares will not be treated as passive activity income. As a result, U.S. holders generally will not be able to apply any “passive losses” against this income or gain. A U.S. holder generally may elect to treat capital gain dividends, capital gains from the disposition of our common shares and income designated as qualified dividend income, as described in “—Tax Rates” below, as investment income for purposes of computing the investment interest limitation, but in such case, the holder will be taxed at ordinary income rates on such amount. Other distributions made by us, to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation.

Dispositions of Our Common Shares . If a U.S. holder sells or disposes of our common shares, it will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale or other disposition and the holder’s adjusted tax basis in the shares. This gain or loss, except as provided below, will be long-term capital gain or loss if the holder has held such common shares for more than one year. However, if a U.S. holder recognizes a loss upon the sale or other disposition of common shares that it has held for six months or less, after applying certain holding period rules, the loss recognized will be treated as a long-term capital loss to the extent the U.S. holder received distributions from us which were required to be treated as long-term capital gains.

Tax Rates . The maximum tax rate for non-corporate taxpayers for (1) long-term capital gains, including certain “capital gain dividends,” generally is 20% (although depending on the characteristics of the assets which produced these gains and on designations which we may make, certain capital gain dividends may be taxed at a 25% rate) and (2) “qualified dividend income” generally is 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that certain holding period requirements have been met and the REIT’s dividends are attributable to dividends received from taxable corporations (such as its TRSs) or to income that was subject to tax at the corporate/REIT level (for example, if the REIT distributed taxable income that it retained and paid tax on in the prior taxable year). Capital gain dividends will only be eligible for the rates described above to the extent that they are properly designated by the REIT as “capital gain dividends.” U.S. holders that are corporations may be required to treat up to 20% of some capital gain dividends as ordinary income. In addition, non-corporate U.S. holders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026.

Taxation of Tax-Exempt Holders of Our Common Shares

Dividend income from us and gain arising upon a sale of shares of our common shares generally should not be UBTI to a tax-exempt holder, except as described below. This income or gain will be UBTI, however, to the extent a tax-exempt holder holds its shares as “debt-financed property” within the meaning of the Code. Generally, “debt-financed property” is property the acquisition or holding of which was financed through a borrowing by the tax-exempt holder.

For tax-exempt holders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, or qualified group legal services plans exempt from U.S. federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) or (c)(20) of the Code, respectively, income from an investment in our shares will constitute UBTI unless the organization is able to properly claim a deduction for amounts set aside or placed in reserve for specific purposes so as to offset the income generated by its investment in our shares. These prospective investors should consult their tax advisors concerning these “set aside” and reserve requirements.

 

204


Table of Contents

Notwithstanding the above, however, a portion of the dividends paid by a “pension-held REIT” may be treated as UBTI as to certain trusts that hold more than 10%, by value, of the interests in the REIT. A REIT will not be a “pension-held REIT” if it is able to satisfy the “not closely held” requirement without relying on the “look-through” exception with respect to certain trusts or if such REIT is not “predominantly held” by “qualified trusts.” As a result of restrictions on ownership and transfer of our shares contained in our declaration of trust, we do not expect to be classified as a “pension-held REIT,” and as a result, the tax treatment described above should be inapplicable to our holders. However, because our common shares will be publicly traded upon completion of the distribution (and, we anticipate, will continue to be publicly traded), we cannot guarantee that this will always be the case.

Taxation of Non-U.S. Holders of Our Common Shares

The following discussion addresses the rules governing U.S. federal income taxation of the ownership and disposition of our common shares by non-U.S. holders. These rules are complex, and no attempt is made herein to provide more than a brief summary of such rules. Accordingly, the discussion does not address all aspects of U.S. federal income taxation and does not address other federal, state, local or non-U.S. tax consequences that may be relevant to a non-U.S. holder in light of its particular circumstances. We urge non-U.S. holders to consult their tax advisors to determine the impact of U.S. federal, state, local and non-U.S. income and other tax laws and any applicable tax treaty on the ownership and disposition of our common shares, including any reporting requirements.

Distributions Generally . Distributions (including any taxable share distributions) that are neither attributable to gains from sales or exchanges by us of USRPIs, nor designated by us as capital gain dividends (except as described below) will be treated as dividends of ordinary income to the extent that they are made out of our current or accumulated earnings and profits. Such distributions ordinarily will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty, unless the distributions are treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable). Under certain treaties, however, lower withholding rates generally applicable to dividends do not apply to dividends from a REIT. Certain certification and disclosure requirements must be satisfied for a non-U.S. holder to be exempt from withholding under the effectively connected income exemption. Dividends that are treated as effectively connected with a U.S. trade or business generally will not be subject to withholding but will be subject to U.S. federal income tax on a net basis at the regular graduated rates, in the same manner as dividends paid to U.S. holders are subject to U.S. federal income tax. Any such dividends received by a non-U.S. holder that is a corporation may also be subject to an additional branch profits tax at a 30% rate (applicable after deducting U.S. federal income taxes paid on such effectively connected income) or such lower rate as may be specified by an applicable income tax treaty.

Except as otherwise provided below, we expect to withhold U.S. federal income tax at the rate of 30% on any distributions made to a non-U.S. holder unless:

(1) a lower treaty rate applies and the non-U.S. holder furnishes an IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) evidencing eligibility for that reduced treaty rate; or

(2) the non-U.S. holder furnishes an IRS Form W-8ECI (or other applicable documentation) claiming that the distribution is income effectively connected with the non-U.S. holder’s trade or business.

Distributions in excess of our current and accumulated earnings and profits will not be taxable to a non-U.S. holder to the extent that such distributions do not exceed the adjusted tax basis of the holder’s common shares, but rather will reduce the adjusted tax basis of such shares. To the extent that such distributions exceed the non-U.S. holder’s adjusted tax basis in such common shares, they generally will give rise to gain from the sale or exchange of such shares, the tax treatment of which is described below. However, such excess distributions may

 

205


Table of Contents

be treated as dividend income for certain non-U.S. holders. For withholding purposes, we expect to treat all distributions as made out of our current or accumulated earnings and profits. However, amounts withheld may be refundable if it is subsequently determined that the distribution was, in fact, in excess of our current and accumulated earnings and profits, provided that certain conditions are met.

Capital Gain Dividends and Distributions Attributable to a Sale or Exchange of United States Real Property Interests . Distributions to a non-U.S. holder that we properly designate as capital gain dividends, other than those arising from the disposition of a USRPI, generally should not be subject to U.S. federal income taxation, unless:

(1) the investment in our common shares is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable), in which case the non-U.S. holder will be subject to the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to a branch profits tax of up to 30%, as discussed above; or

(2) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder will be subject to U.S. federal income tax at a rate of 30% on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of such non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.

Pursuant to FIRPTA, distributions to a non-U.S. holder that are attributable to gain from sales or exchanges by us of USRPIs, whether or not designated as capital gain dividends, will cause the non-U.S. holder to be treated as recognizing such gain as income effectively connected with a U.S. trade or business. Non-U.S. holders generally would be taxed at the regular graduated rates applicable to U.S. holders, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. We also will be required to withhold and to remit to the IRS 21% of any distribution to non-U.S. holders attributable to gain from sales or exchanges by us of USRPIs. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a non-U.S. holder that is a corporation. The amount withheld is creditable against the non-U.S. holder’s U.S. federal income tax liability. However, any distribution with respect to any class of shares that is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market located in the United States is not subject to FIRPTA, and therefore, not subject to the 21% U.S. withholding tax described above, if the non-U.S. holder did not own more than 10% of such class of shares at any time during the one-year period ending on the date of the distribution. Instead, such distributions generally will be treated as ordinary dividend distributions and subject to withholding in the manner described above with respect to ordinary dividends. In addition, distributions to qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our shares. Furthermore, distributions to “qualified foreign pension funds” or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.

Retention of Net Capital Gains . Although the law is not clear on the matter, it appears that amounts we designate as retained net capital gains in respect of our common shares should be treated with respect to non-U.S. holders as actual distributions of capital gain dividends. Under this approach, the non-U.S. holders may be able to offset as a credit against their U.S. federal income tax liability their proportionate share of the tax paid by us on such retained net capital gains and to receive from the IRS a refund to the extent their proportionate share of such tax paid by us exceeds their actual U.S. federal income tax liability. If we were to designate any portion of our net capital gain as retained net capital gain, non-U.S. holders should consult their tax advisors regarding the taxation of such retained net capital gain.

 

206


Table of Contents

Sale of Our Common Shares . Gain realized by a non-U.S. holder upon the sale, exchange or other taxable disposition of our common shares generally will not be subject to U.S. federal income tax unless such share constitutes a USRPI. In general, shares of a domestic corporation that constitutes a USRPHC will constitute a USRPI. We believe that we are a USRPHC. Our common shares will not, however, constitute a USRPI so long as we are a “domestically controlled qualified investment entity.” A “domestically controlled qualified investment entity” includes a REIT in which at all times during a five-year testing period less than 50% in value of its shares is held directly or indirectly by non-United States persons, subject to certain rules. For purposes of determining whether a REIT is a “domestically controlled qualified investment entity,” a person who at all applicable times holds less than 5% of a class of shares that is “regularly traded” is treated as a United States person unless the REIT has actual knowledge that such person is not a United States person. We believe, but cannot guarantee, that we are a “domestically controlled qualified investment entity.” Because our common shares will be publicly traded upon completion of the distribution (and, we anticipate, will continue to be publicly traded), no assurance can be given that we will continue to be a “domestically controlled qualified investment entity.”

Even if we do not qualify as a “domestically controlled qualified investment entity” at the time a non-U.S. holder sells our common shares, gain realized from the sale or other taxable disposition by a non-U.S. holder of such common shares would not be subject to U.S. federal income tax under FIRPTA as a sale of a USRPI if:

(1) our common shares are “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market such as the NYSE; and

(2) such non-U.S. holder owned, actually and constructively, 10% or less of our common shares throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the non-U.S. holder’s holding period.

In addition, dispositions of our common shares by qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our shares. Furthermore, dispositions of our common shares by “qualified foreign pension funds” or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.

Notwithstanding the foregoing, gain from the sale, exchange or other taxable disposition of our common shares not otherwise subject to FIRPTA will be taxable to a non-U.S. holder if either (a) the investment in our common shares is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable), in which case the non-U.S. holder will be subject to the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to the 30% branch profits tax (or such lower rate as may be specified by an applicable income tax treaty) on such gain, as adjusted for certain items, or (b) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. In addition, even if we are a domestically controlled qualified investment entity, upon disposition of our common shares, a non-U.S. holder may be treated as having gain from the sale or other taxable disposition of a USRPI if the non-U.S. holder (1) disposes of such shares within a 30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have been treated as gain from the sale or exchange of a USRPI and (2) acquires, or enters into a contract or option to acquire, or is deemed to acquire, other common shares during the 61-day period beginning with the first day of the 30-day period described in clause (1), unless such shares are “regularly traded” and the non-U.S. holder did not own more than 10% of the shares at any time during the one-year period ending on the date of the distribution described in clause (1).

 

207


Table of Contents

If gain on the sale, exchange or other taxable disposition of our common shares were subject to taxation under FIRPTA, the non-U.S. holder would be required to file a U.S. federal income tax return and would be subject to regular U.S. federal income tax with respect to such gain in the same manner as a taxable U.S. holder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In addition, if the sale, exchange or other taxable disposition of our common shares were subject to taxation under FIRPTA, and if our common shares were not “regularly traded” on an established securities market, the purchaser of such common shares generally would be required to withhold and remit to the IRS 15% of the purchase price.

Information Reporting and Backup Withholding

U.S. Holders . A U.S. holder may be subject to information reporting and backup withholding when such holder receives payments on our common shares or proceeds from the sale or other taxable disposition of such shares. Certain U.S. holders are exempt from backup withholding, including corporations and certain tax-exempt organizations. A U.S. holder will be subject to backup withholding if such holder is not otherwise exempt and:

 

    the holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social security number;

 

    the holder furnishes an incorrect taxpayer identification number;

 

    the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest or dividends; or

 

    the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and that the IRS has not notified the holder that the holder is subject to backup withholding.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. U.S. holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.

Non-U.S. Holders . Payments of dividends on our common shares generally will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on our common shares paid to the non-U.S. holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of such shares within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting, if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a disposition of such shares conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.

Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the non-U.S. holder resides or is established.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

 

208


Table of Contents

Medicare Contribution Tax on Unearned Income

Certain U.S. holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends on shares and capital gains from the sale or other disposition of shares. U.S. holders should consult their tax advisors regarding the effect, if any, of these rules on their ownership and disposition of our common shares.

Additional Withholding Tax on Payments Made to Foreign Accounts

Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such sections commonly referred to as FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on our common shares or gross proceeds from the sale or other disposition of our common shares, in each case paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our common shares, and will apply to payments of gross proceeds from the sale or other disposition of such shares on or after January 1, 2019.

Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common shares.

Other Tax Consequences

State, local and non-U.S. income tax laws may differ substantially from the corresponding U.S. federal income tax laws, and this discussion does not purport to describe any aspect of the tax laws of any state, local or non-U.S. jurisdiction, or any U.S. federal tax other than the income tax. You should consult your tax advisor regarding the effect of state, local and non-U.S. tax laws with respect to our tax treatment as a REIT and on an investment in our common shares.

 

209


Table of Contents

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form 10, including exhibits and schedules filed with the registration statement of which this information statement is a part, under the Exchange Act, with respect to our common shares being distributed as contemplated by this registration statement. This information statement is part of, and does not contain all of the information set forth in, the registration statement and exhibits and schedules to the registration statement. For further information with respect to us and our common shares, please refer to the registration statement, including its exhibits and schedules. Statements made in this information statement relating to any contract or other document are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement, including its exhibits and schedules, at the SEC’s public reference room, located at 100 F Street, N.E., Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330 as well as on the Internet website maintained by the SEC at www.sec.gov. Information contained on any website referenced in this information statement is not incorporated by reference in this information statement.

As a result of the spin-off, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC, which will be available on the Internet website maintained by the SEC at www.sec.gov.

We intend to furnish holders of our common shares with annual reports containing financial statements prepared in accordance with U.S. generally accepted accounting principles and audited and reported on, with an opinion expressed, by an independent registered public accounting firm.

You should rely only on the information contained in this information statement or to which we have referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this information statement.

 

210


Table of Contents

INDEX TO FINANCIAL STATEMENTS

 

Spirit MTA REIT

  

Report of Independent Registered Public Accounting Firm

     F-2  

Balance Sheet as of December 31, 2017

     F-3  

Notes to Balance Sheet

     F-4  

Predecessor Entities

  

Report of Independent Registered Public Accounting Firm

     F-5  

Combined Balance Sheets as of December 31, 2017 and 2016

     F-6  

Combined Statements of Operations for the years ended December  31, 2017, 2016 and 2015

     F-7  

Combined Statements of Changes in Parent Company Equity for the years ended December 31, 2017, 2016 and 2015

     F-8  

Combined Statements of Cash Flows for the years ended December  31, 2017, 2016 and 2015

     F-9  

Notes to Combined Financial Statements

     F-10  

 

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of

Spirit Realty Capital, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Spirit MTA REIT (the Company) as of December 31, 2017 and the related notes (collectively referred to as the financial statement). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company at December 31, 2017 in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

This financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017.

Dallas, Texas

March 5, 2018

 

F-2


Table of Contents

Spirit MTA REIT

Balance Sheet

 

     December 31,
2017
 

Assets

  

Cash

   $ 10,000  
  

 

 

 

Total assets

   $ 10,000  
  

 

 

 

Shareholder’s equity

  

Common shares, $0.01 par value, 750,000,000 shares authorized: 10,000 issued and outstanding

   $ 100  

Capital in excess of par value

     9,900  
  

 

 

 

Total shareholder’s equity

   $ 10,000  
  

 

 

 

See accompanying notes

 

F-3


Table of Contents

Spirit MTA REIT

Notes to Balance Sheet

December 31, 2017

Note 1. Organization

Spirit MTA REIT (“SMTA”), a Maryland real estate investment trust, was formed and capitalized on November 15, 2017 as a wholly owned subsidiary of Spirit Realty Capital, Inc. (“Spirit”). SMTA was formed for the purpose of receiving, via contribution from Spirit, (i) an asset-backed securitization trust established in 2005 and amended and restated in 2014, comprised of six legal entities, which has issued non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans (“Master Trust 2014”), (ii) three legal entities (“Shopko Entities”) which own properties primarily leased to Specialty Retail Shops Holding Corp and its subsidiaries, (iii) one legal entity which owns a single distribution center property leased to a sporting goods tenant and its general partner entity (“Sporting Goods Entities”), and (iv) two legal entities which own four unencumbered properties (collectively with Master Trust 2014, the Shopko Entities, and the Sporting Goods Entities, the “Predecessor Entities”).

Spirit will transfer to SMTA the legal entities that hold the Predecessor Entities’ assets and liabilities. Spirit will effect the spin-off by means of a pro-rata distribution of SMTA common shares to Spirit stockholders of record as of the close of business on the record date (“Spin-Off”). To date, SMTA has not conducted any business as a separate company and SMTA has no material assets or liabilities. Following the Spin-Off, SMTA expects to operate as a real estate investment trust under the applicable provisions of the Internal Revenue Code of 1986, as amended.

Following the Spin-Off, SMTA expects to own approximately 790 assets in Master Trust 2014, 95 assets in the Shopko Entities and 16 other assets, collectively with an approximate net investment of $2.3 billion. SMTA will be managed by Spirit Realty, L.P. through an Asset Management Agreement.

Note 2. Summary of Significant Accounting Policies

Basis of Accounting

The accompanying balance sheet includes all of the accounts of SMTA as of December 31, 2017, prepared in accordance with Generally Accepted Accounting Principles in the United States. The Company has no assets other than cash. Separate statements of operations, changes in shareholder’s equity and cash flows have not been presented because this entity has not commenced operations.

Cash

Cash includes cash on hand or held in banks.

Note 3. Shareholder’s Equity

SMTA has been capitalized with the issuance of 10,000 common shares of beneficial interest ($0.01 par value per share) for a total of $10,000.

Note 4. Preferred Shares

SMTA has 20,000,000 authorized preferred shares ($0.01 par value per share). As of December 31, 2017, there were no preferred shares issued and outstanding.

 

F-4


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of

Spirit Realty Capital, Inc.

Opinion on the Financial Statements

We have audited the accompanying combined balance sheets of Predecessor Entities (the Company) as of December 31, 2017 and 2016, the related combined statements of operations, parent company equity and cash flows for the years then ended, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the combined financial statements). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017.

Dallas, Texas

March 5, 2018

 

F-5


Table of Contents

Predecessor Entities

Combined Balance Sheets

(In Thousands)

 

     December 31,
2017
    December 31,
2016
 

Assets

    

Investments:

    

Real estate investments:

    

Land and improvements

   $ 973,231     $ 959,430  

Buildings and improvements

     1,658,023       1,581,745  
  

 

 

   

 

 

 

Total real estate investments

     2,631,254       2,541,175  

Less: accumulated depreciation

     (557,948     (496,579
  

 

 

   

 

 

 
     2,073,306       2,044,596  

Loans receivable, net

     32,307       39,640  

Intangible lease assets, net

     102,262       111,303  

Real estate assets held for sale, net

     28,460       59,720  
  

 

 

   

 

 

 

Net investments

     2,236,335       2,255,259  

Cash and cash equivalents

     6       1,268  

Deferred costs and other assets, net

     107,770       55,462  

Goodwill

     13,549       13,549  
  

 

 

   

 

 

 

Total assets

   $ 2,357,660     $ 2,325,538  
  

 

 

   

 

 

 

Liabilities and parent company equity

    

Liabilities:

    

Mortgages and notes payable, net

   $ 1,926,835     $ 1,339,614  

Intangible lease liabilities, net

     23,847       29,024  

Accounts payable, accrued expenses and other liabilities

     16,060       12,043  
  

 

 

   

 

 

 

Total liabilities

     1,966,742       1,380,681  

Commitments and contingencies (see Note 7)

    

Parent company equity:

    

Net parent investment

     390,918       944,857  
  

 

 

   

 

 

 

Total liabilities and parent company equity

   $ 2,357,660     $ 2,325,538  
  

 

 

   

 

 

 

See accompanying notes.

 

F-6


Table of Contents

Predecessor Entities

Combined Statements of Operations

(In Thousands)

 

     Years Ended December 31,  
     2017     2016     2015  

Revenues:

      

Rentals

   $ 224,312     $ 234,671     $ 249,036  

Interest income on loans receivable

     768       2,207       3,685  

Tenant reimbursement income

     2,274       2,130       2,048  

Other income

     4,448       6,295       6,394  
  

 

 

   

 

 

   

 

 

 

Total revenues

     231,802       245,303       261,163  

Expenses:

      

General and administrative

     23,857       18,956       20,790  

Related party fees

     5,500       5,427       5,506  

Restructuring charges

     —         2,465       3,036  

Transaction costs

     4,354       —         —    

Property costs (including reimbursable)

     9,130       5,258       5,043  

Interest

     76,733       77,895       83,719  

Depreciation and amortization

     80,386       85,761       93,692  

Impairments

     33,548       26,565       19,935  
  

 

 

   

 

 

   

 

 

 

Total expenses

     233,508       222,327       231,721  
  

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before other expense and income tax (expense) benefit

     (1,706     22,976       29,442  

Other expense:

      

Loss on debt extinguishment

     (2,223     (1,372     (787
  

 

 

   

 

 

   

 

 

 

Total other expense

     (2,223     (1,372     (787
  

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before income tax (expense) benefit

     (3,929     21,604       28,655  

Income tax (expense) benefit

     (179     (181     33  
  

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (4,108     21,423       28,688  
  

 

 

   

 

 

   

 

 

 

Discontinued operations:

      

Income from discontinued operations

     —       —       98  

Gain on disposition of assets

     —       —       590  
  

 

 

   

 

 

   

 

 

 

Income from discontinued operations

     —       —       688  
  

 

 

   

 

 

   

 

 

 

(Loss) income before gain on disposition of assets

     (4,108     21,423       29,376  

Gain on disposition of assets

     22,393       26,499       84,111  
  

 

 

   

 

 

   

 

 

 

Net income

   $ 18,285     $ 47,922     $ 113,487  
  

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

F-7


Table of Contents

Predecessor Entities

Combined Statements of Changes in Parent Company Equity

(In Thousands)

 

     Total Equity  

Balance, January 1, 2015

   $ 1,253,943  

Net income

     113,487  

Contributions from parent company

     157,528  

Distributions to parent company

     (550,134
  

 

 

 

Balance, December 31, 2015

     974,824  

Net income

     47,922  

Contributions from parent company

     266,298  

Distributions to parent company

     (344,187
  

 

 

 

Balance, December 31, 2016

     944,857  

Net income

     18,285  

Contributions from parent company

     405,695  

Distributions to parent company

     (977,919
  

 

 

 

Balance, December 31, 2017

   $ 390,918  
  

 

 

 

See accompanying notes.

 

F-8


Table of Contents

Predecessor Entities

Combined Statements of Cash Flows

(In Thousands)

 

     Years Ended December 31,  
     2017     2016     2015  

Operating activities

      

Net income

   $ 18,285     $ 47,922     $ 113,487  

Adjustments to reconcile net income to net cash provided by operating activities:

      

Depreciation and amortization

     80,386       85,761       93,692  

Impairments

     33,548       26,565       19,935  

Amortization of deferred financing costs

     1,480       1,285       1,266  

Amortization of debt discounts

     4,589       3,554       2,991  

Stock based compensation expense

     6,131       3,720       5,731  

Loss on debt extinguishment, net

     2,223       1,372       787  

Gain on dispositions of real estate and other assets, net

     (22,393     (26,499     (84,701

Non-cash revenue

     (5,204     (4,002     (4,233

Bad debt expense and other

     3,002       17       (1,809

Changes in operating assets and liabilities:

      

Deferred costs and other assets, net

     5,264       (1,252     (2,778

Accounts payable, accrued expenses and other liabilities

     3,589       (268     (268
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     130,900       138,175       144,100  

Investing activities

      

Acquisitions of real estate

     (26,004     (62,663     (79,147

Capitalized real estate expenditures

     (1,369     (2,689     (1,134

Investments in loans receivable

     —       —       (4,000

Collections of principal on loans receivable

     8,811       6,866       9,948  

Proceeds from dispositions of real estate and other assets

     146,633       141,347       322,263  
  

 

 

   

 

 

   

 

 

 

Net cash provided by investing activities

     128,071       82,861       247,930  

Financing activities

      

Repayments under CMBS

     —         (119,530     (20,464

Borrowings under Master Trust 2014

     618,117       —         —    

Repayments under Master Trust 2014

     (61,110     (15,132     (14,251

Repayments under line of credit

     —         —         (15,181

Debt extinguishment costs

     (1,604     (2,353     (636

Deferred financing costs

     (11,214     (47     —  

Contributions from parent company

     194,860       235,960       151,797  

Distributions to parent company

     (944,199     (317,570     (534,868
  

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (205,150     (218,672     (433,603
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

     53,821       2,364       (41,573

Cash, cash equivalents and restricted cash, beginning of year

     12,689       10,325       51,898  
  

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash, end of year

   $ 66,510     $ 12,689     $ 10,325  
  

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

F-9


Table of Contents

Predecessor Entities

Notes to Combined Financial Statements

Note 1. Organization

On August 3, 2017, Spirit Realty Capital, Inc. (“Spirit”) announced a plan to spin-off (“Spin-Off”) its interests in (i) an asset-backed securitization trust established in 2005 and amended and restated in 2014, comprised of six legal entities, which has issued non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans (“Master Trust 2014”), (ii) three legal entities (“Shopko Entities”) which own properties primarily leased to Specialty Retail Shops Holding Corp. and certain of its affiliates, (iii) one legal entity which owns a single distribution center property leased to a sporting goods tenant and its general partner entity (“Sporting Goods Entities”), and (iv) two legal entities which own four unencumbered properties (collectively with Master Trust 2014, the Shopko Entities, and the Sporting Goods Entities, the “Predecessor Entities” or the “Company”) into an independent, publicly traded company Spirit MTA REIT (“SMTA”). The legal entities which comprise the Predecessor Entities are: Spirit Master Funding, LLC, Spirit Master Funding II, LLC, Spirit Master Funding III, LLC, Spirit Master Funding VI, LLC, Spirit Master Funding VIII, LLC, Spirit SPE Property Holdings II, LLC, Spirit SPE Portfolio 2006-1, LLC, Spirit SPE Portfolio 2006-2, LLC, Spirit SPE Portfolio 2006-3, LLC, Spirit AS Katy TX, LP, Spirit IM Katy TX, LLC, Spirit SPE Portfolio 2012-5, LLC and Spirit SPE Crown 2014-1, LLC.

To accomplish this Spin-Off, Spirit created a new real estate investment trust, SMTA, which is a wholly owned subsidiary of Spirit. Spirit will transfer to SMTA the legal entities that hold the Predecessor Entities’ assets and liabilities. Spirit will affect the Spin-Off by means of a pro-rata distribution of SMTA common shares to Spirit stockholders of record as of the close of business on the record date. The operations of the Predecessor Entities are presented for all historical periods described and at the carrying value of such assets and liabilities reflected in Spirit’s books and records.

Costs associated with the Spin-Off incurred in the year ended December 31, 2017 totaled $4.4 million, and are reflected as transaction costs on the accompanying combined statements of operations.

Note 2. Summary of Significant Accounting Policies

Basis of Accounting

The accompanying combined financial statements have been prepared on a stand-alone basis and are derived from Spirit’s consolidated financial statements and underlying accounting records. The combined financial statements reflect the historical results of operations, financial position and cash flows of the wholly-owned subsidiaries of Spirit which make up the Predecessor Entities and are presented as if the transferred subsidiaries formed SMTA’s business for all historical periods presented. The assets to be contributed and liabilities to be assumed, as presented in the accompanying combined financial statements, reflect Spirit’s historical carrying value of the assets and liabilities as of the financial statement date consistent with the accounting for spin-off transactions in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”). All Predecessor Entities’ intercompany transactions have been eliminated in combination.

The Predecessor Entities are wholly-owned subsidiaries of Spirit. As a result, the combined net assets of the Predecessor Entities have been reflected in the accompanying combined balance sheets as net parent investment. All transactions between Spirit and the Predecessor Entities are considered effectively settled through equity in the combined financial statements at the time the transaction is recorded other than certain intercompany mortgages as discussed in the Related Party footnote (see Note 5). The settlement of these transactions is reflected as contributions and distributions to parent in the combined statements of changes in parent company equity and contributions and distributions to parent in the combined statements of cash flows as a financing activity.

 

F-10


Table of Contents

The combined financial statements include expense allocations related to certain Spirit corporate functions, including executive oversight, asset management, property management, treasury, finance, human resources, tax, accounting, financial reporting, information technology and investor relations. These expenses have been allocated to the Predecessor Entities based on direct usage or benefit where specifically identifiable, with the remainder allocated pro rata based on property count. All the expense allocations were deemed to have been incurred and settled through net parent investment in the period in which the costs were incurred. Following the Spin-Off, SMTA will enter into an Asset Management Agreement with Spirit to provide corporate functions.

Management considers the expense allocation methodology and results to be reasonable. However, the allocations may not be indicative of the actual expense that would have been incurred had the Predecessor Entities operated as an independent, publicly traded company for the periods presented. Accordingly, the combined financial statements herein do not necessarily reflect what the Predecessor Entities’ financial position, results of operations or cash flows would have been if it had been a standalone company during the periods presented, nor are they necessarily indicative of its future results of operations, financial position or cash flows.

These combined financial statements include the special purpose entities that will be wholly owned by SMTA. Certain of these special purpose entities were formed to acquire and hold real estate encumbered by indebtedness (see Note 4). Each special purpose entity is a separate legal entity and is the sole owner of its assets and responsible for its liabilities. The assets of these special purpose entities are not available to pay, or otherwise satisfy obligations to, the creditors of any affiliate or owner of another entity unless the special purpose entities have expressly agreed and are permitted under their governing documents. As of December 31, 2017 and 2016, net assets totaling $1.82 billion and $1.69 billion, respectively, were held and net liabilities totaling $1.96 billion and $1.37 billion, respectively, were owed by these encumbered special purpose entities included in the accompanying combined balance sheets.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes its estimates are reasonable, actual results could differ from those estimates.

Segment Reporting

The Company views its operations as one segment, which consists of net leasing operations. The Company has no other reportable segments.

Real Estate Investments

Carrying Value of Real Estate Investments

The Company’s real estate properties are recorded at cost and depreciated using the straight-line method over the estimated remaining useful lives of the properties, which generally range from 20 to 50 years for buildings and improvements and from 5 to 20 years for land improvements. Portfolio assets classified as “held for sale” are not depreciated. Properties classified as “held for sale” are recorded at the lower of their carrying value or their fair value, less anticipated selling costs.

Purchase Accounting and Acquisition of Real Estate

When acquiring a property, the purchase price (including acquisition and closing costs) is allocated to land, building, improvements and equipment based on their relative fair values. For properties acquired with in-place leases, the purchase price of real estate is allocated to the tangible and intangible assets and liabilities acquired

 

F-11


Table of Contents

based on their estimated fair values. In making estimates of fair values for this purpose, a number of sources are used, including independent appraisals and information obtained about each property as a result of pre-acquisition due diligence and marketing and leasing activities.

Lease Intangibles

Lease intangibles, if any, acquired in conjunction with the purchase of real estate represent the value of in-place leases and above or below-market leases. For real estate acquired subject to existing lease agreements, in-place lease intangibles are valued based on the Company’s estimate of costs related to acquiring a tenant and the carrying costs that would be incurred during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases at the time of the acquisition. Above and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition of the real estate and the Company’s estimate of current market lease rates for the property, measured over a period equal to the remaining initial term of the lease.

In-place lease intangibles are amortized on a straight-line basis over the remaining initial term of the related lease and included in depreciation and amortization expense. Above-market lease intangibles are amortized over the remaining initial terms of the respective leases as a decrease in rental revenue. Below market lease intangibles are amortized as an increase to rental revenue over the remaining initial term of the respective leases, but may be amortized over the renewal periods if the Company believes it is likely the tenant will exercise the renewal option. If the Company believes it is likely a lease will terminate early, the unamortized portion of any related lease intangible is immediately recognized in impairment loss in the Company’s combined statements of operations.

Impairment

The Company reviews its real estate investments and related lease intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company considers factors such as expected future undiscounted cash flows, estimated residual value, market trends (such as the effects of leasing demand and competition) and other factors in making this assessment. An asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows and the impairment is calculated as the amount by which the carrying value of the asset exceeds its estimated fair value. Estimating future cash flows and fair values are highly subjective and such estimates could differ materially from actual results. Key assumptions used in estimating future cash flows and fair values include, but are not limited to, signed purchase and sale agreements, market prices for comparable properties, revenue growth rates, interest rates, discount rates, capitalization rates, lease renewal probabilities, tenant vacancy rates and other factors.

Revenue Recognition

The Company primarily leases real estate to its tenants under long-term, triple-net leases that are classified as operating leases. Lease origination fees are deferred and amortized over the related lease term as an adjustment to rental revenue. Under a triple-net lease, the tenant is typically responsible for all improvements and is contractually obligated to pay all property operating expenses, such as real estate taxes, insurance premiums and repair and maintenance costs. Under certain leases, tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. Tenant reimbursements are recorded on a gross basis in instances when our tenants reimburse us for property costs which we incur. Tenant receivables are carried net of the allowances for uncollectible amounts.

The Company’s leases generally provide for rent escalations throughout the lease terms. For leases that provide for specific contractual escalations, rental revenue is recognized on a straight-line basis to produce a constant

 

F-12


Table of Contents

periodic rent over the term of the lease. Accordingly, accrued rental revenue, calculated as the aggregate difference between the rental revenue recognized on a straight-line basis and scheduled rents, represents unbilled rent receivables that the Company will receive only if the tenants make all rent payments required through the expiration of the initial term of the leases. The accrued rental revenue representing this straight-line adjustment is subject to an evaluation for collectability, and the Company records a provision for losses against rental revenues if collectability of these future rents is not reasonably assured. The accrual and related provision, if any, is included in deferred costs and other assets, net on the combined balance sheets. Leases that have contingent rent escalators indexed to future increases in the CPI may adjust over a one-year period or over multiple-year periods. Generally, these escalators increase rent at the lesser of (a) 1 to 2 times CPI over a specified period, (b) a fixed percentage or (c) a fixed schedule. Because of the volatility and uncertainty with respect to future changes in the CPI, the Company’s inability to determine the extent to which any specific future change in the CPI is probable at each rent adjustment date during the entire term of these leases and the Company’s view that the multiplier does not represent a significant leverage factor, rental revenue from leases with this type of escalator are recognized only after the changes in the rental rates have occurred.

Some of the Company’s leases also provide for contingent rent based on a percentage of the tenant’s gross sales. For contingent rentals that are based on a percentage of the tenant’s gross sales, the Company recognizes contingent rental revenue when the change in the factor on which the contingent lease payment is based occurs.

The Company suspends revenue recognition if the collectability of amounts due pursuant to a lease is not reasonably assured or if the tenant’s monthly lease payments become more than 60 days past due, whichever is earlier.

Lease termination fees are included in other income on the Company’s combined statements of operations and are recognized when there is a signed termination agreement and all the conditions of the agreement have been met. The Company recorded lease termination fees of $3.6 million, $5.5 million and $5.8 million during the years ended December 31, 2017, 2016 and 2015, respectively.

Goodwill

Goodwill arises from business combinations and represents the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the identifiable assets acquired and the liabilities assumed. Spirit recorded goodwill as a result of its merger with Cole Credit Property II, Inc. (“Cole”) on July 17, 2013. Goodwill was allocated to the Predecessor Entities based on the fair value of the Cole assets attributable to the Predecessor Entities relative to the total fair value of Cole assets acquired through the merger. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Company did not record any impairment on its existing goodwill for the years ended December 31, 2017, 2016 and 2015.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business , which narrows the definition of a business. The Predecessor Entities have elected to adopt the guidance effective as of January 1, 2015, as the Predecessor Entities have not previously issued financial statements or made financial statements available for issuance. Under this guidance, acquisitions of a property with an in-place lease generally are not accounted for as an acquisition of a business, but instead as an asset acquisition, meaning the transaction costs of these acquisitions are capitalized instead of expensed. Further, dispositions of properties generally do not qualify as a disposition of a business and therefore will not be allocated goodwill.

Allowance for Doubtful Accounts

The Company reviews its rent and other tenant receivables for collectability on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant,

 

F-13


Table of Contents

business conditions in the industry in which the tenant operates, and economic conditions in the area in which the tenant operates. If the collectability of a receivable with respect to any tenant is in doubt, a provision for uncollectible amounts will be established or a direct write-off of the specific receivable will be made. The Company provided for reserves for uncollectible amounts totaling $3.5 million and $0.7 million at December 31, 2017 and 2016, respectively, against accounts receivable balances of $5.0 million and $6.9 million, respectively. Receivables are recorded within deferred costs and other assets, net in the accompanying combined balance sheets. Receivables are written off against the reserves for uncollectible amounts when all possible means of collection have been exhausted.

For deferred rental revenues related to the straight-line method of reporting rental revenue, the collectability review includes management’s estimates of amounts that will not be realized and an assessment of the risks inherent in the portfolio, considering historical experience. The Company established a reserve for losses of $1.0 million and $2.4 million at December 31, 2017 and 2016, respectively, against deferred rental revenue receivables of $24.9 million and $21.9 million, respectively. Deferred rental revenue receivables are recorded within deferred costs and other assets, net in the accompanying combined balance sheets.

Loans Receivable

Loans receivable consists of mortgage loans, net of premium, and notes receivables. Interest on loans receivable is recognized using the effective interest rate method.

Impairment and Allowance for Loan Losses

The Company periodically evaluates the collectability of its loans receivable, including accrued interest, by analyzing the underlying property-level economics and trends, collateral value and quality, and other relevant factors in determining the adequacy of its allowance for loan losses. A loan is determined to be impaired when, in management’s judgment based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Specific allowances for loan losses are provided for impaired loans on an individual loan basis in the amount by which the carrying value exceeds the estimated fair value of the underlying collateral less disposition costs. Delinquent loans receivable are written off against the allowance when all possible means of collection have been exhausted. As of December 31, 2017, there was an allowance for loan losses on loan receivable of $0.4 million, compared to no allowance for loan losses recorded as of December 31, 2016.

A loan is placed on non-accrual status when the loan has become 60 days past due, or earlier if management determines that full recovery of the contractually specified payments of principal and interest is doubtful. While on non-accrual status, interest income is recognized only when received. Five mortgage loans were on non-accrual status with a balance of $1.5 million as of December 31, 2017, compared to none as of December 31, 2016. No notes receivable were on non-accrual status as of both December 31, 2017 and 2016.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash and highly liquid investment securities with maturities at acquisition of three months or less. The Company invests cash primarily in money market funds of major financial institutions with fund investments consisting of highly-rated money market instruments and other short-term instruments.

 

F-14


Table of Contents

Restricted cash is classified within deferred costs and other assets, net in the accompanying combined balance sheets. Cash, cash equivalents and restricted cash as shown in the combined statements of cash flows consisted of the following (in thousands):

 

     December 31,
2017
     December 31,
2016
 

Cash and cash equivalents

     6      1,268  

Restricted cash:

     

Master Trust 2014 Release (1)

     61,001        11,421  

Liquidity Reserve (2)

     5,503        —    
  

 

 

    

 

 

 

Total cash, cash equivalents and restricted cash

   $ 66,510      $ 12,689  
  

 

 

    

 

 

 

 

(1)   Master Trust 2014 Release cash consists of proceeds from the sales of assets pledged as collateral under Master Trust 2014 and is held on deposit until a qualifying substitution is made or the funds are applied as prepayment of principal.
(2)   Liquidity Reserve cash was placed on deposit in conjunction with issuance of additional series of notes under Master Trust 2014 (see footnote 4 for further discussion) and is held until there is a cashflow shortfall as defined in the Master Trust 2014 agreements or a liquidation of Master Trust 2014 occurs.

Income Taxes

The Company applies the provisions of FASB ASC Topic 740, Income Taxes, and computes the provision for income taxes on a separate return basis. The separate return method applies the accounting guidance for income taxes to the stand-alone combined financial statements as if the Predecessor Entities was a separate taxpayer and a stand-alone enterprise for the periods presented.

The Predecessor Entities are directly and indirectly wholly-owned by Spirit Realty, L.P. and are disregarded entities for Federal income tax purposes. Spirit Realty, L.P. is wholly-owned by Spirit through certain direct and indirect ownership interests and is taxed as a partnership for Federal income tax purposes. Spirit has elected to be taxed as a real estate investment trust (“REIT”) under the applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and as a result will not be subject to Federal income tax as long as it distributes 100% of its taxable income and satisfies certain other requirements. Therefore, no provision for Federal income tax has been made in the accompanying combined financial statements. The Predecessor Entities are subject to certain other taxes, including state taxes, which are shown as income tax (expense) benefit in the combined statements of operations. Franchise taxes are included in general and administrative expenses on the accompanying combined statements of operations.

Earnings Per Share

The Company does not present earnings per share as common shares were not part of the Company’s capital structure for the periods presented.

New Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606 . This new guidance establishes a principles-based approach for accounting for revenue from contracts with customers and is effective for annual reporting periods beginning after December 15, 2017, with early application permitted for annual reporting periods beginning after December 15, 2016. The Company plans to adopt the new revenue recognition standard effective January 1, 2018 under the modified retrospective method, and has elected to apply the standard only to contracts that are not completed as of the date of adoption (i.e. January 1, 2018). In evaluating the impact of this new standard, the Company identified that lease contracts covered by Topic 840,

 

F-15


Table of Contents

Leases , are excluded from the scope of this new guidance. As such, after the Company’s evaluation of the new guidance, the Company has concluded that there will be no material impact of this ASU on our revenues, results of operations, financial position or disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which supersedes the existing guidance for lease accounting, Leases (Topic 840) . ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. Leases pursuant to which the Company is the lessee consist of ground leases. The amendments in this ASU are effective for the fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. Upon adoption, the Company will record certain expenses paid directly by its tenants that protect the Company’s interests in its properties, such as insurance and real estate taxes, to property costs and related tenant reimbursement income to revenue, with no impact on net income. The Company is currently evaluating the impact of this ASU on its combined financial statements.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments , which requires more timely recognition of credit losses associated with financial assets. ASU 2016-13 requires financial assets (or a group of financial assets) measured at an amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU on its combined financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments , which addresses specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and requires retrospective adoption unless it is impractical to apply, in which case it is to be applied prospectively as of the earliest date practicable. Early adoption is permitted for all entities. The Company early adopted ASU 2016-15 effective as of January 1, 2015 and determined that this standard will be relevant to its presentation of debt prepayment and debt extinguishment costs, resulting in these amounts being presented in financing activities on the combined statements of cash flows. There was no impact on the statements of cash flows for other types of transactions.

In November 2016, the FASB issued ASU 2016-18,  Statement of Cash Flows (Topic 230): Restricted Cash . This guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. The Company early adopted ASU 2016-18 effective as of January 1, 2015 and, as a result, restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the combined statements of cash flows.

Note 3. Investments

Real Estate Investments

As of December 31, 2017, the Company’s gross investment in real estate properties and loans totaled approximately $2.9 billion, representing investments in 918 properties, including 11 properties securing mortgage loans. The gross investment is comprised of land, buildings, lease intangible assets and lease intangible liabilities, as adjusted for any impairment, and the carrying amount of loans receivable and real estate assets held for sale. The portfolio is geographically dispersed throughout 45 states with only one state, Texas, with a real estate investment of 11.9%, accounting for more than 10.0% of the total dollar amount of the Company’s real estate investment portfolio.

 

F-16


Table of Contents

During the year ended December 31, 2017 and 2016, the Company had the following real estate and loan activity, net of accumulated depreciation and amortization:

 

     Number of Properties     Dollar Amount of Investments  
     Owned     Financed     Total     Owned     Financed     Total  
                       (In Thousands)  

Gross balance, January 1, 2016

     1,002       81       1,083     $ 2,878,243     $ 73,665     $ 2,951,908  

Acquisitions/improvements

     17       —       17       93,854       —       93,854  

Dispositions of real estate

     (48     —       (48     (145,702     —       (145,702

Principal payments and payoffs

     —       (70     (70     —       (33,484     (33,484

Impairments

     —       —       —       (26,565     —       (26,565

Write-off of gross lease intangibles

     —       —       —       (21,738     —       (21,738

Loan premium amortization and other

     —       —       —       —         (541     (541
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross balance, December 31, 2016

     971       11       982       2,778,092       39,640       2,817,732  

Acquisitions/improvements

     12       —       12       265,549       —       265,549  

Dispositions of real estate

     (76     —       (76     (145,651     (4,020     (149,671

Principal payments and payoffs

     —       —       —       —       (2,921     (2,921

Impairments

     —       —       —       (33,159     (389     (33,548

Write-off of gross lease intangibles

     —       —       —       (29,244     —       (29,244

Loan premium amortization and other

     —       —       —       2,698       (3     2,695  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross balance, December 31, 2017

     907       11       918     $ 2,838,285     $ 32,307     $ 2,870,592  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation and amortization

           (658,229     —       (658,229

Other non-real estate assets held for sale

           125       —       125  
        

 

 

   

 

 

   

 

 

 

Net balance, December 31, 2017

         $ 2,180,181     $ 32,307     $ 2,212,488  
        

 

 

   

 

 

   

 

 

 

Scheduled minimum future contractual rent to be received under the remaining non-cancelable term of the operating leases (including realized rent increases occurring after January 1, 2018) are as follows (in thousands):

 

     December 31,
2017
 

2018

   $ 233,742  

2019

     228,815  

2020

     220,657  

2021

     213,424  

2022

     200,381  

Thereafter

     1,466,267  
  

 

 

 

Total future minimum rentals

   $ 2,563,286  
  

 

 

 

Because lease renewal periods are exercisable at the option of the lessee, the preceding table presents future minimum lease payments due during the initial lease term only. In addition, the future minimum rentals do not include any contingent rentals based on a percentage of the lessees’ gross sales or lease escalations based on future changes in the CPI or other stipulated reference rate.

 

F-17


Table of Contents

Loans Receivable

The following table details loans receivable, net of premium and allowance for loan losses (in thousands):

 

     December 31,
2017
     December 31,
2016
 

Mortgage loans—principal

   $ 32,665      $ 35,892  

Mortgage loans—premium, net of amortization

     31        37  
  

 

 

    

 

 

 

Mortgages loans, net

     32,696        35,929  
  

 

 

    

 

 

 

Other note receivables—principal

     —        3,711  

Allowance for loan losses

     (389      —  
  

 

 

    

 

 

 

Total loans receivable, net

   $ 32,307      $ 39,640  
  

 

 

    

 

 

 

As of both December 31, 2017 and 2016, the Company held a total of nine first-priority mortgage loans (representing loans to three borrowers). These mortgage loans are secured by single-tenant commercial properties and generally have fixed interest rates over the term of the loans. Certain of these loans were with related parties, see footnote 5 for further discussion. There is one other note receivable totaling $3.7 million as of December 31, 2016, secured by tenant assets and stock. There were no other note receivables as of December 31, 2017.

Lease Intangibles, Net

The following table details lease intangible assets and liabilities, net of accumulated amortization (in thousands):

 

     December 31,
2017
     December 31,
2016
 

In-place leases

   $ 191,557      $ 188,419  

Above-market leases

     24,691        21,871  

Less: accumulated amortization

     (113,986      (98,987
  

 

 

    

 

 

 

Intangible lease assets, net

   $ 102,262      $ 111,303  
  

 

 

    

 

 

 

Below-market leases

   $ 39,274      $ 45,444  

Less: accumulated amortization

     (15,427      (16,420
  

 

 

    

 

 

 

Intangible lease liabilities, net

   $ 23,847      $ 29,024  
  

 

 

    

 

 

 

The amounts amortized as a net (decrease) increase to rental revenue for capitalized above and below-market leases was ($0.5) million and $0.9 million for the years ended December 31, 2017 and 2016, respectively. The value of in-place leases amortized and included in depreciation and amortization expense was $10.5 million and $11.9 million for the years ended December 31, 2017 and 2016, respectively. The remaining weighted average amortization period for in-place leases, above-market leases, below-market leases and in total was 12.4 years, 8.4 years, 13.9 years and 11.3 years, respectively, as of December 31, 2017. The remaining weighted average amortization period for in-place leases, above-market leases, below-market leases and in total was 13.5 years, 9.0 years, 17.4 years and 11.4 years, respectively, as of December 31, 2016. During the year ended December 31, 2017, the Company acquired in-place lease intangible assets of $9.7 million, above-market lease intangible assets of $1.4 million, and below-market lease intangible liabilities of $0.6 million. During the year ended December 31, 2016, the Company acquired in-place lease intangible assets of $5.7 million, no above-market lease intangible assets, and below-market lease intangible liabilities of $0.9 million.

 

F-18


Table of Contents

Based on the balance of intangible assets and liabilities at December 31, 2017, the net aggregate amortization expense for the next five years and thereafter is expected to be as follows (in thousands):

 

2018

   $ 9,425  

2019

     9,150  

2020

     8,116  

2021

     7,144  

2022

     6,452  

Thereafter

     38,128  
  

 

 

 

Total future minimum rentals

   $ 78,415  
  

 

 

 

Real Estate Assets Held for Sale

The Company is continually evaluating the portfolio of real estate assets and may elect to dispose of assets considering criteria including, but not limited to, tenant concentration, tenant credit quality, unit financial performance, local market conditions and lease rates, associated indebtedness, asset location, tenant operation type (e.g., industry, sector, or concept/brand). Real estate assets held for sale are expected to be sold within twelve months. The following table shows the activity in real estate assets held for sale for the years ended December 31, 2017 and 2016:

 

     Number of
Properties
     Carrying
Value
 
     (In Thousands)  

Balance, January 1, 2016

     25      $ 45,632  

Transfers from real estate investments

     34        97,911  

Sales

     (34      (64,766

Transfers to real estate investments held and used

     (4      (7,703

Impairments

     —          (11,354
  

 

 

    

 

 

 

Balance, December 31, 2016

     21        59,720  

Transfers from real estate investments

     37        86,252  

Sales

     (47      (89,607

Transfers to real estate investments held and used

     (4      (15,703

Impairments

     —          (12,202
  

 

 

    

 

 

 

Balance, December 31, 2017

     7        28,460  
  

 

 

    

 

 

 

Impairments

The following table summarizes total impairment losses recognized on the accompanying combined statements of operations (in thousands):

 

     Years Ended
December 31,
 
     2017      2016  

Real estate and intangible asset impairment

   $ 31,704      $ 25,638  

Write-off of lease intangibles, net

     1,455        927  

Provision for loan losses

     389        —    
  

 

 

    

 

 

 

Total impairment loss

   $ 33,548      $ 26,565  
  

 

 

    

 

 

 

 

F-19


Table of Contents

Impairments for the year ended December 31, 2017 were comprised of $12.2 million on properties classified as held for sale, $20.9 million on properties classified as held and used, and $0.4 million on mortgage notes receivable. Impairments for the year ended December 31, 2016 were comprised of $11.4 million on properties classified as held for sale and $15.2 million on properties classified as held and used.

Note 4. Debt

Master Trust 2014

The Company has access to an asset-backed securitization platform, Master Trust 2014, to raise capital through the issuance of non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans. Master Trust 2014 has five bankruptcy-remote, special purpose entities as issuers or co-issuers of the notes.

In December 2017, the existing issuers under Master Trust 2014, collectively as co-issuers, completed the issuance of $674.4 million aggregate principal amount of Series 2017-1 net-lease mortgage notes comprised of $542.4 million of 4.36%, Class A, amortizing notes and $132.0 million of 6.35%, Class B, interest only notes, both expected to be repaid in December 2022 and a legal final payment date in December 2047 (refer to footnote 12 regarding the repricing of the Series 2017-1 notes). In conjunction with the issuance, the Company pre-paid one Series 2014-1 Class A1 notes, resulting in a loss on debt extinguishment of approximately $2.2 million primarily related to the pre-payment premium.

The Master Trust 2014 notes are summarized below:

 

     2017
Effective
Rates (1)
    2017
Stated
Rates  (1)
    2017
Maturity
     December 31,
2017
    December 31,
2016
 
                 (in Years)      (in Thousands)  

Series 2014-1 Class A1

     —         —         —        $ —       $ 53,919  

Series 2014-1 Class A2

     6.2     5.4     2.5        252,437       253,300  

Series 2014-2

     6.3     5.8     3.2        234,329       238,117  

Series 2014-3

     6.2     5.7     4.2        311,336       311,820  

Series 2014-4 Class A1

     4.0     3.5     2.1        150,000       150,000  

Series 2014-4 Class A2

     4.9     4.6     12.1        358,664       360,000  

Series 2017-1 Class A

     3.6     4.4     5.0        542,400       —    

Series 2017-1 Class B

     4.4     6.4     5.0        132,000       —    
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total Master Trust 2014 notes

     5.0     5.0     5.4        1,981,166       1,367,156  
         

 

 

   

 

 

 

Debt discount, net

            (36,342     (18,985

Deferred financing costs, net

            (17,989     (8,557
         

 

 

   

 

 

 

Total Master Trust 2014, net

          $ 1,926,835     $ 1,339,614  
         

 

 

   

 

 

 

 

(1)   Represents the individual series effective and stated interest rates as of December 31, 2017 and the weighted average effective and stated rate of the total Master Trust 2014 notes, based on the collective series outstanding principal balances as of December 31, 2017.

As of December 31, 2017, the Master Trust 2014 notes were secured by 815 owned and financed properties. The notes issued under Master Trust 2014 are cross-collateralized by the assets of all issuers within this trust.

CMBS

As of December 31, 2015, three of the Predecessor Entities were borrowers under fixed-rate non-recourse loans, which have been securitized into CMBS and are secured by the borrowers’ respective leased properties and

 

F-20


Table of Contents

related assets. As of December 31, 2015, the stated interest rates of the three loans were 6.6%, 5.8% and 5.6% on outstanding principal balances of $40.9 million, $10.2 million and $68.2 million, respectively. As of December 31, 2015, these fixed-rate loans were secured by 56 properties. As of December 31, 2015, the net debt premium on these loans was $1.6 million and there were no unamortized deferred financing costs. A partial extinguishment of one of these loans occurred in the year ended December 31, 2015, where Spirit extinguished $19.1 million principal amount of CMBS debt with a contractual interest rate of 6.6%. As a result, the Company recognized a loss on debt extinguishment during the year ended December 31, 2015 of approximately $0.7 million, primarily related to defeasance costs and fees paid for the retirement of debt.

During the year ended December 31, 2016, Spirit extinguished the remaining $119.3 million aggregate principal amount of CMBS debt with a weighted average contractual interest rate of 6.0%. As a result, the Company recognized a net loss on debt extinguishment of approximately $1.4 million, primarily related to defeasance costs and fees paid for the retirement of debt.

Line of Credit

One of the Predecessor Entities had access to a $40.0 million secured revolving line of credit which expired on March 27, 2016.

Debt Maturities

As of December 31, 2017, scheduled debt maturities of Master Trust 2014 are as follows (in thousands):

 

     Scheduled
Principal
     Balloon
Payment
     Total  

2018

   $ 33,535      $ —      $ 33,535  

2019

     35,321        —        35,321  

2020

     39,623        365,903        405,526  

2021

     22,361        220,723        243,084  

2022

     21,895        974,349        996,244  

Thereafter

     174,983        92,473        267,456  
  

 

 

    

 

 

    

 

 

 

Total

   $ 327,718      $ 1,653,448      $ 1,981,166  
  

 

 

    

 

 

    

 

 

 

Interest Expense

The following table is a summary of the components of interest expense related to the Company’s borrowings (in thousands):

 

     Years Ended December 31,  
     2017      2016      2015  

Interest expense

   $ 70,664      $ 73,056      $ 79,462  

Non-cash interest expense:

        

Amortization of deferred financing costs

     1,480        1,285        1,266  

Amortization of debt discount, net

     4,589        3,554        2,991  
  

 

 

    

 

 

    

 

 

 

Total interest expense

   $ 76,733      $ 77,895      $ 83,719  
  

 

 

    

 

 

    

 

 

 

 

F-21


Table of Contents

Note 5. Related Party Transactions

Related Party Purchases and Sales

The combined financial statements of the Predecessor Entities include purchases of properties by the Predecessor Entities from Spirit and its wholly-owned subsidiaries. These transactions are reflected in the combined statements of cash flows as acquisitions of real estate. For the year ended December 31, 2017, the Predecessor Entities purchased one property from Spirit for $16.0 million. Additionally, during 2017, Spirit contributed 10 real estate properties to the collateral pool of Master Trust 2014 with total net book value of $204.7 million in conjunction with the issuance of the Series 2017-1 notes. For the year ended December 31, 2016, the Predecessor Entities purchased three properties from Spirit for $12.1 million. Additionally, during 2016, the Predecessor Entities exchanged $11.3 million in cash and two mortgage loans collateralized by a total of 66 properties with outstanding principal receivable of $26.6 million to Spirit for four properties with a net book value of $36.9 million. For the year ended December 31, 2015, the Predecessor Entities purchased 18 properties from Spirit for $45.6 million. For all of these transactions, due to all entities being under common control, no gain or loss was recognized by the Predecessor Entities and acquired properties were accounted for by the Predecessor Entities at their historical cost basis to Spirit. Any amounts paid in excess of historical cost basis were recognized as distributions to parent company.

Related Party Loans Receivable

The Predecessor Entities have four mortgage loans receivable where wholly-owned subsidiaries of Spirit are the borrower, and the loans are secured by six single-tenant commercial properties. In total, these mortgage notes had outstanding principal of $30.8 million and $33.9 million at December 31, 2017 and 2016, respectively, which is included in loans receivable, net on the combined balance sheet, and generated $0.3 million of income in the year ended December 31, 2017 and $0.4 million of income in both the years ended December 31, 2016 and 2015, which is included in interest income on loans receivable in the combined statements of operations. These mortgage notes have a weighted average stated interest rate of 1.0% and a weighted average maturity of 9.8 years at December 31, 2017. Interest income is recorded based on the stated interest rate of these notes in the periods presented due to the inter-company nature of these notes receivable.

Related Party Note Payable

Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, owns notes issued under Master Trust 2014 Series 2014-2. The principal amounts due under the notes are $11.6 million and $11.8 million at December 31, 2017 and 2016, respectively, and is included in mortgages and notes payable, net on the combined balance sheets. The notes have a stated interest rate of 5.8% with a term of 3.2 years to maturity as of December 31, 2017. Also, in conjunction with the Series 2017-1 notes issuance completed in December 2017, Spirit Realty, L.P., as sponsor of the issuance, retained a 5% economic interest in the Master Trust 2014 Series 2017-1 notes as required by the risk retention rules issued under 17 CFR Part 246. As such, the principal amounts due under the notes was $33.7 million at December 31, 2017 and is included in the mortgages and notes payable, net on the combined balance sheets. The notes have a weighted average stated interest rate of 4.7% with a term of 5.0 years to maturity as of December 31, 2017.

Related Party Service Agreement

Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, provides property management services and special services for Master Trust 2014. The property management fees accrue daily at 0.25% per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets and the special servicing fees accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement dated May 20, 2014. During the years ended December 31, 2017, 2016 and 2015, property management fees of $4.5 million, $4.7 million and $4.8 million, respectively, were incurred. Special servicing fees of $1.0 million, $0.7 million and $0.7 million were incurred in the years ended December 31, 2017, 2016 and 2015, respectively. The property management fees and special

 

F-22


Table of Contents

servicing fees are included in related party fees in the combined statements of operations. There were no accrued payables at December 31, 2017 or 2016.

Expense Allocations

As described in footnote 2, the accompanying combined financial statements present the operations of the Predecessor Entities as carved out from the financial statements of Spirit. General and administrative expenses of $4.0 million, $1.4 million and $1.7 million during the years ended December 31, 2017, 2016 and 2015, respectively, and transaction costs of $3.2 million during the year ended December 31, 2017 were specifically identified based on direct usage or benefit. The remaining general and administrative expenses, restructuring charges and transaction costs have been allocated to the Predecessor Entities based on relative property count, which the Company believes to be a reasonable methodology. These allocated expenses are centralized corporate costs borne by Spirit for management and other services, including, but not limited to, executive oversight, asset management, property management, treasury, finance, human resources, tax, accounting, financial reporting, information technology and investor relations, as well as costs from Spirit’s relocation of its headquarters from Scottsdale, Arizona to Dallas, Texas, which was completed in 2016 and transaction costs incurred in connection with the Spin-Off. A summary of the amounts allocated by property count is provided below:

 

     Years Ended December 31,  
     2017      2016      2015  

Corporate expenses:

        

Cash compensation and benefits

   $ 8,078      $ 7,647      $ 8,005  

Stock compensation

     6,131        3,720        5,731  

Professional fees

     3,350        3,625        2,799  

Other corporate expenses

     2,255        2,541        2,522  
  

 

 

    

 

 

    

 

 

 

Total corporate expenses

   $ 19,814      $ 17,533      $ 19,057  

Restructuring charges

   $ —        $ 2,465      $ 3,036  

Transaction costs

   $ 1,180      $ —        $ —    

Corporate expenses have been included within general and administrative expenses in the combined statements of operations.

There were no accruals for related party amounts at either December 31, 2017 or 2016.

Note 6. Income Taxes

The Company’s total state income tax expense (benefit) was $0.2 million, $0.2 million and $(0.03) million for the years ended December 31, 2017, 2016 and 2015, respectively.

The Predecessor Entities’ deferred income tax expense (benefit) and its ending balance in deferred tax assets and liabilities, which are recorded within accounts payable, accrued expenses and other liabilities in the accompanying combined balance sheets, were immaterial at December 31, 2017 and 2016.

The Predecessor Entities’ policy is to recognize interest related to any underpayment of income taxes as interest expense and to recognize any penalties as operating expenses. There was no accrual for interest or penalties at December 31, 2017 and 2016.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted, reducing the U.S. federal corporate income tax rate from 35% to 21%, among other changes. The SEC staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Act for which the accounting under ASC 740, Income Taxes (“ASC 740”) is incomplete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional

 

F-23


Table of Contents

estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of the Act. The Company believes the impact of the Act to its combined financial statements is immaterial; however, the Company is still analyzing certain aspects of the Act. Future regulatory and rulemaking interpretations or other guidance could affect the Company’s analysis and tax position.

Note 7. Commitments and Contingencies

The Company is periodically subject to claims or litigation in the ordinary course of business, including claims generated from business conducted by tenants on real estate owned by the Company. In these instances, the Company is typically indemnified by the tenant against any losses that might be suffered, and the Company and/or the tenant are insured against such claims.

At December 31, 2017, there were no outstanding claims against the Company that are expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

At December 31, 2017, the Company had commitments totaling $3.6 million, all of which relates to funding improvements on properties the Company currently owns. $1.1 million is expected to be funded during fiscal year 2018, with the remaining $2.5 million expected to be funded in 2019.

The Company estimates future costs for known environmental remediation requirements when it is probable that the Company has incurred a liability and the related costs can be reasonably estimated. The Company considers various factors when estimating its environmental liabilities, and adjustments are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues. When only a wide range of estimated amounts can be reasonably established and no other amount within the range is better than another, the low end of the range is recorded in the combined financial statements. As of December 31, 2017, no accruals have been made.

Note 8. Fair Value Measurements

Nonrecurring Fair Value Measurements

Fair value measurement of an asset on a nonrecurring basis occurs when events or changes in circumstances related to an asset indicate that the carrying amount of the asset is no longer recoverable. The fair value measurement framework specifies a hierarchy of valuation inputs which was established to increase consistency, clarity and comparability in fair value measurements and related disclosures. The fair value hierarchy is based upon three levels of inputs that may be used to measure fair value, two of which are considered observable and one that is considered unobservable. The following describes the three levels:

 

•  

  Level 1     Valuation is based upon quoted prices in active markets for identical assets or liabilities.

•  

  Level 2     Valuation is based upon inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•  

  Level 3     Inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. These types of inputs include the Company’s own assumptions.

 

F-24


Table of Contents

The following table sets forth the Company’s assets that were accounted for at fair value on a nonrecurring basis as of December 31, 2017 and 2016 (in thousands):

 

     Fair Value Hierarchy Level  

Description

   Level 1      Level 2      Level 3  

December 31, 2017

        

Retail

     —        —        7,357  

Industrial

     —        —        —    

Office

     —        —        3,720  
  

 

 

    

 

 

    

 

 

 

Long-lived assets held and used

   $ —      $ —      $ 11,077  

Long-lived assets held for sale

     —        —        30,956  

December 31, 2016

        

Retail

     —        —        16,031  

Industrial

     —        —        —  

Office

     —        —        —  
  

 

 

    

 

 

    

 

 

 

Long-lived assets held and used

   $ —      $ —      $ 16,031  

Long-lived assets held for sale

     —        —        12,417  

Real estate assets and their related intangible assets are evaluated for impairment based on certain indicators including, but not limited to: the asset being held for sale, vacant, non-operating or the lease on the asset expiring in twelve months or less. The fair values of impaired real estate and intangible assets were determined by using the following information, depending on availability, in order of preference: signed purchase and sale agreements or letters of intent; recently quoted bid or ask prices, or market prices for comparable properties; estimates of cash flow, which consider, among other things, contractual and forecasted rental revenues, leasing assumptions, and expenses based upon market conditions; and expectations for the use of the real estate. Based on these inputs, the Company determined that its valuation of the impaired real estate and intangible assets falls within Level 3 of the fair value hierarchy.

During the years ended December 31, 2017 and 2016, we determined that five and 12 long-lived assets held and used, respectively, were impaired.

For four of the held and used properties impaired during the year ended December 31, 2017 and six of the held and used properties impaired during the year ended December 31, 2016, the Company estimated property fair value using price per square foot of comparable properties. The following table provides information about the price per square foot of comparable properties inputs used:

 

    December 31, 2017     December 31, 2016  
    Range     Weighted
Average
    Square
Footage
    Range     Weighted
Average
    Square
Footage
 

Long-lived assets held and used asset type

           

Retail

  $ 18.40 - $285.98     $ 72.04       68,871     $ 18.99 - $152.15     $ 31.34       170,505  

Office

  $ 81.61 - $244.86     $ 149.49       19,821     $ —     $ —       —  

 

F-25


Table of Contents

For the one remaining held and used properties impaired during the year ended December 31, 2017 and six held and used properties impaired during the year ended December 31, 2016, the Company estimated property fair value using price per square foot of the listing price or a broker opinion of value. The following table provides information about the price per square foot of listing price and broker opinion of value inputs used:

 

    December 31, 2017     December 31, 2016  
    Range     Weighted
Average
    Square
Footage
    Range     Weighted
Average
    Square
Footage
 

Long-lived assets held and used asset type

       

Retail

  $ 88.89     $ 88.89       22,500     $ 15.40 - $170.02     $ 48.58       189,622  

For the years ended December 31, 2017 and 2016, we determined that six and five held for sale assets, respectively, were impaired. The Company estimated property fair value of held for sale properties using price per square foot from the signed purchase and sale agreements. The following table provides information about the price per square foot from signed purchase and sale agreements used:

 

    December 31, 2017     December 31, 2016  
    Range     Weighted
Average
    Square
Footage
    Range     Weighted
Average
    Square
Footage
 

Long-lived assets held for sale asset type

           

Retail

  $ 55.30 - $346.23     $ 299.89       87,248     $ 49.73 - $174.20     $ 84.69       152,252  

Industrial

    $54.21   $ 54.21     96,845   $ —       $ —         —    

Estimated Fair Value of Financial Instruments

Financial assets and liabilities for which the carrying values approximate their fair values include cash and cash equivalents, restricted cash and escrow deposits, and accounts receivable and payable. Generally, these assets and liabilities are short-term in duration and are recorded at cost, which approximates fair value, on the accompanying combined balance sheets.

In addition to the disclosures for assets and liabilities required to be measured at fair value at the balance sheet date, companies are required to disclose the estimated fair values of all financial instruments, even if they are not carried at their fair values. The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 2017 and 2016. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities.

The estimated fair values of the loans receivable and the fixed-rate mortgages and notes payable have been derived based on market quotes for comparable instruments or discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. The loans receivable and the mortgages and notes payable were measured using a market approach from nationally recognized financial institutions with market observable inputs such as interest rates and credit analytics. These measurements are classified as Level 2 of the fair value hierarchy. The following table discloses fair value information for these financial instruments (in thousands):

 

     December 31, 2017      December 31, 2016  
     Carrying
Value
     Estimated
Fair Value
     Carrying
Value
     Estimated
Fair Value
 

Loans receivable, net

   $ 32,307      $ 29,076      $ 39,640      $ 36,735  

Mortgages and notes payable, net (1)

     1,926,835        2,030,191        1,339,614        1,415,897  

 

(1)   The carrying value of the debt instruments are net of unamortized deferred financing costs and certain debt discounts/premiums.

 

F-26


Table of Contents

Note 9. Significant Credit and Revenue Concentration

As of December 31, 2017, the Predecessor Entities’ real estate investments were operated by 201 tenants, that operate within retail, office and industrial property types across various industries throughout the U.S. Shopko operates in the general merchandise industry and is the Predecessor Entities’ largest tenant. Total rental revenues from properties leased to Shopko for the year ended December 31, 2017 contributed 21.8% of the rental revenue shown in the accompanying combined statements of operations. No other tenant contributed 5% or more of the rental revenue during any of the periods presented. As of December 31, 2017, the Predecessor Entities’ net investment in Shopko properties represents approximately 15.8% of the Predecessor Entities’ total assets.

Note 10. Discontinued Operations

Effective January 1, 2014, the Company adopted ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity , under which only disposals representing a strategic shift in operations of the Predecessor Entities and that have (or will have) a major effect on the Predecessor Entities’ operations and financial results are to be presented as discontinued operations. Properties that were reported as held for sale as of December 31, 2013, are presented in discontinued operations until the properties’ disposal. As a result, net gains or losses from the disposition of these properties, as well as the prior period operations, are reclassified to discontinued operations. The following sets forth the results of discontinued operations (in thousands):

 

     Years Ended
December 31,
 
     2017      2016      2015  

Revenues:

        

Rent

   $ —      $ —      $ 447  

Other

     —        —        17  
  

 

 

    

 

 

    

 

 

 

Total revenues

     —        —        464  

Expenses:

        

General and administrative

     —        —        4  

Property costs

     —        —        328  

Impairments

     —        —        34  
  

 

 

    

 

 

    

 

 

 

Total expenses

     —        —        366  
  

 

 

    

 

 

    

 

 

 

Gain from discontinued operations before other income

     —        —        98  

Other income:

     —        —        —  
  

 

 

    

 

 

    

 

 

 

Income from discontinued operations

     —        —        98  

Gain on disposition of assets

     —        —        590  
  

 

 

    

 

 

    

 

 

 

Total discontinued operations

   $ —      $ —      $ 688  
  

 

 

    

 

 

    

 

 

 

Number of properties disposed of during period

     —        —        2  

Note 11. Supplemental Cash Flow Information

The following table presents the supplemental cash flow disclosures (in thousands):

 

     Years Ended December 31,  
     2017      2016      2015  

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

        

Net investment distribution to parent

   $ 33,720      $ 26,618      $ 15,265  

Net investment contribution from parent

     204,704        26,618        —  

Financing provided in connection with the disposal of assets

     —          —        4,057  

Supplemental Cash Flow Disclosures:

        

Interest paid

   $ 69,408      $ 73,653      $ 79,689  

Taxes paid

   $ 269      $ 308      $ 337  

 

F-27


Table of Contents

Note 12. Subsequent Events

Shopko Term Loan

On January 16, 2018, Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, funded a $35.0 million B-1 Term Loan as part of syndicated loan and security agreement with Shopko as borrower and several banks as lenders. The B-1 Term Loan is subordinate to an existing $72.5 million Term B Loan. The B-1 Term Loan matures on June 19, 2020 and bears interest at a rate of 12% per annum. Interest will be paid monthly, while principal will be repaid in quarterly installments of $0.6 million commencing on November 1, 2018. The loan is secured by Shopko’s assets in its $784 million asset-backed lending facility. Spirit plans to contribute the loan to the Company in conjunction with the Spin-Off.

Amendment to Shopko Master Lease

On January 16, 2018, the Company entered into an amendment to its master leases with Shopko. The amendment requires Shopko to provide annual and quarterly financial statements to the Company that are compliant with SEC rules. Further, the amendment modifies certain other provisions of the master leases, including assignment by Shopko, subletting by Shopko, sale by the Company and rent payment date. Each of the Shopko master leases provides that the Company may assign its interest in the leases in full or in part with respect to one or more property locations. The Company has agreed to pay to Shopko (i) $82,500 in connection with each such assigned property under the 59 property master lease and (ii) $20,000 in connection with each such assigned property under the four property master lease and the 34 property master lease. All Shopko master leases contain covenants requiring the tenant and guarantor to execute documentation in connection with such assignments.

Subject to certain conditions, Shopko will have a one-time right, upon 60 days written notice, to defer payment of the monthly base rent for a period of up to three months, provided that such months are not consecutive. The deferred rent is subject to interest at the rate of 11% per annum, and is secured by a second priority lien on Shopko’s interests in its assets.

CMBS Debt Issuance

On January 22, 2018, the Company entered into a new non-recourse loan agreement with Société Générale and Barclays Bank PLC as lenders, which is collateralized by a single distribution center property located in Katy, Texas. The loan has a term of 10 years to maturity with a stated interest rate of 5.14%. As a result of the issuance, the Company received approximately $84 million in proceeds. The Company expects to distribute all of the proceeds to Spirit prior to the Spin-Off.

Master Trust 2014 Notes Re-Pricing

On January 23, 2018, the Company re-priced a private offering of the Master Trust 2014 Series 2017-1 notes with $674.4 million aggregate principal amount. As a result, the interest rate on the Class B Notes will be reduced from 6.35% to 5.49%, while the other terms of the Class B Notes will remain unchanged. The terms of the Class A Notes were unaffected by the repricing. In connection with the repricing, the Company received $8.2 million in additional proceeds that reduced the debt discount. The additional proceeds were distributed to Spirit.

Related Party Note Payable

On February 2, 2018, Spirit Realty, L.P., a wholly-owned subsidiary of Spirit, sold its holding of Master Trust 2014 Series 2014-2 notes with a principal balance of $11.6 million to a third-party. This transaction had no impact on the Company’s mortgages and notes payable, net balance as shown in the combined balance sheet.

 

F-28


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final Accum     Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 
10 Box   Rogers, AR   (a)     1,028       1,685       —         —         1,028       1,685       2,713       (351   1994   3/31/2014     6 to 20 Years  
ABRA   Suwanee, GA   (a)     480       1,350       —         —         480       1,350       1,830       (239   1986   10/21/2013     13 to 30 Years  
Academy Sports   Greenville, TX   (a)     2,236       5,259       —         37       2,236       5,296       7,532       (234   2016   12/7/2016     14 to 40 Years  
Academy Sports   Katy, TX   (b)     13,144       96,194       —         —         13,144       96,194       109,338       (14,219   1976   7/17/2013     8 to 34 Years  
Adult & Pediatric Orthopedics   Vernon Hills, IL   (a)     992       5,020       —         —         992       5,020       6,012       (702   1991   3/31/2014     15 to 30 Years  
Advance Auto Parts   Greenfield, IN   (a)     458       996       —         —         458       996       1,454       (146   2003   7/17/2013     7 to 47 Years  
Advance Auto Parts   Trenton, OH   (a)     324       842       —         —         324       842       1,166       (134   2003   7/17/2013     7 to 47 Years  
Affordable Care, Inc.   Bellevue, NE   (a)     565       450       —         —         565       450       1,015       (60   2008   8/7/2015     5 to 40 Years  
Affordable Care, Inc.   Lincoln, NE   (a)     725       842       —         —         725       842       1,567       (91   2010   8/7/2015     8 to 40 Years  
Aggregate Industries   Annapolis Junction, MD   (a)     2,245       1,105       (1,535     (547     710       558       1,268       (254   1930   9/29/2006     15 to 30 Years  
AMC Theatres   Phoenix, AZ   (a)     2,652       11,495       —         —         2,652       11,495       14,147       (3,228   1997   7/1/2005     12 to 40 Years  
AMC Theatres   Surprise, AZ   (a)     2,923       7,133       —         —         2,923       7,133       10,056       (567   2008   11/10/2015     13 to 40 Years  
AMC Theatres   South Bend, IN   (a)     4,352       9,411       —         21       4,352       9,432       13,784       (1,099   1997   1/4/2016     6 to 30 Years  
American Lubefast   Wetumpka, AL   (a)     185       332       —         —         185       332       517       (48   1995   6/24/2014     12 to 30 Years  
American Lubefast   Waycross, GA   (a)     380       142       —         —         380       142       522       (54   1998   12/10/2013     15 to 30 Years  
America’s Auto Auction   Jacksonville, FL   (a)     3,170       938       —         —         3,170       938       4,108       (649   1989   12/28/2005     15 to 30 Years  
America’s Auto Auction   Tulsa, OK   (a)     1,225       373       —         —         1,225       373       1,598       (745   1999   12/28/2005     15 to 20 Years  
America’s Auto Auction   Greenville, SC   (a)     2,561       1,526       —         —         2,561       1,526       4,087       (1,443   1999   12/28/2005     15 to 30 Years  
America’s Auto Auction   Conroe, TX   (a)     4,338       448       955       145       5,293       593       5,886       (1,849   2005   9/1/2009     12 to 47 Years  
America’s Auto Auction   Irving, TX   (a)     7,348       970       —         —         7,348       970       8,318       (2,513   1960   9/1/2009     12 to 27 Years  
America’s Auto Auction   Irving, TX   (a)     931       268       —         —         931       268       1,199       (190   1965   9/1/2009     12 to 17 Years  
America’s Service Station   Dacula, GA   (a)     1,067       976       —         —         1,067       976       2,043       (130   2000   3/28/2014     15 to 40 Years  
America’s Service Station   Farragut, TN   (a)     986       1,148       —         —         986       1,148       2,134       (166   2011   3/28/2014     15 to 40 Years  
Anixter   Fort Myers, FL   (a)     641       1,069       —         —         641       1,069       1,710       (603   1999   7/1/2005     14 to 30 Years  
Anixter   Mattoon, IL   (a)     233       263       —         —         233       263       496       (224   1984   5/1/2005     15 to 20 Years  
Applebee’s   Chicago, IL   (a)     1,675       1,112       —         —         1,675       1,112       2,787       (520   1999   12/29/2006     15 to 30 Years  
Applebee’s   DeKalb, IL   (a)     1,423       1,552       —         —         1,423       1,552       2,975       (783   1996   12/29/2006     15 to 30 Years  
Applebee’s   Joliet, IL   (a)     1,994       1,207       —         —         1,994       1,207       3,201       (694   1996   12/29/2006     15 to 30 Years  
Arby’s   Sun City, AZ   (a)     771       372       —         250       771       622       1,393       (284   1986   12/29/2006     10 to 20 Years  
Arby’s   Eustis, FL   (a)     451       377       —         —         451       377       828       (440   1969   12/30/2004     10 to 15 Years  
Arby’s   Jacksonville, FL   (a)     480       631       —         —         480       631       1,111       (325   1998   9/24/2004     15 to 30 Years  
Arby’s   Jacksonville, FL   (a)     872       509       —         —         872       509       1,381       (366   1984   9/24/2004     15 to 20 Years  
Arby’s   Jacksonville, FL   (a)     487       871       —         —         487       871       1,358       (509   1985   12/30/2004     15 to 20 Years  
Arby’s   Orlando, FL   (a)     642       178       —         —         642       178       820       (254   1967   12/30/2004     10 to 15 Years  
Arby’s   Winter Springs, FL   (a)     523       446       —         —         523       446       969       (345   1988   12/30/2004     15 to 20 Years  
Arby’s   Brunswick, GA   (a)     774       614       —         —         774       614       1,388       (410   1999   9/24/2004     15 to 20 Years  
Arby’s   Cumming, GA   (a)     967       844       —         —         967       844       1,811       (452   1986   9/24/2004     15 to 30 Years  
Arby’s   McDonough, GA   (a)     938       697       —         —         938       697       1,635       (393   1985   9/24/2004     15 to 30 Years  
Arby’s   Statesboro, GA   (a)     779       777       —         —         779       777       1,556       (453   1985   9/24/2004     15 to 20 Years  

 

F-29


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 
Arby’s   Crawfordsville, IN   (a)     557       624       —         —         557       624       1,181       (324   1998   9/23/2005     15 to 30 Years  
Arby’s   Indianapolis, IN   (a)     460       587       —         —         460       587       1,047       (278   1998   9/24/2004     15 to 30 Years  
Arby’s   Mooresville, IN   (a)     560       549       —         —         560       549       1,109       (411   1998   9/23/2005     15 to 20 Years  
Arby’s   Nappanee, IN   (a)     301       413       —         —         301       413       714       (310   2005   12/21/2007     15 to 20 Years  
Arby’s   Lexington, KY   (a)     636       362       —         —         636       362       998       (422   1978   12/30/2004     10 to 15 Years  
Arby’s   Lexington, KY   (a)     713       451       —         —         713       451       1,164       (529   1976   1/26/2005     10 to 15 Years  
Arby’s   Madisonville, KY   (a)     1,198       819       (95     —         1,103       819       1,922       (414   1990   9/24/2004     15 to 30 Years  
Arby’s   Mount Pleasant, MI   (a)     485       642       —         —         485       642       1,127       (309   1997   12/29/2005     15 to 30 Years  
Arby’s   Sterling Heights, MI   (a)     866       960       —         —         866       960       1,826       (449   2000   12/29/2005     15 to 30 Years  
Arby’s   North Canton, OH   (a)     484       497       (14     —         470       497       967       (339   1989   12/29/2006     15 to 20 Years  
Arby’s   Moncks Corner, SC   (a)     573       466       —         —         573       466       1,039       (368   1998   9/24/2004     15 to 20 Years  
Arby’s   Rock Hill, SC   (a)     373       722       —         —         373       722       1,095       (458   1978   12/29/2005     15 to 20 Years  
Arby’s   Amarillo, TX   (a)     539       616       —         —         539       616       1,155       (65   1985   12/29/2015     15 to 30 Years  
Arby’s   Tooele, UT   (a)     552       624       —         —         552       624       1,176       (476   1988   9/24/2004     15 to 20 Years  
Arby’s   Martinsburg, WV   (a)     887       992       —         —         887       992       1,879       (489   1999   12/29/2005     15 to 30 Years  
Ashley Furniture   Abilene, TX   (a)     1,316       2,649       —         —         1,316       2,649       3,965       (1,019   2000   5/19/2005     15 to 40 Years  
Ashley Furniture   El Paso, TX   (a)     1,536       3,852       —         —         1,536       3,852       5,388       (1,717   1973   7/1/2005     14 to 30 Years  
At Home   Lubbock, TX   (a)     4,596       4,608       —         35       4,596       4,643       9,239       (426   1985   11/15/2016     6 to 20 Years  
Austin’s Park N Pizza Experience   Pflugerville, TX   (a)     6,182       1,320       —         29       6,182       1,349       7,531       (366   2003   8/29/2014     15 to 30 Years  
Axel’s   Chanhassen, MN   (a)     1,439       784       —         —         1,439       784       2,223       (191   1953   5/22/2014     15 to 30 Years  
Axel’s   Mendota, MN   (a)     536       963       —         —         536       963       1,499       (146   1995   5/22/2014     15 to 30 Years  
B&B Theatres   Overland Park, KS   (a)     4,935       12,281       —         —         4,935       12,281       17,216       (3,234   2004   8/1/2009     10 to 57 Years  
B&B Theatres   Kansas City, MO   (a)     2,543       7,943       —         —         2,543       7,943       10,486       (2,401   2003   7/1/2005     14 to 50 Years  
B&B Theatres   Lees Summit, MO   (a)     3,517       9,735       —         —         3,517       9,735       13,252       (3,527   1999   7/1/2005     14 to 40 Years  
B&B Theatres   Bixby, OK   (a)     5,585       10,101       —         —         5,585       10,101       15,686       (4,845   1998   7/1/2005     14 to 30 Years  
Bagger Dave’s Burger Tavern   Berkley, MI   (a)     390       540       —         —         390       540       930       (85   1927   10/31/2014     14 to 30 Years  
Bagger Dave’s Burger Tavern   Grand Rapids, MI   (a)     986       524       —         —         986       524       1,510       (108   1985   10/31/2014     14 to 30 Years  
Big Al’s   Beaverton, OR   (a)     5,608       8,733       —         —         5,608       8,733       14,341       (986   2010   6/30/2014     15 to 40 Years  
Big Al’s   Vancouver, WA   (a)     2,077       9,395       —         —         2,077       9,395       11,472       (928   2006   6/30/2014     15 to 40 Years  
Big Sandy Furniture   Ashland, KY   (a)     775       2,037       —         —         775       2,037       2,812       (851   1990   8/27/2009     12 to 27 Years  
Big Sandy Furniture   Ashland, KY   (a)     629       754       —         —         629       754       1,383       (364   1993   8/27/2009     12 to 27 Years  
Big Sandy Furniture   Chillicothe, OH   (a)     499       2,296       —         —         499       2,296       2,795       (953   1995   8/27/2009     12 to 27 Years  
Big Sandy Furniture   Portsmouth, OH   (a)     561       1,563       —         —         561       1,563       2,124       (680   1988   8/27/2009     12 to 27 Years  
Big Sandy Furniture   South Point, OH   (a)     848       2,948       —         —         848       2,948       3,796       (1,207   1990   8/27/2009     12 to 27 Years  
Big Sandy Furniture   Hurricane, WV   (a)     727       3,005       —         —         727       3,005       3,732       (1,202   1998   8/27/2009     12 to 27 Years  
Big Sandy Furniture   Parkersburg, WV   (a)     1,800       3,183       —         —         1,800       3,183       4,983       (1,480   1976   8/27/2009     12 to 27 Years  

 

F-30


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 
Black Angus Steakhouse   Glendale, AZ   (a)     1,480       1,329       —         —         1,480       1,329       2,809       (585   1996   6/25/2004     15 to 30 Years  
Blue Rhino   Riverside, CA   (a)     1,203       6,254       —         —         1,203       6,254       7,457       (1,884   2004   7/1/2005     14 to 40 Years  
Blue Rhino   Tavares, FL   (a)     1,075       5,098       —         —         1,075       5,098       6,173       (1,809   2004   7/1/2005     14 to 40 Years  
Bojangle’s   Hickory, NC   (a)     1,105       851       —         —         1,105       851       1,956       (720   1995   12/29/2006     13 to 28 Years  
Bondcote   Dublin, VA   (a)     491       1,401       —         —         491       1,401       1,892       (929   1985   12/11/2006     15 to 20 Years  
Bondcote   Pulaski, VA   (a)     333       1,536       —         —         333       1,536       1,869       (961   1967   12/11/2006     15 to 20 Years  
Bonfire   Eagen, MN   (a)     724       1,230       —         —         724       1,230       1,954       (187   1996   5/22/2014     15 to 30 Years  
Bonfire   Woodbury, MN   (a)     3,165       1,707       —         —         3,165       1,707       4,872       (334   1995   5/22/2014     15 to 30 Years  
Boozman-Hof   Rogers, AR   (a)     2,014       2,313       —         —         2,014       2,313       4,327       (466   1988   11/14/2013     13 to 30 Years  
Boscovs   Voorhees, NJ   (a)     2,027       6,776       —         —         2,027       6,776       8,803       (2,313   1970   7/17/2013     5 to 20 Years  
Bricktown Brewery   Oklahoma City, OK   (a)     479       1,877       —         177       479       2,054       2,533       (388   1904   12/2/2013     16 to 20 Years  
Bricktown Brewery   Shawnee, OK   (a)     —         —         621       1,399       621       1,399       2,020       (226   1984   7/29/2005     15 to 30 Years  
Bridgestone Tire   Atlanta, GA   (a)     1,830       363       —         —         1,830       363       2,193       (144   1998   7/17/2013     5 to 24 Years  
Brookshire Brothers   Alto, TX   (a)     204       464       —         —         204       464       668       (119   1996   3/31/2014     7 to 20 Years  
Brookshire Brothers   Buffalo, TX   (a)     522       987       —         —         522       987       1,509       (177   1990   3/31/2014     7 to 30 Years  
Brookshire Brothers   Groveton, TX   (a)     264       540       —         —         264       540       804       (107   1996   3/31/2014     7 to 30 Years  
Brookshire Brothers   Lorena, TX   (a)     657       751       —         —         657       751       1,408       (179   1999   3/31/2014     7 to 20 Years  
Brookshire Brothers   McGregor, TX   (a)     748       795       —         —         748       795       1,543       (207   1999   3/31/2014     7 to 20 Years  
Bru Burger   Lexington, KY   (a)     1,267       944       —         —         1,267       944       2,211       (656   1996   2/26/2007     14 to 30 Years  
Buck’s Sports Grill   Rawlins, WY   (a)     25       406       —         —         25       406       431       (240   1958   12/29/2006     15 to 20 Years  
Buehler’s Fresh Foods   Ashland, OH   (a)     2,596       8,087       —         112       2,596       8,199       10,795       (656   2000   10/14/2015     15 to 40 Years  
Buehler’s Fresh Foods   Dover, OH   (a)     2,596       8,087       —         —         2,596       8,087       10,683       (771   1990   10/14/2015     15 to 30 Years  
Buehler’s Fresh Foods   Medina, OH   (a)     4,892       10,983       —         —         4,892       10,983       15,875       (1,108   1990   10/14/2015     15 to 30 Years  
Buehler’s Fresh Foods   Wadsworth, OH   (a)     2,197       9,285       —         —         2,197       9,285       11,482       (816   1985   10/14/2015     15 to 30 Years  
Buehler’s Fresh Foods   Wooster, OH   (a)     3,694       8,087       —         —         3,694       8,087       11,781       (786   1980   10/14/2015     30 to 30 Years  
Buffalo Wild Wings   Hammond, IN   (a)     976       1,080       —         —         976       1,080       2,056       (223   2014   12/24/2014     14 to 30 Years  
Buffalo Wild Wings   Gaylord, MI   (a)     1,003       1,478       —         —         1,003       1,478       2,481       (270   2014   11/5/2014     14 to 30 Years  
Buffet City   Orange City, FL   (a)     409       694       —         —         409       694       1,103       (473   1984   9/24/2004     11 to 20 Years  
Burger King   Apopka, FL   (a)     1,038       482       —         —         1,038       482       1,520       (623   1977   6/25/2004     10 to 15 Years  
Burger King   Orlando, FL   (a)     1,249       729       —         —         1,249       729       1,978       (551   1985   6/25/2004     15 to 20 Years  
Burger King   Quincy, FL   (a)     1,015       416       —         —         1,015       416       1,431       (472   1989   9/24/2004     15 to 20 Years  
Burger King   Saint Cloud, FL   (a)     1,193       557       —         —         1,193       557       1,750       (395   1983   6/25/2004     15 to 20 Years  
Burger King   Aurora, IL   (a)     286       726       —         —         286       726       1,012       (381   1998   12/29/2006     15 to 30 Years  
Burger King   Decatur, IL   (a)     940       126       —         —         940       126       1,066       (381   1992   9/23/2005     15 to 20 Years  
Burger King   Effingham, IL   (a)     539       575       —         —         539       575       1,114       (310   1985   9/23/2005     15 to 30 Years  
Burger King   Gilman, IL   (a)     219       414       —         —         219       414       633       (313   1998   9/23/2005     15 to 20 Years  
Burger King   Lincoln, IL   (a)     203       616       —         —         203       616       819       (398   1990   9/23/2005     15 to 20 Years  
Burger King   Romeoville, IL   (a)     789       713       (62     —         727       713       1,440       (448   1999   9/23/2005     15 to 20 Years  

 

F-31


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Burger King

 

Springfield, IL

  (a)     1,072       642       —         —         1,072       642       1,714       (538   1988   9/23/2005     15 to 20 Years  

Burger King

 

Springfield, IL

  (a)     571       630       —         —         571       630       1,201       (353   1997   9/23/2005     15 to 30 Years  

Burger King

 

Carrollton, KY

  (a)     229       730       —         —         229       730       959       (325   1990   6/30/2009     13 to 28 Years  

Burger King

 

Louisville, KY

  (a)     1,010       577       —         —         1,010       577       1,587       (305   1994   11/10/2005     15 to 30 Years  

Burger King

 

Louisville, KY

  (a)     854       514       —         —         854       514       1,368       (276   1994   11/10/2005     15 to 30 Years  

Burger King

 

Detroit, MI

  (a)     614       688       —         —         614       688       1,302       (468   1987   2/13/2009     13 to 18 Years  

Burger King

 

Escanaba, MI

  (a)     772       767       —         300       772       1,067       1,839       (716   1984   12/29/2005     3 to 20 Years  

Burger King

 

Saint Ann, MO

  (a)     588       613       —         —         588       613       1,201       (471   1985   9/23/2005     15 to 20 Years  

Burger King

 

Fayetteville, NC

  (a)     470       629       —         —         470       629       1,099       (312   1999   9/29/2006     15 to 30 Years  

Burger King

 

Fayetteville, NC

  (a)     489       612       —         —         489       612       1,101       (287   1987   9/29/2006     15 to 30 Years  

Burger King

 

Hickory, NC

  (a)     292       818       —         —         292       818       1,110       (318   2000   9/29/2006     15 to 40 Years  

Burger King

 

Hope Mills, NC

  (a)     408       930       —         —         408       930       1,338       (408   1990   9/29/2006     15 to 30 Years  

Burger King

 

Hudson, NC

  (a)     794       616       —         —         794       616       1,410       (308   1998   9/29/2006     15 to 40 Years  

Burger King

 

Lillington, NC

  (a)     419       687       —         —         419       687       1,106       (275   1992   9/29/2006     15 to 40 Years  

Burger King

 

Artesia, NM

  (a)     435       1,106       —         —         435       1,106       1,541       (191   1984   4/16/2014     15 to 30 Years  

Burger King

 

Buffalo, NY

  (a)     737       629       —         —         737       629       1,366       (270   1993   11/10/2005     15 to 30 Years  

Burger King

 

Buffalo, NY

  (a)     821       694       —         —         821       694       1,515       (302   1976   11/10/2005     15 to 30 Years  

Burger King

 

Cheektowaga, NY

  (a)     561       549       —         —         561       549       1,110       (256   1985   11/10/2005     15 to 30 Years  

Burger King

 

Jamestown, NY

  (a)     508       573       —         —         508       573       1,081       (375   1988   11/10/2005     15 to 20 Years  

Burger King

 

Niagara Falls, NY

  (a)     1,359       551       —         —         1,359       551       1,910       (305   1979   11/10/2005     15 to 30 Years  

Burger King

 

Springville, NY

  (a)     678       586       —         —         678       586       1,264       (290   1988   11/10/2005     15 to 30 Years  

Burger King

 

Parma Heights, OH

  (a)     598       535       —         —         598       535       1,133       (235   2004   8/27/2009     13 to 38 Years  

Burger King

 

Sandusky, OH

  (a)     922       406       (314     (89     608       317       925       (148   1987   8/27/2009     14 to 29 Years  

Burger King

 

Seven Hills, OH

  (a)     496       488       —         —         496       488       984       (234   1977   8/27/2009     13 to 28 Years  

Burger King

 

Sweetwater, TN

  (a)     602       550       —         250       602       800       1,402       (278   1999   12/29/2006     15 to 40 Years  

Burger King

 

Winchester, TN

  (a)     400       291       —         250       400       541       941       (225   1993   12/29/2006     10 to 20 Years  

Burger King

 

Oshkosh, WI

  (a)     765       829       (40     300       725       1,129       1,854       (643   1984   12/29/2005     15 to 20 Years  

Camping World

 

Saukville, WI

  (a)     2,061       4,794       —         —         2,061       4,794       6,855       (687   2014   9/30/2014     15 to 40 Years  

CarMax

 

Jacksonville, FL

  (a)     6,155       10,957       —         —         6,155       10,957       17,112       (2,980   2005   6/30/2005     15 to 40 Years  

CarMax

 

Kennesaw, GA

  (a)     3,931       5,334       —         —         3,931       5,334       9,265       (1,612   1995   2/16/2012     15 to 30 Years  

CarMax

 

Raleigh, NC

  (a)     4,163       4,017       —         —         4,163       4,017       8,180       (1,555   1994   7/17/2013     4 to 25 Years  

CarMax

 

Greenville, SC

  (a)     9,731       11,625       —         —         9,731       11,625       21,356       (2,287   1999   7/17/2013     3 to 40 Years  

Carmike Cinemas

 

Colorado Springs, CO

  (a)     1,892       1,732       —         —         1,892       1,732       3,624       (1,036   1995   9/30/2005     14 to 30 Years  

Carmike Cinemas

 

Cedar Rapids, IA

  (a)     2,521       5,461       —         —         2,521       5,461       7,982       (1,987   1998   7/1/2005     15 to 40 Years  

Carmike Cinemas

 

Chubbuck, ID

  (a)     1,845       2,691       —         —         1,845       2,691       4,536       (350   2004   12/23/2014     10 to 30 Years  

Carmike Cinemas

 

Fort Wayne, IN

  (a)     2,696       9,849       682       —         3,378       9,849       13,227       (3,533   2005   11/30/2005     15 to 40 Years  

Carmike Cinemas

 

Durham, NC

  (a)     1,630       2,685       —         —         1,630       2,685       4,315       (1,477   1994   9/30/2005     13 to 30 Years  

Carmike Cinemas

 

Greensboro, NC

  (a)     2,359       2,431       —         —         2,359       2,431       4,790       (1,149   1996   9/30/2005     15 to 30 Years  

Carmike Cinemas

 

Raleigh, NC

  (a)     3,636       8,833       —         —         3,636       8,833       12,469       (3,792   1988   6/10/2010     9 to 27 Years  

 

F-32


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total    

Final

Accum

    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 
Carmike Cinemas   Wilmington, NC   (a)     1,552       2,934       —         —         1,552       2,934       4,486       (1,325   1997   9/30/2005     15 to 30 Years  
Carmike Cinemas   Winston-Salem, NC   (a)     1,567       2,140       —         —         1,567       2,140       3,707       (1,184   1993   10/28/2005     13 to 30 Years  
Carmike Cinemas   Columbia, SC   (a)     2,115       2,091       —         —         2,115       2,091       4,206       (953   1996   9/30/2005     15 to 30 Years  
Carmike Cinemas   Longview, TX   (a)     1,432       2,946       —         —         1,432       2,946       4,378       (1,380   1995   9/30/2005     15 to 30 Years  
Carrington College   Phoenix, AZ   (a)     1,840       3,582       266       22       2,106       3,604       5,710       (1,433   1975   7/1/2005     3 to 40 Years  
Casual Male   Canton, MA   (a)     28,694       27,802       12       33       28,706       27,835       56,541       (10,426   1962   2/1/2006     15 to 30 Years  
Cermak Fresh Market   Aurora, IL   (a)     2,450       7,567       —         343       2,450       7,910       10,360       (317   1989   1/9/2017     10 to 30 Years  
Chapala   Boise, ID   (a)     809       601       (400     (259     409       342       751       (242   1998   6/25/2004     15 to 30 Years  
Charleston’s Restaurant   Norman, OK   (a)     1,466       2,294       —         —         1,466       2,294       3,760       (1,164   1992   7/2/2007     14 to 30 Years  
Charleston’s Restaurant   Tulsa, OK   (a)     1,540       1,997       —         —         1,540       1,997       3,537       (803   2002   7/2/2007     14 to 40 Years  
Church’s Chicken   Chicago, IL   (a)     313       275       —         —         313       275       588       (170   1982   5/25/2005     15 to 20 Years  
Church’s Chicken   Chicago, IL   (a)     340       220       —         —         340       220       560       (159   1975   5/25/2005     15 to 20 Years  
Church’s Chicken   Chicago, IL   (a)     242       244       —         —         242       244       486       (174   1970   5/25/2005     15 to 20 Years  
Church’s Chicken   Chicago, IL   (a)     242       256       —         —         242       256       498       (167   1974   5/25/2005     15 to 20 Years  
Church’s Chicken   Chicago, IL   (a)     532       279       —         —         532       279       811       (184   1982   5/25/2005     15 to 20 Years  
Church’s Chicken   Chicago, IL   (a)     289       260       —         —         289       260       549       (166   1982   5/25/2005     15 to 20 Years  
Church’s Chicken   East St. Louis, IL   (a)     117       334       —         —         117       334       451       (158   1990   5/25/2005     15 to 30 Years  
Church’s Chicken   Harvey, IL   (a)     361       269       (80     —         281       269       550       (364   1978   5/25/2005     15 to 20 Years  
Church’s Chicken   Joliet, IL   (a)     245       193       —         —         245       193       438       (155   1985   5/25/2005     15 to 20 Years  
Church’s Chicken   Peoria, IL   (a)     154       320       —         —         154       320       474       (217   1976   5/25/2005     15 to 20 Years  
Church’s Chicken   Washington Park, IL   (a)     119       324       —         —         119       324       443       (208   1980   5/25/2005     15 to 20 Years  
Church’s Chicken   Gary, IN   (a)     109       410       —         —         109       410       519       (250   1980   5/25/2005     15 to 20 Years  
Church’s Chicken   Gary, IN   (a)     210       318       —         —         210       318       528       (240   1979   5/25/2005     15 to 20 Years  
Church’s Chicken   Gary, IN   (a)     161       493       —         —         161       493       654       (316   1973   5/25/2005     15 to 20 Years  
Church’s Chicken   Indianapolis, IN   (a)     258       262       —         —         258       262       520       (204   1970   5/25/2005     15 to 20 Years  
Church’s Chicken   Indianapolis, IN   (a)     266       310       —         —         266       310       576       (218   1971   5/25/2005     15 to 20 Years  
Church’s Chicken   Indianapolis, IN   (a)     170       749       —         —         170       749       919       (427   1983   5/25/2005     15 to 20 Years  
Church’s Chicken   Indianapolis, IN   (a)     449       153       —         —         449       153       602       (155   1968   5/25/2005     15 to 20 Years  
Church’s Chicken   Indianapolis, IN   (a)     370       150       —         —         370       150       520       (138   1970   5/25/2005     15 to 20 Years  
Church’s Chicken   Detroit, MI   (a)     425       200       —         —         425       200       625       (153   1977   5/25/2005     15 to 20 Years  
Church’s Chicken   Detroit, MI   (a)     351       209       —         —         351       209       560       (155   1977   5/25/2005     15 to 20 Years  
Church’s Chicken   Detroit, MI   (a)     426       223       —         —         426       223       649       (171   1979   5/25/2005     15 to 20 Years  
Church’s Chicken   Detroit, MI   (a)     413       235       —         —         413       235       648       (174   1977   5/25/2005     15 to 20 Years  
Church’s Chicken   Detroit, MI   (a)     301       219       —         —         301       219       520       (156   1972   5/25/2005     15 to 20 Years  
Church’s Chicken   Detroit, MI   (a)     270       305       —         —         270       305       575       (189   1976   5/25/2005     15 to 20 Years  
Church’s Chicken   Detroit, MI   (a)     271       157       —         —         271       157       428       (119   1978   5/25/2005     15 to 20 Years  
Church’s Chicken   Detroit, MI   (a)     385       258       —         —         385       258       643       (195   1979   5/25/2005     15 to 20 Years  
Church’s Chicken   Detroit, MI   (a)     428       189       —         —         428       189       617       (144   1979   5/25/2005     15 to 20 Years  
Church’s Chicken   Flint, MI   (a)     340       258       —         —         340       258       598       (193   1979   5/25/2005     15 to 20 Years  

 

F-33


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Church’s Chicken

 

Warren, MI

  (a)     488       215       —         —         488       215       703       (162   1979   5/25/2005     15 to 20 Years  

Church’s Chicken

 

Ferguson, MO

  (a)     293       212       —         —         293       212       505       (164   1974   5/25/2005     15 to 20 Years  

Church’s Chicken

 

Maplewood, MO

  (a)     180       225       —         —         180       225       405       (153   1980   5/25/2005     15 to 20 Years  

Church’s Chicken

 

Normandy, MO

  (a)     265       329       (6     —         259       329       588       (224   1978   5/25/2005     15 to 20 Years  

Church’s Chicken

 

Overland, MO

  (a)     278       494       —         —         278       494       772       (305   1972   5/25/2005     15 to 20 Years  

Church’s Chicken

 

St. Louis, MO

  (a)     290       211       —         —         290       211       501       (168   1973   5/25/2005     15 to 20 Years  

Church’s Chicken

 

St. Louis, MO

  (a)     231       337       —         —         231       337       568       (216   1972   5/25/2005     15 to 20 Years  

Church’s Chicken

 

St. Louis, MO

  (a)     189       227       —         —         189       227       416       (161   1972   5/25/2005     15 to 20 Years  

Church’s Chicken

 

St. Louis, MO

  (a)     464       218       —         —         464       218       682       (192   1978   5/25/2005     15 to 20 Years  

Church’s Chicken

 

Akron, OH

  (a)     247       198       —         —         247       198       445       (152   1971   5/25/2005     15 to 20 Years  

Church’s Chicken

 

Akron, OH

  (a)     218       273       —         —         218       273       491       (182   1976   5/25/2005     15 to 20 Years  

Church’s Chicken

 

Akron, OH

  (a)     310       394       —         —         310       394       704       (257   1982   5/25/2005     15 to 20 Years  

Church’s Chicken

 

Canton, OH

  (a)     215       483       —         —         215       483       698       (277   1974   5/25/2005     15 to 20 Years  

Church’s Chicken

 

Columbus, OH

  (a)     268       354       —         —         268       354       622       (240   1975   5/25/2005     15 to 20 Years  

Church’s Chicken

 

Columbus, OH

  (a)     294       262       —         —         294       262       556       (195   1976   5/25/2005     15 to 20 Years  

Church’s Chicken

 

Mansfield, OH

  (a)     225       327       —         —         225       327       552       (204   1972   5/25/2005     15 to 20 Years  

Columbus Arts & Tech Academy

 

Columbus, OH

  (a)     417       5,100       —         849       417       5,949       6,366       (2,489   1980   3/17/2006     13 to 30 Years  

Columbus Preparatory Academy

 

Columbus, OH

  (a)     1,069       3,363       330       1,340       1,399       4,703       6,102       (2,875   2004   3/17/2006     13 to 20 Years  

ConForm Automotive

 

Sidney, OH

  (a)     921       4,177       —         —         921       4,177       5,098       (2,525   1987   12/22/2005     12 to 20 Years  

Courthouse Athletic Club

 

Keizer, OR

  (a)     1,208       4,089       —         —         1,208       4,089       5,297       (1,361   1988   12/1/2005     15 to 40 Years  

Courthouse Athletic Club

 

Salem, OR

  (a)     941       2,620       1,018       5,042       1,959       7,662       9,621       (2,483   1996   12/1/2005     15 to 40 Years  

Courthouse Athletic Club

 

Salem, OR

  (a)     1,509       5,635       —         —         1,509       5,635       7,144       (1,864   2001   12/1/2005     15 to 40 Years  

Courthouse Athletic Club

 

Salem, OR

  (a)     1,214       4,911       —         —         1,214       4,911       6,125       (1,652   1980   12/1/2005     15 to 40 Years  

Courthouse Athletic Club

 

Salem, OR

  (a)     1,589       3,834       —         —         1,589       3,834       5,423       (1,721   1977   12/1/2005     15 to 30 Years  

Crème de la Crème

 

Lone Tree, CO

  (a)     2,020       3,748       —         —         2,020       3,748       5,768       (1,697   1999   9/29/2005     15 to 30 Years  

Crème de la Crème

 

Duluth, GA

  (a)     2,289       4,274       —         —         2,289       4,274       6,563       (1,889   2007   12/23/2008     13 to 48 Years  

Crème de la Crème

 

Barrington, IL

  (a)     1,180       5,939       —         —         1,180       5,939       7,119       (620   2008   5/30/2014     15 to 40 Years  

Crème de la Crème

 

Chicago, IL

  (a)     5,057       5,939       —         —         5,057       5,939       10,996       (577   2009   5/30/2014     15 to 40 Years  

Crème de la Crème

 

Romeoville, IL

  (a)     1,684       5,676       —         —         1,684       5,676       7,360       (1,449   2008   11/7/2008     14 to 49 Years  

Crème de la Crème

 

Warrenville, IL

  (a)     2,542       3,813       —         —         2,542       3,813       6,355       (1,881   1999   9/29/2005     15 to 30 Years  

Crème de la Crème

 

Westmont, IL

  (a)     1,375       5,087       —         —         1,375       5,087       6,462       (1,584   2003   12/28/2005     15 to 40 Years  

Crème de la Crème

 

Leawood, KS

  (a)     1,854       3,914       —         —         1,854       3,914       5,768       (1,846   1999   9/29/2005     15 to 30 Years  

Crème de la Crème

 

Mount Laurel, NJ

  (a)     1,404       5,655       —         —         1,404       5,655       7,059       (1,566   2007   5/1/2009     13 to 48 Years  

Crown Distributing LLC

 

Arlington, WA

  (b)     1,860       10,402       —         —         1,860       10,402       12,262       (967   2002   11/21/2014     7 to 40 Years  

Dark

 

Canton, MI

  (a)     2,071       1,224       —         —         2,071       1,224       3,295       (747   1996   6/25/2004     15 to 30 Years  

Dave & Buster’s

 

Marietta, GA

  (a)     3,908       8,630       (74     —         3,834       8,630       12,464       (3,732   1992   7/1/2005     15 to 30 Years  

Denny’s

 

Fountain Hills, AZ

  (a)     825       561       —         —         825       561       1,386       (360   1995   9/24/2004     15 to 30 Years  

Diagnostic Health Centers of Texas

 

Beaumont, TX

  (a)     438       1,976       —         —         438       1,976       2,414       (303   1985   3/31/2014     15 to 30 Years  

Diagnostic Health Centers of Texas

 

Port Arthur, TX

  (a)     468       2,057       —         —         468       2,057       2,525       (313   1997   3/31/2014     15 to 30 Years  

 

F-34


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Dillon Tire

 

Lincoln, NE

  (a)     1,318       1,604       —         —         1,318       1,604       2,922       (864   1972   4/29/2011     11 to 26 Years  

Dollar General

 

Oppelo, AR

  (a)     367       573       —         —         367       573       940       (72   2015   7/14/2015     14 to 40 Years  

Dollar General

 

Laurel, MS

  (a)     433       707       —         —         433       707       1,140       (80   2012   6/22/2015     11 to 40 Years  

Dollar General

 

Red Oak, OK

  (a)     248       683       —         —         248       683       931       (63   2015   7/14/2015     14 to 40 Years  

Eddie Merlot’s

 

Burr Ridge, IL

  (a)     759       977       16       1,584       775       2,561       3,336       (1,186   1997   6/25/2004     15 to 30 Years  

Eddie Merlot’s

 

Fort Wayne, IN

  (a)     989       2,057       —         —         989       2,057       3,046       (820   2001   11/10/2005     15 to 30 Years  

Eddie Merlot’s

 

Indianapolis, IN

  (a)     1,971       2,295       —         —         1,971       2,295       4,266       (714   2003   11/10/2005     15 to 40 Years  

El Chico

 

Little Rock, AR

  (a)     699       1,700       (457     (1,302     242       398       640       (130   1972   2/26/2007     14 to 20 Years  

El Chico

 

Ardmore, OK

  (a)     1,332       1,466       (941     (1,094     391       372       763       (93   1986   2/26/2007     14 to 30 Years  

El Chico

 

Muskogee, OK

  (a)     968       1,259       (707     (926     261       333       594       (91   1984   2/26/2007     14 to 30 Years  

El Chico

 

Sherman, TX

  (a)     1,013       1,286       (727     (908     286       378       664       (105   1994   2/26/2007     14 to 30 Years  

Emerus Urgent Care

 

Schertz, TX

  (a)     2,596       9,944       —         —         2,596       9,944       12,540       (1,067   2013   5/16/2014     13 to 40 Years  

Express Oil Change

 

Alabaster, AL

  (a)     631       1,010       —         —         631       1,010       1,641       (263   1995   12/22/2006     40 to 40 Years  

Express Oil Change

 

Auburn, AL

  (a)     354       1,182       30       78       384       1,260       1,644       (456   1987   12/22/2006     15 to 30 Years  

Express Oil Change

 

Bessemer, AL

  (a)     358       1,197       —         —         358       1,197       1,555       (312   1988   12/22/2006     40 to 40 Years  

Express Oil Change

 

Birmingham, AL

  (a)     417       1,237       —         —         417       1,237       1,654       (322   1970   12/22/2006     40 to 40 Years  

Express Oil Change

 

Birmingham, AL

  (a)     300       839       —         —         300       839       1,139       (175   1998   12/22/2006     50 to 50 Years  

Express Oil Change

 

Birmingham, AL

  (a)     607       1,379       —         —         607       1,379       1,986       (359   1988   12/22/2006     40 to 40 Years  

Express Oil Change

 

Birmingham, AL

  (a)     343       901       —         —         343       901       1,244       (235   1989   12/22/2006     40 to 40 Years  

Express Oil Change

 

Birmingham, AL

  (a)     334       1,119       —         —         334       1,119       1,453       (291   1989   12/22/2006     40 to 40 Years  

Express Oil Change

 

Birmingham, AL

  (a)     372       1,073       —         —         372       1,073       1,445       (373   1965   12/22/2006     30 to 30 Years  

Express Oil Change

 

Birmingham, AL

  (a)     339       858       —         —         339       858       1,197       (223   1990   12/22/2006     40 to 40 Years  

Express Oil Change

 

Decatur, AL

  (a)     187       1,174       —         98       187       1,272       1,459       (286   2000   12/22/2006     19 to 50 Years  

Express Oil Change

 

Decatur, AL

  (a)     84       803       —         —         84       803       887       (167   2001   12/22/2006     50 to 50 Years  

Express Oil Change

 

Florence, AL

  (a)     130       1,128       —         —         130       1,128       1,258       (235   1999   12/22/2006     50 to 50 Years  

Express Oil Change

 

Gardendale, AL

  (a)     586       1,274       —         —         586       1,274       1,860       (332   1989   12/22/2006     40 to 40 Years  

Express Oil Change

 

Huntsville, AL

  (a)     195       1,649       —         —         195       1,649       1,844       (429   1993   12/22/2006     40 to 40 Years  

Express Oil Change

 

Huntsville, AL

  (a)     295       893       —         —         295       893       1,188       (233   1994   12/22/2006     40 to 40 Years  

Express Oil Change

 

Huntsville, AL

  (a)     374       1,295       —         109       374       1,404       1,778       (384   1997   12/22/2006     19 to 40 Years  

Express Oil Change

 

Huntsville, AL

  (a)     252       917       —         —         252       917       1,169       (318   1965   12/22/2006     30 to 30 Years  

Express Oil Change

 

Huntsville, AL

  (a)     184       1,037       —         —         184       1,037       1,221       (216   2001   12/22/2006     50 to 50 Years  

Express Oil Change

 

Madison, AL

  (a)     359       1,505       40       456       399       1,961       2,360       (418   1995   12/22/2006     15 to 40 Years  

Express Oil Change

 

Madison, AL

  (a)     211       1,401       —         —         211       1,401       1,612       (365   1997   12/22/2006     40 to 40 Years  

Express Oil Change

 

Oxford, AL

  (a)     120       1,224       —         —         120       1,224       1,344       (319   1990   12/22/2006     40 to 40 Years  

Express Oil Change

 

Pinson, AL

  (a)     320       916       —         —         320       916       1,236       (191   2001   12/22/2006     50 to 50 Years  

Family Dollar Stores

 

Texarkana, AR

  (a)     303       201       —         —         303       201       504       (59   1988   3/31/2014     4 to 20 Years  

Famous Dave’s

 

Apple Valley, MN

  (a)     1,119       1,055       —         —         1,119       1,055       2,174       (518   1999   9/24/2004     15 to 30 Years  

Famous Dave’s

 

Maple Grove, MN

  (a)     1,852       1,096       —         —         1,852       1,096       2,948       (620   1997   9/24/2004     15 to 30 Years  

Fazoli’s

 

Fort Wayne, IN

  (a)     660       204       —         —         660       204       864       (305   1982   9/23/2005     10 to 15 Years  

 

F-35


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 
Fazoli’s   Rochester, MN   (a)     561       83       66       (83     627       —         627       —       (d)   9/23/2005(d)  
Fazoli’s   Lees Summit, MO   (a)     590       69       55       (69     645       —         645       —       (d)   9/23/2005(d)  
Flying Star Café   Albuquerque, NM   (a)     120       1,336       —         —         120       1,336       1,456       (464   1999   7/1/2005     30 to 30 Years  
Flying Star Café   Albuquerque, NM   (a)     1,036       1,655       —         —         1,036       1,655       2,691       (812   1994   7/1/2005     15 to 30 Years  
Focus Child Development Center   Dalton, GA   (a)     396       1,396       —         —         396       1,396       1,792       (70   1996   6/29/2016     10 to 40 Years  
Focus Child Development Center   Riverdale, GA   (a)     663       1,336       —         32       663       1,368       2,031       (80   1998   6/29/2016     10 to 40 Years  
Focus Child Development Center   Riverdale, GA   (a)     436       525       —         —         436       525       961       (32   1965   6/29/2016     10 to 30 Years  
Fred’s Super Dollar   Cabot, AR   (a)     132       404       —         —         132       404       536       (157   1970   3/31/2014     1 to 15 Years  
Fuddruckers   Glendale, AZ   (a)     1,236       272       —         —         1,236       272       1,508       (270   1995   6/25/2004     15 to 20 Years  
Fuddruckers   Mesa, AZ   (a)     1,318       234       —         —         1,318       234       1,552       (261   1995   6/25/2004     15 to 20 Years  
Fuddruckers   Houston, TX   (a)     1,098       439       —         —         1,098       439       1,537       (382   1995   6/25/2004     15 to 40 Years  
Fuddruckers   Houston, TX   (a)     1,156       352       (22     —         1,134       352       1,486       (317   1995   6/25/2004     15 to 30 Years  
Fuddruckers   Kingwood, TX   (a)     936       387       —         (387     936       —         936       (198   1994   6/25/2004     15 to 30 Years  
General Motors   Caldwell, TX   (a)     1,775       1,725       —         —         1,775       1,725       3,500       (1,061   2000   4/29/2011     11 to 36 Years  
Gerber Collision & Glass   Clayton, NC   (a)     684       1,254       —         —         684       1,254       1,938       (200   2001   3/31/2014     7 to 30 Years  
Gerber Collision & Glass   Greensboro, NC   (a)     721       1,179       —         —         721       1,179       1,900       (208   2002   3/31/2014     7 to 30 Years  
Golden Corral   Fort Smith, AR   (a)     1,503       1,323       —         —         1,503       1,323       2,826       (967   1993   9/23/2005     15 to 20 Years  
Golden Corral   North Little Rock, AR   (a)     1,398       1,289       —         —         1,398       1,289       2,687       (884   1993   9/23/2005     15 to 20 Years  
Golden Corral   Branson, MO   (a)     1,497       1,684       —         —         1,497       1,684       3,181       (888   1994   9/23/2005     15 to 30 Years  
Golden Corral   Springfield, MO   (a)     1,655       1,467       —         —         1,655       1,467       3,122       (855   1993   9/23/2005     15 to 30 Years  
Golden Corral   Lexington, NC   (a)     910       1,059       —         —         910       1,059       1,969       (224   1998   10/25/2013     15 to 30 Years  
Golden Corral   Gallipolis, OH   (a)     375       1,295       —         —         375       1,295       1,670       (233   1996   10/25/2013     15 to 30 Years  
Golden Corral   Colonial Heights, VA   (a)     1,948       500       37       1,463       1,985       1,963       3,948       (180   1989   10/25/2013     15 to 40 Years  
Golden Corral   Danville, VA   (a)     963       2,829       —         —         963       2,829       3,792       (391   2009   8/21/2013     15 to 40 Years  
Golden Corral   Lynchburg, VA   (a)     2,044       2,025       —         —         2,044       2,025       4,069       (403   2000   8/21/2013     15 to 30 Years  
Golden Corral   Roanoke, VA   (a)     1,370       1,846       —         —         1,370       1,846       3,216       (312   2000   8/21/2013     15 to 30 Years  
Gold’s Gym   Clifton, CO   (a)     1,280       6,950       —         26       1,280       6,976       8,256       (641   1983   6/30/2015     15 to 30 Years  
Gold’s Gym   Grand Junction, CO   (a)     1,825       10,478       —         —         1,825       10,478       12,303       (653   2007   11/5/2015     15 to 40 Years  
Gold’s Gym   Pawtucket, RI   (a)     946       3,093       —         28       946       3,121       4,067       (230   1980   6/28/2016     5 to 30 Years  
Goodrich Quality Theaters   Batavia, IL   (a)     4,705       7,561       —         —         4,705       7,561       12,266       (2,916   1995   6/30/2009     11 to 38 Years  
Goodrich Quality Theaters   Noblesville, IN   (a)     1,760       —         2,338       10,172       4,098       10,172       14,270       (3,831   2008   6/30/2009     14 to 39 Years  
Goodrich Quality Theaters   Portage, IN   (a)     4,621       8,300       —         —         4,621       8,300       12,921       (3,562   2007   6/30/2009     13 to 38 Years  
Goodrich Quality Theaters   Siginaw, MI   (a)     2,538       8,359       —         —         2,538       8,359       10,897       (1,044   2013   12/2/2013     15 to 50 Years  
Grand Sport Restaurant   Tulsa, OK   (a)     983       1,232       (716     (924     267       308       575       (81   1976   2/26/2007     14 to 30 Years  
Hajoca Corporation   Sebring, FL   (a)     318       291       —         —         318       291       609       (216   1982   7/1/2005     15 to 20 Years  
Hajoca Corporation   D’Iberville, MS   (a)     250       339       —         —         250       339       589       (218   1984   5/1/2005     15 to 20 Years  

 

F-36


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 
Hajoca Corporation   Statesville, NC   (a)     614       355       —         —         614       355       969       (432   1976   5/1/2005     9 to 15 Years  
Hajoca Corporation   Aiken, SC   (a)     108       265       —         —         108       265       373       (154   1985   5/1/2005     15 to 20 Years  
Hajoca Corporation   Greenville, SC   (a)     344       210       —         —         344       210       554       (272   1981   5/1/2005     9 to 15 Years  
Hajoca Corporation   West Columbia, SC   (a)     262       598       —         —         262       598       860       (375   1984   5/1/2005     9 to 20 Years  
Hardee’s   Graceville, FL   (a)     279       1,036       —         —         279       1,036       1,315       (186   1985   12/24/2013     15 to 30 Years  
Hardee’s   Adairsville, GA   (a)     557       318       —         —         557       318       875       (195   1986   9/29/2006     15 to 20 Years  
Hardee’s   Atlanta, GA   (a)     309       867       —         —         309       867       1,176       (147   1994   12/24/2013     15 to 30 Years  
Hardee’s   Commerce, GA   (a)     219       797       —         —         219       797       1,016       (138   1990   12/24/2013     15 to 30 Years  
Hardee’s   Cumming, GA   (a)     408       827       —         —         408       827       1,235       (150   1988   12/24/2013     15 to 30 Years  
Hardee’s   East Ellijay, GA   (a)     562       354       —         —         562       354       916       (270   1984   12/29/2005     15 to 20 Years  
Hardee’s   Forsyth, GA   (a)     249       936       —         —         249       936       1,185       (162   1983   12/24/2013     15 to 30 Years  
Hardee’s   Griffin, GA   (a)     249       877       —         —         249       877       1,126       (146   1979   12/24/2013     15 to 30 Years  
Hardee’s   Hawkinsville, GA   (a)     169       946       —         —         169       946       1,115       (158   1986   12/24/2013     15 to 30 Years  
Hardee’s   McDonough, GA   (a)     179       807       —         1       179       808       987       (134   1989   12/24/2013     15 to 30 Years  
Hardee’s   McDonough, GA   (a)     418       847       —         —         418       847       1,265       (158   1995   12/24/2013     15 to 30 Years  
Hardee’s   Monroe, GA   (a)     618       787       —         —         618       787       1,405       (150   1977   12/24/2013     15 to 30 Years  
Hardee’s   Moultrie, GA   (a)     359       827       —         —         359       827       1,186       (139   1997   12/24/2013     15 to 30 Years  
Hardee’s   Pearson, GA   (a)     159       817       —         —         159       817       976       (141   1994   12/24/2013     15 to 30 Years  
Hardee’s   Quitman, GA   (a)     259       936       —         —         259       936       1,195       (157   1985   12/24/2013     15 to 30 Years  
Hardee’s   Thomasville, GA   (a)     408       837       —         —         408       837       1,245       (143   1985   12/24/2013     15 to 30 Years  
Hardee’s   Warner Robins, GA   (a)     229       887       —         —         229       887       1,116       (161   1978   12/24/2013     15 to 30 Years  
Hardee’s   Paxton, IL   (a)     324       658       —         —         324       658       982       (505   1986   12/29/2005     15 to 20 Years  
Hardee’s   Emporia, KS   (a)     508       1,175       —         —         508       1,175       1,683       (205   1969   12/24/2013     15 to 30 Years  
Hardee’s   Kansas City, KS   (a)     289       1,066       —         —         289       1,066       1,355       (179   1980   12/24/2013     15 to 30 Years  
Hardee’s   Mayfield, KY   (a)     316       603       —         —         316       603       919       (335   1986   12/8/2009     12 to 27 Years  
Hardee’s   Columbia, MO   (a)     339       1,126       —         —         339       1,126       1,465       (182   1985   12/24/2013     15 to 30 Years
Hardee’s   Harrisonville, MO   (a)     369       1,195       —         —         369       1,195       1,564       (202   1981   12/24/2013     15 to 30 Years  
Hardee’s   Independence, MO   (a)     279       936       —         —         279       936       1,215       (157   1979   12/24/2013     15 to 30 Years  
Hardee’s   Kansas City, MO   (a)     538       936       —         —         538       936       1,474       (167   1979   12/24/2013     15 to 30 Years  
Hardee’s   Lees Summit, MO   (a)     319       906       —         —         319       906       1,225       (158   1985   12/24/2013     15 to 30 Years  
Hardee’s   Rolla, MO   (a)     229       857       —         —         229       857       1,086       (146   1978   12/24/2013     15 to 30 Years  
Hardee’s   Trenton, MO   (a)     309       1,175       —         —         309       1,175       1,484       (197   1976   12/24/2013     15 to 30 Years  
Hardee’s   Watertown, WI   (a)     267       338       —         —         267       338       605       (205   1986   6/30/2009     13 to 18 Years  
Hardee’s   Parkersburg, WV   (a)     416       658       —         75       416       733       1,149       (486   1986   3/7/2007     4 to 20 Years  
Harp’s Marketplace   Fort Smith, AR   (a)     837       1,831       —         —         837       1,831       2,668       (395   1994   4/30/2014     3 to 20 Years  
Havana Farm and Home Supply   Havana, IL   (b)     526       813       —         —         526       813       1,339       (445   2000   5/31/2006     15 to 30 Years  
HD Supply   Tontitown, AR   (a)     230       92       —         —         230       92       322       (91   1987   5/1/2005     15 to 20 Years  
HD Supply   Jacksonville, FL   (a)     339       226       —         —         339       226       565       (207   1987   7/1/2005     15 to 20 Years  
HD Supply   Jacksonville, FL   (a)     963       1,007       —         —         963       1,007       1,970       (1,008   2001   7/1/2005     9 to 20 Years  

 

F-37


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

HD Supply

 

Pompano Beach, FL

  (a)     1,144       337       —         —         1,144       337       1,481       (252   1990   7/1/2005     15 to 30 Years  

HD Supply

 

Riviera Beach, FL

  (a)     500       170       —         —         500       170       670       (156   1987   7/1/2005     15 to 20 Years  

HD Supply

 

Lawrenceville, GA

  (a)     500       237       —         —         500       237       737       (211   1996   5/1/2005     15 to 30 Years  

HD Supply

 

Indianapolis, IN

  (a)     607       520       —         —         607       520       1,127       (380   1990   5/1/2005     15 to 20 Years  

HD Supply

 

Hickory, NC

  (a)     199       262       —         —         199       262       461       (210   1989   5/1/2005     15 to 20 Years  

HD Supply

 

Wilmington, NC

  (a)     370       122       —         —         370       122       492       (110   1987   5/1/2005     15 to 20 Years  

HD Supply

 

Florence, SC

  (a)     221       174       —         —         221       174       395       (226   1974   5/1/2005     10 to 15 Years  

HD Supply

 

Greer, SC

  (a)     268       236       —         —         268       236       504       (176   1993   5/1/2005     15 to 30 Years  

HD Supply

 

West Columbia, SC

  (a)     324       108       —         —         324       108       432       (88   1989   5/1/2005     15 to 20 Years  

HD Supply

 

Knoxville, TN

  (a)     259       111       —         —         259       111       370       (185   1981   5/1/2005     10 to 15 Years  

HD Supply

 

Conroe, TX

  (a)     492       723       —         —         492       723       1,215       (363   1999   7/1/2005     14 to 30 Years  

HD Supply

 

Roanoke, VA

  (a)     333       124       —         —         333       124       457       (184   1975   5/1/2005     10 to 15 Years  

HD Supply

 

Spokane, WA

  (a)     518       193       —         —         518       193       711       (186   1998   5/1/2005     15 to 30 Years  

HD Supply

 

Martinsburg, WV

  (a)     173       20       —         —         173       20       193       (50   1972   5/1/2005     10 to 15 Years  

Heartland Dental

 

Bullhead City, AZ

  (a)     57       946       —         —         57       946       1,003       (94   2005   4/8/2014     15 to 40 Years  

Heartland Dental

 

Glendale, AZ

  (a)     371       491       —         —         371       491       862       (71   1988   3/31/2014     15 to 30 Years  

Heartland Dental

 

Brandon, FL

  (a)     110       671       —         —         110       671       781       (86   1999   3/31/2014     15 to 30 Years  

Heartland Dental

 

Debary, FL

  (a)     100       641       —         —         100       641       741       (90   1989   3/31/2014     15 to 30 Years  

Heartland Dental

 

Gainesville, FL

  (a)     180       711       —         —         180       711       891       (94   1941   3/31/2014     15 to 30 Years  

Heartland Dental

 

Jacksonville, FL

  (a)     57       365       —         —         57       365       422       (48   1986   4/8/2014     15 to 30 Years  

Heartland Dental

 

Largo, FL

  (a)     150       311       —         —         150       311       461       (44   1962   3/31/2014     15 to 30 Years  

Heartland Dental

 

Melbourne, FL

  (a)     321       651       —         —         321       651       972       (89   1987   3/31/2014     15 to 30 Years  

Heartland Dental

 

New Port Richey, FL

  (a)     274       1,162       —         —         274       1,162       1,436       (160   2004   4/8/2014     15 to 30 Years  

Heartland Dental

 

New Port Richey, FL

  (a)     456       1,151       —         —         456       1,151       1,607       (178   2004   4/8/2014     15 to 30 Years  

Heartland Dental

 

Ocala, FL

  (a)     23       547       —         —         23       547       570       (68   1984   4/8/2014     30 to 30 Years  

Heartland Dental

 

Okeechobee, FL

  (a)     190       521       —         —         190       521       711       (73   1990   3/31/2014     15 to 30 Years  

Heartland Dental

 

Orlando, FL

  (a)     291       230       —         —         291       230       521       (36   1979   3/31/2014     15 to 30 Years  

Heartland Dental

 

Vero Beach, FL

  (a)     220       731       —         —         220       731       951       (101   1974   3/31/2014     15 to 30 Years  

Heartland Dental

 

Clayton, GA

  (a)     70       311       —         —         70       311       381       (49   1963   3/31/2014     15 to 30 Years  

Heartland Dental

 

Columbus, GA

  (a)     190       531       —         —         190       531       721       (89   1993   3/31/2014     15 to 30 Years  

Heartland Dental

 

Eastman, GA

  (a)     130       551       —         —         130       551       681       (89   1988   3/31/2014     15 to 30 Years  

Heartland Dental

 

Monroe, GA

  (a)     110       631       —         —         110       631       741       (94   2001   3/31/2014     15 to 30 Years  

Heartland Dental

 

Belleville, IL

  (a)     140       431       —         —         140       431       571       (91   1979   3/31/2014     15 to 20 Years  

Heartland Dental

 

Crystal Lake, IL

  (a)     200       631       —         —         200       631       831       (96   2001   3/31/2014     15 to 30 Years  

Heartland Dental

 

East Alton, IL

  (a)     170       80       —         —         170       80       250       (28   1960   3/31/2014     15 to 20 Years  

Heartland Dental

 

Litchfield, IL

  (a)     210       311       —         —         210       311       521       (73   1962   3/31/2014     15 to 20 Years  

Heartland Dental

 

Litchfield, IL

  (a)     110       120       —         —         110       120       230       (25   1962   3/31/2014     15 to 20 Years  

Heartland Dental

 

Maryville, IL

  (a)     301       401       —         —         301       401       702       (70   1995   3/31/2014     15 to 30 Years  

Heartland Dental

 

Springfield, IL

  (a)     451       1,162       —         —         451       1,162       1,613       (180   1992   3/31/2014     15 to 30 Years  

 

F-38


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Heartland Dental

 

Anderson, IN

  (a)     411       1,673       —         —         411       1,673       2,084       (182   1981   3/31/2014     15 to 40 Years  

Heartland Dental

 

Elkhart, IN

  (a)     90       341       —         —         90       341       431       (48   1969   3/31/2014     15 to 30 Years  

Heartland Dental

 

Evansville, IN

  (a)     130       391       —         —         130       391       521       (61   1986   3/31/2014     15 to 30 Years  

Heartland Dental

 

Fort Wayne, IN

  (a)     150       1,022       —         —         150       1,022       1,172       (111   1965   3/31/2014     15 to 40 Years  

Heartland Dental

 

Logansport, IN

  (a)     30       421       —         —         30       421       451       (55   1920   3/31/2014     15 to 30 Years  

Heartland Dental

 

Marion, IN

  (a)     140       321       —         —         140       321       461       (58   1988   3/31/2014     15 to 30 Years  

Heartland Dental

 

Marion, IN

  (a)     130       421       —         —         130       421       551       (70   1974   3/31/2014     15 to 30 Years  

Heartland Dental

 

Osceola, IN

  (a)     291       671       —         —         291       671       962       (108   1996   3/31/2014     15 to 40 Years  

Heartland Dental

 

South Bend, IN

  (a)     341       321       —         —         341       321       662       (78   1955   3/31/2014     15 to 20 Years  

Heartland Dental

 

Westfield, IN

  (a)     361       751       —         —         361       751       1,112       (106   1992   3/31/2014     15 to 40 Years  

Heartland Dental

 

Columbia, MO

  (a)     1,012       7,054       —         —         1,012       7,054       8,066       (724   2004   3/31/2014     15 to 40 Years  

Heartland Dental

 

Raytown, MO

  (a)     80       631       —         —         80       631       711       (91   1989   3/31/2014     15 to 30 Years  

Heartland Dental

 

Springfield, MO

  (a)     561       631       —         —         561       631       1,192       (104   1996   3/31/2014     15 to 30 Years  

Heartland Dental

 

Brandon, MS

  (a)     200       281       —         —         200       281       481       (58   1986   3/31/2014     15 to 30 Years  

Heartland Dental

 

Vicksburg, MS

  (a)     150       351       —         —         150       351       501       (61   1984   3/31/2014     15 to 30 Years  

Heartland Dental

 

Rio Rancho, NM

  (a)     301       461       —         —         301       461       762       (75   1992   3/31/2014     15 to 30 Years  

Heartland Dental

 

Defiance, OH

  (a)     130       491       —         —         130       491       621       (76   1959   3/31/2014     15 to 30 Years  

Heartland Dental

 

Gahanna, OH

  (a)     411       982       —         —         411       982       1,393       (152   1998   3/31/2014     15 to 40 Years  

Heartland Dental

 

Pataskala, OH

  (a)     261       782       —         —         261       782       1,043       (93   1995   3/31/2014     15 to 40 Years  

Heartland Dental

 

Camp Hill, PA

  (a)     180       581       —         —         180       581       761       (85   1991   3/31/2014     15 to 30 Years  

Heartland Dental

 

Camp Hill, PA

  (a)     140       641       —         —         140       641       781       (90   1990   3/31/2014     15 to 30 Years  

Heartland Dental

 

Mechanicsburg, PA

  (a)     230       1,032       152       —         382       1,032       1,414       (147   1990   3/31/2014     15 to 30 Years  

Heartland Dental

 

Waynesboro, PA

  (a)     100       601       —         —         100       601       701       (66   1957   3/31/2014     15 to 40 Years  

Heartland Dental

 

York, PA

  (a)     100       481       —         —         100       481       581       (68   1984   3/31/2014     15 to 30 Years  

Heartland Dental

 

Hartsville, SC

  (a)     90       180       —         —         90       180       270       (24   1973   3/31/2014     15 to 40 Years  

Heartland Dental

 

North Myrtle Beach, SC

  (a)     581       601       —         —         581       601       1,182       (115   2004   3/31/2014     15 to 30 Years  

Heartland Dental

 

Spartanburg, SC

  (a)     150       401       —         —         150       401       551       (60   1992   3/31/2014     15 to 30 Years  

Heartland Dental

 

Clarksville, TN

  (a)     281       531       —         —         281       531       812       (76   1997   3/31/2014     15 to 30 Years  

Heartland Dental

 

Germantown, TN

  (a)     91       171       —         —         91       171       262       (19   1984   4/8/2014     15 to 40 Years  

Heartland Dental

 

Memphis, TN

  (a)     91       490       —         —         91       490       581       (67   1987   4/8/2014     15 to 30 Years  

Heartland Dental

 

Devine, TX

  (a)     240       481       —         —         240       481       721       (83   2002   3/31/2014     15 to 30 Years  

Heartland Dental

 

Longview, TX

  (a)     200       601       —         —         200       601       801       (98   2003   3/31/2014     15 to 30 Years  

Heartland Dental

 

Wylie, TX

  (a)     210       912       —         —         210       912       1,122       (132   1986   3/31/2014     15 to 30 Years  

Heartland Dental

 

Wittenberg, WI

  (a)     41       210       —         —         41       210       251       (29   1982   3/31/2014     15 to 30 Years  

HHI-Formtech

 

Royal Oak, MI

  (a)     3,426       7,071       —         —         3,426       7,071       10,497       (2,850   1952   3/10/2006     15 to 30 Years  

HHI-Formtech

 

Troy, MI

  (a)     1,128       947       —         —         1,128       947       2,075       (388   1952   3/10/2006     15 to 30 Years  

HOM Furniture

 

Hermantown, MN

  (a)     1,881       7,761       —         —         1,881       7,761       9,642       (2,539   2003   4/8/2005     15 to 40 Years  

HOM Furniture

 

Eau Claire, WI

  (a)     1,597       6,964       —         —         1,597       6,964       8,561       (3,060   2004   4/8/2005     15 to 30 Years  

Hooters

 

Midlothian, VA

  (a)     823       1,151       —         246       823       1,397       2,220       (572   1994   11/28/2006     15 to 30 Years  

 

F-39


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Hooters

 

Richmond, VA

  (a)     1,253       1,410       —         29       1,253       1,439       2,692       (586   1977   11/28/2006     15 to 30 Years  

Hughes

 

Bowling Green, KY

  (a)     136       228       —         —         136       228       364       (112   1993   5/1/2005     15 to 30 Years  

Humperdinks

 

Arlington, TX

  (a)     2,064       2,043       —         —         2,064       2,043       4,107       (888   1995   7/1/2005     15 to 30 Years  

Jack in the Box

 

Auburn, CA

  (a)     579       299       —         —         579       299       878       (155   1992   12/29/2006     15 to 30 Years  

Jack Stack Barbeque

 

Overland Park, KS

  (a)     2,549       3,219       —         —         2,549       3,219       5,768       (480   1983   5/15/2014     15 to 30 Years  

Joe’s Crab Shack

 

Colorado Springs, CO

  (a)     674       519       —         —         674       519       1,193       (146   1989   11/19/2012     5 to 30 Years  

Joe’s Crab Shack

 

Beaumont, TX

  (a)     1,435       1,541       —         —         1,435       1,541       2,976       (758   1997   6/29/2007     15 to 40 Years  

Joe’s Crab Shack

 

Plano, TX

  (a)     2,418       1,529       —         —         2,418       1,529       3,947       (672   1998   6/29/2007     15 to 40 Years  

Kansas Bar and Grill

 

Colby, KS

  (a)     269       567       —         —         269       567       836       (101   1987   6/4/2014     15 to 30 Years  

Kansas Bar and Grill

 

Dodge City, KS

  (a)     249       587       —         —         249       587       836       (87   1985   6/4/2014     15 to 30 Years  

Kansas Bar and Grill

 

Emporia, KS

  (a)     657       219       —         —         657       219       876       (43   1997   6/4/2014     15 to 30 Years  

Kansas Bar and Grill

 

Newton, KS

  (a)     175       661       —         —         175       661       836       (106   1987   6/30/2014     15 to 30 Years  

Kansas Bar and Grill

 

Winfield, KS

  (a)     239       866       —         —         239       866       1,105       (144   1995   6/4/2014     15 to 30 Years  

Kansas Buffet Company

 

Arkansas city, KS

  (a)     239       975       —         —         239       975       1,214       (154   1987   6/4/2014     15 to 30 Years  

Kansas Buffet Company

 

Hutchinson, KS

  (a)     895       856       —         —         895       856       1,751       (150   1987   6/4/2014     15 to 30 Years  

Kansas Buffet Company

 

Ottawa, KS

  (a)     348       816       —         —         348       816       1,164       (126   1987   6/4/2014     15 to 30 Years  

Kansas Buffet Company

 

Topeka, KS

  (a)     1,224       905       —         —         1,224       905       2,129       (187   1988   6/4/2014     15 to 30 Years  

Kansas Buffet Company

 

Stillwater, OK

  (a)     647       687       —         —         647       687       1,334       (118   1987   6/4/2014     15 to 30 Years  

Kerry’s Car Care

 

Phoenix, AZ

  (a)     956       1,485       —         —         956       1,485       2,441       (125   2015   6/24/2016     4 to 40 Years  

KFC

 

Atlanta, GA

  (a)     513       483       —         —         513       483       996       (122   2002   2/2/2012     15 to 30 Years  

KFC

 

Roswell, GA

  (a)     513       559       —         —         513       559       1,072       (111   2006   2/2/2012     15 to 40 Years  

KFC

 

Kansas City, KS

  (a)     —         —         349       425       349       425       774       (114   1977   10/3/2011     14 to 29 Years  

Krispy Kreme

 

Bentonville, AR

  (a)     635       900       —         —         635       900       1,535       (438   2004   7/7/2005     15 to 30 Years  

Krispy Kreme

 

Little Rock, AR

  (a)     917       847       —         —         917       847       1,764       (430   2004   7/7/2005     15 to 30 Years  
Krispy Kreme  

Lone Tree, CO

  (a)     1,717       1,117       —         —         1,717       1,117       2,834       (658   2000   12/23/2008     13 to 38 Years  
Krispy Kreme  

Lubbock, TX

  (a)     687       856       —         —         687       856       1,543       (432   2003   7/7/2005     15 to 30 Years  
LA Fitness  

Clinton Township, MI

  (a)     5,430       7,254       (2,799     (1,160     2,631       6,094       8,725       (1,003   1999   1/9/2007     15 to 30 Years  
Lerner and Rowe  

Bullhead City, AZ

  (a)     147       489       —         —         147       489       636       (64   1970   9/30/2013     15 to 50 Years  
Lerner and Rowe  

Mesa, AZ

  (a)     372       1,398       —         —         372       1,398       1,770       (144   2003   9/30/2013     15 to 50 Years  
Lerner and Rowe  

Phoenix, AZ

  (a)     352       2,435       —         —         352       2,435       2,787       (224   1973   9/30/2013     15 to 50 Years  
Lerner and Rowe  

Chicago, IL

  (a)     186       1,780       —         —         186       1,780       1,966       (151   2007   9/30/2013     50 to 50 Years  
Lerner and Rowe  

Las Vegas, NV

  (a)     430       3,589       —         —         430       3,589       4,019       (347   2002   9/30/2013     15 to 50 Years  
Long John Silver’s  

Crossville, TN

  (a)     353       382       —         —         353       382       735       (129   1977   9/1/2005     15 to 40 Years  
Long John Silver’s  

Greenville, TN

  (a)     289       311       —         —         289       311       600       (341   1972   9/1/2005     10 to 15 Years  
Long John Silver’s  

Harriman, TN

  (a)     387       502       —         —         387       502       889       (291   1976   9/1/2005     15 to 20 Years  
Long John Silver’s  

Knoxville, TN

  (a)     332       185       —         —         332       185       517       (132   1977   9/1/2005     15 to 20 Years  
Long John Silver’s  

Morristown, TN

  (a)     588       781       —         —         588       781       1,369       (336   1987   9/1/2005     15 to 30 Years  
Long John Silver’s  

Oak Ridge, TN

  (a)     669       548       —         —         669       548       1,217       (228   1976   9/1/2005     15 to 30 Years  
Marcus Theaters  

Arnold, MO

  (a)     3,275       3,014       —         —         3,275       3,014       6,289       (1,222   1999   7/17/2013     5 to 21 Years  

 

F-40


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 
Martin’s  

Austell, GA

  (a)     838       216       —         —         838       216       1,054       (241   1962   2/28/2006     15 to 20 Years  
Martin’s  

Carrollton, GA

  (a)     508       603       —         —         508       603       1,111       (258   2000   2/28/2006     15 to 40 Years  
Martin’s  

Cartersville, GA

  (a)     581       730       —         —         581       730       1,311       (380   1997   2/28/2006     15 to 30 Years  
Martin’s  

Cartersville, GA

  (a)     439       451       —         —         439       451       890       (279   1990   2/28/2006     15 to 30 Years  
Martin’s  

Douglasville, GA

  (a)     712       669       —         —         712       669       1,381       (275   2003   2/28/2006     15 to 40 Years  
Martin’s  

Douglasville, GA

  (a)     764       941       —         —         764       941       1,705       (428   1990   2/28/2006     15 to 30 Years  
Martin’s  

Douglasville, GA

  (a)     127       —         —         210       127       210       337       —       (d)   11/14/2014(d)  
Martin’s  

Floyd, GA

  (a)     973       415       —         —         973       415       1,388       (198   1993   2/28/2006     15 to 30 Years  
Martin’s  

Hiram, GA

  (a)     1,006       1,142       —         —         1,006       1,142       2,148       (586   1987   2/28/2006     15 to 30 Years  
Martin’s  

Kennesaw, GA

  (a)     907       499       —         —         907       499       1,406       (267   2001   2/28/2006     15 to 40 Years  
Martin’s  

Mableton, GA

  (a)     454       826       —         —         454       826       1,280       (341   1987   2/28/2006     15 to 30 Years  
Martin’s  

Mableton, GA

  (a)     634       578       —         —         634       578       1,212       (264   1981   2/28/2006     15 to 30 Years  
Martin’s  

Marietta, GA

  (a)     797       428       —         —         797       428       1,225       (273   1990   2/28/2006     15 to 30 Years  
Martin’s  

Morrow, GA

  (a)     652       450       —         —         652       450       1,102       (235   1995   2/28/2006     15 to 30 Years  
Martin’s  

Norcross, GA

  (a)     678       402       —         —         678       402       1,080       (266   1982   2/28/2006     15 to 20 Years  
Martin’s  

Villa Rica, GA

  (a)     807       629       —         —         807       629       1,436       (351   1999   2/28/2006     15 to 30 Years  
Max & Erma’s  

Hilliard, OH

  (a)     1,149       1,291       —         —         1,149       1,291       2,440       (668   1997   9/24/2004     15 to 30 Years  
Max & Erma’s  

Mars, PA

  (a)     946       2,221       —         —         946       2,221       3,167       (1,005   1990   6/25/2004     15 to 30 Years  
Max & Erma’s  

Pittsburgh, PA

  (a)     1,289       1,871       —         —         1,289       1,871       3,160       (831   1992   6/25/2004     15 to 30 Years  
Mealey’s Furniture  

Bensalem, PA

  (a)     1,653       3,085       —         —         1,653       3,085       4,738       (1,371   1987   1/3/2007     15 to 30 Years  
Mealey’s Furniture  

Fairless Hills, PA

  (a)     3,655       5,271       —         —         3,655       5,271       8,926       (2,475   1994   1/3/2007     15 to 30 Years  
Mealey’s Furniture  

Morrisville, PA

  (a)     1,345       8,288       —         —         1,345       8,288       9,633       (3,049   2004   1/3/2007     15 to 40 Years  
Meineke Car Care Center  

Acworth, GA

  (a)     823       976       —         —         823       976       1,799       (127   1999   3/28/2014     15 to 40 Years  
Meineke Car Care Center  

Kennesaw, GA

  (a)     874       1,270       —         —         874       1,270       2,144       (165   1999   3/28/2014     15 to 40 Years  
Meineke Car Care Center  

Lawrenceville, GA

  (a)     722       976       —         —         722       976       1,698       (130   2000   3/28/2014     15 to 40 Years  
Meineke Car Care Center  

Woodstock, GA

  (a)     1,108       1,281       —         —         1,108       1,281       2,389       (178   1999   3/28/2014     15 to 40 Years  
Memphis Contract Packaging  

Somerville, TN

  (b)     345       537       —         —         345       537       882       (328   2000   5/31/2006     15 to 30 Years  
Metaldyne BSM  

Fremont, IN

  (a)     427       2,176       —         —         427       2,176       2,603       (912   1960   2/21/2007     14 to 30 Years  

Mills Fleet Farm

 

Waite Park, MN

  (a)     4,919       25,384       —         54       4,919       25,438       30,357       (1,878   1979   6/9/2016     4 to 40 Years  

Milo’s

 

Homewood, AL

  (a)     583       839       —         —         583       839       1,422       (157   2002   12/5/2013     15 to 30 Years  

Mister Car Wash

 

Albuquerque, NM

  (a)     2,472       2,117       —         —         2,472       2,117       4,589       (474   2005   5/13/2014     15 to 30 Years  

Mister Car Wash

 

Albuquerque, NM

  (a)     2,657       3,225       —         —         2,657       3,225       5,882       (738   1960   5/13/2014     15 to 30 Years  

Mister Car Wash

 

Albuquerque, NM

  (a)     1,151       1,677       —         —         1,151       1,677       2,828       (326   1976   5/13/2014     15 to 30 Years  

Mister Car Wash

 

Albuquerque, NM

  (a)     1,563       2,700       —         —         1,563       2,700       4,263       (431   1994   5/13/2014     15 to 30 Years  

Mister Car Wash

 

Albuquerque, NM

  (a)     2,586       2,742       —         —         2,586       2,742       5,328       (516   2002   5/13/2014     15 to 30 Years  

Mister Car Wash

 

Houston, TX

  (a)     1,703       1,221       —         —         1,703       1,221       2,924       (303   1996   6/18/2014     15 to 30 Years  

Monterey’s Tex Mex

 

Alvin, TX

  (a)     256       585       —         —         256       585       841       (628   1997   12/30/2004     10 to 15 Years  

Monterey’s Tex Mex

 

Bryan, TX

  (a)     739       700       —         —         739       700       1,439       (485   1988   12/30/2004     15 to 20 Years  

Monterey’s Tex Mex

 

Houston, TX

  (a)     585       561       —         —         585       561       1,146       (628   1979   12/30/2004     10 to 15 Years  

 

F-41


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Mountainside Fitness

 

Chandler, AZ

  (a)     1,028       5,318       —         —         1,028       5,318       6,346       (726   2002   7/17/2013     8 to 40 Years  

Multi-Tenant

 

Bald Knob, AR

  (a)     328       327       —         —         328       327       655       (138   1971   3/31/2014     1 to 15 Years  

Multi-Tenant

 

Bethany, MO

  (b)     648       379       —         —         648       379       1,027       (353   1974   5/31/2006     15 to 20 Years  

Multi-Tenant

 

Oxford, MS

  (a)     1,416       4,451       —         —         1,416       4,451       5,867       (499   2001   5/15/2014     15 to 40 Years  

NAPA

 

North Little Rock, AR

  (a)     244       311       —         —         244       311       555       (56   2001   3/31/2014     2 to 30 Years  

National Paintball Supply

 

Sewell, NJ

  (a)     858       8,613       (680     (5,733     178       2,880       3,058       1,987     2000   11/17/2006     5 to 40 Years  

Norms

 

Bellflower, CA

  (a)     1,284       1,636       —         —         1,284       1,636       2,920       (209   1970   12/19/2014     15 to 30 Years  

Norms

 

Bellflower, CA

  (a)     1,273       1,501       —         —         1,273       1,501       2,774       (138   1981   12/19/2014     15 to 50 Years  

Norms

 

Claremont, CA

  (a)     2,764       2,919       —         —         2,764       2,919       5,683       (360   2011   12/19/2014     15 to 40 Years  

Norms

 

Downey, CA

  (a)     2,329       2,526       —         —         2,329       2,526       4,855       (278   1993   12/19/2014     15 to 40 Years  

Norms

 

Huntington Park, CA

  (a)     1,822       1,211       —         —         1,822       1,211       3,033       (179   1957   12/19/2014     15 to 30 Years  

Norms

 

Pico Rivera, CA

  (a)     2,785       3,126       —         —         2,785       3,126       5,911       (346   2014   12/19/2014     15 to 40 Years  

Norms

 

Riverside, CA

  (a)     1,988       1,211       —         —         1,988       1,211       3,199       (204   2002   12/19/2014     15 to 30 Years  

Norms

 

Santa Ana, CA

  (a)     2,112       1,501       —         —         2,112       1,501       3,613       (206   1976   12/19/2014     15 to 30 Years  

Norms

 

Torrance, CA

  (a)     3,509       2,754       —         —         3,509       2,754       6,263       (308   1998   12/19/2014     15 to 40 Years  

Norms

 

Whittier, CA

  (a)     1,439       1,874       —         —         1,439       1,874       3,313       (199   1991   12/19/2014     15 to 40 Years  

Ojos Locos Sports Cantina

 

San Antonio, TX

  (a)     1,204       519       —         —         1,204       519       1,723       (65   1993   9/26/2013     30 to 30 Years  

Old Mexico Cantina

 

Gadsden, AL

  (a)     626       1,439       (229     (506     397       933       1,330       (324   2007   12/21/2007     10 to 50 Years  

Oregano’s Pizza Bistro

 

Gilbert, AZ

  (a)     —         —         643       1,669       643       1,669       2,312       (363   2006   10/28/2011     14 to 39 Years  

Oregano’s Pizza Bistro

 

Mesa, AZ

  (a)     —         —         676       911       676       911       1,587       (241   1978   10/28/2011     14 to 39 Years  

Oregano’s Pizza Bistro

 

Phoenix, AZ

  (a)     —         —         787       663       787       663       1,450       (236   1964   10/28/2011     14 to 29 Years  

O’Reilly Auto Parts

 

Pea Ridge, AR

  (a)     217       —         —         —         217       —         217       —       (d)   3/31/2014     (d

O’Reilly Auto Parts

 

Warren, AR

  (a)     217       375       —         —         217       375       592       (76   2006   3/31/2014     13 to 30 Years  

Orscheln Farm and Home

 

Mountain Home, AR

  (a)     944       690       —         —         944       690       1,634       (309   1977   3/31/2014     6 to 15 Years  

Orscheln Farm and Home

 

Pocahontas, AR

  (a)     361       471       —         —         361       471       832       (150   1986   3/31/2014     7 to 20 Years  

Perkins Family Restaurant

 

Olean, NY

  (a)     355       663       —         —         355       663       1,018       (333   1977   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Ashtabula, OH

  (a)     865       244       —         —         865       244       1,109       (177   1975   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Austintown, OH

  (a)     1,106       450       —         —         1,106       450       1,556       (254   1991   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Canfield, OH

  (a)     449       644       92       —         541       644       1,185       (321   1973   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Canton, OH

  (a)     1,325       781       —         —         1,325       781       2,106       (378   1989   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Middleburg Heights, OH

  (a)     1,456       793       —         —         1,456       793       2,249       (386   1987   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Warren, OH

  (a)     973       640       —         —         973       640       1,613       (324   1999   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Youngstown, OH

  (a)     1,560       557       —         —         1,560       557       2,117       (296   1985   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Bradford, PA

  (a)     368       255       —         —         368       255       623       (167   1977   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Clarion, PA

  (a)     426       653       —         —         426       653       1,079       (337   1976   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Corry, PA

  (a)     411       279       —         —         411       279       690       (202   1977   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Edinboro, PA

  (a)     384       350       —         —         384       350       734       (224   1973   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Erie, PA

  (a)     575       740       —         —         575       740       1,315       (350   1974   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Erie, PA

  (a)     463       565       —         —         463       565       1,028       (287   1973   2/6/2007     15 to 30 Years  

 

F-42


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Perkins Family Restaurant

 

Erie, PA

  (a)     855       147       —         —         855       147       1,002       (153   1973   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Grove City, PA

  (a)     531       495       —         —         531       495       1,026       (272   1976   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Indiana, PA

  (a)     331       323       —         —         331       323       654       (199   1982   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Meadville, PA

  (a)     981       1,056       —         —         981       1,056       2,037       (481   1983   2/6/2007     15 to 30 Years  

Perkins Family Restaurant

 

Titusville, PA

  (a)     247       438       —         —         247       438       685       (226   1976   4/29/2011     11 to 26 Years  

Perkins Family Restaurant

 

Warren, PA

  (a)     383       427       —         —         383       427       810       (260   1970   2/6/2007     15 to 30 Years  

Pier1 Imports

 

St. Louis, MO

  (a)     785       1,023       —         —         785       1,023       1,808       (148   1996   8/30/2013     15 to 40 Years  

Pike Nursery

 

Alpharetta, GA

  (a)     2,497       2,160       —         —         2,497       2,160       4,657       (1,255   1994   7/1/2005     15 to 30 Years  

Pike Nursery

 

Alpharetta, GA

  (a)     4,079       1,948       —         —         4,079       1,948       6,027       (1,583   1983   7/1/2005     15 to 20 Years  

Pike Nursery

 

Atlanta, GA

  (a)     4,863       815       —         —         4,863       815       5,678       (785   1970   7/1/2005     15 to 20 Years  

Pike Nursery

 

Marietta, GA

  (a)     4,675       854       —         —         4,675       854       5,529       (816   1996   7/1/2005     15 to 30 Years  

Pike Nursery

 

Marietta, GA

  (a)     2,610       865       —         —         2,610       865       3,475       (785   1977   7/1/2005     15 to 20 Years  

Pine Creek Medical Center

 

Dallas, TX

  (a)     1,633       21,835       —         2,019       1,633       23,854       25,487       (5,631   2005   8/29/2005     15 to 50 Years  

Pine Creek Medical Center

 

Dallas, TX

  (a)     1,915       6,360       —         2,790       1,915       9,150       11,065       (1,807   2006   3/28/2013     11 to 50 Years  

Pizza Hut

 

Geneva, AL

  (a)     522       570       —         —         522       570       1,092       (664   1990   6/25/2004     10 to 15 Years  

Pizza Hut

 

Blakely, GA

  (a)     288       744       —         —         288       744       1,032       (520   1987   6/25/2004     15 to 20 Years  

Pizza Hut

 

Chatsworth, GA

  (a)     213       558       —         —         213       558       771       (258   1979   11/2/2007     15 to 30 Years  

Pizza Hut

 

LaFayette, GA

  (a)     246       434       —         176       246       610       856       (292   1991   11/2/2007     15 to 30 Years  

Pizza Hut

 

Ringgold, GA

  (a)     387       374       —         —         387       374       761       (196   1990   11/2/2007     15 to 30 Years  

Pizza Hut

 

Trenton, GA

  (a)     300       227       —         —         300       227       527       (157   1991   11/2/2007     15 to 30 Years  

Pizza Hut

 

Burlington, IA

  (a)     304       588       —         —         304       588       892       (314   1996   9/23/2005     15 to 30 Years  

Pizza Hut

 

Burlington, IA

  (a)     318       484       —         —         318       484       802       (265   2006   12/4/2006     15 to 30 Years  

Pizza Hut

 

Creston, IA

  (a)     103       180       —         —         103       180       283       (214   1974   12/15/2005     10 to 15 Years  

Pizza Hut

 

De Witt, IA

  (a)     248       333       —         —         248       333       581       (264   1984   9/23/2005     15 to 20 Years  

Pizza Hut

 

Decorah, IA

  (a)     207       91       —         —         207       91       298       (120   1985   9/23/2005     10 to 15 Years  

Pizza Hut

 

Dubuque, IA

  (a)     479       298       —         —         479       298       777       (393   1970   9/23/2005     10 to 15 Years  

Pizza Hut

 

Dyersville, IA

  (a)     267       513       —         —         267       513       780       (394   1983   9/23/2005     14 to 20 Years  

Pizza Hut

 

Independence, IA

  (a)     223       473       —         —         223       473       696       (554   1976   9/23/2005     10 to 15 Years  

Pizza Hut

 

Manchester, IA

  (a)     351       495       —         —         351       495       846       (578   1977   9/23/2005     10 to 15 Years  

Pizza Hut

 

Maquoketa, IA

  (a)     184       90       —         —         184       90       274       (149   1973   9/23/2005     10 to 15 Years  

Pizza Hut

 

Tipton, IA

  (a)     240       408       —         —         240       408       648       (520   1991   9/23/2005     10 to 15 Years  

Pizza Hut

 

Vinton, IA

  (a)     121       114       —         —         121       114       235       (181   1978   9/23/2005     10 to 15 Years  

Pizza Hut

 

Charleston, IL

  (a)     272       220       —         —         272       220       492       (248   1986   9/23/2005     10 to 15 Years  

Pizza Hut

 

Effingham, IL

  (a)     357       228       —         —         357       228       585       (299   1973   9/23/2005     10 to 15 Years  

Pizza Hut

 

Rock Falls, IL

  (a)     314       631       —         —         314       631       945       (324   1995   9/23/2005     15 to 30 Years  

Pizza Hut

 

Salem, IL

  (a)     271       218       —         —         271       218       489       (125   2000   7/28/2004     15 to 30 Years  

Pizza Hut

 

Taylorville, IL

  (a)     154       352       —         —         154       352       506       (380   1980   9/23/2005     10 to 15 Years  

Pizza Hut

 

Vandalia, IL

  (a)     409       202       —         —         409       202       611       (358   1977   9/23/2005     10 to 15 Years  

Pizza Hut

 

Evansville, IN

  (a)     270       231       —         —         270       231       501       (80   2000   6/25/2004     30 to 30 Years  

 

F-43


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Pizza Hut

 

Mayfield, KY

  (a)     307       596       —         —         307       596       903       (372   1997   6/25/2004     15 to 30 Years  

Pizza Hut

 

Owensboro, KY

  (a)     250       502       —         —         250       502       752       (174   1991   6/25/2004     30 to 30 Years  

Pizza Hut

 

Bowie, MD

  (a)     333       173       —         200       333       373       706       (257   1983   11/27/2006     15 to 20 Years  

Pizza Hut

 

Clinton, MD

  (a)     300       193       —         200       300       393       693       (208   1980   11/27/2006     13 to 20 Years  

Pizza Hut

 

Emmitsburg, MD

  (a)     141       182       —         —         141       182       323       (115   1981   11/27/2006     15 to 20 Years  

Pizza Hut

 

Frederick, MD

  (a)     440       236       —         5       440       241       681       (153   1977   11/27/2006     11 to 20 Years  

Pizza Hut

 

Hagerstown, MD

  (a)     546       342       —         68       546       410       956       (246   1975   11/27/2006     11 to 20 Years  

Pizza Hut

 

Hyattsville, MD

  (a)     702       245       —         —         702       245       947       (184   1985   11/27/2006     15 to 20 Years  

Pizza Hut

 

Lanham, MD

  (a)     302       193       —         200       302       393       695       (211   1980   11/27/2006     13 to 20 Years  

Pizza Hut

 

Silver Spring, MD

  (a)     1,008       251       —         —         1,008       251       1,259       (202   1983   11/27/2006     15 to 20 Years  

Pizza Hut

 

Thurmont, MD

  (a)     857       307       —         68       857       375       1,232       (245   1985   11/27/2006     11 to 20 Years  

Pizza Hut

 

Upper Marlboro, MD

  (a)     290       172       —         —         290       172       462       (151   1983   11/27/2006     15 to 20 Years  

Pizza Hut

 

Walkersville, MD

  (a)     381       238       —         68       381       306       687       (182   1985   11/27/2006     11 to 20 Years  

Pizza Hut

 

Duluth, MN

  (a)     74       423       —         —         74       423       497       (148   1915   5/24/2005     15 to 30 Years  

Pizza Hut

 

Lakeville, MN

  (a)     342       439       —         80       342       519       861       (196   1988   5/24/2005     15 to 30 Years  

Pizza Hut

 

Woodbury, MN

  (a)     555       411       (180     (121     375       290       665       (23   1987   5/24/2005     15 to 30 Years  

Pizza Hut

 

Madill, OK

  (a)     352       648       —         —         352       648       1,000       (785   1972   6/25/2004     10 to 15 Years  

Pizza Hut

 

Ephrata, PA

  (a)     685       231       —         —         685       231       916       (210   1978   1/30/2006     15 to 20 Years  

Pizza Hut

 

Harrisburg, PA

  (a)     762       241       —         176       762       417       1,179       (336   1977   1/30/2006     15 to 20 Years  

Pizza Hut

 

Harrisburg, PA

  (a)     611       239       —         —         611       239       850       (283   1978   1/30/2006     15 to 20 Years  

Pizza Hut

 

Harrisburg, PA

  (a)     423       307       —         —         423       307       730       (189   1973   1/30/2006     15 to 20 Years  

Pizza Hut

 

Lancaster, PA

  (a)     308       161       —         —         308       161       469       (127   1977   7/25/2006     15 to 30 Years  

Pizza Hut

 

Lebanon, PA

  (a)     616       316       —         176       616       492       1,108       (348   1980   1/30/2006     15 to 20 Years  

Pizza Hut

 

Mechanicsburg, PA

  (a)     801       481       —         —         801       481       1,282       (363   1995   1/30/2006     15 to 20 Years  

Pizza Hut

 

New Cumberland, PA

  (a)     634       278       —         176       634       454       1,088       (336   1990   1/30/2006     15 to 20 Years  

Pizza Hut

 

Alcoa, TN

  (a)     228       219       —         —         228       219       447       (125   1982   11/2/2007     15 to 30 Years  

Pizza Hut

 

Alcoa, TN

  (a)     483       318       —         —         483       318       801       (188   1978   11/2/2007     15 to 30 Years  

Pizza Hut

 

Athens, TN

  (a)     197       341       —         176       197       517       714       (262   1977   11/2/2007     15 to 30 Years  

Pizza Hut

 

Chattanooga, TN

  (a)     352       246       —         —         352       246       598       (198   1984   11/2/2007     15 to 30 Years  

Pizza Hut

 

Clinton, TN

  (a)     417       293       —         —         417       293       710       (190   1994   11/2/2007     15 to 30 Years  

Pizza Hut

 

Crossville, TN

  (a)     220       288       —         176       220       464       684       (245   1978   11/2/2007     15 to 30 Years  

Pizza Hut

 

Dayton, TN

  (a)     308       291       —         176       308       467       775       (244   1979   11/2/2007     15 to 30 Years  

Pizza Hut

 

Harriman, TN

  (a)     314       143       —         176       314       319       633       (194   1979   11/2/2007     15 to 30 Years  

Pizza Hut

 

Kimball, TN

  (a)     367       283       —         176       367       459       826       (247   1987   11/2/2007     15 to 30 Years  

Pizza Hut

 

Knoxville, TN

  (a)     296       343       —         176       296       519       815       (253   1978   11/2/2007     15 to 30 Years  

Pizza Hut

 

Knoxville, TN

  (a)     172       700       —         —         172       700       872       (278   1991   11/2/2007     15 to 30 Years  

Pizza Hut

 

Powell, TN

  (a)     252       377       —         176       252       553       805       (278   1982   11/2/2007     15 to 30 Years  

Pizza Hut

 

Soddy Daisy, TN

  (a)     316       405       —         —         316       405       721       (214   1989   11/2/2007     15 to 30 Years  

Pizza Hut

 

Sweetwater, TN

  (a)     231       307       —         —         231       307       538       (171   1979   11/2/2007     15 to 30 Years  

 

F-44


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Pizza Hut

 

Alexandria, VA

  (a)     1,024       202       —         12       1,024       214       1,238       (164   1979   12/19/2006     11 to 20 Years  

Pizza Hut

 

Culpeper, VA

  (a)     367       169       —         —         367       169       536       (128   1977   12/19/2006     15 to 20 Years  

Pizza Hut

 

Reston, VA

  (a)     1,033       193       —         —         1,033       193       1,226       (154   1977   11/27/2006     15 to 20 Years  

Pizza Hut

 

Warrenton, VA

  (a)     378       254       —         —         378       254       632       (188   1985   12/19/2006     14 to 20 Years  

Planet Fitness

 

Chicago, IL

  (a)     1,009       2,965       —         —         1,009       2,965       3,974       (397   2007   12/9/2013     14 to 40 Years  

Popeye’s Chicken & Biscuits

 

Tempe, AZ

  (a)     480       361       —         —         480       361       841       (211   2003   9/25/2006     15 to 30 Years  

Popeye’s Chicken & Biscuits

 

Deerfield Beach, FL

  (a)     668       295       —         —         668       295       963       (178   1970   9/24/2004     15 to 30 Years  

Popeye’s Chicken & Biscuits

 

Fort Lauderdale, FL

  (a)     601       121       —         —         601       121       722       (218   1984   9/24/2004     10 to 15 Years  

Popeye’s Chicken & Biscuits

 

Fort Pierce, FL

  (a)     667       184       —         —         667       184       851       (153   1999   9/24/2004     15 to 30 Years  

Popeye’s Chicken & Biscuits

 

Lauderdale Lakes, FL

  (a)     411       346       —         —         411       346       757       (165   1998   12/29/2006     15 to 30 Years  

Popeye’s Chicken & Biscuits

 

Miami, FL

  (a)     602       14       —         —         602       14       616       (202   1978   9/24/2004     10 to 15 Years  

Popeye’s Chicken & Biscuits

 

Miami, FL

  (a)     596       105       —         —         596       105       701       (165   1978   9/24/2004     10 to 15 Years  

Popeye’s Chicken & Biscuits

 

Pensacola, FL

  (a)     860       291       —         —         860       291       1,151       (422   1977   7/28/2004     10 to 15 Years  

Popeye’s Chicken & Biscuits

 

Baton Rouge, LA

  (a)     565       286       —         —         565       286       851       (251   1991   6/25/2004     15 to 20 Years  

Popeye’s Chicken & Biscuits

 

Baton Rouge, LA

  (a)     —         —         594       417       594       417       1,011       (331   1979   6/25/2004     15 to 20 Years  

Popeye’s Chicken & Biscuits

 

Baton Rouge, LA

  (a)     —         —         472       642       472       642       1,114       (319   1987   9/24/2004     15 to 30 Years  

Popeye’s Chicken & Biscuits

 

Lafayette, LA

  (a)     300       779       —         —         300       779       1,079       (128   1972   10/30/2013     15 to 30 Years  

Popeye’s Chicken & Biscuits

 

Opelousas, LA

  (a)     419       659       —         —         419       659       1,078       (119   1968   10/30/2013     15 to 30 Years  

Popeye’s Chicken & Biscuits

 

Port Allen, LA

  (a)     —         —         521       575       521       575       1,096       (344   1997   9/24/2004     15 to 30 Years  

Popeye’s Chicken & Biscuits

 

St. Louis, MO

  (a)     503       651       —         —         503       651       1,154       (427   1976   9/24/2004     15 to 20 Years  

Popeye’s Chicken & Biscuits

 

St. Louis, MO

  (a)     828       351       —         —         828       351       1,179       (332   1986   9/24/2004     15 to 20 Years  

Popeye’s Chicken & Biscuits

 

Holly Springs, MS

  (a)     116       —         —         —         116       —         116       —       (d)   10/30/2013     (d

Popeye’s Chicken & Biscuits

 

Horn Lake, MS

  (a)     231       —         —         —         231       —         231       —       (d)   10/30/2013     (d

Popeye’s Chicken & Biscuits

 

Bartlett, TN

  (a)     411       —         —         —         411       —         411       —       (d)   10/30/2013     (d

Popeye’s Chicken & Biscuits

 

Collierville, TN

  (a)     539       —         —         —         539       —         539       —       (d)   10/30/2013     (d

Popeye’s Chicken & Biscuits

 

Memphis, TN

  (a)     320       —         —         —         320       —         320       —       (d)   10/30/2013     (d

Popeye’s Chicken & Biscuits

 

Nashville, TN

  (a)     264       —         —         —         264       —         264       —       (d)   10/30/2013     (d

Popeye’s Chicken & Biscuits

 

Nashville, TN

  (a)     538       —         —         —         538       —         538       —       (d)   10/30/2013     (d

Popeye’s Chicken & Biscuits

 

Houston, TX

  (a)     592       302       —         —         592       302       894       (197   1979   9/28/2006     15 to 20 Years  

Popeye’s Chicken & Biscuits

 

San Antonio, TX

  (a)     517       373       —         —         517       373       890       (221   2002   9/25/2006     15 to 30 Years  

Popeye’s Chicken & Biscuits

 

San Antonio, TX

  (a)     349       429       —         —         349       429       778       (289   1983   9/25/2006     15 to 20 Years  

Popeye’s Chicken & Biscuits

 

San Antonio, TX

  (a)     428       339       —         —         428       339       767       (205   2001   9/25/2006     15 to 30 Years  

Popeye’s Chicken & Biscuits

 

San Antonio, TX

  (a)     539       300       —         —         539       300       839       (221   2001   9/25/2006     15 to 30 Years  

Primanti Bros.

 

Avon, IN

  (a)     899       615       —         188       899       803       1,702       (123   2014   10/31/2014     14 to 30 Years  

Primanti Bros.

 

Indianapolis, IN

  (a)     590       633       —         —         590       633       1,223       (125   2014   10/31/2014     14 to 30 Years  

Rainbow Kids Clinic

 

Clarksville, TN

  (a)     978       2,718       —         —         978       2,718       3,696       (262   2011   12/4/2014     15 to 40 Years  

Rally’s

 

Marion, IN

  (a)     503       153       —         —         503       153       656       (147   1990   9/24/2004     15 to 20 Years  

Rally’s

 

New Albany, IN

  (a)     497       278       —         —         497       278       775       (190   1992   9/24/2004     15 to 30 Years  

Rally’s

 

Florence, KY

  (a)     524       209       —         —         524       209       733       (184   1992   9/24/2004     15 to 30 Years  

 

F-45


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Rally’s

 

Louisville, KY

  (a)     334       251       —         —         334       251       585       (159   1991   9/24/2004     15 to 20 Years  

Raymour & Flanigan Furniture

 

Horseheads, NY

  (a)     1,389       12,631       —         —         1,389       12,631       14,020       (615   2005   10/6/2015     15 to 50 Years  

Raymour & Flanigan Furniture

 

Johnson City, NY

  (a)     1,477       10,564       —         —         1,477       10,564       12,041       (658   1978   10/6/2015     15 to 40 Years  

RBG Eye Associates

 

Sherman, TX

  (a)     1,249       4,697       —         17       1,249       4,714       5,963       (362   2013   6/30/2015     15 to 40 Years  

Red Robin Gourmet Burgers

 

Gurnee, IL

  (a)     586       619       —         —         586       619       1,205       (424   1995   6/25/2004     15 to 20 Years  

Regal Cinemas

 

Fenton, MO

  (a)     2,792       5,982       —         —         2,792       5,982       8,774       (833   2008   9/29/2014     13 to 40 Years  

Regal Cinemas

 

Massillon, OH

  (a)     1,767       2,667       —         1,600       1,767       4,267       6,034       (582   2005   9/29/2014     13 to 30 Years  

Regal Cinemas

 

Dickson City, PA

  (a)     4,198       5,269       —         —         4,198       5,269       9,467       (1,111   2010   9/29/2014     13 to 30 Years  

Regal Cinemas

 

Lebanon, PA

  (a)     747       4,295       —         —         747       4,295       5,042       (527   2006   9/29/2014     13 to 30 Years  

Regal Cinemas

 

Simpsonville, SC

  (a)     1,862       5,453       —         —         1,862       5,453       7,315       (775   2010   9/29/2014     13 to 40 Years  

Regal Cinemas

 

Martinsburg, WV

  (a)     2,450       3,528       —         —         2,450       3,528       5,978       (1,794   1998   9/30/2005     12 to 30 Years  

Regal Cinemas

 

Nitro, WV

  (a)     1,816       3,068       —         —         1,816       3,068       4,884       (573   2005   9/29/2014     13 to 30 Years  

Renn Kirby Chevrolet Buick

 

Gettysburg, PA

  (a)     1,385       3,259       —         —         1,385       3,259       4,644       (1,575   2005   2/16/2007     5 to 30 Years  

Repair One

 

Port Orange, FL

  (a)     599       967       —         35       599       1,002       1,601       (67   1997   6/24/2016     13 to 30 Years  

Rick Johnson Auto & Tire

 

Estero, FL

  (a)     334       571       —         —         334       571       905       (116   2009   10/28/2013     9 to 30 Years  

Rick Johnson Auto & Tire

 

Estero, FL

  (a)     394       399       —         —         394       399       793       (94   2004   10/28/2013     9 to 30 Years  

Rick Johnson Auto & Tire

 

Naples, FL

  (a)     249       265       —         —         249       265       514       (65   1966   10/28/2013     9 to 20 Years  

Rick Johnson Auto & Tire

 

Naples, FL

  (a)     425       424       —         —         425       424       849       (95   2006   10/28/2013     9 to 30 Years  

Rite Aid

 

St. Clair Shores, MI

  (a)     1,169       761       —         —         1,169       761       1,930       (319   1991   5/2/2005     15 to 30 Years  

Rite Aid

 

Buffalo, NY

  (a)     681       925       —         —         681       925       1,606       (288   1993   7/1/2005     19 to 40 Years  

Rite Aid

 

Oneida, NY

  (a)     1,315       1,411       —         —         1,315       1,411       2,726       (443   1999   7/1/2005     19 to 40 Years  

Rite Aid

 

Uhrichsville, OH

  (a)     617       2,345       —         —         617       2,345       2,962       (683   2000   7/1/2005     19 to 40 Years  

Rite Aid

 

Philadelphia, PA

  (a)     733       1,087       —         —         733       1,087       1,820       (337   1993   7/1/2005     19 to 40 Years  

Rite Aid

 

Philadelphia, PA

  (a)     1,613       1,880       —         —         1,613       1,880       3,493       (574   1999   7/1/2005     19 to 40 Years  

Rite Aid

 

Moundsville, WV

  (a)     706       1,002       —         —         706       1,002       1,708       (316   1993   7/1/2005     19 to 40 Years  

Sanford’s Grub & Pub

 

Dickinson, ND

  (a)     616       1,301       —         —         616       1,301       1,917       (464   2003   12/29/2006     15 to 40 Years  

Sanford’s Grub & Pub

 

Cheyenne, WY

  (a)     277       2,041       —         —         277       2,041       2,318       (1,122   1928   12/29/2006     15 to 20 Years  

Service King

 

Clarksville, TN

  (a)     658       1,243       —         —         658       1,243       1,901       (195   2000   3/31/2014     14 to 30 Years  

Service King

 

Madison, TN

  (a)     662       1,567       —         —         662       1,567       2,229       (197   2000   3/31/2014     14 to 40 Years  

Service King

 

Nashville, TN

  (a)     828       1,405       —         —         828       1,405       2,233       (239   2000   3/31/2014     14 to 30 Years  

Shopko

 

Clarion, IA

  (b)     365       812       —         —         365       812       1,177       (415   2000   5/31/2006     15 to 30 Years  

Shopko

 

Dyersville, IA

  (b)     381       1,082       —         —         381       1,082       1,463       (515   2000   5/31/2006     15 to 30 Years  

Shopko

 

Mason City, IA

  (b)     2,186       3,888       —         —         2,186       3,888       6,074       (2,340   1985   5/31/2006     15 to 28 Years  

Shopko

 

Mount Ayr, IA

  (b)     228       666       —         —         228       666       894       (311   1995   5/31/2006     15 to 30 Years  

Shopko

 

Perry, IA

  (b)     651       1,015       —         —         651       1,015       1,666       (564   1998   5/31/2006     15 to 30 Years  

Shopko

 

Waukon, IA

  (b)     604       971       —         —         604       971       1,575       (523   1998   5/31/2006     15 to 30 Years  

Shopko

 

Lewiston, ID

  (b)     409       2,999       —         —         409       2,999       3,408       (1,848   1987   5/31/2006     15 to 25 Years  

Shopko

 

Twin Falls, ID

  (b)     2,037       3,696       —         —         2,037       3,696       5,733       (2,274   1986   5/31/2006     15 to 20 Years  

Shopko

 

Belvidere, IL

  (b)     3,061       3,609       —         —         3,061       3,609       6,670       (1,729   1995   5/31/2006     15 to 30 Years  

 

F-46


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Shopko

 

Dixon, IL

  (b)     1,502       2,810       —         —         1,502       2,810       4,312       (1,327   1993   5/31/2006     15 to 30 Years  

Shopko

 

Freeport, IL

  (b)     1,941       2,431       —         —         1,941       2,431       4,372       (1,317   1994   5/31/2006     15 to 30 Years  

Shopko

 

Jacksonville, IL

  (b)     3,603       3,569       —         —         3,603       3,569       7,172       (2,153   1996   5/31/2006     15 to 30 Years  

Shopko

 

Monmouth, IL

  (b)     2,037       1,166       —         —         2,037       1,166       3,203       (1,003   1971   5/31/2006     15 to 25 Years  

Shopko

 

Monticello, IL

  (b)     641       1,172       —         —         641       1,172       1,813       (603   1999   5/31/2006     15 to 30 Years  

Shopko

 

Mount Carmel, IL

  (b)     972       1,602       —         —         972       1,602       2,574       (1,077   2000   5/31/2006     15 to 20 Years  

Shopko

 

Quincy, IL

  (b)     3,510       4,916       —         —         3,510       4,916       8,426       (2,954   1986   5/31/2006     15 to 28 Years  

Shopko

 

Tuscola, IL

  (b)     724       897       —         —         724       897       1,621       (543   2000   5/31/2006     15 to 30 Years  

Shopko

 

Attica, IN

  (b)     550       1,116       —         —         550       1,116       1,666       (580   1999   5/31/2006     15 to 30 Years  

Shopko

 

Rockville, IN

  (b)     628       939       —         —         628       939       1,567       (526   1999   5/31/2006     15 to 30 Years  

Shopko

 

Burlington, KS

  (b)     371       565       —         —         371       565       936       (402   1990   5/31/2006     15 to 20 Years  

Shopko

 

Allegan, MI

  (b)     741       1,198       —         —         741       1,198       1,939       (612   2000   5/31/2006     15 to 30 Years  

Shopko

 

Clare, MI

  (b)     1,219       760       —         —         1,219       760       1,979       (617   2000   5/31/2006     15 to 30 Years  

Shopko

 

Dowagiac, MI

  (b)     762       984       —         —         762       984       1,746       (546   2000   5/31/2006     15 to 30 Years  

Shopko

 

Escanaba, MI

  (b)     3,030       3,321       —         —         3,030       3,321       6,351       (2,008   1971   5/31/2006     15 to 28 Years  

Shopko

 

Hart, MI

  (b)     565       1,377       —         —         565       1,377       1,942       (634   1999   5/31/2006     15 to 30 Years  

Shopko

 

Houghton, MI

  (b)     1,963       4,025       —         —         1,963       4,025       5,988       (1,980   1994   5/31/2006     15 to 30 Years  

Shopko

 

Kingsford, MI

  (b)     3,736       3,570       —         —         3,736       3,570       7,306       (2,212   1970   5/31/2006     15 to 28 Years  

Shopko

 

Manistique, MI

  (b)     659       1,223       —         —         659       1,223       1,882       (625   2000   5/31/2006     15 to 30 Years  

Shopko

 

Marquette, MI

  (b)     4,423       5,774       —         —         4,423       5,774       10,197       (3,460   1969   5/31/2006     15 to 25 Years  

Shopko

 

Newaygo, MI

  (b)     633       1,155       —         —         633       1,155       1,788       (587   2000   5/31/2006     15 to 30 Years  

Shopko

 

Albert Lea, MN

  (b)     2,526       3,141       —         —         2,526       3,141       5,667       (1,993   1985   5/31/2006     15 to 25 Years  

Shopko

 

Austin, MN

  (b)     4,246       4,444       —         —         4,246       4,444       8,690       (2,081   1983   5/31/2006     15 to 30 Years  

Shopko

 

Duluth, MN

  (b)     4,722       6,955       —         —         4,722       6,955       11,677       (2,972   1993   5/31/2006     15 to 30 Years  

Shopko

 

Fergus Falls, MN

  (b)     738       1,175       —         —         738       1,175       1,913       (722   1986   5/31/2006     15 to 20 Years  

Shopko

 

Glenwood, MN

  (b)     775       1,404       —         —         775       1,404       2,179       (582   1996   5/31/2006     15 to 40 Years  

Shopko

 

Hutchinson, MN

  (b)     2,793       4,108       —         —         2,793       4,108       6,901       (1,847   1991   5/31/2006     15 to 30 Years  

Shopko

 

Mankato, MN

  (b)     6,167       4,861       —         —         6,167       4,861       11,028       (2,896   1971   5/31/2006     15 to 28 Years  

Shopko

 

Marshall, MN

  (b)     4,152       2,872       —         —         4,152       2,872       7,024       (1,943   1972   5/31/2006     15 to 28 Years  

Shopko

 

Rochester, MN

  (b)     6,466       4,232       —         —         6,466       4,232       10,698       (2,678   1981   5/31/2006     15 to 28 Years  

Shopko

 

Rochester, MN

  (b)     6,189       4,511       —         —         6,189       4,511       10,700       (2,792   1981   5/31/2006     15 to 20 Years  

Shopko

 

St. Cloud, MN

  (b)     3,749       4,884       —         —         3,749       4,884       8,633       (2,957   1985   5/31/2006     15 to 20 Years  

Shopko

 

St. Cloud, MN

  (b)     5,033       6,589       —         —         5,033       6,589       11,622       (2,863   1991   5/31/2006     15 to 30 Years  

Shopko

 

Worthington, MN

  (b)     2,861       3,767       —         —         2,861       3,767       6,628       (1,721   1984   5/31/2006     15 to 30 Years  

Shopko

 

Albany, MO

  (b)     66       410       —         —         66       410       476       (171   1990   5/31/2006     15 to 30 Years  

Shopko

 

Carrollton, MO

  (b)     352       345       —         —         352       345       697       (289   1994   7/21/2011     9 to 20 Years  

Shopko

 

Gallatin, MO

  (b)     57       405       —         —         57       405       462       (175   1990   5/31/2006     15 to 30 Years  

Shopko

 

Memphis, MO

  (b)     448       313       —         —         448       313       761       (270   1983   5/31/2006     15 to 20 Years  

Shopko

 

Glasgow, MT

  (b)     772       1,623       —         —         772       1,623       2,395       (814   1998   5/31/2006     15 to 30 Years  

 

F-47


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Shopko

 

Helena, MT

  (b)     3,176       5,583       (724     —         2,452       5,583       8,035       (2,381   1992   5/31/2006     15 to 30 Years  

Shopko

 

Missoula, MT

  (b)     4,123       5,253       —         —         4,123       5,253       9,376       (3,038   1987   5/31/2006     15 to 28 Years  

Shopko

 

Ainsworth, NE

  (a)     360       1,829       —         —         360       1,829       2,189       (497   2007   12/8/2009     12 to 47 Years  

Shopko

 

Gothenburg, NE

  (a)     391       1,798       —         —         391       1,798       2,189       (490   2007   12/8/2009     12 to 47 Years  

Shopko

 

Norfolk, NE

  (b)     2,701       2,912       —         —         2,701       2,912       5,613       (1,617   1984   5/31/2006     15 to 30 Years  

Shopko

 

O’Neill, NE

  (a)     400       1,752       —         —         400       1,752       2,152       (530   1972   12/8/2009     12 to 47 Years  

Shopko

 

Minerva, OH

  (b)     1,103       902       —         —         1,103       902       2,005       (647   2000   5/31/2006     15 to 30 Years  

Shopko

 

Woodsfield, OH

  (b)     691       1,009       —         —         691       1,009       1,700       (574   2000   5/31/2006     15 to 30 Years  

Shopko

 

Aberdeen, SD

  (b)     3,857       3,348       —         —         3,857       3,348       7,205       (1,658   1984   5/31/2006     15 to 30 Years  

Shopko

 

Madison, SD

  (b)     1,060       1,015       —         —         1,060       1,015       2,075       (756   1975   5/31/2006     15 to 25 Years  

Shopko

 

Mitchell, SD

  (b)     3,918       3,126       —         —         3,918       3,126       7,044       (1,961   1973   5/31/2006     15 to 28 Years  

Shopko

 

Sioux Falls, SD

  (b)     4,907       4,023       —         —         4,907       4,023       8,930       (2,492   1987   5/31/2006     15 to 28 Years  

Shopko

 

Sturgis, SD

  (b)     402       717       —         —         402       717       1,119       (471   1984   5/31/2006     15 to 25 Years  

Shopko

 

Watertown, SD

  (b)     3,064       3,519       —         —         3,064       3,519       6,583       (1,596   1985   5/31/2006     15 to 30 Years  

Shopko

 

Logan, UT

  (b)     454       3,453       —         —         454       3,453       3,907       (2,130   1989   5/31/2006     15 to 20 Years  

Shopko

 

Spokane, WA

  (b)     1,014       3,005       —         —         1,014       3,005       4,019       (1,562   1987   5/31/2006     15 to 29 Years  

Shopko

 

Union Gap, WA

  (b)     481       4,079       —         —         481       4,079       4,560       (2,447   1991   5/31/2006     15 to 29 Years  

Shopko

 

Appleton, WI

  (b)     4,898       5,804       —         —         4,898       5,804       10,702       (2,432   1971   5/31/2006     15 to 30 Years  

Shopko

 

Arcadia, WI

  (b)     673       983       —         —         673       983       1,656       (616   2000   5/31/2006     15 to 30 Years  

Shopko

 

Beloit, WI

  (b)     3,191       4,414       —         —         3,191       4,414       7,605       (2,782   1978   5/31/2006     15 to 25 Years  

Shopko

 

Clintonville, WI

  (b)     495       1,089       —         —         495       1,089       1,584       (690   1978   5/31/2006     15 to 25 Years  

Shopko

 

De Pere, WI

  (b)     264       1,681       —         —         264       1,681       1,945       (665   2000   5/31/2006     15 to 30 Years  

Shopko

 

Fond du Lac, WI

  (b)     4,110       5,210       —         —         4,110       5,210       9,320       (2,186   1985   5/31/2006     15 to 30 Years  

Shopko

 

Grafton, WI

  (b)     2,952       4,206       —         —         2,952       4,206       7,158       (1,977   1989   5/31/2006     15 to 30 Years  

Shopko

 

Green Bay, WI

  (b)     6,155       6,298       —         —         6,155       6,298       12,453       (2,640   1979   5/31/2006     15 to 30 Years  

Shopko

 

Green Bay, WI

  (b)     8,698       12,160       —         —         8,698       12,160       20,858       (6,782   2000   5/31/2006     15 to 28 Years  

Shopko

 

Green Bay, WI

  (b)     4,788       4,605       —         —         4,788       4,605       9,393       (2,834   1966   5/31/2006     15 to 28 Years  

Shopko

 

Janesville, WI

  (b)     3,166       4,808       —         —         3,166       4,808       7,974       (2,862   1980   5/31/2006     15 to 28 Years  

Shopko

 

Kenosha, WI

  (b)     3,079       4,259       —         —         3,079       4,259       7,338       (2,676   1980   5/31/2006     15 to 25 Years  

Shopko

 

Kewaunee, WI

  (b)     872       758       —         —         872       758       1,630       (567   2000   5/31/2006     15 to 30 Years  

Shopko

 

Kimberly, WI

  (b)     3,550       4,749       —         —         3,550       4,749       8,299       (2,755   1979   5/31/2006     15 to 28 Years  

Shopko

 

La Crosse, WI

  (b)     2,896       3,810       —         —         2,896       3,810       6,706       (2,315   1978   5/31/2006     15 to 25 Years  

Shopko

 

Lake Hallie, WI

  (b)     2,627       3,965       —         —         2,627       3,965       6,592       (2,125   1982   5/31/2006     15 to 30 Years  

Shopko

 

Lancaster, WI

  (b)     581       1,018       —         —         581       1,018       1,599       (534   1999   5/31/2006     15 to 30 Years  

Shopko

 

Marshfield, WI

  (b)     3,272       4,406       —         —         3,272       4,406       7,678       (2,561   1968   5/31/2006     15 to 28 Years  

Shopko

 

Monroe, WI

  (b)     1,526       4,027       —         —         1,526       4,027       5,553       (1,783   1994   5/31/2006     15 to 30 Years  

Shopko

 

Oconto, WI

  (b)     496       1,176       —         —         496       1,176       1,672       (611   2000   5/31/2006     15 to 30 Years  

Shopko

 

Onalaska, WI

  (b)     2,468       4,392       —         —         2,468       4,392       6,860       (1,947   1989   5/31/2006     15 to 30 Years  

Shopko

 

Oshkosh, WI

  (b)     3,594       4,384       —         —         3,594       4,384       7,978       (1,934   1984   5/31/2006     15 to 30 Years  

 

F-48


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 
Shopko   Racine, WI   (b)     3,076       5,305       —         —         3,076       5,305       8,381       (3,001   1979   5/31/2006     15 to 25 Years  
Shopko   River Falls, WI   (b)     1,787       4,283       —         —         1,787       4,283       6,070       (1,920   1994   5/31/2006     15 to 30 Years  
Shopko   Rothschild, WI   (b)     2,685       4,231       —         —         2,685       4,231       6,916       (2,607   1977   5/31/2006     15 to 29 Years  
Shopko   Sheboygan, WI   (b)     2,973       4,340       —         —         2,973       4,340       7,313       (2,167   1993   5/31/2006     15 to 30 Years  
Shopko   Stevens Point, WI   (b)     1,383       5,401       —         —         1,383       5,401       6,784       (2,881   1985   5/31/2006     15 to 25 Years  
Shopko   Watertown, WI   (b)     3,124       4,436       —         —         3,124       4,436       7,560       (2,646   1972   5/31/2006     15 to 25 Years  
Shopko   Wisconsin Rapids, WI   (b)     3,689       4,806       —         —         3,689       4,806       8,495       (2,845   1969   5/31/2006     15 to 28 Years  
Shopko   Lander, WY   (b)     289       589       —         —         289       589       878       (394   1974   5/31/2006     15 to 20 Years  
Shopko   Powell, WY   (b)     1,264       859       —         —         1,264       859       2,123       (621   1985   5/31/2006     15 to 25 Years  
Shopko   Rawlins, WY   (b)     430       581       —         —         430       581       1,011       (433   1971   5/31/2006     15 to 20 Years  
Shopko   Thermopolis, WY   (a)     589       1,600       —         —         589       1,600       2,189       (446   2007   12/8/2009     12 to 47 Years  
Skyline Chili   Fairborn, OH   (a)     923       468       —         —         923       468       1,391       (297   1998   6/25/2004     15 to 30 Years  
Skyline Chili   Lewis Center, OH   (a)     626       560       —         —         626       560       1,186       (303   1998   6/25/2004     15 to 30 Years  
Slim Chickens   Fayetteville, AR   (a)     1,019       1,150       —         —         1,019       1,150       2,169       (167   2014   6/23/2014     15 to 40 Years  
Slim Chickens   Texarkana, TX   (a)     265       747       —         —         265       747       1,012       (134   2013   11/4/2013     14 to 30 Years  
Solea Mexican Grill   Appleton, WI   (a)     727       1,329       —         9       727       1,338       2,065       (677   1993   12/29/2006     7 to 30 Years  
Sonic Drive-In   Bay Minette, AL   (a)     583       754       —         —         583       754       1,337       (130   2000   9/22/2014     15 to 30 Years  
Sonic Drive-In   D’Iberville, MS   (a)     597       995       —         —         597       995       1,592       (150   2005   7/14/2014     15 to 30 Years  
Sonic Drive-In   Flowood, MS   (a)     338       806       —         42       338       848       1,186       (119   1994   7/31/2014     15 to 30 Years  
Sonic Drive-In   Hattiesburg, MS   (a)     845       995       —         —         845       995       1,840       (151   2010   7/14/2014     15 to 40 Years  
Sonic Drive-In   Laurel, MS   (a)     543       754       —         —         543       754       1,297       (127   1993   9/22/2014     15 to 30 Years  
Sonic Drive-In   Bristol, TN   (a)     484       134       —         —         484       134       618       (247   1991   7/1/2005     15 to 20 Years  
Sonic Drive-In   Elizabethton, TN   (a)     655       129       —         —         655       129       784       (250   1993   7/1/2005     15 to 20 Years  
Sonic Drive-In   Kingsport, TN   (a)     592       200       —         —         592       200       792       (358   1992   7/1/2005     15 to 20 Years  
Sonic Drive-In   Knoxville, TN   (a)     635       227       —         —         635       227       862       (316   1995   7/1/2005     15 to 20 Years  
Sonic Drive-In   Knoxville, TN   (a)     547       230       —         —         547       230       777       (387   1987   7/1/2005     10 to 15 Years  
Sonic Drive-In   Maryville, TN   (a)     810       306       —         —         810       306       1,116       (298   1993   7/1/2005     15 to 20 Years  
Sonic Drive-In   Christiansburg, VA   (a)     666       168       —         —         666       168       834       (308   1994   7/1/2005     15 to 20 Years  
Sonic Drive-In   Pulaski, VA   (a)     444       236       —         —         444       236       680       (326   1994   7/1/2005     15 to 20 Years  
Sonic Drive-In   Radford, VA   (a)     499       248       —         —         499       248       747       (384   1995   7/1/2005     15 to 20 Years  
Sonic Drive-In   Wytheville, VA   (a)     446       172       —         —         446       172       618       (233   1995   7/1/2005     15 to 20 Years  
Southwest Stainless   Lakeland, FL   (a)     1,098       1,281       —         —         1,098       1,281       2,379       (969   1984   7/1/2005     14 to 20 Years  
Sportsman’s Warehouse   Soldotna, AK   (a)     1,177       2,245       —         —         1,177       2,245       3,422       (251   1983   5/22/2014     15 to 40 Years  
SRS Distribution   Port Richey, FL   (a)     741       660       —         —         741       660       1,401       (766   1975   7/1/2005     10 to 15 Years  
Starbucks   Altus, OK   (a)     103       237       —         —         103       237       340       (64   2007   7/17/2013     4 to 28 Years  
Starbucks   Oklahoma City, OK   (a)     541       843       (398     (614     143       229       372       (72   2007   7/17/2013     4 to 33 Years  
Station Casinos   Las Vegas, NV   (a)     3,225       30,483       —         —         3,225       30,483       33,708       (3,238   2007   7/17/2013     13 to 55 Years  
Taco Bell   Danville, IL   (a)     619       672       —         —         619       672       1,291       (386   1995   12/29/2006     15 to 30 Years  
Taco Bell   Mount Pleasant, MI   (a)     657       854       —         —         657       854       1,511       (379   2010   2/13/2009     13 to 38 Years  

 

F-49


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 
Taco Bell   Sedalia, MO   (a)     751       662       —         —         751       662       1,413       (389   1983   12/29/2006     15 to 30 Years  
Taco Bell   Springfield, MO   (a)     439       719       —         —         439       719       1,158       (371   2004   12/29/2006     15 to 40 Years  
Taco Bell   Boone, NC   (a)     750       379       —         —         750       379       1,129       (235   2006   12/29/2006     15 to 30 Years  
Taco Bell   Bellefontaine, OH   (a)     388       778       (12     —         376       778       1,154       (480   1989   12/29/2006     15 to 20 Years  
Taco Bell   Dayton, OH   (a)     526       598       —         —         526       598       1,124       (398   1982   12/8/2009     12 to 17 Years  
Taco Bell   Tipp City, OH   (a)     789       332       —         —         789       332       1,121       (278   1991   12/29/2006     15 to 20 Years  
Taco Bell   Chattanooga, TN   (a)     482       682       —         —         482       682       1,164       (362   1997   6/25/2004     15 to 30 Years  
Taco Bell   Chattanooga, TN   (a)     600       389       —         —         600       389       989       (195   1995   9/29/2006     15 to 30 Years  
Taco Bell   Cleveland, TN   (a)     501       459       —         —         501       459       960       (204   2004   12/29/2006     15 to 40 Years  
Taco Bell   Red Bank, TN   (a)     610       557       —         —         610       557       1,167       (386   1997   6/25/2004     15 to 30 Years  
Taco Bueno   Yukon, OK   (a)     555       373       —         —         555       373       928       (261   2003   7/1/2005     15 to 30 Years  
Taco Bueno   Cedar Hill, TX   (a)     620       501       —         —         620       501       1,121       (303   2005   12/29/2006     15 to 30 Years  
Taco Bueno   Mansfield, TX   (a)     472       760       —         —         472       760       1,232       (428   1991   12/29/2006     15 to 30 Years  
Ted’s Cafe Escondido   Broken Arrow, OK   (a)     1,636       1,620       —         —         1,636       1,620       3,256       (279   2006   7/21/2014     14 to 30 Years  
Ted’s Cafe Escondido   Tulsa, OK   (a)     1,465       1,728       —         —         1,465       1,728       3,193       (280   2013   7/21/2014     14 to 30 Years  
Texas Roadhouse   Hiram, GA   (a)     1,255       1,766       —         —         1,255       1,766       3,021       (572   2003   1/16/2015     9 to 15 Years  
Texas Roadhouse   Marietta, GA   (a)     1,221       1,533       —         —         1,221       1,533       2,754       (491   2003   1/16/2015     9 to 15 Years  
Texas Roadhouse   Memphis, TN   (a)     817       1,637       —         —         817       1,637       2,454       (530   2005   1/16/2015     9 to 15 Years  
The Atlanta Center for Foot & Ankle Surgery   Sandy Springs, GA   (a)     455       1,147       —         —         455       1,147       1,602       (227   1963   4/17/2014     14 to 20 Years  
The Forge Bar and Grill   Lander, WY   (a)     57       1,010       —         —         57       1,010       1,067       (564   1883   12/29/2006     15 to 20 Years  
The Great Escape   Davenport, IA   (a)     2,823       4,475       —         —         2,823       4,475       7,298       (1,716   2007   4/30/2009     13 to 38 Years  
The Great Escape   Algonquin, IL   (a)     4,171       5,613       —         —         4,171       5,613       9,784       (1,943   2007   4/30/2009     13 to 38 Years  
The Great Escape   Aurora, IL   (a)     1,979       4,111       —         —         1,979       4,111       6,090       (1,672   1989   4/30/2009     13 to 28 Years  
The Great Escape   Batavia, IL   (a)     1,857       3,441       —         —         1,857       3,441       5,298       (1,487   2001   4/30/2009     13 to 28 Years  
The Great Escape   Downers Grove, IL   (a)     1,772       2,227       —         —         1,772       2,227       3,999       (1,044   1994   4/30/2009     13 to 28 Years  
The Great Escape   Gurnee, IL   (a)     767       1,632       —         —         767       1,632       2,399       (774   1999   4/30/2009     13 to 28 Years  
The Great Escape   Joliet, IL   (a)     1,700       5,698       —         —         1,700       5,698       7,398       (1,830   2004   4/30/2009     13 to 38 Years  
The Great Escape   Loves Park, IL   (a)     1,551       6,447       —         —         1,551       6,447       7,998       (1,990   2004   4/30/2009     13 to 38 Years  
The Great Escape   Mundelein, IL   (a)     1,991       4,308       —         —         1,991       4,308       6,299       (1,822   2002   4/30/2009     13 to 28 Years  
The Great Escape   Peoria, IL   (a)     2,497       4,401       —         —         2,497       4,401       6,898       (1,631   2004   4/30/2009     13 to 38 Years  
The Great Escape   Schaumburg, IL   (a)     2,067       2,632       —         —         2,067       2,632       4,699       (1,160   2002   4/30/2009     13 to 28 Years  
The Great Escape   Tinley Park, IL   (a)     1,108       2,091       —         —         1,108       2,091       3,199       (864   1990   4/30/2009     13 to 28 Years  
The Great Escape   Merrillville, IN   (a)     1,324       3,975       —         —         1,324       3,975       5,299       (1,737   1986   4/30/2009     13 to 28 Years  
The Great Escape   Avon, OH   (a)     1,550       2,749       —         —         1,550       2,749       4,299       (993   2007   4/30/2009     13 to 38 Years  
Tire Warehouse   Portland, ME   (a)     650       566       —         —         650       566       1,216       (312   1993   6/30/2009     13 to 28 Years  
Touchstone Imaging   Waco, TX   (a)     232       1,510       —         —         232       1,510       1,742       (149   1992   6/20/2014     15 to 40 Years  
Tractor Supply   Clovis, NM   (a)     1,704       1,342       —         —         1,704       1,342       3,046       (467   2007   7/17/2013     9 to 33 Years  
Twin Peaks   Little Rock, AR   (a)     886       —         —         —         886       —         886       —       (d)   6/26/2014     (d

 

F-50


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total     Final
Accum
    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Uncle Ed’s Oil Shoppe

 

Ann Arbor, MI

  (a)     684       413       —         —         684       413       1,097       (93   1989   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Battle Creek, MI

  (a)     211       419       —         —         211       419       630       (90   1981   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Battle Creek, MI

  (a)     302       262       —         —         302       262       564       (62   1987   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Battle Creek, MI

  (a)     594       262       —         —         594       262       856       (107   1998   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Bloomfield, MI

  (a)     554       332       —         —         554       332       886       (82   1987   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Chesterfield Township, MI

  (a)     181       302       —         —         181       302       483       (72   1990   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Clawson, MI

  (a)     262       242       —         —         262       242       504       (56   1984   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Clinton Township, MI

  (a)     141       282       —         —         141       282       423       (63   1987   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Farmington Hills, MI

  (a)     382       282       —         —         382       282       664       (73   1987   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Kalamazoo, MI

  (a)     247       333       —         —         247       333       580       (69   1982   7/30/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Kalamazoo, MI

  (a)     201       362       —         —         201       362       563       (77   1987   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Kalamazoo, MI

  (a)     312       262       —         —         312       262       574       (62   1984   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Kalamazoo, MI

  (a)     60       211       —         —         60       211       271       (44   1986   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Kalamazoo, MI

  (a)     171       332       —         —         171       332       503       (82   1979   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Kalamazoo, MI

  (a)     352       262       —         —         352       262       614       (74   1987   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Kalamazoo, MI

  (a)     503       342       —         —         503       342       845       (130   1989   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Kalamazoo, MI

  (a)     141       141       —         —         141       141       282       (39   1959   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Livonia, MI

  (a)     252       262       —         —         252       262       514       (62   1986   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Macomb Township, MI

  (a)     181       262       —         —         181       262       443       (60   1986   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Madison Heights, MI

  (a)     352       493       —         —         352       493       845       (110   1984   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Portage, MI

  (a)     423       262       —         —         423       262       685       (65   1985   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Shelby Township, MI

  (a)     387       355       —         —         387       355       742       (85   1989   7/30/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

St Clair Shores, MI

  (a)     242       272       —         —         242       272       514       (64   1985   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Troy, MI

  (a)     322       392       —         —         322       392       714       (85   1984   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Troy, MI

  (a)     281       267       —         —         281       267       548       (39   1989   12/3/2014     15 to 30 Years  

Uncle Ed’s Oil Shoppe

 

Warren, MI

  (a)     409       344       —         —         409       344       753       (76   1986   7/30/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Waterford, MI

  (a)     292       362       —         —         292       362       654       (87   1989   6/23/2014     15 to 20 Years  

Uncle Ed’s Oil Shoppe

 

Ypsilanti, MI

  (a)     1,107       745       —         —         1,107       745       1,852       (153   1999   6/23/2014     15 to 30 Years  

United Supermarkets

 

Abilene, TX

  (a)     1,586       2,230       —         —         1,586       2,230       3,816       (695   1979   3/27/2013     6 to 20 Years  

United Supermarkets

 

Amarillo, TX

  (a)     1,574       1,389       —         —         1,574       1,389       2,963       (559   1989   5/23/2005     9 to 30 Years  

United Supermarkets

 

Burkburnett, TX

  (a)     2,030       2,706       —         —         2,030       2,706       4,736       (846   1997   5/23/2005     11 to 40 Years  

United Supermarkets

 

Lubbock, TX

  (a)     1,782       2,055       —         —         1,782       2,055       3,837       (642   1997   5/23/2005     11 to 40 Years  

United Supermarkets

 

Perryton, TX

  (a)     1,029       597       —         —         1,029       597       1,626       (225   1997   5/23/2005     7 to 40 Years  

United Supermarkets

 

Vernon, TX

  (a)     1,791       2,550       —         —         1,791       2,550       4,341       (797   1997   5/23/2005     11 to 40 Years  

Vacant

 

Leeds, AL

  (a)     907       926       —         31       907       957       1,864       (791   2003   9/26/2006     9 to 40 Years  

Vacant

 

Independence, MO

  (a)     1,450       1,967       (843     (1,259     607       708       1,315       (9   2002   6/29/2007     4 to 29 Years  

Vacant

 

Roswell, NM

  (a)     1,002       3,177       (479     (1,700     523       1,477       2,000       —       2004   7/1/2005     14 to 50 Years  

Vacant

 

New Hartford, NY

  (a)     2,168       4,851       (1,549     (3,332     619       1,519       2,138       (24   2004   7/1/2005     1 to 29 Years  

 

F-51


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

            Initial Cost to Company    

Cost Capitalized Subsequent

to Acquisition including
impairment

    Gross Amount at December 31, 2017 (c)                      
Concept   City, State   Encumbrances   Land and
Improvements
   

Buildings,

Improvements

   

Improvements

/Land

   

Improvements

/Building

    Land and
Improvements
    Buildings,
Improvements
    Total    

Final

Accum

    Date of
Construction
  Date Acquired   Life in which depreciation
in latest Statement of
Operations is computed
 

Vacant

 

Rapid City, SD

  (a)     878       1,657       (176     (1,010     702       647       1,349       —       1902   12/29/2006     15 to 20 Years  

Vacant

 

Arlington, TX

  (a)     1,301       1,032       —         —         1,301       1,032       2,333       (794   1978   2/26/2007     14 to 20 Years  

Vacant

 

Lewisville, TX

  (a)     1,766       8,087       (1,213     (5,677     553       2,410       2,963       (20   2002   3/31/2014     4 to 36 Years  

Vacant

 

Kenosha, WI

  (a)     3,421       7,407       —         —         3,421       7,407       10,828       (2,689   2004   7/1/2005     14 to 40 Years  

Walgreens

 

Saginaw, MI

  (a)     1,064       3,906       —         —         1,064       3,906       4,970       (527   2000   7/17/2013     7 to 41 Years  

Wendy’s

 

Forsyth, GA

  (a)     495       1,007       —         —         495       1,007       1,502       (467   1984   1/12/2006     15 to 30 Years  

Wendy’s

 

Madison, GA

  (a)     892       739       —         —         892       739       1,631       (364   1989   1/12/2006     15 to 40 Years  

Wendy’s

 

Pineville, LA

  (a)     558       1,044       —         —         558       1,044       1,602       (485   1996   6/25/2004     11 to 30 Years  

Wendy’s

 

Greenville, TX

  (a)     223       304       —         —         223       304       527       (188   1985   12/29/2005     15 to 20 Years  

Yard House

 

Cincinnati, OH

  (a)     1,614       4,134       —         —         1,614       4,134       5,748       (504   2013   1/15/2014     9 to 40 Years  

YouFit

 

Chandler, AZ

  (a)     1,329       2,689       —         —         1,329       2,689       4,018       (161   2007   9/30/2016     10 to 30 Years  

YouFit

 

Phoenix, AZ

  (a)     1,403       2,901       —         —         1,403       2,901       4,304       (178   2008   9/30/2016     10 to 30 Years  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       
      $ 977,951     $ 1,645,259     $ (4,720   $ 12,765     $ 973,231     $ 1,658,023     $ 2,631,254     $ (557,948      
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

(a) Represents properties collateralized with Master Trust 2014 debt of $1,981,166.
(b) Represents unencumbered properties.
(c) The aggregate cost of properties for federal income tax purposes is approximately $1.93 billion at December 31, 2017.
(d) Represents land only properties with no depreciation and therefore date of construction and estimated life for depreciation not applicable.

 

F-52


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule III Real Estate and

Accumulated Depreciation

(Amounts in thousands)

 

 

Land, buildings, and improvements

   2017     2016     2015  

Balance at the beginning of the year

     2,541,175       2,646,146       2,906,921  

Additions:

      

Acquisitions, capital expeditures, and reclassifications from held for sale and deferred financing leases

     261,875       98,119       78,054  

Deductions:

      

Dispositions of land, buildings, and improvements and other adjustments

     (101,168     (112,750    
(274,330

Reclassifications to held for sale

     (27,342     (48,672     (41,400

Impairments

     (43,286     (41,668    
(23,099

  

 

 

   

 

 

   

 

 

 

Gross Real Estate Balance at close of the year

     2,631,254       2,541,175       2,646,146  
  

 

 

   

 

 

   

 

 

 

Accumulated depreciation and amortization

                  

Balance at the beginning of the year

    
(496,579

   
(469,344

    (475,239

Additions:

      

Depreciation expense and reclassifications from held for sale

     (95,328     (73,858     (80,196

Deductions:

      

Dispositions of land, buildings, and improvements and other adjustments

     39,852       49,985       81,644  

Reclassifications to held for sale

     (5,893     (3,362     4,447  
  

 

 

   

 

 

   

 

 

 

Balance at close of the year

     (557,948    
(496,579

    (469,344
  

 

 

   

 

 

   

 

 

 

Net Real Estate Investment

     2,073,306       2,044,596       2,176,802  
  

 

 

   

 

 

   

 

 

 

 

F-53


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule IV

Mortgage Loans on Real Estate

As of December 31, 2017

(In thousands)

 

Description

   Properties     

Location(s)

   Stated
Interest
Rate
    Final Maturity Date (1)     

Periodic

Payment Terms

   Prior
Liens
     Face
Amount
     Carrying
Amount of
Mortgages (2)
     Principal
Amount of
Loans

Subject to
Delinquent
Principal or

Interest (3)
 
Restaurants <3%      5      OH (3), PA (2)      9.55     5/1/2026 - 7/1/2028     

Principal &

Interest

   $ —          2,635        1,501        1,469  
Convenience Stores      3      FL, IN, KY      1.00     3/1/2028      Principal & Interest    $ —          38,200        28,553        —    
Restaurants - Quick Service <3%      3      NC      1.00     10/1/2025 - 11/1/2025      Principal & Interest    $ —          3,650        2,253        —    
                

 

 

    

 

 

    

 

 

    

 

 

 

Total

                 $ —        $ 44,485      $ 32,307      $ 1,469  
                

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Reflects current maturity of the investment and does not consider any options to extend beyond the current maturity
(2) The aggregate tax basis of the mortgage loans outstanding on December 31, 2017 was $32.7 million.
(3) One borrower associated with two properties filed for bankruptcy November 11, 2017, the remaining balance of the mortgage notes and related accrued interest have been fully reserved, totaling $360.0 thousand. Delinquent balances in the amount of $29.0 thousand have been reserved related to one borrower associated with three properties.

 

F-54


Table of Contents

SPIRIT REALTY CAPITAL, INC.

Schedule IV

Mortgage Loans on Real Estate

As of December 31, 2017

(In thousands)

 

     2017     2016     2015  

Reconciliation of Mortgage Loans on Real Estate

      

Balance January 1,

   $ 35,929     $ 69,743     $ 75,700  

Additions during period

      

New mortgage loans

     —         —         —    

Deductions during period

      

Collections of principal (inclusive of loans receivable exchanged for real estate acquired)

     (3,227     (33,277     (5,815

Amortization of premium

     (6     (537     (142

Amortization of capitalized loan origination costs

     —         —      
  

 

 

   

 

 

   

 

 

 

Mortgage loans receivable December 31,

     32,696       35,929       69,743  
  

 

 

   

 

 

   

 

 

 

Mortgage loan loss provisions

     (389     —         —    
  

 

 

   

 

 

   

 

 

 
     32,307       35,929       69,743  
  

 

 

   

 

 

   

 

 

 

Equipment and other loans receivable

       3,711       3,922  

Provision for other loan loss

     —        
  

 

 

   

 

 

   

 

 

 
     —         3,711       3,922  
  

 

 

   

 

 

   

 

 

 

Total loans receivable

   $ 32,307     $ 39,640     $ 73,665  
  

 

 

   

 

 

   

 

 

 

 

F-55