UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 001-36004
_______________________________________________
SPIRIT REALTY CAPITAL, INC.
(Exact name of registrant as specified in its charter)
_______________________________________________
Maryland
 
20-1676382
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
16767 North Perimeter Drive, Suite 210, Scottsdale, Arizona 85260
 
(480) 606-0820
(Address of principal executive offices; zip code)
 
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)
______________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x     No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
x
(Do not check if smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  o     No  x
As of November 3, 2014 , there were 398,566,183 shares of common stock, par value $0.01, of Spirit Realty Capital, Inc. outstanding.
 

Table of Contents

SPIRIT REALTY CAPITAL, INC.
INDEX
 
 
Condensed Consolidated Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (Unaudited)
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2014 and 2013 (Unaudited)
Condensed Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 2014 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (Unaudited)
 

 

2

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SPIRIT REALTY CAPITAL, INC.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)

 
September 30,
2014
 
December 31,
2013
 
(Unaudited)
 
 
Assets
 
 
 
Investments:
 
 
 
Real estate investments:
 
 
 
Land and improvements
$
2,503,857

 
$
2,330,510

Buildings and improvements
4,447,082

 
4,188,783

Total real estate investments
6,950,939

 
6,519,293

Less: accumulated depreciation
(723,777
)
 
(590,067
)
 
6,227,162

 
5,929,226

Loans receivable, net
111,409

 
117,721

Intangible lease assets, net
599,875

 
618,121

Real estate assets under direct financing leases, net
56,654

 
58,760

Real estate assets held for sale, net
54,120

 
19,611

Net investments
7,049,220

 
6,743,439

Cash and cash equivalents
50,130

 
66,588

Deferred costs and other assets, net
156,485

 
129,597

Goodwill
291,421

 
291,421

Total assets
$
7,547,256

 
$
7,231,045

Liabilities and stockholders’ equity
 
 
 
Liabilities:
 
 
 
Revolving credit facilities
$
125,436

 
$
35,120

Mortgages and notes payable, net
3,188,547

 
3,743,098

Convertible senior notes, net
693,845

 
—

Intangible lease liabilities, net
219,626

 
220,114

Accounts payable, accrued expenses and other liabilities
115,564

 
114,679

Total liabilities
4,343,018

 
4,113,011

Commitments and contingencies (see Note 8)


 


Stockholders’ equity:
 
 
 
Common stock, $0.01 par value; 399,039,782 shares issued; 398,566,183 outstanding shares at September 30, 2014 and 370,570,565 shares issued; 370,363,803 outstanding shares at December 31, 2013
3,990

 
3,706

Capital in excess of par value
4,211,235

 
3,859,823

Accumulated deficit
(1,005,434
)
 
(742,915
)
Accumulated other comprehensive loss
(691
)
 
(638
)
Treasury stock, at cost
(4,862
)
 
(1,942
)
Total stockholders’ equity
3,204,238

 
3,118,034

Total liabilities and stockholders’ equity
$
7,547,256

 
$
7,231,045

See accompanying notes.


3

SPIRIT REALTY CAPITAL, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Data)
(Unaudited)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Rentals
$
145,591

 
$
131,526

 
$
426,212

 
$
271,352

Interest income on loans receivable
1,805

 
1,796

 
5,463

 
4,037

Earned income from direct financing leases
837

 
708

 
2,521

 
708

Tenant reimbursement income
3,308

 
2,316

 
9,548

 
2,316

Interest income and other
754

 
501

 
4,312

 
1,816

Total revenues
152,295

 
136,847

 
448,056

 
280,229

Expenses:
 
 
 
 
 
 
 
General and administrative
11,995

 
9,946

 
33,496

 
26,064

Finance restructuring costs
(11
)
 
—

 
13,022

 
—

Merger costs
—

 
45,071

 
—

 
56,629

Property costs
5,357

 
5,067

 
17,215

 
6,334

Real estate acquisition costs
865

 
470

 
2,372

 
688

Interest
53,535

 
50,386

 
163,926

 
126,376

Depreciation and amortization
62,069

 
48,243

 
184,586

 
104,882

Impairments (recoveries)
12,727

 
—

 
42,061

 
(185
)
Total expenses
146,537

 
159,183

 
456,678

 
320,788

Income (loss) from continuing operations before other income (expense) and income tax expense
5,758

 
(22,336
)
 
(8,622
)
 
(40,559
)
Other income (expense):
 
 
 
 
 
 
 
Gain (loss) on debt extinguishment
212

 
—

 
(64,496
)
 
—

Total other income (expense)
212

 
—

 
(64,496
)
 
—

Income (loss) from continuing operations before income tax expense
5,970

 
(22,336
)
 
(73,118
)
 
(40,559
)
Income tax expense
242

 
803

 
586

 
946

Income (loss) from continuing operations
5,728

 
(23,139
)
 
(73,704
)
 
(41,505
)
Discontinued operations:
 
 
 
 

 

Income (loss) from discontinued operations
288

 
(6
)
 
3,621

 
(1,630
)
Gain on dispositions of assets
403

 
1,237

 
488

 
1,226

Income (loss) from discontinued operations
691

 
1,231

 
4,109

 
(404
)
Income (loss) before dispositions of assets
6,419

 
(21,908
)
 
(69,595
)
 
(41,909
)
Gain on dispositions of assets
1,251

 
—

 
1,683

 
—

Net income (loss)
$
7,670

 
$
(21,908
)
 
$
(67,912
)
 
$
(41,909
)
Net income (loss) per share of common stock—basic and diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.02

 
$
(0.07
)
 
$
(0.19
)
 
$
(0.19
)
Discontinued operations
—

 
—

 
0.01

 
—

Net income (loss) per share
$
0.02

 
$
(0.07
)
 
$
(0.18
)
 
$
(0.19
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
396,807,656

 
329,527,874

 
382,525,614

 
216,749,378

Diluted
397,613,583

 
329,527,874

 
382,525,614

 
216,749,378

Dividends declared per common share issued
$
0.16625

 
$
0.16410

 
$
0.49875

 
$
0.49220

See accompanying notes.

4

SPIRIT REALTY CAPITAL, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
7,670

 
$
(21,908
)
 
$
(67,912
)
 
$
(41,909
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in net unrealized gains or (losses) on cash flow hedges
237

 
(320
)
 
(1,040
)
 
149

Net cash flow hedge losses reclassified to operations
333

 
120

 
987

 
331

Total comprehensive income (loss)
$
8,240

 
$
(22,108
)
 
$
(67,965
)
 
$
(41,429
)
See accompanying notes.


5

SPIRIT REALTY CAPITAL, INC.
Condensed Consolidated Statement of Stockholders’ Equity
(In Thousands, Except Share Data)
(Unaudited)

 
Common Stock
 
 
 
 
 
Treasury Stock
 
 
 
Shares
 
Par Value
 
Capital in
Excess of
Par Value
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
 Shares
 
 Value
 
Total
Stockholders’
Equity
Balances, December 31, 2013
370,570,565

 
$
3,706

 
$
3,859,823

 
$
(742,915
)
 
$
(638
)
 
(206,762
)
 
$
(1,942
)
 
$
3,118,034

Net loss
—

 
—

 
—

 
(67,912
)
 
—

 
—

 
—

 
(67,912
)
Other comprehensive loss
—

 
—

 
—

 
—

 
(53
)
 
—

 
—

 
(53
)
Dividends declared on common stock
—

 
—

 
—

 
(194,187
)
 
—

 
—

 
—

 
(194,187
)
Repurchase of common shares
—

 
—

 
—

 
—

 
—

 
(266,837
)
 
(2,920
)
 
(2,920
)
Issuance of common shares
28,024,320

 
280

 
287,174

 
—

 
—

 
—

 
—

 
287,454

Embedded conversion premium of convertible notes
—

 
—

 
55,131

 
—

 
—

 
—

 
—

 
55,131

Exercise of stock options
20,000

 
—

 
183

 
—

 
—

 
—

 
—

 
183

Stock-based compensation, net
424,897

 
4

 
8,924

 
(420
)
 
—

 
—

 
—

 
8,508

Balances, September 30, 2014
399,039,782

 
$
3,990

 
$
4,211,235

 
$
(1,005,434
)
 
$
(691
)
 
(473,599
)
 
$
(4,862
)
 
$
3,204,238

See accompanying notes.

6

SPIRIT REALTY CAPITAL, INC.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2014
 
2013
Operating activities
 
 
 
Net loss
$
(67,912
)
 
$
(41,909
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
184,586

 
108,336

Impairments
42,061

 
5,668

Amortization of deferred financing costs
4,084

 
12,457

Amortization of interest rate hedge losses and derivative net settlements
(83
)
 
(101
)
Amortization of debt (premiums) discounts
(821
)
 
5,588

Stock-based compensation expense
8,503

 
6,901

Loss (gain) on debt extinguishment
64,496

 
(1,028
)
Debt extinguishment costs
(59,069
)
 
—

Gains on dispositions of real estate and other assets, net
(2,171
)
 
(1,467
)
Non-cash revenue
(12,877
)
 
(15,191
)
Other
274

 
(41
)
Changes in operating assets and liabilities:
 
 
 
Deferred costs and other assets
(3,111
)
 
(8,262
)
Accounts payable, accrued expenses and other liabilities
(3,248
)
 
(1,826
)
Net cash provided by operating activities
154,712

 
69,125

Investing activities
 
 
 
Acquisitions/investments in real estate
(546,373
)
 
(176,080
)
Collections of principal on loans receivable and real estate assets under direct financing leases
4,641

 
13,878

Proceeds from dispositions of real estate and other assets
31,993

 
135,270

Cash acquired in connection with merger
—

 
9,400

Transfers of sale proceeds and loan principal collections (to) from restricted account
(20,240
)
 
7,018

Net cash used in investing activities
(529,979
)
 
(10,514
)
Financing activities
 
 
 
Borrowings under lines of credit
515,535

 
266,705

Repayments under lines of credit
(425,219
)
 
(115,197
)
Repayment of line of credit previously belonging to Cole II
—

 
(324,111
)
Borrowings under Convertible Notes and mortgages and notes payable
757,500

 
238,140

Repayments under mortgages and notes payable
(562,104
)
 
(33,339
)
Deferred financing costs
(20,011
)
 
(20,041
)
Proceeds from issuance of common stock, net of offering costs
287,454

 
(518
)
Proceeds from exercise of stock options
183

 
—

Offering costs paid on equity component of convertible debt
(1,609
)
 
—

Purchase of treasury stock
(2,920
)
 
(1,942
)
Consent fees paid to lenders
—

 
(5,449
)
Dividends paid to stockholders
(189,510
)
 
(85,897
)
Transfers to escrow deposits with lenders
(490
)
 
(8,155
)
Net cash provided by (used in) financing activities
358,809

 
(89,804
)
Net decrease in cash and cash equivalents
(16,458
)
 
(31,193
)
Cash and cash equivalents, beginning of period
66,588

 
73,568

Cash and cash equivalents, end of period
$
50,130

 
$
42,375

See accompanying notes.

7

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(Unaudited)



Note 1. Organization
Company Organization and Operations
Spirit Realty Capital, Inc. (the "Company") is a Maryland corporation and operates as a self-administered and self-managed REIT that seeks to generate and deliver sustainable and attractive returns for stockholders by investing primarily in and managing a portfolio of single-tenant, operationally essential real estate throughout the United States that is generally leased on a long-term, triple-net basis predominately to tenants engaged in retail, service and distribution industries. Single tenant, operationally essential real estate generally refers to free-standing, commercial real estate facilities where tenants conduct activities that are essential to the generation of their sales and profits.
On July 17, 2013, the Company merged with and into Cole Credit Property Trust II, Inc. ("Cole II"), a Maryland Corporation, pursuant to the Merger Agreement between parties dated January 22, 2013 ("Merger").
The Company’s operations are carried out through its operating partnership, Spirit Realty, L.P. (the “Operating Partnership”). Spirit General OP Holdings, LLC ("OP Holdings"), one of the Company’s wholly owned subsidiaries, is the sole general partner and owns 1.0% of the Operating Partnership. The Company and a wholly-owned subsidiary are the only limited partners and together own the remaining 99.0% of the Operating Partnership.

As of September 30, 2014 , our undepreciated gross investment in real estate and loans totaled approximately $7.71 billion , representing investments in 2,408 properties, including properties securing our mortgage loans. Of this amount, 98.6% consisted of our gross investment in real estate, representing ownership of 2,263 properties, and the remaining 1.4% consisted of commercial mortgage loans receivable secured by the remaining 145 properties or other related assets.
Recent Developments

Common Stock and Convertible Notes Offerings

On May 20, 2014, the Company completed a registered offering of 26,450,000 shares of the Company’s common stock, par value $0.01 per share, pursuant to an underwriting agreement dated May 14, 2014 (the "Common Stock Offering"). The shares sold in the offering included 3,450,000 shares sold to the underwriters pursuant to their 30 -day option to purchase additional shares, which was exercised in full on May 16, 2014.

Concurrent with the Common Stock Offering, on May 20, 2014, the Company registered offerings of $402.5 million aggregate principal amount of 2.875% Convertible Senior Notes due 2019 (the “2019 Notes”) and $345.0 million aggregate principal amount 3.75% Convertible Senior Notes due 2021 (the “2021 Notes” and, together with the 2019 Notes, the “Convertible Notes”), pursuant to an underwriting agreement dated May 14, 2014 ( the "Convertible Notes Offering"). The Convertible Notes sold in the offering include $52.5 million of the 2019 Notes and $45.0 million of the 2021 Notes sold to the underwriters pursuant to their 30 -day option to purchase additional Convertible Notes, which was exercised in full on May 16, 2014.

The resulting net proceeds to the Company from the Common Stock Offering and Convertible Notes Offering were approximately $271.2 million and $726.2 million , respectively, after deducting the underwriting discount and other transaction costs paid by the Company. Net proceeds raised from the concurrent public offerings were partially used to extinguish senior mortgage notes payable with an aggregate principal balance of $509.8 million , redeem $18.0 million of net-lease mortgage notes which were not tendered in connection with the Exchange Offer (defined below), repay all amounts drawn against the Credit Facility as of May 20, 2014 and to fund future acquisitions and for general corporate purposes.






8

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Spirit Master Funding Notes Exchange Offer

On May 20, 2014 (the “Settlement Date”), the Company completed its offer to exchange (the "Exchange Offer") any and all of certain net-lease mortgage notes, (the “Old Notes”) issued by indirectly-owned special purpose, bankruptcy remote subsidiaries of the Company, for new notes under an amended trust indenture and property management agreement (the “New Master Funding Notes” or "Master Funding Notes"). The Exchange Offer was subject to a minimum tender condition of at least 98% of the outstanding principal of Old Notes. Of the $912.4 million of Old Notes outstanding on the Settlement Date, $894.4 million or 98% elected to exchange their Old Notes for New Master Funding Notes and $18.0 million of the Old Notes not tendered were redeemed.

The New Master Funding Notes will maintain generally similiar structural terms as the Old Notes. The New Master Funding Notes bear interest at the same rate, amortize at a slower rate and have a 17 year extension of the legal final payment date (although the anticipated repayment date remains the same). The New Master Funding Notes are not insured by third party financial guaranty insurance as the Old Notes were, and the associated insurance premium was eliminated. The New Master Funding Notes are secured by substantially all of the assets owned by the issuer entities.

Debt Defeasance
On June 5, 2014, two indirectly owned subsidiaries of the Company defeased the loans outstanding under a master loan agreement. The original amount under the loan agreement was $545.7 million bearing interest at a fixed rate of 6.59% with a maturity date of June 5, 2016. On the defeasance date, the principal balance outstanding under the loan agreement was approximately $488.7 million . Prior to the defeasance date, the obligations under the loan agreement had been secured by 112 properties and rents therefrom leased to a significant tenant, which collateral had an aggregate gross book value of approximately $917.7 million . The Company funded the defeasance using a portion of the proceeds from the Convertible Notes Offering.
At the Market Common Stock Offering Program
On April 15, 2014, in connection with the commencement of a continuous equity offering, the Company filed with the Securities and Exchange Commission ("SEC") a prospectus supplement under which the Company may sell up to an aggregate of $350.0 million of shares of its common stock from time to time in “at the market” offerings (the “ATM Program”). The Company may sell the shares in amounts and at times to be determined by the Company, but has no obligation to sell any of the shares in the ATM Program. The ATM Program will operate pursuant to an equity distribution agreement entered into by the Company and the Operating Partnership with a number of sales agents for the offer and sale of the shares. During the second quarter of 2014, the Company sold 1,574,320 shares under the program, raising net proceeds of approximately $16.3 million . No shares were sold under the ATM Program during the third quarter of 2014.

Acquisitions and dispositions

During the nine months ended September 30, 2014 , the Company purchased 241 properties, representing an aggregate gross investment in real estate properties of $572.2 million , which includes $2.4 million in revenue producing follow on investments in existing properties. During the same period, the Company sold 19 properties for $44.9 million in gross sales proceeds. See Note 3 for additional discussion of the Company's investments.

9

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Note 2. Summary of Significant Accounting Policies
Basis of Accounting and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements of Spirit Realty Capital, Inc. and its consolidated subsidiaries have been prepared pursuant to the rules and regulations of the SEC. In the opinion of management, the unaudited condensed consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of the information required to be set forth therein. The results for interim periods are not necessarily indicative of the results for the entire year. Certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), have been condensed or omitted from these statements pursuant to SEC rules and regulations and, accordingly, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements as filed with the SEC in its Annual Report on Form 10-K for the fiscal year ended December 31, 2013 .
The unaudited condensed consolidated financial statements include the accounts of Spirit Realty Capital, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company has formed numerous special purpose entities to acquire and hold real estate subject to mortgage notes payable (see Note 5). As a result, the vast majority of the Company’s consolidated assets are held in these wholly owned special purpose entities, and are subject to debt. 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 owner or affiliate of the special purpose entity. At September 30, 2014 and December 31, 2013 , assets totaling $5.5 billion and $6.1 billion , respectively, were held, and liabilities totaling $3.3 billion and $3.8 billion , respectively, were owed by these special purpose entities and are included in the accompanying condensed consolidated 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.
Reclassifications
Certain reclassifications have been made to prior period balances to conform to the current period presentation (see Note 11).
Segment Reporting
Accounting Standards Codification Topic (“ASC”) 280, Segment Reporting , established standards for the manner in which public enterprises report information about operating segments. The Company views its operations as one segment, which consists of net leasing operations. The Company has no other reportable segments.
Real Estate Investments
Purchase Accounting and Acquisition of Real Estate - When acquiring a property for investment purposes, the Company allocates 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, the Company allocates the purchase price of real estate to the tangible and intangible assets and liabilities acquired based on their estimated fair values, and acquisition costs are expensed as incurred. In making estimates of fair values for this purpose, the Company uses a number of sources, including independent appraisals and information obtained about each property as a result of its pre-acquisition due diligence and its 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 estimates of costs related to tenant

10

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

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, and are amortized on a straight-line basis over the remaining initial term of the related lease. 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. Capitalized above-market lease intangibles are amortized over the remaining initial terms of the respective leases as a decrease to rental revenue. Below-market lease intangibles are amortized as an increase in rental revenue over the remaining initial terms of the respective leases plus any fixed-rate renewal periods on those leases. Should a lease terminate early, the unamortized portion of any related lease intangible is immediately recognized in the Company’s condensed consolidated statements of operations.
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, business conditions in the industry in which the tenant operates, and economic conditions in the area where the property is located. In the event that 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 $9.0 million and $7.9 million at September 30, 2014 and December 31, 2013 , respectively, against accounts receivable balances of $20.1 million and $17.6 million , respectively; receivables are recorded within deferred costs and other assets, net in the accompanying condensed consolidated balance sheets. For deferred rental revenues related to the straight-line method of reporting rental revenue, the Company performs a periodic review of receivable balances and established a provision for losses of $11.3 million and $9.6 million at September 30, 2014 and December 31, 2013 , respectively, against deferred rental revenue receivables of $45.9 million and $35.3 million , respectively. The Company's periodic review includes management’s estimates of amounts that will not be realized and an assessment of the risks inherent in the portfolio, giving consideration to historical experience and industry default rates for long-term receivables.
Loans Receivable
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. There was no allowance for loan losses at September 30, 2014 or December 31, 2013 .
A loan is placed on nonaccrual 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 nonaccrual status, interest income is recognized only when received. As of September 30, 2014 and December 31, 2013 , there were no mortgages or notes on nonaccrual status.

11

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Restricted Cash and Escrow Deposits

Restricted cash and deposits in escrow, classified within deferred costs and other assets, net in the accompanying condensed consolidated balance sheets consisted of the following at September 30, 2014 and December 31, 2013 :
 
September 30,
2014
 
December 31,
2013
Collateral deposits (1)
$
21,597

 
$
21,816

Tenant improvements, repairs, and leasing commissions (2)
13,176

 
10,297

Master trust release / title company escrow (3)
21,350

 
21,893

Loan impounds (4)
1,114

 
2,018

Other (5)
1,400

 
2,667

 
$
58,637

 
$
58,691

(1) Funds held in reserve by lenders which, at their sole discretion, can be applied to the repayment of debt.  Any funds remaining on deposit after the debt is paid in full are released to the borrower. Included in this total is $8.2 million of lender controlled restricted cash held on the four defaulted CMBS loans (see Note 5).
(2) Deposits held by lenders that are reserved to fund tenant improvements/repairs on collateral properties or when leasing commissions are incurred to secure a new tenant. Included in this total is $5.3 million in restricted cash held on the four defaulted CMBS loans (see Note 5).
(3) Includes net sales proceeds from property dispositions held as collateral that can be released upon qualified re-investment.
(4) Funds held in lender controlled accounts generally used to meet future debt service or certain property operating expenses.
(5) Funds held in lender controlled accounts released within the following month after debt service requirements are met. Included in this total is $0.2 million in restricted cash held on the four defaulted CMBS loans (see Note 5).

A significant amount of these reserves were established in connection with obtaining lender consents relating to our initial public offering during 2012 and Merger during 2013.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. As a REIT, the Company generally will not be subject to federal income tax provided it continues to satisfy certain tests concerning the Company’s sources of income, the nature of its assets, the amounts distributed to its stockholders, and the ownership of Company stock. Management believes the Company has qualified and will continue to qualify as a REIT and therefore, no provision has been made for federal income taxes in the accompanying condensed consolidated financial statements. Even if the Company qualifies for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income tax and excise tax on its undistributed income.
Franchise taxes are included in general and administrative expenses on the accompanying condensed consolidated statements of operations. Taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiary is subject to federal, state, and local taxes, which are not material.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or the SEC that are adopted by the Company as of the specified effective date. Unless otherwise discussed, these new accounting pronouncements entail technical corrections to existing guidance or affect guidance related to specialized industries or entities and therefore will have minimal, if any, impact on the Company's financial position or results of operations upon adoption.

In April 2014, the FASB issued Accounting Standards Update (ASU) 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 , which amends the requirements for reporting discontinued operations. Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's

12

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

operations and financial results when the component or group of components meets the criteria to be classified as held for sale or when the component or group of components is disposed of by sale or other than by sale. In addition, this ASU requires additional disclosures about both discontinued operations and the disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. The Company has early adopted the provisions of ASU 2014-08 beginning with the period ended March 31, 2014, and has applied the provisions prospectively.

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. Lease contracts covered by Topic 840, Leases, are excluded from the scope of this new guidance. This new standard is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. The Company is currently evaluating the impact of this new standard on its financial statements.
In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This standard requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for fiscal years beginning after December 15, 2015. The Company does not anticipate this standard will have a material impact on its financial statements upon adoption.





















13

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Note 3. Investments
Real Estate Investments
At September 30, 2014 and December 31, 2013 , the Company’s gross investment in real estate properties and loans, including real estate assets held for sale, totaled approximately $7.71 billion and $7.24 billion , respectively. These investments are comprised of 2,408 and 2,186 , respectively, owned or financed properties that are geographically dispersed throughout 49 states. Only one state, Texas, with a 12.9% investment, accounted for more than 10% of the total dollar amount of the Company’s investment portfolio. At September 30, 2014 and December 31, 2013 , respectively, the Company’s gross investment portfolio was comprised of 2,263 and 2,041 owned properties. The Company also held mortgage loans receivable secured by 145 properties with aggregate carrying amounts of $111.0 million and $117.3 million as of September 30, 2014 and December 31, 2013 , respectively. Other unsecured loans receivable with aggregate carrying amounts of $0.4 million were also held as of September 30, 2014 and December 31, 2013 .
During the nine months ended September 30, 2014 , the Company had the following gross real estate and loan activity:
 
Number of
Properties
Owned or
Financed
 
Dollar
Amount of
Investments (1)
 
 
 
(In Thousands)
Balance, December 31, 2013
2,186

 
$
7,235,732

Acquisitions/improvements
241

 
573,050

Dispositions of real estate (2)  (Note 11)
(19
)
 
(46,744
)
Principal payments and payoffs
—

 
(4,416
)
Impairments
—

 
(41,539
)
Write off of gross lease intangibles
—

 
(8,472
)
Loan premium amortization and other
—

 
(2,121
)
Balance, September 30, 2014
2,408

 
$
7,705,490

(1)  
The dollar amount of investments includes the gross investment in land, buildings and lease intangibles, as adjusted for any impairment, related to properties owned and the carrying amount of loans receivable and real estate assets held under direct financing leases.
(2) The total accumulated depreciation and amortization associated with dispositions of real estate was $6.7 million for the nine months ended September 30, 2014 .

The properties that the Company owns are leased to tenants under long-term operating leases that typically include one or more renewal options. The leases are generally triple-net, which provides that the lessee is responsible for the payment of all property operating expenses, including property taxes, maintenance and repairs, and insurance costs; therefore, the Company is generally not responsible for repairs or other capital expenditures related to its properties, unless the property is not subject to a lease agreement. At September 30, 2014 , 40 of the Company’s properties were vacant, not subject to a lease and in the Company’s possession; seven of these properties were held for sale. At December 31, 2013 , 21 properties were vacant, not subject to a lease and in the Company’s possession; six of these properties were held for sale.
Scheduled minimum future contractual rent to be received under the remaining non-cancelable term of operating leases at September 30, 2014 (in thousands):

14

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Scheduled Future Rental Payments
September 30,
2014
Remainder of 2014
$
143,982

2015
570,225

2016
553,461

2017
538,290

2018
523,022

Thereafter
3,820,618

Total future minimum rentals
$
6,149,598

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 consumer price index ("CPI").
Certain of the Company’s leases contain tenant purchase options. Most of these options are at or above fair market value at the time the option is exercisable, and none of these purchase options represent bargain purchase options under GAAP.
Loans Receivable
The following table details loans receivable, net of premium, as of September 30, 2014 and December 31, 2013 (in thousands):
 
September 30,
2014
 
December 31,
2013
Mortgage - principal
$
97,935

 
$
102,315

Mortgage - premium
13,081

 
14,976

    Mortgages, net
111,016

 
117,291

Other notes - principal
393

 
430

Total loans receivable, net
$
111,409

 
$
117,721

Real Estate Assets Under Direct Financing Leases
The components of investment assets held under direct financing leases as of September 30, 2014 and December 31, 2013 were as follows (in thousands):
 
September 30,
2014
 
December 31,
2013
Minimum lease payments receivable
$
16,809

 
$
19,555

Estimated residual value of leased assets
55,858

 
57,739

Unearned income
(16,013
)
 
(18,534
)
Total
$
56,654

 
$
58,760


15

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Real Estate Assets Held for Sale
The following table shows the activity in real estate assets held for sale for the nine months ended September 30, 2014 :
 
Number of
Properties
 
Carrying
Value
 
 
 
(In Thousands)
Balance, December 31, 2013
11

 
$
19,611

Transfers from real estate investments
19

 
59,372

Sales (Note 11)
(10
)
 
(24,863
)
Balance, September 30, 2014 (a)
20

 
$
54,120

(a) Includes 15 properties with a net carrying amount of $44.6 million in which its operating results are reported in continuing operations.
The following table is a reconciliation of the major classes of assets and liabilities from discontinued operations included in real estate assets held for sale on the condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013 (in thousands):
 
September 30,
2014
 
December 31,
2013
Assets
 
 
 
Land and improvements
$
5,557

 
$
10,003

Buildings and improvements
6,009

 
14,178

Total real estate investments
11,566

 
24,181

Less: Accumulated depreciation
(2,167
)
 
(4,819
)
Intangible lease assets, net
460

 
697

  Other
86

 
—

Total assets
$
9,945

 
$
20,059

 
 
 
 
Liabilities
 
 
 
Intangible lease liabilities, net
$
448

 
$
448

Total liabilities
$
448

 
$
448

Impairments
The following table summarizes total impairment losses recognized for the three and nine months ended September 30, 2014 and 2013 (in thousands):  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Real estate and intangible asset impairment
$
10,783

 
$
1,963

 
$
37,030

 
$
5,547

Write-off of lease intangibles due to lease terminations
1,910

 
—

 
4,509

 
488

Loans receivable recovery
—

 
—

 
—

 
(367
)
Other impairment
34

 
—

 
522

 
—

Total impairment loss continuing and discontinued operations
$
12,727

 
$
1,963

 
$
42,061

 
$
5,668



16

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Note 4. Lease Intangibles, net
The following table details lease intangible assets and liabilities, net of accumulated amortization, as of September 30, 2014 and December 31, 2013 (in thousands):
 
September 30,
2014
 
December 31,
2013
In-place leases
$
675,926

 
$
663,027

Above-market leases
100,112

 
95,118

Less: accumulated amortization
(176,163
)
 
(140,024
)
Intangible lease assets, net
$
599,875

 
$
618,121

 
 
 
 
Below-market leases
$
254,034

 
$
243,237

Less: accumulated amortization
(34,408
)
 
(23,123
)
Intangible lease liabilities, net
$
219,626

 
$
220,114

The amounts amortized as a net increase to rental revenue for capitalized above- and below-market leases was $4.6 million and $1.4 million for the nine months ended September 30, 2014 and 2013 and $1.6 million and $0.7 million for the three months ended September 30, 2014 and 2013 , respectively. The value of in-place leases amortized and included in depreciation and amortization expense was $40.0 million and $19.8 million for the nine months ended September 30, 2014 and 2013 and $13.1 million and $10.9 million for the three months ended September 30, 2014 and 2013 , respectively. The increase in above- and below-market lease and lease-in-place amortization was primarily attributable to the properties acquired in connection with the Merger.

Note 5. Debt
The Company's debt is summarized below:
 

Weighted Average Effective
Interest Rates (1)
 
Weighted Average Stated Interest Rate (2)
 
Weighted Average Maturity (4)
 
September 30,
2014
 
December 31,
2013
 
 
 
 
 
(in Years)
 
(In Thousands)
Revolving credit facilities
NM

 
2.81
%
 
1.7
 
$
125,436

 
$
35,120

Master Trust Notes
5.81
%
 
5.35
%
 
6.8
 
1,204,787

 
1,241,437

CMBS - fixed-rate
5.34
%
 
5.84
%
 
3.1
 
1,868,518

 
2,387,532

CMBS - variable-rate  (3)
3.50
%
 
3.28
%
 
2.4
 
110,771

 
111,018

Unsecured fixed rate promissory note
9.12
%
 
7.00
%
 
7.3
 
1,340

 
1,442

Convertible Notes
4.80
%
 
3.28
%
 
5.5
 
747,500

 
—

 
 
 
 
 
 
 
 
 
 
Total debt before net debt (discount) or premium
5.40
%
 
5.06
%
 
4.7
 
4,058,352

 
3,776,549

Unamortized net debt (discount) or premium
 
 
 
 
 
 
(50,524
)
 
1,669

Total debt, net
 
 
 
 
 
 
$
4,007,828

 
$
3,778,218


(1) The effective interest rates include amortization of debt discount/premium and amortization of deferred financing costs calculated for the three months ended September 30, 2014 .
(2) Represents the weighted average stated interest rate based on the outstanding principal balance as of September 30, 2014 .
(3) Variable-rate notes are predominately hedged with interest rate swaps (see Note 6).
(4) Represents the weighted average maturity based on the outstanding principal balance as of September 30, 2014 .

17

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Revolving Credit Facilities
$400 million Credit Facility - On July 17, 2013, the Operating Partnership and various affiliates thereof, entered into a three -year credit agreement ("Credit Facility") with various lenders and terminated the Company's previous $100.0 million secured revolving credit facility. The Operating Partnership may obtain loans and/or extensions of credit in an aggregate amount not to exceed $400.0 million . The initial term expires on July 17, 2016 and may be extended for an additional 12 months subject to the satisfaction of specified requirements. The Credit Facility bears interest, at the Operating Partnership’s option, of either (i) the “Base Rate” (as defined in the Credit Facility) plus 1.00% to 2.00% ; or (ii) LIBOR plus 2.00% to 3.00% , depending on the Operating Partnership’s leverage ratio. The Operating Partnership is also required to pay a fee on the unused portion of the Credit Facility at a rate of either 0.25% or 0.35%  per annum, based on percentage thresholds for the average daily unused balance during a fiscal quarter, which amounted to $0.4 million and $0.9 million for the three and nine months ended September 30, 2014 , respectively.
As a result of entering into the Credit Facility, the Company incurred origination costs of $4.5 million . These costs are being amortized to interest expense, on a straight-line basis, over the remaining initial term of the Credit Facility. At September 30, 2014 , $2.7 million of the $4.5 million is included in deferred costs and other assets, net on the accompanying condensed consolidated balance sheet. The interest rate, excluding the impact of non-cash amortization of deferred financing costs and non-utilization fee of the Credit Facility, was 2.65% for the three months ended September 30, 2014 . As of September 30, 2014 , there was $110.0 million outstanding on the Credit Facility and $290.0 million of borrowing capacity available.
The Company guarantees the Operating Partnership's obligations under the Credit Facility and, to the extent not prohibited by law, all of its assets and the Operating Partnership's assets, other than interests in subsidiaries that are contractually prohibited from being pledged, are pledged as collateral for obligations under the Credit Facility.
The ability to borrow under the Credit Facility is subject to the Operating Partnerships' ongoing compliance with a number of customary financial covenants. As of September 30, 2014 , the Operating Partnership was in compliance with these financial covenants.
Line of Credit - As of September 30, 2014 , a special purpose entity indirectly owned by the Company had access to a $40.0 million secured revolving credit facility (“Line of Credit”). The initial term of the Line of Credit expires in March 2016, and each advance under the Line of Credit has a 24 -month term. The interest rate is determined on the date of each advance and is the greater of (i) the stated prime rate or (ii) the floor rate, which was amended and reduced during the third quarter 2014, equal to 3.50% . The interest rate with respect to each advance resets on the annual anniversary date of each advance, and is subject to the same terms as above. As of September 30, 2014 , $15.4 million was outstanding on the Line of Credit under three separate advances, secured by 3 properties, at a weighted average stated rate of 3.9% and an effective interest rate for the three months ended September 30, 2014 of 4.20% . Each advance under the Line of Credit is secured by those assets specified as collateral for such advance. The ability to borrow under the Line of Credit is subject to the Company's and special purposes entity's ongoing compliance with a number of customary financial covenants. As of September 30, 2014 , the Company and if applicable the special purpose entity were in compliance with these financial covenants.

Master Trust Notes

On May 20, 2014, the Company completed its Exchange Offer for the outstanding principal balance of the Old Notes issued by indirect wholly-owned subsidiaries Spirit Master Funding, LLC, Spirit Master Funding II, LLC and Spirit Master Funding III, LLC, under the Company's Spirit Master Funding program. The terms of the New Master Funding Notes remain generally similar to the Old Notes including the interest rate and anticipated final repayment dates; however, the Master Funding Notes generally amortize more slowly than the Old Notes and have a legal final payment date that is 17 years later than the Old Notes. The Master Funding Notes are not insured by third party financial guaranty insurance as were the Old Notes and the Company no longer pays the associated insurance premium. The revisions to the Spirit Master Funding Program, in connection with the issuance of the Master Funding Notes, also generally provide the Company more administrative flexibility as property manager and special servicer. The Master Funding Notes are cross collateralized by the assets of the issuers and are non-recourse.

18

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

As of September 30, 2014 , the Master Funding Notes had an outstanding principal balance of $877.8 million and were secured by 714 properties, including 82 properties securing mortgage loans. The Master Funding Notes have a weighted average stated interest rate of 5.58% and weighted average maturity of 6.6 years as of September 30, 2014.
In December 2013, Spirit Master Funding VII, LLC ("SMF VII") issued $330.0 million net-lease mortgage notes under a new Spirit Master Funding securitization trust, with substantially similar terms to the existing Spirit Master Funding trust. The issue was comprised of $125.0 million of 3.89% Series 2013-1 Class A interest only, net-lease mortgage notes expected to be repaid in December 2018 and $205.0 million of 5.27% Series 2013-2 Class A amortizing net-lease mortgage notes expected to be repaid in December 2023 . The two series of notes are cross collateralized and are collectively referred to as the "SMF Notes" and together with the Master Funding Notes, the "Master Trust Notes". The SMF Notes are secured by all of the assets of SMF VII and are non-recourse. As of September 30, 2014 , the SMF Notes had an outstanding balance of $327.0 million and were secured by 316 properties, including 77 properties securing mortgage loans. The SMF Notes carried an investment grade rating at issuance and have a weighted average stated interest rate of 4.74% and a weighted average maturity of 7.3 years as of September 30, 2014.
CMBS
As of September 30, 2014, indirectly owned subsidiaries of the Company were borrowers under 232 fixed and 26 variable rate non-recourse loans that had been securitized into commercial mortgage backed securities ("CMBS") that are secured by the borrowers' respective leased properties and related assets. The stated interest rates as of September 30, 2014 for the fixed rate notes ranged from 3.90% to 10.88% with a weighted average stated rate of 5.84% . The variable rate notes ranged from 2.66% to 3.66% with a weighted average stated rate of 3.28% . As of September 30, 2014 , the fixed and variable rate loans have balances outstanding of $1.9 billion and $110.8 million , respectively, and are secured by 735 and 123 properties, respectively.

During the quarter ended September 30, 2014, the servicer of one such CMBS loan notified the Company that conditions exist under covenants contained in the loan agreement that permit the servicer to retain rents in excess of debt service requirements (“Excess Cash”) as additional deposited collateral beginning as of September 30, 2013. As of September 30, 2014, the Excess Cash amount is approximately $0.6 million per month. In the event the servicer requires the return of previously distributed Excess Cash, such funds would be classified as additional collateral deposits in restricted cash in the accompanying condensed consolidated balance sheet.

19

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

As of September 30, 2014, certain borrowers were in default under the loan agreements relating to four separate CMBS loans where the collateral securing the respective loans was no longer generating sufficient revenue to pay the required debt service. Each defaulted borrower is a special purpose entity and the sole owner of the collateral securing the loan obligations. As of September 30, 2014, the aggregate principal balance under the defaulted CMBS loans was $74.0 million , which includes $1.0 million of interest capitalized to principal and $0.2 million of interest payable reflected in accounts payable, accrued expenses and other liabilities on the accompanying condensed consolidated balance sheet. The following table provides key elements of the defaulted mortgage loans (dollars in thousands):
Industry
 
Properties
 
Net Book Value
 
Monthly Base Rent
 
Outstanding Principal
 
Restricted Cash (4)
 
Stated Rate
 
Default Rate
 
Accrued Interest
 
Drug Stores / Pharmacies
 
1
 
$
1,040

 
$
—

 
$
1,227

 
$
78

 
5.67
%
 
9.67
%
 
$
30

(1)  
Home Furnishings
 
1
 
3,331

 
36

 
16,732

 
3,537

 
6.88
%
 
10.88
%
 
807

(1)  
Sporting Goods
 
1
 
3,397

 
—

 
4,067

 
609

 
5.52
%
 
9.52
%
 
161

(1)  
Manufacturing
 
9
 
39,595

 
83

 
51,963

 
9,497

 
5.85
%
 
9.85
%
 
219

(2)  
 
 
12
 
$
47,363

 
$
119

 
$
73,989

 
$
13,721

 
6.06
%
(3)  
10.06
%
(3)  
$
1,217

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Interest capitalized to principal
 
 
 
 
 
 
 
 
 
(2) Interest in accounts payable, accrued expenses and other liabilities
 
 
 
 
 
(3) Weighted average interest rate
 
 
 
 
 
 
 
 
 
(4) Represents restricted cash controlled by the lender that may be applied to reduce the outstanding principal balance
Convertible Senior Notes
On May 20, 2014, the Company completed registered offerings of $402.5 million aggregate principal amount of 2.875% Convertible Notes due in 2019 and $345.0 million aggregate principal amount of 3.75% Convertible Notes due in 2021. Interest on the Convertible Notes is payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2014. The 2019 Notes will mature on May 15, 2019 and the 2021 Notes will mature on May 15, 2021. The Company loaned the net proceeds from the Convertible Notes Offering to the Operating Partnership in exchange for promissory notes with substantially the same terms as the Convertible Notes.
The Convertible Notes are convertible only during certain periods and, subject to certain circumstances, into cash, shares of Spirit Realty Capital's common stock, or a combination thereof. The initial conversion rate applicable to each series is 76.3636 per $1,000 principal note (equivalent to an initial conversion price of $13.10 per share of common stock, representing a 22.5% premium above the public offering price). Earlier conversion may be triggered if shares of Spirit Realty Capital common stock trade higher than the established thresholds or certain corporate events occur.
In connection with the issuance of the Convertible Notes, the Company recorded a discount of $56.7 million , which represents the estimated value of the embedded conversion option feature for each of the Convertible Notes. The discount is shown net against the aggregate outstanding principal balance of the Convertible Notes on the accompanying condensed consolidated balance sheets. The equity component of the conversion feature is recorded in additional paid-in-capital, net of financing costs. The discount will be amortized to interest expense using the effective interest method over the term of each of the 2019 Notes and 2021 Notes. As of September 30, 2014 , the unamortized discount was $53.7 million . The Company also incurred $19.6 million in deferred financing costs in connection with the Convertible Notes Offering. This amount has been allocated on a pro-rata basis to each of the Convertible Notes and is being amortized to interest expense over the term of each note.


20

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Debt Extinguishment

Net proceeds raised from the concurrent registered Convertible Notes Offering and Common Stock Offerings in May 2014, were partially used to retire senior mortgage notes payable with an aggregate principal balance of $509.8 million , redeem $18.0 million of Old Notes that were not tendered in the Exchange Offer, and repay all amounts then drawn against the Credit Facility. The Company defeased approximately $488.7 million aggregate principal amount of senior mortgage indebtedness included in the total above. The defeased notes had contractual interest rates of 6.59% and upcoming maturities in 2016. During the third quarter of 2014, the Company recognized a $0.2 million gain on debt extinguishment resulting from a property sale, which was encumbered by CMBS debt assumed by the buyer. As a result of these transactions, the Company recognized a loss on extinguishment of debt of approximately $64.5 million during the nine months ended September 30, 2014.

Debt Maturities

As of September 30, 2014 , scheduled debt maturities of the Company’s revolving credit facilities, mortgages and notes payable and Convertible Notes, including balloon payments, are as follows (in thousands):
 
Scheduled
Principal
 
Balloon
Payment
 
Total
Remainder of 2014 (1)
$
8,202

 
$
103,750

 
$
111,952

2015
31,783

 
245,782

 
277,565

2016
30,011

 
409,939

 
439,950

2017
28,331

 
829,778

 
858,109

2018
27,284

 
248,851

 
276,135

Thereafter
96,334

 
1,998,307

 
2,094,641

Total
$
221,945

 
$
3,836,407

 
$
4,058,352

(1) The balloon payment balance in 2014 includes $74.0 million for the acceleration of principal payable following an event of default under four separate CMBS loans.
Balloon payments subsequent to 2018 are as follows: $452.0 million due in 2019, $288.0 million due in 2020, $554.8 million due in 2021, $351.4 million due in 2022, $352.1 million due in 2023.

The following table summarizes interest expense on the related borrowings (in thousands):
 
Three Months 
 Ended September 30,
 
Nine Months 
 Ended September 30,
 
2014
 
2013
 
2014
 
2013
Interest expense – revolving credit facilities
$
538

 
$
1,196

 
$
2,358

 
$
1,572

Interest expense – mortgages and notes payable
44,858

 
47,196

 
149,231

 
106,284

Interest expense – Convertible Notes
6,098

 
—

 
8,970

 
—

Interest expense – other
32

 
8

 
104

 
475

Amortization of deferred financing costs
1,787

 
2,327

 
4,084

 
12,457

Amortization of debt (premium)/discount
222

 
(341
)
 
(821
)
 
5,588

Total interest expense
$
53,535

 
$
50,386

 
$
163,926

 
$
126,376

Debt (premium)/discount net is amortized to interest expense using the effective interest method over the terms of the related notes. The financing costs related to the establishment of debt are deferred and amortized to interest expense using the effective interest method over the term of the related debt instrument. Unamortized deferred financing costs totaled $39.7 million and $23.8 million at September 30, 2014 and December 31, 2013 , respectively, and are included in deferred costs and other assets, net on the accompanying condensed consolidated balance sheets.

21

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Note 6. Derivative and Hedging Activities
The Company uses interest rate derivative contracts to manage its exposure to changes in interest rates on its variable rate debt. These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value in the accompanying condensed consolidated balance sheets. Assessments of hedge effectiveness are performed quarterly using regression analysis and the measurement of hedge ineffectiveness is based on the hypothetical derivative method. The effective portion of changes in fair value are recorded in accumulated other comprehensive loss (“AOCL”) and subsequently reclassified to earnings when the hedged transactions affect earnings. The ineffective portion is recorded immediately in earnings in general and administrative expenses.
The following table summarizes the notional amount and fair value of the Company’s derivative instruments (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value of Liability
Derivatives Designated as Hedging Instruments
 
Balance Sheet Location
 
Notional
Amount
 
Interest
Rate
 
Effective
Date
 
Maturity
Date
 
September 30,
2014
 
December 31,
2013
Interest Rate Swap
 
Accounts payable, accrued expenses and other liabilities
 
$
10,879

 
4.62
%
 
06/28/12
 
07/06/17
 
$
(23
)
 
$
(42
)
Interest Rate Swap
 
Accounts payable, accrued expenses and other liabilities
 
$
6,708

 
5.75
%
 
07/17/13
 
03/01/16
 
(215
)
 
(326
)
Interest Rate Swap
 
Accounts payable, accrued expenses and other liabilities
 
$
32,400

 
3.15
%
 
07/17/13
 
09/05/15
 
(125
)
 
(178
)
Interest Rate Swaps (a)
 
Accounts payable, accrued expenses and other liabilities
 
$
61,758

 
5.14
%
 
01/02/14
 
12/13/18
 
(399
)
 
(246
)
 
 
 
 
 
 
 
 
 
 
 
 
$
(762
)
 
$
(792
)
(a) Represents a tranche of eight individual interest rate swap agreements with notional amounts ranging from $7.6 million to $7.9 million . The swap agreements contain the same payment terms, stated interest rate, effective date, and maturity date.

The following tables provide information about the amounts recorded in AOCL, as well as the loss recorded in operations, when reclassified out of AOCL or recognized in earnings immediately, for the three and nine months ended September 30, 2014 and 2013 , respectively (in thousands):
 
 
Amount of Gain or (Loss) Recognized
in AOCL on Derivative
(Effective Portion)
 
 
Three Months 
 Ended September 30,
 
Nine Months 
 Ended September 30,
Derivatives in Cash Flow Hedging Relationships
 
2014
 
2013
 
2014
 
2013
Interest rate swaps
 
$
237

 
$
(320
)
 
$
(1,040
)
 
$
149

 
 
 
 
 
 
 
 
 
 
 
Amount of Loss Reclassified from
AOCL into Operations
(Effective Portion)
 
 
Three Months 
 Ended September 30,
 
Nine Months 
 Ended September 30,
Location of Loss Reclassified from AOCL into Operations
 
2014
 
2013
 
2014
 
2013
Interest expense
 
$
(333
)
 
$
(120
)
 
$
(987
)
 
$
(309
)
General and administrative expense
 
—

 
—

 
—

 
(22
)
 
 
 
 
 
 
 
 
 
 
 
Amount of Gain or (Loss) Recognized in
Operations on Derivative
(Ineffective Portion)
 
 
Three Months 
 Ended September 30,
 
Nine Months 
 Ended September 30,
Location of Gain or (Loss) Recognized in Operations on Derivatives
 
2014
 
2013
 
2014
 
2013
General and administrative expense
 
$
5

 
$
(22
)
 
$
2

 
$
32

Approximately $1.1 million of the remaining balance in AOCL is estimated to be reclassified as an increase to interest expense during the next 12 months. The Company does not enter into derivative contracts for speculative or trading purposes.

22

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

The Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company believes it mitigates its credit risk by entering into agreements with counterparties it considers credit-worthy. As of September 30, 2014 and December 31, 2013 , there were no termination events or events of default related to the interest rate swaps.

Note 7. Stockholders’ Equity

Issuance of Common Stock

In May 2014, the Company issued 26.5 million shares of common stock at a price of $10.69 per share, including 3.5 million shares purchased by the underwriters upon the exercise of their option to purchase additional shares. After underwriting discounts and other offering costs paid by the Company, net proceeds totaled $271.2 million .

During the second quarter of 2014, the Company sold 1.6 million shares of its common stock at the weighted average share price of $10.70 under its ATM Program, for net proceeds of $16.3 million . No shares were sold under the ATM progam during the third quarter of 2014.

Treasury Shares

During the third quarter of 2014, portions of awards of restricted common stock granted to certain of the Company's officers and other employees vested. The vesting of these shares resulted in federal and state income tax liabilities for the recipients. As permitted by the terms of the incentive award plan (see Note 13), certain executive officers and employees elected to surrender 0.3 million shares valued at $2.9 million to pay some or all of the associated minimum statutory tax withholdings. The surrendered shares are held as treasury stock and included in stockholders' equity.
Dividends Declared
For the nine months ended September 30, 2014 , our Board of Directors declared the following dividends:
Declaration Date
 
Dividend Per Share
 
Record Date
 
Total Amount (1)
 
Payment Date
 
 
 
 
 
 
(in thousands)
 
 
March 18, 2014
 
$
0.16625

 
March 31, 2014
 
$
61,629

 
April 15, 2014
June 16, 2014
 
$
0.16625

 
June 30, 2014
 
$
66,299

 
July 15, 2014
September 16, 2014
 
$
0.16625

 
September 30, 2014
 
$
66,259

 
October 15, 2014

(1) Excludes estimated forfeitures for dividends declared on employee restricted stock awards that are reported in general and administrative on the accompanying condensed consolidated statements of operations.
The dividend declared on September 16, 2014 was paid on October 15, 2014 and is included in accounts payable, accrued expenses and other liabilities as of September 30, 2014 .

Note 8. 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.
As of September 30, 2014 , 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.
As of September 30, 2014 , the Company had commitments totaling $95.8 million , of which $93.4 million relates to future acquisitions and the remainder to fund improvements on properties the Company currently owns. The Company expects $94.4 million of these commitments will be funded by December 31, 2014 . In addition, the Company is

23

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
(Unaudited)


contingently liable for $5.7 million of debt owed by one of its tenants and is indemnified by that tenant for any payments the Company may be required to make on such debt.
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 financial statements.

Note 9. Fair Value Measurements
The Company’s assets and liabilities that are required to be measured at fair value in the accompanying condensed consolidated financial statements are summarized below.
The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 (in thousands):
 
 
 
Fair Value Hierarchy Level
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
September 30, 2014
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Interest rate swaps financial liabilities
$
(762
)
 
$
—

 
$
(762
)
 
$
—

December 31, 2013
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Interest rate swaps financial liabilities
$
(792
)
 
$
—

 
$
(792
)
 
$
—

The interest rate swaps are measured using a market approach, using prices obtained from a nationally recognized pricing service and pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 of the fair value hierarchy.
The following table sets forth the Company’s assets that were accounted for at fair value on a nonrecurring basis as of September 30, 2014 and December 31, 2013 (in thousands):
 
 
 
 
 
Fair Value Hierarchy Level
 
Impairment
Charges (1)
Description
Fair Value
 
Dispositions
 
Level 1
 
Level 2
 
Level 3
 
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Long-lived assets held and used
$
38,270

 
$
—

 
$
—

 
$
—

 
$
38,270

 
$
(21,474
)
Lease intangible assets
720

 
—

 
—

 
—

 
720

 
(5,546
)
Long-lived assets held for sale
31,018

 
(9,264
)
 
—

 
—

 
40,282

 
(15,041
)
 
 
 
 
 
 
 
 
 
 
 
$
(42,061
)
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Lease intangible assets
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(182
)
Long-lived assets held for sale
11,198

 
(26,832
)
 
—

 
—

 
38,030

 
(7,134
)
 
 
 
 
 
 
 
 
 
 
 
$
(7,316
)
(1) Impairment charges are presented for the nine months ended September 30, 2014 and for the year ended December 31, 2013 .
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

24

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

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.
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 September 30, 2014 and December 31, 2013 . These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities.
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 fair value on the accompanying condensed consolidated balance sheets.
The estimated fair values of the fixed-rate mortgage and other loans receivable, revolving credit facilities, fixed-rate mortgages and notes payable and Convertible Notes 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. These financial instruments were measured using a market approach from nationally recognized financial institutions with market observable inputs such as interest rates and credit analytics, which are classified as Level 2 of the fair value hierarchy. The following table discloses fair value information for these financial instruments (in thousands):  
 
September 30, 2014
 
December 31, 2013
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Loans receivable, net
$
111,409

 
$
118,044

 
$
117,721

 
$
131,587

Revolving credit facilities
125,436

 
125,334

 
35,120

 
34,911

Mortgages and notes payable, net
3,188,547

 
3,359,620

 
3,743,098

 
3,892,621

Convertible Notes, net (1)
693,845

 
728,013

 
—

 
—

(1) The carrying amount of the Convertible Notes is net of an embedded conversion premium totaling $53.7 million .

Note 10. Significant Credit and Revenue Concentration

As of September 30, 2014 and December 31, 2013 , the Company’s real estate investments are leased to 421 and 377 tenants, respectively, that engage in retail, service and distribution activities across various industries throughout the United States. Shopko Stores/Shopko Hometown (“Shopko”), operates in the general merchandise industry and is the Company’s largest tenant as a percentage of total revenue. Total revenues from Shopko for the three months ended September 30, 2014 and 2013 , contributed 14.3% and 14.4% of the Company's total revenues (from both continuing and discontinued operations), respectively. No other tenant contributed 10% or more of the Company’s total revenues during any of the periods presented. As of September 30, 2014 and December 31, 2013 , the properties that are operated by Shopko represent approximately 13.5% and 14.4% , respectively, of the Company’s total investment portfolio.

Note 11. Discontinued Operations

In April 2014, the FASB issued ASU 2014-08, which amends the requirements for reporting discontinued operations (see Note 2). Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results. The Company has early adopted the provisions of ASU 2014-08 beginning with the period ended March 31, 2014, and will apply the provisions prospectively. Properties that were reported as held for sale as of December 31, 2013 , will continue to be reported under the prior standards and will be presented in discontinued operations until they are disposed of.

25

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

As a result, net gains or losses from the disposition of these properties, as well as the current and prior period operations, of these properties will continue to be reclassified to discontinued operations. The results of discontinued operations for the three and nine months ended September 30, 2014 and 2013 , are summarized below (dollars in thousands):  
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Rent
$
300

 
$
2,811

 
$
917

 
$
7,261

Non-cash rent
27

 
141

 
—

 
16

    Other
3

 
306

 
2,953

 
313

Total revenues
330

 
3,258

 
3,870

 
7,590

Expenses:
 
 
 
 
 
 
 
General and administrative
1

 
(11
)
 
13

 
5

Property costs
41

 
424

 
236

 
763

Interest
—

 
47

 
—

 
241

Depreciation and amortization
—

 
864

 
—

 
3,454

Impairments
—

 
1,963

 
—

 
5,853

Total expenses
42

 
3,287

 
249

 
10,316

Gain (loss) from discontinued operations before other income
288

 
(29
)
 
3,621

 
(2,726
)
Other income:
 
 
 
 
 
 
 
Gain on debt extinguishment
—

 
—

 
—

 
1,028

Other
—

 
23

 
—

 
68

Total other income
—

 
23

 
—

 
1,096

Income (loss) from discontinued operations
288

 
(6
)
 
3,621

 
(1,630
)
Gain on dispositions of assets
403

 
1,237

 
488

 
1,226

Total discontinued operations
$
691

 
$
1,231

 
$
4,109

 
$
(404
)
 Number of properties disposed of during period (a)
1

 
7

 
6

 
17

 
 
 
 
 
 
 
 
(a) During the nine months ended September 30, 2014 , 19 properties were sold, but only six of them were held for sale at December 31, 2013 and not subject to early adoption of ASU 2014-08 and are recorded as discontinued operations.


26

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Note 12. Supplemental Cash Flow Information
 
Nine Months Ended September 30,
 
2014
 
2013
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
(in thousands)
Distributions declared and unpaid
$
(66,259
)
 
$
(50,194
)
Real estate properties acquired under 1031 exchange
26,677

 
—

Real estate properties sold under 1031 exchange
(5,893
)
 
—

Gross equity component of Convertible Notes
(56,740
)
 
—

Net assets acquired in Merger in exchange for common stock
—

 
1,735,682

Common stock registered in exchange for net assets acquired
—

 
(2,025,736
)
Reduction of debt included in consideration on sale of certain real estate properties
5,001

 
149,156

Reduction of debt, net of assets surrendered to lender
—

 
1,069

Accrued interest capitalized to principal (1)
997

 
—

Accrued performance share dividend rights
(420
)
 
(73
)
Accrued deferred financing costs
—

 
(1,057
)
(1) Accrued and overdue interest on certain CMBS notes that have been intentionally placed in default.
Note 13. Incentive Award Plan and Stock Option Plan
Under the Company’s Incentive Award Plan (the “Plan”), the Company may grant equity incentive awards to eligible employees, directors and other service providers. Awards under the Plan may be in the form of stock options, restricted stock, dividend equivalents, restricted stock units, stock appreciation rights, performance awards, stock payment awards, performance share awards, LTIP units and other incentive awards. 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. As of September 30, 2014 , 2.5 million shares remained available for award under the Plan.
Restricted Shares of Common Stock
During the nine months ended September 30, 2014 , the Company granted 0.4 million shares under the Plan to certain named executive officers and employees. The Company recorded $4.0 million in deferred compensation associated with these grants. As of September 30, 2014 , there were approximately 1.3 million non-vested restricted shares outstanding.
Performance Share Awards
During the nine months ended September 30, 2014 , in connection with the 2014 bonus program, the Compensation Committee of the Board of Directors approved an initial target grant of 242,883 performance shares to the named executive officers of the Company. The performance period of this grant runs from January 1, 2014 through December 31, 2016. Pursuant to the performance share award agreement, each participant is eligible to vest in and receive shares of the Company's common stock based on the initial target number of shares granted multiplied by a percentage range between 0% and 250% . The percentage range is based on the attainment of total shareholder return of the Company compared to a specified peer group of companies during the performance period. In addition, final shares issued under each performance share award entitle its holder to a cash payment equal to the aggregate dividends that would have been outstanding on each dividend record date over the performance period as if they had been issued and outstanding on those dates. Based on the grant date fair value, the Company expects to recognize $3.3 million in compensation expense on a straight-line basis over the requisite service period associated with this grant.
As of September 30, 2014 , under each separate annual performance award, the Company's total shareholder return compared to the specified peer group during the performance periods would have resulted in the release of 1.5 million

27

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

shares, in the aggregate. In addition, approximately $0.6 million in dividend rights have been accrued. The projected shares to be released are not considered issued under the Plan until the performance period has ended and the actual number of shares to be released is determined. The performance shares and dividend rights are subject to forfeiture in the event of a non-qualifying termination of a participant prior to the performance period end date.
Stock compensation
For the three and nine months ended September 30, 2014 , the Company recognized $3.0 million and $8.5 million , respectively, in stock-based compensation expense, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. For the three and nine months ended September 30, 2013 , the Company recognized $2.8 million and $6.9 million , respectively, in stock-based compensation expense.
As of September 30, 2014 and December 31, 2013 , the remaining unamortized stock-based compensation expense, including amounts relating to the performance awards, totaled $14.7 million and $15.6 million , respectively, which is recognized as the greater of the amount amortized on a straight-line basis over the service period of each applicable award or the amount vested over the vesting periods.


28

SPIRIT REALTY CAPITAL, INC.
Notes to Condensed Consolidated Financial Statements - (continued)
September 30, 2014
(Unaudited)

Note 14. Income Per Share
Income per share has been computed using the two-class method. Income per common share under the two-class method is computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period. Classification of the Company's unvested restricted stock, which contain rights to receive nonforfeitable dividends, are deemed participating securities under the two-class method. Under the two class method, earnings attributable to unvested restricted shares are deducted from income from continuing operations and net income attributable to common stockholders in the computation of income per share for each. The table below is a reconciliation of the numerator and denominator used in the computation of basic and diluted income per share (dollars in thousands):
 
Three Months 
 Ended September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
Basic and diluted income (loss):
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
5,728

 
$
(23,139
)
 
$
(73,704
)
 
$
(41,505
)
Gain on dispositions of assets
1,251

 
—

 
1,683

 
—

Less: income attributable to unvested restricted stock
(215
)
 
(303
)
 
(882
)
 
(1,001
)
Income (loss) used in basic and diluted income (loss) per share from continuing operations
6,764

 
(23,442
)
 
(72,903
)
 
(42,506
)
Income (loss) from discontinued operations
691

 
1,231

 
4,109

 
(404
)
Net income (loss) attributable to common stockholders used in basic and diluted income (loss) per share
$
7,455

 
$
(22,211
)
 
$
(68,794
)
 
$
(42,910
)
 
 
 
 
 
 
 
 
Basic and diluted weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding
398,799,661

 
331,946,412

 
384,485,286

 
219,005,588

Less: unvested weighted average shares of restricted stock
(1,992,005
)
 
(2,418,538
)
 
(1,959,672
)
 
(2,256,210
)
Weighted average number of shares outstanding used in basic income (loss) per share
396,807,656

 
329,527,874

 
382,525,614

 
216,749,378

 
 
 
 
 
 
 
 
Dilutive weighted average shares of common stock (a)
 
 
 
 
 
 
 
Unvested performance shares
800,717

 
—

 
—

 
—

Stock options
5,210

 
—

 
—

 
—

Weighted average number of shares of common stock used in dilutive income (loss) per share
397,613,583

 
329,527,874

 
382,525,614

 
216,749,378

 
 
 
 
 
 
 
 
Potentially dilutive shares of common stock
 
 
 
 
 
 
 
Unvested shares of restricted stock
761,523

 
607,505

 
787,546

 
761,617

Unvested performance shares
—

 
94,711

 
736,104

 
31,917

Stock options
—

 
—

 
5,033

 
—

Total
761,523

 
702,216

 
1,528,683

 
793,534

(a)   Assumes the most dilutive issuance of potentially issuable shares between the two-class and treasury stock method unless the result would be anti-dilutive.
 
 
The Company intends to satisfy its exchange obligation for the principal amount of the Convertible Notes to the exchange note holders entirely in cash. As the Company intends to settle the principal amount of the Convertible Notes in cash, the "if-converted" method does not apply and the treasury stock method is being used. As the Company's stock price is below the conversion price, there are no potentially dilutive shares associated with the Convertible Notes.

29

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding Forward-looking Statements

This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Exchange Act. When used in this quarterly report, the words “estimate,” “anticipate,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “seek,” “approximately” or “plan,” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that 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 factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

•
general business and economic conditions;
•
continued volatility and uncertainty in the credit markets and broader 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 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 of the leases and our ability to reposition our properties on the same or better terms in the event such leases expire and are not renewed by the tenants or in the event we exercise our rights to replace an existing tenant upon default;
•
the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us or our major tenants;
•
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;
•
our ability and willingness to maintain our qualification as a REIT due to economic, market, legal, tax or other considerations;
•
our future results may suffer if we do not effectively manage our expanded operations.

The factors included in this quarterly report, including the documents incorporated by reference, and documents we subsequently file with the SEC and incorporate by reference, are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional risk factors, see the factors included under the caption “Risk Factors” in our most recent Annual Report on Form 10-K. All forward-looking statements are based on information that was available, and speak only, as of the date on which they were made. We assume no obligation to update any forward-looking statement that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under Federal securities laws.


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Overview
Spirit Realty Capital, Inc. (the "Company") is a Maryland corporation and operates as a self-administered and self-managed REIT that seeks to generate and deliver sustainable and attractive returns for stockholders by investing primarily in and managing a portfolio of single-tenant, operationally essential real estate throughout the United States that is generally leased on a long-term, triple-net basis primarily to tenants engaged in retail, service and distribution industries. Single tenant, operationally essential real estate generally refers to free-standing, commercial real estate facilities where tenants conduct activities that are essential to the generation of their sales and profits.
On July 17, 2013, the Company merged with and into Cole Credit Property Trust II, Inc. ("Cole II"), a Maryland Corporation, pursuant to the Merger Agreement ("Merger").
The Company’s operations are carried out through its operating partnership, Spirit Realty, L.P. (the “Operating Partnership”). Spirit General OP Holdings, LLC ("OP Holdings"), one of the Company’s wholly owned subsidiaries, is the sole general partner and owns 1.0% of the Operating Partnership. The Company and a wholly-owned subsidiary are the only limited partners and together own the remaining 99.0% of the Operating Partnership.
We have elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2005. We believe that we have been organized and have operated in a manner that has allowed us to qualify as a REIT for federal income tax purposes commencing with such taxable year, and we intend to continue operating in such a manner.
We generate our revenue primarily by leasing our properties to our tenants. As of September 30, 2014 , our undepreciated gross investment in real estate and loans totaled approximately $7.71 billion , representing investment in 2,408  properties, including properties securing our mortgage loans. Of this amount, 98.6% consisted of our gross investment in real estate, representing ownership of 2,263  properties, and the remaining 1.4% consisted of commercial mortgage and equipment loans receivable secured by 145  properties or related assets. As of September 30, 2014 , our owned properties were approximately 98.2% occupied (based on number of properties), and our leases had a weighted average non-cancelable remaining lease term (based on annual contractual rent) of approximately 10.2  years. Our leases are generally originated with long lease terms, typically non-cancelable initial terms of 15 to 20 years and tenant renewal options for additional years. As of September 30, 2014 , approximately 87% of our single-tenant properties (based on annual rent) provided for increases in future annual base contractual rent.

2014 Highlights
For the third quarter ended September 30, 2014 , Spirit Realty Capital:
•
Recognized revenues of $152.3 million , an 11.3% increase over the revenues reported in the third quarter of 2013 .
•
Generated Adjusted Funds from Operations (AFFO) of $0.21 per share, Funds from Operations (FFO) of $0.20 per share, and net income of $0.02 per share.
•
Closed 19 real estate transactions and invested $206.7 million (including $0.5 million in follow on investments in existing properties) which added 51 properties to our portfolio, earning an initial cash yield of approximately 7.48% under leases with an average remaining term of 14.3 years.
•
Declared cash dividends for the third quarter of $0.16625 per share, which equates to an annualized dividend of $0.665 per share.
•
Maintained essentially full occupancy at 98% .

For the nine months ended September 30, 2014 :
•
Generated revenues of $448.1 million , a 60.0% increase over the first nine months of 2013 .
•
Generated AFFO of $0.61 per share, FFO of $0.41 per share and net loss of $0.18 per share.
•
Invested $572.2 million (including $2.4 million in follow on investments in existing properties) with an initial cash yield of 7.66% and an average remaining lease term of 15.1 years. Added 241 properties to our portfolio through new investments.
•
Strengthened the balance sheet and acquisition capacity by:
◦
Issuing $402.5 million of 2.875% Convertible Senior Notes due 2019 and $345.0 million of 3.75% Convertible Senior Notes due 2021, resulting in net proceeds of approximately $726.2 million.

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◦
Completing a secondary offering of 26,450,000 shares of common stock, resulting in net proceeds of approximately $271.2 million.
◦
Establishing an at-the-market ("ATM") program allowing for the periodic issuance of its common stock which raised $16.3 million of net proceeds on 1.6 million shares sold.
◦
Completing an exchange offer for $912.4 million outstanding principal balance of certain net-lease mortgage notes issued under its Spirit Master Funding Program, with each class of new notes having a rating of "A+" by Standard & Poor's Rating Services (S&P).
◦
Extinguishing $527.8 million of debt with a weighted average interest rate of 6.54% and weighted average remaining term of 25 months.

Factors that May Influence Our Operating Results
Rental Revenue
Our revenues are generated predominantly from receipt of rental revenue. Our ability to grow rental revenue will depend on our ability to acquire additional properties, increase rental rates and/or occupancy. Approximately 87% of our single-tenant properties contain rent escalators, or provisions that periodically increase the base rent payable by the tenant under the lease. Generally, our rent escalators increase rent at specified dates by: (1) a fixed amount; or (2) the lesser of (a) 1 to 1.25 times any increase in the CPI over a specified period, or (b) a fixed percentage, typically 1% to 2% per year. As of September 30, 2014 , 98.2% of our owned properties (based on number of properties) were occupied.
For the three months ended September 30, 2014 , Shopko contributed 14.3% of our total revenue. Walgreen Company (“Walgreens”), our next largest tenant, contributed 3.9% of our total revenue for the three months ended September 30, 2014 . Because a significant portion of our revenues are derived from rental revenues received from Shopko and Walgreens, defaults, breaches or delay in payment of rent by these tenants may materially and adversely affect us.
Without giving effect to the exercise of tenant renewal options, the weighted average remaining term of our leases as of September 30, 2014 was 10.2  years (based on annual rent). Approximately 9.9% of our leases (based on annual rent) as of September 30, 2014 will expire prior to January 1, 2018. The stability of our rental revenue generated by our properties depends principally on our tenants’ ability to pay rent and our ability to collect rents, renew expiring leases or re-lease space upon the expiration or other termination of leases, lease currently vacant properties and maintain or increase rental rates at our leased properties. Adverse economic conditions, particularly those that affect the markets in which our properties are located, or downturns in our tenants’ industries could impair our tenants’ ability to meet their lease obligations to us and our ability to renew expiring leases or re-lease space. In particular, the bankruptcy of one or more of our tenants could adversely affect our ability to collect rents from such tenant and maintain our portfolio’s occupancy.
Our ability to grow revenue will depend, to a significant degree, on our ability to acquire additional properties. We primarily focus on opportunities to provide capital to small and middle market companies that we conclude have stable and proven operating histories and attractive credit characteristics, but lack the access to capital that large companies often have. We believe our experience, in-depth market knowledge and extensive network of long-standing relationships in the real estate industry will provide us access to an ongoing pipeline of attractive investment opportunities.
Our Triple-Net Leases
We generally lease our properties to tenants pursuant to long-term, triple-net leases that require the tenant to pay all property operating expenses, such as real estate taxes, insurance premiums and repair and maintenance costs. As of September 30, 2014 , approximately 86% of our single tenant properties (based on annual rent) are subject to triple-net leases. Occasionally, we have entered into a lease pursuant to which we retain responsibility for the costs of structural repairs and maintenance. These types of leases comprise a small portion of our portfolio and historically have not resulted in significant costs to us; however, an increase in costs related to these responsibilities could negatively influence our operating results. Similarly, an increase in the vacancy rate of our portfolio would increase our costs, as we would be responsible for costs that our tenants are currently required to pay. Additionally, contingent rents based on a percentage of the tenant’s gross sales have been historically negligible, contributing less than 1% of our rental revenue. Approximately 44.0% of our annual rent is attributable to master leases, where multiple properties are leased to a single tenant on an “all or none” basis and which contain cross-default provisions. Where appropriate, we seek to use master leases to prevent a tenant from unilaterally giving up underperforming properties while maintaining well performing properties.

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Interest Expense
As of September 30, 2014 , we had an approximately $4.1 billion principal balance outstanding of largely secured, fixed-rate mortgage notes payable, Convertible Notes and borrowings under our revolving credit facilities. As of September 30, 2014 , the weighted average stated interest rate on our fixed and variable-rate debt, excluding non-utilization fees, the amortization of deferred financing costs and debt discounts/premiums, was approximately 5.06% . Our fixed-rate debt structure will provide us with a stable and predictable cash requirement related to our debt service. The variable rate debt consists of 26 mortgage notes. We entered into interest rate swaps that effectively fixed the interest rates at approximately 4.55% on a significant portion of this variable rate debt. We amortize the deferred financing costs and debt discounts/premiums associated with our fixed-rate debt to interest expense using the effective interest method over the terms of the related notes. For the nine months ended September 30, 2014 , non-cash interest expense recognized on our revolving credit facilities, mortgages and notes payable and Convertible Notes totaled approximately $3.4 million and our non-utilization fee on our Credit Facility was $0.9 million . Any changes to our debt structure, including borrowings under the $400.0 million Credit Facility or debt financing associated with property acquisitions, could materially influence our operating results depending on the terms of any such indebtedness. Most of our debt provides for scheduled principal payments. As principal is repaid, our interest expense decreases.
General and Administrative Expenses
General and administrative expenses include employee compensation costs, professional fees, consulting, portfolio servicing costs and other general and administrative expenses.
Transaction Costs
As we acquire properties, we may incur transaction costs that we may be required to expense. For properties acquired with in-place leases, we allocate the purchase price of real estate to the tangible and intangible assets and liabilities based on their estimated fair values and acquisition costs are expensed as incurred. For properties acquired in connection with a sale leaseback, transaction costs are capitalized and amortized over the remaining useful life of the assets acquired. As a result, acquisition transaction costs may vary between periods depending on the nature of the acquisition.
Impact of Inflation
Our leases typically contain provisions designed to mitigate the adverse impact of inflation on our results of operations. Since tenants are typically required to pay all property operating expenses, increases in property-level expenses at our leased properties generally do not adversely 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 expense. Additionally, our leases generally provide for rent escalators (see “Rental Revenue” above) designed to mitigate the effects of inflation over a lease’s term. However, since some of our leases do not contain rent escalators and many that do limit the amount by which rent may increase, any increase in our rental revenue may not keep up with the rate of inflation.


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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires our management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our condensed consolidated financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have not made any material changes to these policies during the periods covered by this quarterly report.


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Results of Operations
Comparison of the Three Months Ended September 30, 2014 to Three Months Ended September 30, 2013
The following discussion includes the results of our continuing operations as summarized in the table below:
 
Three Months Ended September 30,
 
2014
 
2013
 
 Change
 
 %
 
 (In Thousands)
 
 
Revenues:
 
 
 
 
 
 
 
Rentals
$
145,591

 
$
131,526

 
$
14,065

 
10.7
 %
Interest income on loans receivable
1,805

 
1,796

 
9

 
0.5
 %
Earned income from direct financing leases
837

 
708

 
129

 
18.2
 %
Tenant reimbursement income
3,308

 
2,316

 
992

 
42.8
 %
Interest income and other
754

 
501

 
253

 
50.5
 %
Total revenues
152,295

 
136,847

 
15,448

 
11.3
 %
Expenses:
 
 
 
 
 
 
 
General and administrative
11,995

 
9,946

 
2,049

 
20.6
 %
Finance restructuring costs
(11
)
 
—

 
(11
)
 
NM

Merger costs
—

 
45,071

 
(45,071
)
 
(100.0
)%
Property costs
5,357

 
5,067

 
290

 
5.7
 %
Real estate acquisition costs
865

 
470

 
395

 
84.0
 %
Interest
53,535

 
50,386

 
3,149

 
6.2
 %
Depreciation and amortization
62,069

 
48,243

 
13,826

 
28.7
 %
Impairments
12,727

 
—

 
12,727

 
100.0
 %
Total expenses
146,537

 
159,183

 
(12,646
)
 
(7.9
)%
Income (loss) from continuing operations before other income (expense) and income tax expense
5,758

 
(22,336
)
 
28,094

 
125.8
 %
Other income
 
 
 
 
 
 
 
Gain on debt extinguishment
212

 
—

 
212

 
100.0
 %
Total other income
212

 
—

 
212

 
100.0
 %
Income (loss) from continuing operations before income tax expense
5,970

 
(22,336
)
 
28,306

 
126.7
 %
Income tax expense
242

 
803

 
(561
)
 
(69.9
)%
Income (loss) from continuing operations
$
5,728

 
$
(23,139
)
 
$
28,867

 
124.8
 %
 
 
 
 
 
 
 
 
Gain on dispositions of assets
$
1,251

 
$
—

 
$
1,251

 
100.0
 %
Total Revenues
For the three months ended September 30, 2014 , approximately 95.6% of our total revenues were attributable to long-term leases. Total revenue increased by $15.4 million to $152.3 million for the three months ended September 30, 2014 as compared to $136.8 million for same period in 2013 . The increase in revenue was due primarily to an increase in base rental revenue due to the acquisition of 355 properties, representing an investment in real estate of $815.3 million , during the 12 month period ended September 30, 2014 . The increase in revenue during the three months ended September 30, 2014, was further supplemented by a full quarter of revenues generated by properties and mortgage loans acquired in the Merger on July 17, 2013. This current period increase was offset by $10.9 million of previously unrecognized straight-line rent recorded during the prior period.




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Rentals
Rental revenue increased by $14.1 million to $145.6 million for the three months ended September 30, 2014 as compared to $131.5 million for the same period in 2013 . The increase was primarily attributable to an investment in real estate of $815.3 million , during the twelve months ended September 30, 2014 . Non-cash rentals for the three months ended September 30, 2014 and 2013 were $5.1 million and $14.7 million , respectively. These amounts represent approximately 3.5% and 11.1% of total rental revenue from continuing operations for each of the three months ended September 30, 2014 and 2013 , respectively. During the three months ended September 30, 2013, the Company recognized $10.9 million of previously unrecognized straight-line rent due primarily to our determination that the risk of loss associated with a specific tenant had decreased due to the tenant’s sustained improvement in financial performance. This change of estimate during the prior period partially offset the increase in rental revenues generated from our acquisition volume over the last 12 months. Contractual rent escalations subsequent to September 30, 2013 also contributed to the increase.

As of September 30, 2014 , 98.2% of our owned properties were occupied (based on number of properties). The majority of our nonperforming leases were in the restaurant industry. We regularly review and analyze the operational and financial condition of our tenants and the industries in which they operate in order to identify underperforming properties that we may seek to selectively dispose of in an effort to mitigate risks in the portfolio. As of September 30, 2014 , 40 of our properties representing approximately 1.8% of our owned properties were vacant and not generating rent compared to 18 vacant properties, representing 0.9% of our owned properties, as of September 30, 2013 . The increase in the number of vacant properties is primarily attributable to the bankruptcy of two tenants under two master leases comprising 19 properties within the restaurant and manufacturing industries. Seven of our vacant properties were held for sale as of September 30, 2014.
Interest income on loans receivable and other income
Interest income on loans receivable remained stable at $1.8 million during the comparable three months ended September 30, 2014 and 2013 , respectively. Following the close of the Merger in July 2013, there have been no significant changes to the composition of financed properties within our portfolio.
All of our leased properties accounted for as direct financing leases were acquired in our Merger. The $0.1 million increase in earned income to $0.8 million for the three months ended September 30, 2014 , is primarily attributable to the recognition of lower earned income during the stub period following the close of the Merger on July 17, 2013 for the quarter ended September 30, 2013.
As part of the Merger, the Company acquired a number of non-triple-net leases that require the tenants to reimburse the Company for certain property costs the Company incurs. The revenues recorded for the three months ended September 30, 2014 of $3.3 million are offset by expenses recorded under property costs in the accompanying condensed consolidated statements of operations. Tenant reimbursement income during the three months ended September 30, 2013, was $2.3 million and reflects income recognized only for the period subsequent to the Merger effective date on July 17, 2013.
Total Expenses
General and administrative
General and administrative expenses increased $2.0 million to $12.0 million for the three months ended September 30, 2014 , as compared to $9.9 million for the same period in 2013 . During the three months ended September 30, 2014, $1.7 million of common area maintenance ("CAM") receivables acquired in the Merger were deemed uncollectible and written off to bad debt expense. Also contributing to the increase during the three months ended September 30, 2014 , the Company incurred higher compensation and related benefits of $0.6 million due primarily to the hiring of additional personnel in connection with the Merger and servicing our expanded portfolio. Professional fees for accounting, tax, audit and consulting were higher by $0.5 million. These increases were offset by $0.8 million in lower filing fees and franchise taxes in the current period.



      


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Table of Contents

Merger costs
In connection with the Merger in 2013, the Company incurred Merger costs of approximately $45.1 million for the three months ended September 30, 2013 . These costs include legal, accounting and financial advisory services, and other third-party expenses. No such costs were incurred during the same period in 2014.
Property costs
Our leases are generally triple-net and provide that the tenant is responsible for the payment of all property operating expenses, such as real estate taxes, insurance premiums and repair and maintenance costs. Therefore, historically, we were generally not responsible for operating costs related to the properties, unless a property is not subject to a triple-net lease or is vacant. The Merger included the acquisition of a number of single and double-net leases that require the Company to initially incur certain property costs, which are billed back and subsequently received from the tenants, subject to certain caps and other limitations as provided in the leases. Property costs increased $0.3 million to $5.4 million for the three months ended September 30, 2014 , as compared to $5.1 million for the same period in 2013 . The majority of these costs are reimbursable, before any allowance, associated with non-triple-net leases. Higher property costs, including non-reimbursable property costs, are primarily attributable to real estate taxes, legal fees and repair and maintenance costs associated with managing the expanded portfolio and the increase in vacant properties over the comparable period.
Interest
Interest expense increased by $3.1 million to $53.5 million for the three months ended September 30, 2014 , as compared to $50.4 million for the same period in 2013 . The increase in interest expense was due primarily to the increase in total indebtedness of $454.3 million between the comparable periods. The increase of debt included our$747.5 million second quarter 2014 Convertible Notes offering and $330.0 million December 2013 net-lease mortgage notes offering. These increases were offset by repayments under mortgages and notes payable during the twelve months ended September 30, 2014 including $509.8 million of debt retired in the second quarter of 2014 using proceeds raised from the Convertible Notes offering.
The following table summarizes our interest expense and related borrowings from continuing operations:
 
 Three Months Ended
 
September 30,
 
2014
 
2013
 
 (In Thousands)
Interest expense – revolving credit facilities (1)
$
538

 
$
1,196

Interest expense – mortgages and notes payable
44,858

 
47,196

Interest expense – Convertible Notes
6,098

 
—

Interest expense – other
32

 
8

Amortization of deferred financing costs
1,787

 
2,327

Amortization of debt (premium) discount
222

 
(341
)
Total interest expense
$
53,535

 
$
50,386

(1)  Includes interest expense associated non-utilization fees of approximately $0.4 million and $0.2 million for the three months ended September 30, 2014 and 2013, respectively.

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Depreciation and amortization
Depreciation and amortization expense relates primarily to depreciation on the commercial buildings and improvements we own and to amortization of the related lease intangibles. Depreciation and amortization expense increased by $13.8 million to $62.1 million for the three months ended September 30, 2014 as compared to $48.2 million for the same period in 2013 . Of the total increase, a significant portion relates to depreciation and amortization on assets acquired in the Merger, with the remainder related to non-merger acquisitions. The following table summarizes our depreciation and amortization expense from continuing operations:
 
 Three Months Ended
 
September 30,
 
2014
 
2013
 
 (In Thousands)
Depreciation of real estate assets
$
48,869

 
$
37,267

Other depreciation
95

 
42

Amortization of lease intangibles
13,105

 
10,934

Total depreciation and amortization
$
62,069

 
$
48,243


Impairment

During the three months ended September 30, 2014 , we recorded impairment losses of $12.7 million . These charges included $6.8 million on the impairment of seven properties that were held for sale, including one non-core multi-tenant property, $1.9 million of lease intangible write-offs following lease terminations and $4.0 million of impairment on two underperforming properties which were in the home furnishings and pharmaceutical industries. As of January 1, 2014, as a result of our adoption of ASU 2014-8 (see Note 2), impairment losses incurred on properties classified as held for sale will be prospectively reported in continuing operations. In reporting periods prior to January 1, 2014, impairment losses incurred on properties that were held for sale continue to be reflected in discontinued operations during those periods.

Other income

During the three months ended September 30, 2014 , we recorded a gain on debt extinguishment of $0.2 million recorded in other income. The gain resulted from a property sale, which was encumbered by CMBS debt assumed by the buyer. No such items were recognized during the same period in 2013.

Income tax expense
Income tax expense decreased $0.6 million to $0.2 million for the three months ended September 30, 2014 , as compared to $0.8 million for the same period in 2013 .  The decrease was primarily attributable to the deferred state tax expense recognized in 2013 from our Merger and was not required in 2014.
     
Discontinued operations
Gains and losses from property dispositions during a period or expected losses from properties classified as held for sale at the end of the period, as well as all operations from those properties, are reclassified to and reported as part of “discontinued operations” so long as they meet certain criteria set forth in ASU 2014-08 (see Note 2). Properties that were reported as held for sale as of December 31, 2013 , will continue to be reported under the prior standards and will be presented in discontinued operations until they are disposed of.
We recognized income from discontinued operations of $0.7 million and $1.2 million for three months ended September 30, 2014 and 2013, respectively. Non-cash impairment charges included in income from discontinued operations for the three months ended September 30, 2013 were $2.0 million . No such charges were incurred during the same period in 2014.

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Gain on dispositions of assets
During the three months ended September 30, 2014 , we recorded gains totaling $1.3 million from continuing operations on the disposition of certain real estate assets. These losses relate to disposed properties that did not qualify for discontinued operations under the guidance set forth in ASU 2014-08. Previous to the adoption of ASU 2014-08, which was applied on a prospective basis beginning January 1, 2014, these losses would have been recorded as a part of discontinued operations.
Results of Operations
Comparison of the Nine Months Ended September 30, 2014 to Nine Months Ended September 30, 2013
The following discussion includes the results of our continuing operations as summarized in the table below:
 
Nine Months Ended September 30,
 
2014
 
2013
 
 Change
 
 %
 
 (In Thousands)
 
 
Revenues:
 
 
 
 
 
 
 
Rentals
$
426,212

 
$
271,352

 
$
154,860

 
57.1
 %
Interest income on loans receivable
5,463

 
4,037

 
1,426

 
35.3
 %
Earned income from direct financing leases
2,521

 
708

 
1,813

 
256.1
 %
Tenant reimbursement income
9,548

 
2,316

 
7,232

 
312.3
 %
Interest income and other
4,312

 
1,816

 
2,496

 
137.4
 %
Total revenues
448,056

 
280,229

 
167,827

 
59.9
 %
Expenses:
 
 
 
 
 
 
 
General and administrative
33,496

 
26,064

 
7,432

 
28.5
 %
Finance restructuring costs
13,022

 
—

 
13,022

 
100.0
 %
Merger costs
—

 
56,629

 
(56,629
)
 
(100.0
)%
Property costs
17,215

 
6,334

 
10,881

 
171.8
 %
Real estate acquisition costs
2,372

 
688

 
1,684

 
244.8
 %
Interest
163,926

 
126,376

 
37,550

 
29.7
 %
Depreciation and amortization
184,586

 
104,882

 
79,704

 
76.0
 %
Impairments (recoveries)
42,061

 
(185
)
 
42,246

 
NM

Total expenses
456,678

 
320,788

 
135,890

 
42.4
 %
Loss from continuing operations before other expense and income tax expense
(8,622
)
 
(40,559
)
 
31,937

 
78.7
 %
Other expense
 
 
 
 
 
 
 
Loss on debt extinguishment
(64,496
)
 
—

 
(64,496
)
 
(100.0
)%
Total other expense
(64,496
)
 
—

 
(64,496
)
 
(100.0
)%
Loss from continuing operations before income tax expense
(73,118
)
 
(40,559
)
 
(32,559
)
 
(80.3
)%
Income tax expense
586

 
946

 
(360
)
 
(38.1
)%
Loss from continuing operations
$
(73,704
)
 
$
(41,505
)
 
$
(32,199
)
 
(77.6
)%
 
 
 
 
 
 
 
 
Gain on dispositions of assets
$
1,683

 
$
—

 
$
1,683

 
100
 %
Revenues
For the nine months ended September 30, 2014 , approximately 95.1% of our total revenues were attributable to long-term leases. Total revenue increased by $167.8 million to $448.1 million for the nine months ended September 30, 2014 as compared to $280.2 million for same period in 2013 . The increase in revenue was due primarily to $136.7 million of additional revenue provided by the properties acquired in the Merger. The remaining increase is attributable to an increase in base rental revenue resulting from $815.3 million of non-merger real estate acquisitions subsequent

39
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to September 30, 2013 . The increased revenue for the nine months ended September 30, 2014, was offset by $10.9 million of previously unrecognized straight-line rent recorded in the third quarter of 2013.

Rentals
Rental revenue increased by $154.9 million to $426.2 million for the nine months ended September 30, 2014 as compared to $271.4 million for the same period in 2013 . The increase was primarily attributable to $123.1 million of rental income generated from properties acquired in the the Merger. Additionally, during the twelve months ended September 30, 2014 , we acquired 355 properties with a gross investment value of $815.3 million , which contributed to the rental increase. During the third quarter ended September 30, 2013, the Company recognized $10.9 million of previously unrecognized straight-line rent due primarily to our determination that the risk of loss associated with a specific tenant had decreased due to the tenant’s sustained improvement in financial performance. This change of estimate during the prior period partially offset the increase in rental revenues generated from the properties we acquired over the last 12 months.
Non-cash rentals for the nine months ended September 30, 2014 and 2013 were $14.8 million and $15.9 million , respectively, representing approximately 3.5% and 5.9% of total rental revenue from continuing operations for each of the nine months ended September 30, 2014 and 2013 , respectively. The change in estimate to straight-line rent during 2013 resulted in higher non-cash revenue in the prior year compared to the nine months ended September 30, 2014.

As of September 30, 2014 , 98.2% of our owned properties were occupied (based on number of properties). The majority of our nonperforming leases were in the restaurant industry. We regularly review and analyze the operational and financial condition of our tenants and the industries in which they operate in order to identify underperforming properties that we may seek to selectively dispose of in an effort to mitigate risks in the portfolio. As of September 30, 2014 , 40 properties representing approximately 1.8% of our owned properties were vacant and not generating rent compared to 18 vacant properties, representing 0.9% of our owned properties, as of September 30, 2013 . The increase in the number of vacant properties is primarily attributable to the bankruptcy of two tenants under two master leases comprising 19 properties within the restaurant and manufacturing industries. Seven of our vacant properties were held for sale as of September 30, 2014.
Interest income on loans receivable and other income
Interest income on loans receivable increased by $1.4 million to $5.5 million for the nine months ended September 30, 2014 as compared to $4.0 million for the same period in 2013 . The increase was attributable to $3.3 million of additional income from loans receivable acquired in the Merger, which was partially offset by the decrease in income related to the prepayment of three notes as well as scheduled maturities and amortization subsequent to September 30, 2013 .
In connection with the Merger, the Company acquired a number of properties accounted for as direct financing leases which generated earned income of $2.5 million for the nine months ended September 30, 2014 . During the nine months ended September 30, 2013, these properties were in our portfolio for less than a full quarter and generated earned income of $0.7 million .
As part of the Merger, the Company acquired a number of non-triple-net leases that require the tenants to reimburse the Company for certain property costs the Company incurs. The revenues recorded for the nine months ended September 30, 2014 of $9.5 million are offset by expenses recorded under property costs in the accompanying condensed consolidated statements of operations. Tenant reimbursement income during the nine months ended September 30, 2013, was $2.3 million and reflects income recognized only for the period subsequent to the Merger effective date on July 17, 2013.
Interest income and other contributed $4.3 million and $1.8 million for the nine months ended September 30, 2014 and 2013 , respectively. The increase is primarily attributable to income of $2.7 million from a legal settlement associated with the resolution of a dispute with a tenant during 2014. During the same period in 2013, $0.9 million was attributable to a lease termination fee received from a tenant.

40
Table of Contents

Expenses
General and administrative

General and administrative expenses increased $7.4 million to $33.5 million for the nine months ended September 30, 2014 , as compared to $26.1 million for the same period in 2013 . During the nine months ended September 30, 2014 , the Company incurred higher compensation and related benefits of $4.2 million due primarily to higher non-cash stock compensation of $1.9 million and $1.6 million in higher wages due to hiring additional personnel in connection with the Merger and servicing our expanded portfolio. Professional fees for accounting, tax audit and consulting and other outside services increased $2.4 million during 2014 primarily due to higher costs incurred for compliance and consulting fees resulting from the integration of the net assets acquired in the Merger. In addition, during the nine months ended September 30, 2014, $1.7 million of CAM receivables acquired in the Merger were deemed uncollectible and written off to bad debt expense.

Finance restructuring costs

In connection with the Exchange Offer, the Company incurred costs of approximately $13.0 million during the nine months ended September 30, 2014 , which include legal, accounting and financial advisory services, and other third-party expenses. No such costs were incurred during the same period in 2013.

Merger costs
In connection with the Merger, the Company incurred merger costs of approximately $56.6 million for the nine months ended September 30, 2013 , which include legal, accounting and financial advisory services, and other third-party expenses. Additional Merger related costs of $10.1 million, arising from amortization of financing commitments obtained for the Merger, are reported in interest. No such costs were incurred during the same period in 2014.
Property costs
Our leases are generally triple-net and provide that the tenant is responsible for the payment of all property operating expenses, such as real estate taxes, insurance premiums and repair and maintenance costs. Therefore, historically, we were generally not responsible for operating costs related to the properties, unless a property is not subject to a triple-net lease or is vacant. The Merger resulted in the acquisition of a limited number of single and double-net leases that require the Company to initially incur certain expenses which are billed back and subsequently received from the tenants, subject to certain caps and other limitations as provided in the leases. Property costs increased $10.9 million to $17.2 million for the nine months ended September 30, 2014 , as compared to $6.3 million for the same period in 2013 . $10.5 million of the increase is attributable to reimbursable costs, before any allowance, associated with acquired non-triple-net leases. The remaining increase is primarily attributable to higher insurance premiums, legal fees, and repair and maintenance costs associated with managing the expanded portfolio.

41
Table of Contents

Interest
Interest expense increased by $37.6 million to $163.9 million for the nine months ended September 30, 2014 , as compared to $126.4 million for the same period in 2013 . The increase in interest expense was primarily due to the assumption of debt of $1.8 billion in connection with our Merger on July 17, 2013. The majority of the nine months in 2013 did not have the Merger debt. Additionally, interest expense increased as a result of our $747.5 million second quarter 2014 Convertible Notes Offering and $330.0 million December 2013 net-lease mortgage notes offering. These increases were offset by repayments under mortgages and notes payable during the twelve months ended September 30, 2014 including $509.8 million of debt retired in the second quarter of 2014 using proceeds raised from the Convertible Notes Offering.
The following table summarizes our interest expense and related borrowings from continuing operations:
 
Nine Months Ended
 
September 30,
 
2014
 
2013
 
 (In Thousands)
Interest expense – revolving credit facilities (1)
$
2,358

 
$
1,572

Interest expense – mortgages and notes payable
149,231

 
106,284

Interest expense – Convertible Notes
8,970

 
—

Interest expense – other
104

 
475

Amortization of deferred financing costs
4,084

 
12,457

Amortization of debt (premium) discount
(821
)
 
5,588

Total interest expense
$
163,926

 
$
126,376

(1) Includes interest expense associated with non-utilization fees fees of approximately $0.9 million and $0.4 million for the nine months ended September 30, 2014 and 2013, respectively.
Depreciation and amortization
Depreciation and amortization expense relates primarily to depreciation on the commercial buildings and improvements we own and to amortization of the related lease intangibles. Depreciation and amortization expense increased by $79.7 million to $184.6 million for the nine months ended September 30, 2014 as compared to $104.9 million for the same period in 2013 . Of the total increase, a significant portion relates to depreciation and amortization on assets acquired in the Merger, with the remainder related to non-merger acquisitions. The following table summarizes our depreciation and amortization expense from continuing operations:
 
Nine Months Ended
 
September 30,
 
2014
 
2013
 
 (In Thousands)
Depreciation of real estate assets
$
144,263

 
$
85,008

Other depreciation
283

 
99

Amortization of lease intangibles
40,040

 
19,775

Total depreciation and amortization
$
184,586

 
$
104,882


Impairment

During the nine months ended September 30, 2014 , we recorded impairment losses of $42.1 million . These charges included $14.9 million on the impairment of 10 properties that were held for sale, including two non-core multi-tenant properties, $4.5 million of lease intangible write-offs following lease terminations and $22.7 million of impairment on 12 properties which were underperforming. Of the 12 underperforming properties, seven were in the manufacturing industry relating to one original tenant, three were in the quick service restaurant industry, one in the home furnishings industry and one in the pharmaceutical industry. As of January 1, 2014, as a result of our adoption of ASU 2014-8 (see Note 2), impairment losses incurred on properties classified as held for sale will be prospectively reported in continuing operations. In reporting periods prior to January 1, 2014, impairment losses incurred on properties that were held for sale continue to be reflected in discontinued operations during those periods.

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Table of Contents

Other expense

During the nine months ended September 30, 2014, we recorded a loss on debt extinguishment of $64.5 million which is recorded in other expense. The loss on debt extinguishment primarily related to the retirement of certain senior mortgage notes payable with an aggregate principal balance of $509.8 million and the redemption of $18.0 million of net-lease mortgage notes which were not tendered in connection with the Exchange Offer. The debt that was extinguished had a weighted average interest rate of 6.54% and remaining term of 25 months. We used proceeds from our recent Convertible Notes Offering, with a weighted average stated interest rate of 3.30%, to fund the extinguishment. No such items were recognized during the same period in 2013.

Income tax expense
Income tax expense decreased $0.3 million to $0.6 million for the for the nine months ended September 30, 2014 , as compared to $0.9 million for the same period in 2013 . The decrease was primarily attributable to the deferred state tax expense recognized in 2013 from our Merger and was not required in 2014.
      
Discontinued operations
Gains and losses from property dispositions during a period or expected losses from properties classified as held for sale at the end of the period, as well as all operations from those properties, are reclassified to and reported as part of “discontinued operations” so long as they meet certain criteria set forth in ASU 2014-08 (see Note 2). Properties that were reported as held for sale as of December 31, 2013 , will continue to be reported under the prior standards and will be presented in discontinued operations until they are disposed of.
We recognized income from discontinued operations of $4.1 million for nine months ended September 30, 2014 as compared to a loss of $0.4 million for the same period in 2013 . For the nine months ended September 30, 2014 , $2.9 million of income was attributable to the receipt of a lease termination fee related to a property that was sold and $0.5 in gains from the disposition of assets. During the nine months ended September 30, 2013 , the operating loss from discontinued operations included non-cash impairment charges of $5.9 million , gains of $1.2 million from the disposition of assets and $1.0 million in gains from debt extinguishment.
Gain on dispositions of assets
During the nine months ended September 30, 2014 , we recorded gains totaling $1.7 million from continuing operations on the disposition of certain real estate assets. These gains relate to disposed properties that did not qualify for discontinued operations under the guidance set forth in ASU 2014-08. Previous to the adoption of ASU 2014-08, which was applied on a prospective basis beginning January 1, 2014, these gains would have been recorded as a part of discontinued operations.

Property Portfolio Information
Our diverse real estate portfolio at September 30, 2014 consisted of 2,263 owned properties:
•
leased to approximately 421 tenants;
•
located in 49 states as well as in the U.S. Virgin Islands, with only 3 states contributing 5% or more of our annual rent;
•
operating in 27 different industries;
•
with an occupancy rate of 98.2% ; and
•
with a weighted average remaining lease term of 10.2 years.
The following tables present the diversity of our portfolio.
Diversification By Tenant
The following table lists the top 10 tenants of our owned real estate properties as of September 30, 2014 :
Tenant (2)
 
Number of Properties
 
Total Square Footage (in thousands)
 
Percent of Total Revenue (1)
Shopko Stores/Shopko Hometown (Shopko)
 
181

 
13,502

 
14.3
%
Walgreen Company
 
69

 
995

 
3.9

84 Properties, LLC
 
109

 
4,118

 
3.2

Cajun Global LLC (Church's Chicken)
 
201

 
257

 
2.4

Academy Sports + Outdoors
 
9

 
1,985

 
2.1

Alimentation Couche-Tard, Inc. (Circle K)
 
83

 
251

 
2.0

CVS Caremark
 
37

 
414

 
1.6

CarMax, Inc.
 
9

 
368

 
1.4

Carmike Cinemas, Inc.
 
12

 
590

 
1.3

Rite Aid Corp
 
30

 
357

 
1.3

Other
 
1,523

 
33,351

 
66.5

Total
 
2,263

 
56,188

 
100.0
%
 
 
 
 
 
 
 
(1)   Total revenue for the quarter ended September 30, 2014.
 
 
 
 
(2) Tenants represent legal entities with whom we have lease agreements. Other tenants may operate certain of the same business concepts set forth above, but represent separate legal entities.

43
Table of Contents

Diversification By Industry
The following table sets forth information regarding the diversification of the tenants leasing our owned real estate properties among different industries as of September 30, 2014 :
Industry
 
Number of Properties
 
Total Square Footage (in thousands)
 
Percent of Total Rent (1)
General Merchandise
 
218

 
14,718

 
16.3
%
Restaurants - Casual Dining
 
341

 
2,149

 
9.3

Restaurants - Quick Service
 
547

 
1,478

 
7.6

Drug Stores / Pharmacies
 
135

 
2,212

 
7.0

Building Materials
 
177

 
5,750

 
5.7

Convenience Stores / Car Washes
 
180

 
675

 
5.6

Movie Theaters
 
34

 
1,782

 
4.3

Medical / Other Office
 
97

 
1,010

 
3.8

Distribution
 
16

 
3,983

 
3.7

Automotive Parts and Service
 
150

 
1,012

 
3.3

Grocery
 
53

 
2,180

 
3.0

Apparel
 
13

 
2,409

 
2.9

Manufacturing
 
27

 
4,360

 
2.8

Education
 
41

 
1,079

 
2.7

Home Furnishings
 
29

 
1,533

 
2.7

Sporting Goods
 
25

 
1,339

 
2.4

Home Improvement
 
13

 
1,787

 
2.4

Health and Fitness
 
21

 
841

 
2.3

Automotive Dealers
 
20

 
764

 
2.2

Entertainment
 
10

 
661

 
1.9

Specialty Retail
 
23

 
870

 
1.7

Consumer Electronics
 
13

 
1,018

 
1.5

Pet Supplies and Services
 
4

 
949

 
1.0

Office Supplies
 
20

 
439

 
1.0

Financial Services
 
5

 
283

 
*

Wholesale Clubs
 
3

 
355

 
*

Dollar Stores
 
41

 
449

 
*

Other
 
7

 
103

 
*

Total
 
2,263

 
56,188

 
100.0
%
 
 
 
 
 
 
 
* Less than 1%
 
 
 
 
 
 
(1)   Total rental revenue for the month ended September 30, 2014 for properties owned at September 30, 2014.



44

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 September 30, 2014 :

Asset Type
 
Number of Properties
 
Total Square Footage (in thousands)
 
Percent of Total Rent (1)
Retail
 
2,068

 
42,457

 
84.5
%
Industrial
 
80

 
11,548

 
9.3

Office
 
115

 
2,183

 
6.2

Total
 
2,263

 
56,188

 
100.0
%
 
 
 
 
 
 
 
(1)   Total rental revenue for the month ended September 30, 2014 for properties owned at September 30, 2014.


Diversification By Geography
The following table sets forth information regarding the geographic diversification of our owned real estate properties as of September 30, 2014 :
State
 
Number of Properties
 
Total Square Footage (in thousands)
 
Percent of Total Rent (1)
Texas
 
272

 
6,240

 
12.6
%
Illinois
 
124

 
3,677

 
6.7

Wisconsin
 
64

 
5,051

 
5.8

Georgia
 
157

 
1,555

 
4.9

Florida
 
125

 
2,107

 
4.5

Ohio
 
124

 
2,120

 
4.3

Minnesota
 
51

 
1,653

 
2.9

Michigan
 
76

 
2,239

 
2.9

California
 
30

 
916

 
2.9

Tennessee
 
115

 
1,746

 
2.8

Missouri
 
70

 
1,232

 
2.7

Indiana
 
73

 
1,337

 
2.7

North Carolina
 
65

 
1,508

 
2.6

Alabama
 
102

 
809

 
2.5

Nebraska
 
21

 
1,972

 
2.5

South Carolina
 
46

 
1,017

 
2.5

Pennsylvania
 
66

 
1,640

 
2.3

Arizona
 
51

 
808

 
2.2

Kansas
 
38

 
961

 
2.1

Virginia
 
45

 
1,501

 
2.0

Utah
 
16

 
1,494

 
1.6

Colorado
 
26

 
710

 
1.6

Massachusetts
 
8

 
1,390

 
1.5

Idaho
 
15

 
1,196

 
1.5

Oklahoma
 
50

 
518

 
1.5

Nevada
 
5

 
1,064

 
1.5


45

State
 
Number of Properties
 
Total Square Footage (in thousands)
 
Percent of Total Rent (1)
New York
 
44

 
938

 
1.4

Kentucky
 
45

 
952

 
1.3

New Mexico
 
33

 
330

 
1.3

Iowa
 
38

 
728

 
1.2

Washington
 
14

 
841

 
1.2

New Hampshire
 
17

 
930

 
1.0

Oregon
 
9

 
355

 
1.0

Arkansas
 
32

 
609

 
*

Louisiana
 
30

 
315

 
*

Mississippi
 
34

 
410

 
*

South Dakota
 
11

 
522

 
*

New Jersey
 
13

 
463

 
*

Maryland
 
22

 
409

 
*

Montana
 
7

 
512

 
*

West Virginia
 
28

 
568

 
*

North Dakota
 
5

 
250

 
*

Maine
 
26

 
79

 
*

Rhode Island
 
4

 
128

 
*

Wyoming
 
8

 
151

 
*

Delaware
 
3

 
86

 
*

Vermont
 
2

 
42

 
*

Virgin Islands
 
1

 
38

 
*

Connecticut
 
1

 
21

 
*

Alaska
 
1

 
50

 
*

Total
 
2,263

 
56,188

 
100.0
%
 
 
 
 
 
 
 
* Less than 1%
 
 
 
 
 
 
(1)   Total rental revenue for the month ended September 30, 2014 for properties owned at September 30, 2014.

46

Lease Expirations
The following table sets forth a summary schedule of lease expirations for leases in place as of September 30, 2014 . As of September 30, 2014 , the weighted average remaining non-cancelable initial term of our leases (based on annual rent) was 10.2 years. The information set forth in the table excludes the impact of tenant renewal options and early termination rights:
Leases Expiring In:
 
Number of Properties
 
Total Square Footage (in thousands)
 
Expiring Annual Rent (in thousands) (1)
 
Percent of Total Expiring Annual Rent
Remainder of 2014
 
36

 
1,226

 
$
3,117

 
0.5
%
2015
 
37

 
1,279

 
12,944

 
2.2

2016
 
47

 
1,944

 
22,790

 
3.9

2017
 
64

 
1,977

 
19,465

 
3.3

2018
 
76

 
1,981

 
24,706

 
4.2

2019
 
87

 
2,033

 
21,123

 
3.6

2020
 
83

 
2,121

 
27,503

 
4.7

2021
 
192

 
4,816

 
43,531

 
7.4

2022
 
101

 
2,035

 
23,668

 
4.0

2023
 
93

 
3,923

 
37,237

 
6.3

2024 and thereafter
 
1,407

 
30,866

 
345,988

 
59.1

Vacant
 
40

 
1,987

 
4,457

 
0.8

Total owned properties
 
2,263

 
56,188

 
$
586,529

 
100.0
%
 
 
 
 
 
 
 
 
 
(1)  Total rental revenue for the month ended September 30, 2014, for properties owned at September 30, 2014, multiplied by twelve.

Liquidity and Capital Resources
General
Our principal demands for funds are for the payment of principal and interest on our outstanding indebtedness, operating and property maintenance expenses and distributions to our stockholders. We may also acquire additional real estate and real estate related investments. Generally, cash needs for payments of principal and interest, operating and property maintenance expenses and distributions to stockholders will be generated from cash flows from operations, which are primarily driven by the rental income received from leased properties, interest income earned on mortgage notes receivable and interest income on our cash balances. We expect to utilize available borrowings on our $400.0 million Credit Facility and potential additional financings and refinancings to repay our outstanding indebtedness and complete possible future property acquisitions. As of September 30, 2014 , we had cash and cash equivalents of $50.1 million and our Credit Facility provided for an additional $290.0 million in borrowing capacity.

Short-term Liquidity and Capital Resources
On a short-term basis, our principal demands for funds will be for operating expenses, distributions to stockholders 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 stockholders, primarily through cash provided by operating activities and borrowings on our $400.0 million Credit Facility. As of September 30, 2014 , we had $110.0 million outstanding under the Credit Facility.
On September 15, 2014, we filed a prospectus supplement with the SEC pursuant to our registration statement on Form S-3 filed on November 8, 2013 related to our ATM Program. Under the program we have sold 1.6 million shares, raising net proceeds of $16.3 million. The prospectus supplement allows us to sell a cumulative $350.0 million of our common stock. We may sell the shares in amounts and at times to be determined by us, but have no obligation to sell

47

any of the shares in the ATM Program. During the third quarter ended September 30, 2014, no such shares were sold under the program. We believe that we have sufficient liquidity from our cash on hand, cash from operations and availability under our Credit Facility to meet our short-term working capital needs and other financial commitments.

Long-term Liquidity and Capital Resources

We plan to meet our long-term capital needs, including long-term financing of property acquisitions, by securing asset level financing, issuing fixed rate secured notes and bonds, and occasionally through public securities offerings. Our ability to raise capital is evidenced by our recent concurrent underwritten public offerings of common stock and convertible debt in which we were able to raise over $1.0 billion before offering costs. We may continue to issue common stock 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. In addition, we may issue common stock to permanently finance properties that were financed by our Credit Facility or other indebtedness. In the future, some of our property acquisitions could be made by issuing units of our Operating Partnership in exchange for property owned by third parties. These units would be exchangeable into our common stock. We 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 at 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 stockholders.

Description of Certain Debt
Convertible Notes
On May 20, 2014, the Company completed its Convertible Notes Offering in the aggregate principal amount of $747.5 million. Interest on the Convertible Notes will be payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2014. The 2019 Notes, aggregate principal amount $402.5 million, accrue interest at 2.875% and are scheduled to mature on May 15, 2019. The 2021 Notes, aggregate principal amount $345.0 million, accrue interest at 3.75% and are scheduled to mature on May 15, 2021. In connection with the issuance of the Convertible Notes, the Company recorded discounts for the value of the embedded conversion feature of $28.1 million and $28.6 million for the 2019 Notes and 2021 Notes, respectively. These debt discounts will be amortized to interest expense using the effective interest method over the respective term of the individual Convertible Notes.
Holders may convert notes of either series at their option at any time prior to November 15, 2018, in the case of the 2019 Notes, or November 15, 2020, in the case of the 2021 Notes, only under the following circumstances: (1) during any quarter commencing after the quarter ending June 20, 2014, if the last reported sales price of the Company's common stock for each of at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the Convertible Notes; (2) during the five business day period after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate for the Convertible Notes; (3) if the Company calls any or all of the Convertible Notes for redemption prior to the redemption date; or (4) upon the occurrence of specified corporate events as described in the prospectus supplement filed with the SEC on May 13, 2014. On or after November 15, 2018, in the case of the 2019 Notes, or November 15, 2020, in the case of the 2021 Notes, until the close of business on the second scheduled trading day immediately preceding the maturity date of the Convertible Notes, holders may convert the Convertible Notes of the applicable series at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver cash, shares of common stock or a combination of cash and shares of common stock, at the Company's election.

The initial conversion rate for the Convertible Notes is 76.3636 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $13.10 per share of common stock). The conversion rate for each series of the Convertible Notes will be subject to adjustment in some events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event in certain circumstances. If the Company undergoes a fundamental change (as defined), holders may require the Company to repurchase all or any portion of their notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest.

48

Revolving Credit Facility
$400 Million Credit Facility - On July 17, 2013, the Operating Partnership and various affiliates thereof, entered into the Credit Facility with various lenders. The Partnership’s obligations under the Credit Facility are guaranteed by Spirit Realty Capital, Inc., OP Holdings, and certain subsidiaries that are not restricted from doing so under mortgage indebtedness. Pursuant to the Credit Facility, consistent with the terms, conditions and provisions of a three-year revolving credit facility, the Operating Partnership and its affiliates may obtain loans and/or extensions of credit (under a revolving credit facility) in an aggregate amount not to exceed $400.0 million. The initial term expires on July 17, 2016 and may be extended for an additional 12 months, subject to the satisfaction of specified requirements. The Credit Facility bears interest, at the Operating Partnership’s option, of either (i) the “Base Rate” (as defined in the Credit Agreement) plus 1.00% to 2.00%; or (ii) LIBOR plus 2.00% to 3.00%, depending on the Operating Partnership’s leverage ratio. The Operating Partnership is also required to pay a fee on the unused portion of the Credit Facility at a rate of either 0.25% or 0.35% per annum, based on percentage thresholds for the average daily unused balance during a fiscal quarter. As of September 30, 2014 , $110.0 million was outstanding on the Credit Facility.
As a result of entering into the Credit Facility, the Company incurred origination costs of $4.5 million. These costs are being amortized to interest expense over the remaining initial term of the Credit Facility. At September 30, 2014 , $2.7 million of the $4.5 million is included in deferred costs and other assets, net on the accompanying condensed consolidated balance sheets. The interest rate, excluding the impact of non-cash amortization of deferred financing costs and non-utilization fee, was 2.65% as of September 30, 2014 .
Our ability to borrow under the Credit Facility is subject to the Operating Partnerships' ongoing compliance with a number of customary financial covenants including:

•
Maximum Leverage Ratio-requiring that the ratio of total indebtedness to gross asset value shall not exceed 65%.
•
Minimum Fixed Charge Coverage Ratio-requiring that the ratio of consolidated EBITDA to consolidated fixed charges shall not be less than certain fluctuating ratios set forth in the credit agreement.
•
Minimum Net Worth requiring that as of any date, consolidated tangible net worth shall not be less than 80% of consolidated tangible net worth on the closing date plus an amount equal to 80% of the proceeds of any new issuances of common stock.
•
Maximum Dividend Payout Ratio-requiring that any dividends declared will not exceed a certain amount per share.
•
Minimum Unencumbered Assets-the ability to request advances or letters of credit will be subject to the maintenance of a ratio of (a) outstanding obligations to (b) total value of the qualified unencumbered properties of not more than 62.5%.
•
Minimum Unencumbered Interest Coverage Ratio-requiring that each quarter and as a condition to each requested borrowing, the ratio of unencumbered net operating income to aggregate cash interest expense shall not be less than 1.50x.
Pursuant to the terms of the Credit Facility, distributions are allowable so long as they would not trigger an Event of Default (as defined in the agreement) and dividends cannot exceed $1.50 per share for the first four fiscal quarters following July 17, 2013, and, starting in the fourth quarter of fiscal year 2014, dividends, in the aggregate, may not exceed funds from operations in any fiscal year.
We guarantee the Operating Partnership's obligations under the Credit Facility and, to the extent not prohibited by law, all of our assets and the Operating Partnership's assets, other than interests in subsidiaries that are contractually prohibited from being pledged, are pledged as collateral for obligations under the Credit Facility.

Master Trust Notes

The Master Funding Notes include three series of net lease mortgage notes, issued by the indirect wholly-owned subsidiaries Spirit Master Funding, LLC, Spirit Master Funding II, LLC and Spirit Master Funding III, LLC under the Company's Spirit Master Funding program. The three series of Master Funding Notes are cross collateralized. As of September 30, 2014 , the Master Funding Notes had an outstanding balance of $877.8 million and were secured by 714 properties, including 82 properties securing mortgage loans. The Master Funding Notes have a weighted average stated rate of 5.58% and a remaining maturity date of 6.6 years as of September 30, 2014.
In December 2013, SMF VII, an indirect wholly-owned subsidiary, issued two additional series of investment grade net lease mortgage notes under a new securitization platform for $330.0 million. The issue was comprised of interest only

49

net-lease mortgage notes, expected to be repaid in December 2018 , and amortizing net-lease mortgage notes, expected to be repaid in December 2023 . The SMF Notes are secured by all of the assets of SMF VII and are non-recourse. As of September 30, 2014 , the series of notes had an outstanding principal balance of $327.0 million and were secured by 316 properties, including 77 properties securing mortgage loans. The SMF Notes carried an investment grade rating at issuance and have a weighted average stated interest rate of 4.74% and a weighted average maturity of 7.3 years as of September 30, 2014.

CMBS
We primarily use long-term, fixed-rate debt to finance our properties on a “match-funded” basis. We seek to use property-level financing that bears interest at an annual rate less than the annual rent on the related lease(s) and that matures prior to the expiration of such lease(s). As of September 30, 2014 , we had approximately $2.0 billion of outstanding balances under our fixed and variable rate CMBS loans, with a weighted average contractual interest rate of 5.69% and a weighted average maturity of 3.3 years. Most of this debt is partially amortizing and requires a balloon payment at maturity.
In general, the obligor of our property-level debt is a special purpose entity that holds the real estate and other collateral securing the indebtedness. Each special purpose entity is a separate legal entity, and is the sole owner of its assets and responsible for its liabilities. One such CMBS loan is secured by a first priority lien on properties leased to one of our tenants pursuant to a master lease that expires in April 2027. As required under the loan agreement, all rents and other monies paid to the borrower, a wholly-owned subsidiary of ours, are deposited into a lender-controlled account in order to first satisfy the debt service requirements, with any excess funds disbursed to the borrower (the “Excess Cash”). As of September 30, 2014, the Excess Cash amount is approximately $0.6 million per month. In connection with obtaining the lender’s consent to our initial public offering, we deposited $8.0 million of additional cash collateral with the lender to be applied, at the lender’s discretion, towards the reduction of the outstanding principal balance of the loan (see Note 2) and we agreed to certain cash sweep covenants which were more restrictive than those provided in the original loan agreement. During the quarter ended September 30, 2014, the servicer of this CMBS loan notified us that conditions exist under these covenants that permit the servicer to retain the Excess Cash as additional deposited collateral, concluding that such conditions existed as of September 30, 2013. The right of the servicer to sweep Excess Cash continues until the collateral tenant’s EBITDAR ratio is equal or greater than 2.50:1.00 for a period of four consecutive fiscal quarters, and includes the right to demand the return of Excess Cash amounts disbursed to borrower during Excess Cash sweep conditions unless (a) the collateral tenant’s EBITDAR ratio is equal to or greater than 1.25:1.00, (b) no event of default under the loan agreement is continuing, and (c) our long term debt is rated at or above “BB” by S&P and “Ba2” by Moody’s. The obligation to return such disbursed Excess Cash is guaranteed by the Company. The servicer has not retained any Excess Cash to date, no event of default exists under the loan agreement and the collateral tenant continues to significantly exceed the financial performance requirements described above for the disbursement of Excess Cash; however, unless and until our long term debt is rated at or above “BB” by S&P and “Ba2” by Moody’s, no assurance can be given that the servicer will not sweep Excess Cash in the future or require the return of disbursed Excess Cash. The following table provides key elements of the properties owned and outstanding indebtedness of this special purpose entity as of September 30, 2014 (dollars in thousands):
Industry
 
Properties
 
Net Book Value
 
Monthly Base Rent
 
Principal Outstanding
 
Monthly Debt Service
 
Stated Interest Rate
 
Maturity Date
Building Materials
 
109
 
$
200,803

 
$
1,493

 
$
139,956

 
$
916

 
6.17
%
 
May 5, 2017

As discussed in Note 5, we are in default on four separate CMBS loans due to the underperformance of the properties securing these loans. The wholly-owned special purpose entities subject to these mortgage loans are each separate legal entities and the sole owner of their assets and responsible for their liabilities. As of September 30, 2014, the aggregate outstanding principal balance of these loans totaled $74.0 million . One mortgage loan, secured by nine properties, comprises $52.0 million of this amount. These nine properties were acquired in 2006 and were operated by a single tenant under a master lease until filing bankruptcy in 2010. Since 2010, we have managed these properties through the tenant's bankruptcy and re-tenanted all nine properties with four new tenants. In December 2013, one of the four tenants, under a six property master lease, filed for bankruptcy. In May 2014, the master lease under which these properties operated was rejected by the current tenant in connection with its bankruptcy proceedings, and in September 2014, we repossessed these six properties. Monthly rental income from this tenant was approximately $0.4 million. Absent this rental income, the wholly-owned special purpose entity could not service its monthly debt obligation of $0.3 million, resulting in a default under the terms of the loan agreement. Of the remaining three mortgage loans in default, two are secured by vacant properties and the current rental income of the property securing the remaining loan is insufficient to service its debt. In each case, we believe we have made appropriate efforts to maximize the return

50

on our initial investment through either lease restructuring or re-tenanting those properties that have become vacant. As of September 30, 2014, we believe the value of these properties is less than the related debt. As a result, we have notified the lenders of each special purpose entity that we anticipate surrendering these properties to the lenders in exchange for relieving the indebtedness, including any accrued interest, encumbering them. The following table provides key elements of the defaulted mortgage loans (dollars in thousands):
Industry
 
Properties
 
Net Book Value
 
Monthly Base Rent
 
Outstanding Principal
 
Restricted Cash (4)
 
Stated Rate
 
Default Rate
 
Accrued Interest
 
Drug Stores / Pharmacies
 
1
 
$
1,040

 
$
—

 
$
1,227

 
$
78

 
5.67
%
 
9.67
%
 
$
30

(1)  
Home Furnishings
 
1
 
3,331

 
36

 
16,732

 
3,537

 
6.88
%
 
10.88
%
 
807

(1)  
Sporting Goods
 
1
 
3,397

 
—

 
4,067

 
609

 
5.52
%
 
9.52
%
 
161

(1)  
Manufacturing
 
9
 
39,595

 
83

 
51,963

 
9,497

 
5.85
%
 
9.85
%
 
219

(2)  
 
 
12
 
$
47,363

 
$
119

 
$
73,989

 
$
13,721

 
6.06
%
(3)  
10.06
%
(3)  
$
1,217

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)  Interest capitalized to principal
 
 
 
 
 
 
 
 
 
(2) Interest in accounts payable, accrued expenses and other liabilities
 
 
 
 
 
(3)  Weighted average interest rate
 
 
 
 
 
 
 
 
 
(4)  Represents restricted cash controlled by the lender that may be applied to reduce the outstanding principal balance

Debt Maturities    
Scheduled debt payments, including our revolving credit facilities, as of September 30, 2014 are as follows (in thousands):
 
Scheduled
Principal
 
Balloon
Payment
 
Total
Remainder of 2014 (1)
$
8,202

 
$
103,750

 
$
111,952

2015
31,783

 
245,782

 
277,565

2016
30,011

 
409,939

 
439,950

2017
28,331

 
829,778

 
858,109

2018
27,284

 
248,851

 
276,135

Thereafter
96,334

 
1,998,307

 
2,094,641

Total
$
221,945

 
$
3,836,407

 
$
4,058,352

(1) The balloon payment balance in 2014 includes $74.0 million for the acceleration of principal payable following an event of default under four separate mortgage loans.
Balloon payments subsequent to 2018 are as follows: $452.0 million due in 2019, $288.0 million due in 2020, $554.8 million due in 2021, $351.4 million due in 2022, $352.1 million due in 2023.

51

Future principal payments due on our various types of debt as of September 30, 2014 (in thousands):

 
Total
 
Remainder of 2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
Revolving credit facilities
 
$
125,436

 
$
97

 
$
5,271

 
$
120,068

 
$
—

 
$
—

 
$
—

Master Trust Notes
 
1,204,787

 
4,407

 
18,286

 
19,387

 
20,557

 
146,796

 
995,354

CMBS - fixed-rate (1)
 
1,868,518

 
107,328

 
221,109

 
293,634

 
827,908

 
67,399

 
351,140

CMBS - variable-rate
 
110,771

 
85

 
32,751

 
6,703

 
9,474

 
61,758

 
—

Convertible Notes
 
747,500

 
—

 
—

 
—

 
—

 
—

 
747,500

Unsecured fixed rate promissory note
 
1,340

 
35

 
148

 
158

 
170

 
182

 
647


 
$
4,058,352

 
$
111,952

 
$
277,565

 
$
439,950

 
$
858,109

 
$
276,135

 
$
2,094,641

(1) The CMBS - fixed-rate payment balance in 2014 includes $74.0 million for the acceleration of principal payable following an event of default under four separate mortgage loans.
Contractual Obligations
There were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC.
We may enter into commitments to purchase goods and services in connection with the operations of our properties. Those commitments generally have terms of one-year or less and reflect expenditure levels comparable to our historical expenditures.
Distribution Policy
Distributions from our current or accumulated earnings and profits are generally characterized as ordinary income, whereas distributions in excess of our current and accumulated earnings and profits, to the extent of a stockholder’s federal income tax basis in our common stock, are generally characterized as a return of capital. Distributions in excess of a stockholder’s federal income tax basis in our common stock are generally characterized as capital gains.
We are required to distribute 90% of our taxable income (subject to certain adjustments and excluding net capital gains) on an annual basis to maintain qualification as a REIT for federal income tax purposes and are required to pay federal income tax at regular corporate rates to the extent we distribute less than 100% of our taxable income (including capital gains).
We intend to make distributions that will enable us to meet the distribution requirements applicable to REITs and to eliminate or minimize our obligation to pay corporate-level federal income and excise taxes.

Any distributions will be at the sole discretion of our board of directors, and their form, timing and amount, if any, will depend upon a number of factors, including our actual and projected results of operations, FFO, liquidity, cash flows and financial condition, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, applicable law and such other factors as our board of directors deems relevant.

Cash Flows
Comparison of Nine Months Ended September 30, 2014 to Nine Months Ended September 30, 2013
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. Net cash provided by operating activities increased $85.6 million to $154.7 million for the nine months ended September 30, 2014 as compared to $69.1 million for the same period in 2013 . This increase was primarily attributable to an increase in cash revenue of $166.7 million partially offset by an increase in cash paid for interest of $52.1 million , $59.1 million for the extinguishment of certain debt, $13.0 million of restructuring charges related to our Exchange Offer, $10.4 million in higher property costs and $56.6 million of Merger costs paid in 2013. The balance of the cash flow change is attributable to changes in operating assets and liabilities.

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The increase to both revenue and cash paid for interest during the nine months ended September 30, 2014 is partly attributable to our Merger in the third quarter of 2013. As a result of the Merger, we added 747 properties and 69 secured mortgage loans to our portfolio and assumed $1.5 billion of mortgages and notes payable. Exclusive of the Merger, during the twelve months ended September 30, 2014 , we invested $815.3 million in real estate, which further contributed to our increased operating revenue and issued $330.0 million in SMF Notes in the fourth quarter of 2013, which increased the amount of cash paid for interest during the current period.
Our net 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 used in investing activities was $530.0 million for the nine months ended September 30, 2014 as compared to net cash used in investing activities of $10.5 million for the same period in 2013 . The increase in cash used for investing activities during 2014 included $546.4 million to fund the acquisition of 241 properties and transfers of sales proceeds to restricted cash accounts of $20.2 million , partially offset by cash proceeds of $32.0 million from the disposition of 19 properties and collections of principal on loans receivable and real estate assets under direct financing leases totaling $4.6 million . During the same period in 2013, cash used in investing activities included $176.1 million to fund the acquisition of 40 properties, partially offset by transfers of sales proceeds from restricted cash accounts of $7.0 million and $149.1 million of proceeds from property dispositions and principal collections on loans.
Generally, our net cash used in financing activities is impacted by our borrowings. Net cash provided by financing activities was $358.8 million for the nine months ended September 30, 2014 as compared to net cash used of $89.8 million for the same period in 2013 . The net change in cash provided by financing activities during the nine months ended September 30, 2014, was primarily attributable to our recent concurrent Convertible Notes and Common Stock Offerings, which raised approximately $1.0 billion in net proceeds. The capital raised was used mostly to extinguish $527.8 million of our indebtedness, repay all amounts drawn against the Credit Facility and to fund certain acquisitions. Our net borrowings and proceeds from issuance of common stock during the period were offset mostly by $189.5 million for dividends paid to stockholders, which was paid primarily through sources from our operating cash flows. During the same period in 2013, $89.8 million of net cash used in financing activities was comprised of $85.9 million for dividends paid to stockholders and $20.0 million of cash paid for deferred financing costs offset partially by $32.2 million of net borrowings under our lines of credit and mortgages and notes payable.


Non-GAAP Financial Measures
FFO, AFFO and FAD
We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with GAAP), excluding real estate-related depreciation and amortization, impairment charges and net losses (gains) on the disposition of real estate assets. 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) as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions or service indebtedness. FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP. A reconciliation of net income (loss)(computed in accordance with GAAP) to FFO is included in the financial information accompanying this report.
Adjusted FFO (“AFFO”) is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. It adjusts FFO to eliminate the impact of non-recurring items that are not reflective of ongoing operations and certain non-cash items that reduce or increase net income in accordance with GAAP. Our computation of AFFO may differ from the methodology for calculating AFFO used by other equity REITs, and, therefore, may not be comparable

53

to such other REITs. A reconciliation of net income (loss) (computed in accordance with GAAP) to AFFO is included in the financial information accompanying this report.
Funds Available for Distribution (“FAD”) is a measure of a REIT's ability to generate cash and to distribute dividends to its shareholders. It reduces AFFO by deducting normalized recurring expenditures that are capitalized by the REIT and then amortized, but which are necessary to maintain a REIT's properties and its revenue stream. Our calculation of FAD may differ from the methodology applied by other equity REITs, and, therefore, may not be comparable to such other REIT’s. FAD is a supplemental non-GAAP financial measure and should not be used as a measure of our liquidity or as a substitute for cash flow from operating activities computed in accordance with GAAP. A reconciliation of net income (loss) (computed in accordance with GAAP) to FAD is included in the financial information accompanying this report.

Adjusted EBITDA and Annualized Adjusted EBITDA

Adjusted EBITDA represents EBITDA, or earnings before interest, taxes, depreciation and amortization, modified to include other adjustments to GAAP net income (loss) for merger costs, real estate acquisition costs, impairment losses, gains/losses from the sale of real estate and debt transactions and other items that are not considered to be indicative of our on-going operating performance. We exclude these items as they are not key drivers in our investment decision making process. We focus our business plans to enable us to sustain increasing shareholder value. Accordingly, we believe that excluding these items which may cause short-term fluctuations in net income, but are not indicative of overall long-term operating performance, 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 that is computed in accordance with GAAP, they should not be considered alternatives to net income (loss) or as an indicator of financial performance.
Annualized Adjusted EBITDA is calculated by multiplying Adjusted EBITDA for the quarter by four. Our computation of Adjusted EBITDA and Annualized Adjusted EBITDA may differ from the methodology used by other equity REITs to calculate these measures, and, therefore, may not be comparable to such other REITs. A reconciliation of net income (loss) (computed in accordance with GAAP) to EBITDA, Adjusted EBITDA and Annualized Adjusted EBITDA is included in the financial information accompanying this report.
Adjusted Debt and Leverage
Adjusted Debt represents interest bearing debt (reported in accordance with GAAP) adjusted to include preferred stock and exclude unamortized debt discount/premium, as further reduced by cash and cash equivalents and cash collateral deposits retained by lenders. We believe that including preferred stock in Adjusted Debt is appropriate because it is an equity security that has properties of a debt instrument not possessed by common stock. Additionally, by excluding unamortized debt discount/(premium), cash and cash equivalents, and cash collateral deposits retained by lenders, the result provides an estimate of the contractual amount of borrowed capital to be repaid which we believe is a beneficial disclosure to investors.
Leverage 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. We calculate Leverage by dividing Adjusted Debt by Annualized Adjusted EBITDA. The utility of Leverage should be considered as a supplemental measure of the level of risk that stockholder value may be exposed to. Our computation of Leverage 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 in the financial information accompanying this report.

54

Initial Cash Yield

We calculate initial cash yield from properties by dividing the annualized first month base rent (excluding any future rent escalations provided for in the lease) by the gross acquisition cost of the related properties. Gross acquisition cost for an acquired property includes the contracted purchase price and any related capitalized costs. Initial cash yield is a measure (expressed as a percentage) of the base rent expected to be earned on an acquired property in the first year. Because it excludes any future rent increases or additional rent that may be contractually provided for in the lease, as well as any other income or fees that may be earned from lease modifications or asset dispositions, initial cash yield does not represent the annualized investment rate of return of our acquired properties. Additionally, actual base rent earned from the properties acquired may differ from the initial cash yield based on other factors, including difficulties collecting anticipated rental revenues and unanticipated expenses at these properties that we cannot pass on to tenants, as well as the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2013.


55

FFO, AFFO and FAD

The following is a reconciliation of net income (loss) (which we believe is the most comparable GAAP measure) to FFO, AFFO and FAD. Also presented is information regarding distributions paid to common stockholders and the weighted average common shares outstanding used for the basic and diluted computations per share (dollars in thousands, except per share amounts):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
 
(unaudited)
 
(unaudited)
Net income (loss)
$
7,670

 
$
(21,908
)
 
$
(67,912
)
 
$
(41,909
)
Add/(less):
 
 
 
 
 
 
 
Portfolio depreciation and amortization
 
 
 
 
 
 
 
Continuing operations
61,973

 
48,201

 
184,302

 
104,783

Discontinued operations
—

 
864

 
—

 
3,454

Portfolio impairments
 
 
 
 
 
 
 
Continuing operations
12,727

 
—

 
42,061

 
182

Discontinued operations
—

 
1,963

 
—

 
5,853

Realized gains on sales of real estate
(1,654
)
 
(1,237
)
 
(2,171
)
 
(1,226
)
Total adjustments
73,046

 
49,791

 
224,192

 
113,046

 
 
 
 
 
 
 
 
FFO
$
80,716

 
$
27,883

 
$
156,280

 
$
71,137

Add/(less):
 
 
 
 
 
 
 
(Gain) loss on debt extinguishment
 
 
 
 
 
 
 
Continuing operations
(212
)
 
—

 
64,496

 
—

Discontinued operations
—

 
—

 
—

 
(1,028
)
Cole II merger related costs
—

 
45,071

 
—

 
66,684

Master Trust Notes exchange costs
(11
)
 
—

 
13,022

 
—

Real estate acquisition costs
865

 
470

 
2,372

 
688

Non-cash interest expense
2,042

 
1,985

 
3,362

 
8,563

Accrued interest on defaulted loans
1,217

 
—

 
1,217

 
—

Non-cash revenues
(4,533
)
 
(14,130
)
 
(12,877
)
 
(15,191
)
Non-cash compensation expense
3,019

 
2,799

 
8,503

 
6,901

Total adjustments to FFO
2,387

 
36,195

 
80,095

 
66,617

 
 
 
 
 
 
 
 
AFFO
$
83,103

 
$
64,078

 
$
236,375

 
$
137,754

Less:
 
 
 
 
 
 
 
Capitalized portfolio maintenance expenditures
(448
)
 
(440
)
 
(851
)
 
(985
)
FAD
$
82,655

 
$
63,638

 
$
235,524

 
$
136,769

Dividends declared to common stockholders
$
66,262

 
$
54,816

 
$
194,199

 
$
107,845

Dividends declared as percent of FAD
80
%
 
86
%
 
82
%
 
79
%
Net income (loss) per share of common stock
 
 
 
 
 
 
 
Basic and Diluted (1) (2)
$
0.02

 
$
(0.07
)
 
$
(0.18
)
 
$
(0.19
)
FFO per share of common stock
 
 
 
 
 
 
 
Diluted (1) (2)
$
0.20

 
$
0.08

 
$
0.41

 
$
0.33

AFFO per share of common stock
 
 
 
 
 
 
 
Diluted (1) (2)
$
0.21

 
$
0.19

 
$
0.61

 
$
0.63

Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
396,807,656

 
329,527,874

 
382,525,614

 
216,749,378

  Diluted (1) (2)
397,613,583

 
330,230,090

 
383,266,751

 
217,542,912

 
 
 
 
 
 
 
 
Reclassifications related to discontinued operations have been made to prior period balances.
 
 
(1)   Assumes the issuance of potentially issuable shares unless the result would be anti-dilutive.
(2)  Under the two class method, earnings attributable to unvested restricted shares are deducted from income in the computation of income per share where applicable (see Note 14).

56

Adjusted Debt and EBITDA and Annualized Adjusted EBITDA - Leverage

Adjusted Debt represents interest bearing debt (reported in accordance with GAAP) adjusted to include preferred stock, exclude unamortized debt discount/(premium), and reductions for cash and cash equivalents, as well as cash collateral deposits retained by lenders. Adjusted EBITDA represents EBITDA, or earnings before interest, taxes, depreciation and amortization, modified to include other adjustments to GAAP net income (loss) (dollars in thousands):
 
September 30,
 
2014
 
2013
 
(unaudited)
Revolving credit facilities
$
125,436

 
$
151,508

Mortgages and notes payable, net
3,188,547

 
3,454,935

Convertible senior notes, net
693,845

 
—

 
4,007,828

 
3,606,443

Add/(less):
 
 
 
Preferred stock
—

 
—

Unamortized debt discount/(premium)
50,524

 
(2,409
)
Cash and cash equivalents
(50,130
)
 
(42,375
)
Cash collateral deposits for the benefit of lenders classified as other assets
(21,597
)
 
(16,927
)
Total adjustments
(21,203
)
 
(61,711
)
Adjusted Debt
$
3,986,625

 
$
3,544,732

 
 
 
 
 
Three Months Ended September 30,
 
2014
 
2013
 
(unaudited)
Net income (loss)
$
7,670

 
$
(21,908
)
Add/(less) (1) :
 
 
 
Interest
53,535

 
50,433

Depreciation and amortization
62,069

 
49,107

Income tax expense
242

 
803

Total adjustments
115,846

 
100,343

EBITDA
$
123,516

 
$
78,435

Add/(less): (1)
 
 
 
Merger costs
—

 
45,071

Master Trust Notes exchange costs
(11
)
 
—

Real estate acquisition costs
865

 
470

Impairments
12,727

 
1,963

Realized gains on sales of real estate
(1,654
)
 
(1,237
)
Gain on debt extinguishment
(212
)
 
—

Total adjustments to EBITDA
11,715

 
46,267

Adjusted EBITDA
$
135,231

 
$
124,702

Annualized Adjusted EBITDA (2)
$
540,924

 
$
498,808

 
 
 
 
Leverage (Adjusted Debt / Annualized Adjusted EBITDA)
7.4

 
7.1

 
 
 
 
(1) Adjustments include all amounts charged to continuing and discontinued operations.
(2) Adjusted EBITDA multiplied by 4.
 
 
 




57

Off-Balance Sheet Arrangements
As of September 30, 2014 , we did not have any material off-balance sheet arrangements.
New Accounting Pronouncements
See Note 2 to the September 30, 2014 unaudited condensed consolidated financial statements.

ITEM 3. 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 rate and the financial condition of our tenants, influence our performance more so than 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, this tends to reduce our exposure to rising property operating costs due to inflation.
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 additional variable rate debt in the future, including amounts that we may borrow under our revolving credit facilities. 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. However, the vast majority of our mortgage notes payable have prepayment clauses that make refinancing during a decreasing interest rate environment uneconomical. Investments in our mortgage and equipment loans receivable, however, have significant prepayment protection in the form of yield maintenance provisions, which provide us with substantial 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 and variable-rate assets with variable-rate liabilities. As of September 30, 2014 , our assets were primarily long-term, fixed-rate leases (though most have scheduled rental increases during the terms of the leases). A significant portion of our approximately $3.2 billion principal balance of outstanding mortgages and notes payable as of September 30, 2014 were long-term, fixed-rate obligations. As of September 30, 2014 , the weighted average stated interest rate of our CMBS and Master Trust Notes, excluding amortization of deferred financing costs and debt discounts/premiums, was approximately 5.56% .
We intend to continue our practice of employing interest rate derivative contracts, such as interest rate swaps and futures, to reduce our exposure, on specific transactions or on a portfolio basis, to changes in cash flows as a result of interest rate changes. We do not intend to enter into derivative contracts for speculative or trading purposes. We generally intend to utilize derivative instruments to hedge interest rate risk on our liabilities and not use derivatives for other purposes, such as hedging asset-related risks. Hedging transactions, however, may generate income which is not qualified income for purposes of maintaining our REIT status. We intend to structure any hedging transactions in a manner that does not jeopardize our status as a REIT.
Even with hedging strategies in place, there can be no assurance that our results of operations will remain unaffected as a result of changes in interest rates. In addition, hedging transactions using derivative instruments involve additional risks such as counterparty credit risk and basis risk. Basis risk in a hedging contract occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective. We address basis risk by matching, to a reasonable extent, the contract index to the

58
Table of Contents

index upon which the hedged asset or liability is based. Our interest rate risk management policy addresses counterparty credit risk (the risk of nonperformance by the counterparties) by requiring that we deal only with major financial institutions that we deem credit worthy.
The estimated fair values of our revolving credit facilities, fixed-rate and variable-rate mortgages and notes payable and Convertible Notes have 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 information for these financial instruments as of September 30, 2014 (in thousands):
 
Carrying
Value
 
Estimated
Fair Value
Revolving credit facilities
$
125,436

 
$
125,334

Mortgages and notes payable, net
3,188,547

 
3,359,620

Convertible Notes, net (1)
693,845

 
728,013

(1) The carrying value of the Convertible Notes is net of an embedded conversion premium totaling $53.7 million.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness as of September 30, 2014 of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded, as of September 30, 2014 , that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that occurred during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to material affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

PART II. OTHER INFORMATION
ITEM 1.
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 consolidated financial position or results of operations.
In connection with the Merger, a putative class action and derivative lawsuit was filed in the Circuit Court for Baltimore City, Maryland against and purportedly on behalf of the Company captioned Kendrick, et al. v. Spirit Realty Capital, Inc., et al. The complaint names as defendants Spirit, the members of the board of directors of Spirit, the Operating Partnership, Cole II and the Cole Operating Partnership, and alleges that the directors of Spirit breached their fiduciary duties by engaging in an unfair process leading to the Merger Agreement, failing to disclose sufficient material information for pre-merger Spirit stockholders to make an informed decision regarding whether or not to approve the Merger, agreeing to a Merger Agreement at an opportunistic and unfair price, allowing draconian and preclusive deal protection devices in the Merger Agreement, and engaging in self-interested and otherwise conflicted actions. The complaint alleges that the Operating Partnership, Cole II and the Cole Operating Partnership aided and abetted those breaches of fiduciary duty. The complaint seeks a declaration that defendants have breached their fiduciary duties or aided and abetted such breaches and that the Merger Agreement is unenforceable, an order enjoining a vote on the transactions contemplated by the Merger Agreement, rescission of the transactions in the event they are consummated,

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Table of Contents

imposition of a constructive trust, an award of fees and costs, including attorneys’ and experts’ fees and costs, and other relief.
On June 4, 2013, solely to avoid the costs, risks and uncertainties inherent in litigation, the named defendants in the merger litigation signed a memorandum of understanding (“MOU”) regarding a proposed settlement of all claims asserted therein. The MOU provides, among other things, that the parties will seek to enter into a stipulation of settlement which provides for the release and dismissal of all asserted claims (the "Stipulation of Settlement"). The Stipulation of Settlement was filed with the court on January 22, 2014 for approval. On September 5, 2014, the court approved the Stipulation of Settlement, and all asserted claims were thereupon released and dismissed with prejudice. The final terms of the settlement, as approved by the court, will not have a material adverse effect on the Company’s financial position or results of operations.

ITEM 1A.
Risk Factors.
There have been no material changes to the risk factors as disclosed in the section entitled “Risk Factors” beginning on page 12 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and filed with the SEC. Please review the Risk Factors set forth in the Form 10-K as well as the prospectus supplement filed with the SEC on April 15, 2014.
ITEM  2.
Unregistered Sales of Equity Securities and Use of Proceeds.
None.
ITEM  3.
Defaults Upon Senior Securities.
None.
ITEM  4.
Mine Safety Disclosures.
None.
ITEM  5.
Other Information.
None.


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Item 6.        Exhibits.
 
Exhibit No.
 
Description
 
 
 
1.1
Equity Distribution Agreement among Spirit Realty Capital, Inc. and the persons named therein, dated April 15, 2014 filed as Exhibit 1.1 to the Company's Form 8-K on April 15, 2014 and incorporated herein by reference.
 
 
1.2
Underwriting Agreement, dated May 14, 2014, by and among the Spirit Realty Capital, Inc., Spirit Realty, L.P., Morgan Stanley & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc. filed as Exhibit 1.1 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
 
 
1.3
Underwriting Agreement, dated May 14, 2014, by and among the Spirit Realty Capital, Inc., Spirit Realty, L.P., Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and RBC Capital Markets, LLC, as representatives of the several underwriters filed as Exhibit 1.2 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
 
 
2.1
Agreement and Plan of Merger, dated as of January 22, 2013, as amended by the First Amendment to Agreement and Plan of Merger, dated as of May 8, 2013, by and among Spirit Realty Capital, Inc. (f/k/a Cole Credit Property Trust II, Inc.), a Maryland corporation, Spirit Realty Capital, Inc., a Maryland corporation, Cole Operating Partnership II, LP, a Delaware limited partnership and Spirit Realty, L.P., a Delaware limited partnership. Previously filed by Spirit Realty Capital, Inc. as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 22, 2013 and Exhibit 2.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on May 9, 2013, respectively.
 
 
2.2
Articles of Merger by and between Spirit Realty Capital, Inc. (f/k/a Cole Credit Property Trust II, Inc.), a Maryland corporation, and Spirit Realty Capital, Inc., a Maryland corporation and the Amended and Restated Charter of Spirit Realty Capital, Inc. (f/k/a Cole Credit Property Trust II, Inc.) filed as Exhibit (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-51963), filed on July 17, 2013).
 
 
3.1
Articles of Restatement of Spirit Realty Capital, Inc. filed Exhibit 3.1 to the Company's Registration Statement on Form S-3 on November 8, 2013 and incorporated herein by reference.
 
 
3.2
Articles of Amendment of Spirit Realty Capital, Inc. filed as Exhibit 3.1 to the Company's Form 8-K on May 13, 2014 and incorporated herein by reference.
 
 
3.3
Second Amended and Restated Bylaws of Spirit Realty Capital, Inc. filed as Exhibit 3.2 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
 
 
4.1
Form of Certificate for Common Stock of Spirit Realty Capital, Inc. filed as Exhibit 4.1 to the Registration Statement on Form S-4 on March 29, 2013 and incorporated herein by reference.
 
 
4.2
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 filed as Exhibit 4.1 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
 
 
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 filed as Exhibit 4.2 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
 
 
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 filed as Exhibit 4.3 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
 
 
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 filed as Exhibit 4.3 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
 
 
4.6
Master Indenture, between Citibank, N.A. and Spirit Master Funding VII, LLC, dated as of December 23, 2013. Previously filed by Spirit Realty Capital, Inc. as Exhibit 10.21 to the Company's Annual Report on Form 10-K on March 4, 2014 and incorporated herein by reference.
 
 

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Exhibit No.
 
Description
 
4.7
Series 2013-1 Supplement, between Citibank, N.A. and Spirit Master Funding VII, LLC, dated as of December 23, 2013. filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 4, 2014.
 
 
4.8
Series 2013-2 Supplement, between Citibank, N.A. and Spirit Master Funding VII, LLC, dated as of December 23, 2013. filed as Exhibit 10.23 to Annual Report on Form 10-K on March 4, 2014 and incorporated herein by reference.
 
 
4.9
Indenture, dated May 20, 2014, between the Company and Wilmington Trust, National Association, filed as Exhibit 4.1 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
 
 
4.10
First Supplemental Indenture, dated May 20, 2014, by and between Spirit Realty Capital, Inc.
 and Wilmington Trust, National Association (including the form of 2.875% Convertible Senior Note due 2019) filed as Exhibit 4.2 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
 
 
4.11
Second Supplemental Indenture, dated May 20, 2014, by and between Spirit Realty Capital, Inc. and Wilmington Trust, National Association (including the form of 3.75% Convertible Senior Note due 2021) filed as Exhibit 4.3 to the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
 
 
 
 
10.1
Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan filed as Exhibit 10.7 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
 
 
10.2
Form of 2012 Incentive Award Plan Restricted Stock Award Grant Notice and Agreement filed as Exhibit 10.9 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
 
 
10.3
Form of 2012 Incentive Award Plan Stock Payment Award Grant Notice and Agreement filed as Exhibit 10.9 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
 
 
10.4
Credit Agreement, by and among Deutsche Bank Securities Inc., Deutsche Bank AG New York Branch, Spirit Realty, L.P. and various lenders, dated as of July 17, 2013 filed as Exhibit 10.01 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
 
 
10.5
Guaranty, by and among Spirit Realty Capital, Inc.Spirit General OP Holdings, LLC, Deutsche Bank Securities Inc. and various lenders, dated as of July 17, 2013 filed as Exhibit 10.2 to the Company’s Form 8-K filed on July 17, 2013 and incorporated herein by reference.
 
 
10.6
Security Agreement, by and among Spirit Realty Capital, Inc., Spirit General OP Holdings, LLC, Spirit Realty, L.P., Spirit Master Funding IV, LLC, Spirit Master Funding V, LLC, Deutsche Bank Securities Inc. and various lenders, dated as of July 17, 2013 filed as Exhibit 10.3 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
 
 
10.7
Omnibus Collateral Assignment of Material Agreements, Permits and Licenses, by and among Spirit Realty Capital, Inc., Spirit General OP Holdings, LLC, Spirit Realty, L.P., Spirit Master Funding IV, LLC, Spirit Master Funding V, LLC, Deutsche Bank Securities Inc. and various lenders, dated as of July 17, 2013. Previously filed by Spirit Realty Capital, Inc. as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 17, 2013.
 
 
10.8
Loan Agreement, between German American Capital Corporation and Spirit SPE Loan Portfolio 2013-2, LLC, dated as of July 17, 2013 filed as Exhibit 10.4 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
 
 
10.9
Guaranty of Recourse Obligations of Borrower, by Spirit Realty, L.P. in favor of German American Capital Corporation, dated as of July 17, 2013 filed as Exhibit 10.6 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
 
 
10.10
Loan Agreement, between Barclays Bank PLC and Spirit SPE Loan Portfolio 2013-3, LLC, dated as of July 17, 2013 filed as Exhibit 10.7 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
 
 
10.11
Guaranty of Recourse Obligations of Borrower by Spirit Realty, L.P. in favor of Barclays Bank PLC, dated as of July 17, 2013 filed as Exhibit 10.8 to the Company’s Form 8-K on July 17, 2013 and incorporated herein by reference.
 
 

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Exhibit No.
 
Description
 
10.12
Form of Performance Share Award Agreement. Previously filed by Spirit Realty Capital, Inc. as an exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 17, 2013.
 
 
10.13
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 filed as Exhibit 1.1 of the Company's Form 8-K on May 20, 2014 and incorporated herein by reference.
 
 
10.14
Property Management and Servicing Agreement, between Midland Loan Services, Spirit Master Funding VII, LLC and Spirit Realty, L.P., dated as of December 23, 2013 filed as Exhibit 10.24 to its Annual Report on Form 10-K filed on March 4, 2014 and incorporated herein by reference.
 
 
10.15
Defeasance, Assignment, Assumption and Release Agreement dated June 5, 2014 by and among Spirit SPE Portfolio 2006-1, LLC and Spirit SPE Portfolio 2006-2, LLC, U.S. Bank, National Association as Trustee for the Lender, Midland Loan Servicer, a division of PNC Bank, National Association as servicer and U.S. Bank, National Association as Securities Intermediary and Custodian filed as Exhibit 1.1 of the Company's Form 8-K on June 6, 2014 and incorporated herein by reference.
 
 
10.16*
First Amended and Restated Agreement of Limited Partnership of Spirit Realty, L.P. on September 12, 2014.
 
 
14.1
Code of Business Conduct and Ethics of Spirit Realty Capital, Inc. filed as Exhibit 14.1 to its Annual Report on Form 10-K on March 5, 2013 and incorporated herein by reference.
 
 
16.1
Deloitte & Touche LLP’s Response Letter to the Securities and Exchange Commission dated as of July 17, 2013 filed as Exhibit to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 17, 2013.
 
 
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
*
Filed herewith.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
SPIRIT REALTY CAPITAL, INC.
(Registrant)
 
 
 
 
By:
/s/ Michael A. Bender
 
Name:
Michael A. Bender
 
Title:
Chief Financial Officer, Executive Vice President and Treasurer (Principal Financial and Accounting Officer)
Date: November 4, 2014


64


FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP

OF

SPIRIT REALTY, L.P.

a Delaware limited partnership

_____________________________________

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”),OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS IN THE OPINION OF COUNSEL SATISFACTORY TO THE
PARTNERSHIP THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS.

dated as of September 12, 2014










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TABLE OF CONTENTS
 
 
Page
ARTICLE 1 DEFINED TERMS
 
 
ARTICLE 2 ORGANIZATIONAL MATTERS
 
 
 
Section 2.1
Formation
Section 2.2
Name
Section 2.3
Registered Office and Registered Agent; Principal Executive Office
Section 2.4
Power of Attorney.
Section 2.5
Term
Section 2.6
Partnership Interests Are Securities
 
 
 
ARTICLE 3 PURPOSE
 
 
 
Section 3.1
Purpose and Business
Section 3.2
Powers.
Section 3.3
Partnership Only for Purposes Specified
Section 3.4
Representations and Warranties by the Partners.
 
 
 
ARTICLE 4 CAPITAL CONTRIBUTIONS
 
 
 
Section 4.1
Capital Contributions of the Partners
Section 4.2
Issuances of Additional Partnership Interests
Section 4.3
Additional Funds and Capital Contributions.
Section 4.4
Stock Option Plans and Equity Plans.
Section 4.5
Dividend Reinvestment Plan, Cash Option Purchase Plan, Stock Incentive Plan or Other Plan
Section 4.6
No Interest; No Return
Section 4.7
Conversion or Redemption of REIT Shares and Capital Shares.
Section 4.8
Other Contribution Provisions
 
 
 
ARTICLE 5 DISTRIBUTIONS
 
 
 
Section 5.1
Requirement and Characterization of Distributions
Section 5.2
Distributions in Kind
Section 5.3
Amounts Withheld
Section 5.4
Distributions upon Liquidation
Section 5.5
Distributions to Reflect Additional Partnership Units
Section 5.6
Restricted Distributions
 
 
 
ARTICLE 6 ALLOCATIONS

i




NY\6167084.9

 
 
 
Section 6.1
Timing and Amount of Allocations of Net Income and Net Loss
Section 6.2
General Allocations
Section 6.3
Additional Allocation Provisions
Section 6.4
Regulatory Allocation Provisions
Section 6.5
Tax Allocations.
 
 
 
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS
 
 
 
Section 7.1
Management.
Section 7.2
Certificate of Limited Partnership
Section 7.3
Restrictions on General Partner’s Authority.
Section 7.4
Reimbursement of the General Partner and the Special Limited Partner.
Section 7.5
Outside Activities of the General Partner and the Special Limited Partner
Section 7.6
Transactions with Affiliates.
Section 7.7
Indemnification.
Section 7.8
Liability of the General Partner and the Special Limited Partner.
Section 7.9
Other Matters Concerning the General Partner and the Special Limited Partner.
Section 7.10
Title to Partnership Assets
Section 7.11
Reliance by Third Parties
 
 
 
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
 
 
 
Section 8.1
Limitation of Liability
Section 8.2
Management of Business
Section 8.3
Outside Activities of Limited Partners
Section 8.4
Return of Capital
Section 8.5
Rights of Limited Partners Relating to the Partnership.
Section 8.6
Partnership Right to Call Limited Partner Interests.
 
 
 
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS
 
 
 
Section 9.1
Records and Accounting.
Section 9.2
Partnership Year
Section 9.3
Reports.
 
 
 
ARTICLE 10 TAX MATTERS
 
 
 
Section 10.1
Preparation of Tax Returns
Section 10.2
Tax Elections
Section 10.3
Tax Matters Partner.

ii




NY\6167084.9

Section 10.4
Withholding
Section 10.5
Organizational Expenses
Section 10.6
Treatment of Partnership as Disregarded Entity
 
 
 
ARTICLE 11 PARTNER TRANSFERS AND WITHDRAWALS
 
 
 
Section 11.1
Transfer.
Section 11.2
Transfer of General Partner’s Partnership Interest.
Section 11.3
Limited Partners’ Rights to Transfer.
Section 11.4
Admission of Substituted Limited Partners.
Section 11.5
Assignees
Section 11.6
General Provisions.
 
 
 
ARTICLE 12 ADMISSION OF PARTNERS
 
 
 
Section 12.1
Admission of Successor General Partner.
Section 12.2
Admission of Additional Limited Partners.
Section 12.3
Amendment of Agreement and Certificate of Limited Partnership
Section 12.4
Limit on Number of Partners
Section 12.5
Admission
 
 
 
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION
 
 
 
Section 13.1
Dissolution
Section 13.2
Winding Up.
Section 13.3
Deemed Contribution and Distribution
Section 13.4
Rights of Holders
Section 13.5
Notice of Dissolution
Section 13.6
Cancellation of Certificate of Limited Partnership
Section 13.7
Reasonable Time for Winding-Up
 
 
 
ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS
 
 
 
Section 14.1
Procedures for Actions and Consents of Partners
Section 14.2
Amendments
Section 14.3
Actions and Consents of the Partners.
 
 
 
ARTICLE 15 GENERAL PROVISIONS
 
 
 
Section 15.1
Redemption Rights of Qualifying Parties.
Section 15.2
Addresses and Notice
Section 15.3
Titles and Captions

iii




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Section 15.4
Pronouns and Plurals
Section 15.5
Further Action
Section 15.6
Binding Effect
Section 15.7
Waiver.
Section 15.8
Counterparts
Section 15.9
Applicable Law; Consent to Jurisdiction; Waiver of Jury Trial.
Section 15.10
Entire Agreement
Section 15.11
Invalidity of Provisions
Section 15.12
Limitation to Preserve REIT Status
Section 15.13
No Partition
Section 15.14
No Third-Party Rights Created Hereby
Section 15.15
No Rights as Stockholders
 
 
 


iv




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FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF SPIRIT REALTY, L.P.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF SPIRIT REALTY, L.P., dated as of September ___, 2014, is made and entered into by and among Spirit General OP Holdings, LLC, a Delaware limited liability company, as the General Partner, Spirit Realty Capital, Inc., a Maryland corporation, as the Special Limited Partner, and the Persons whose names are set forth on Exhibit A attached hereto, as Limited Partners, and any Additional Limited Partner that is admitted from time to time to the Partnership and listed on Exhibit A attached hereto.
WHEREAS, the General Partner and the Special Limited Partner are parties to that certain Agreement of Limited Partnership of Spirit Realty, L.P., dated September 25, 2012 (as amended by that First Amendment to the Agreement of Limited Partnership of Spirit Realty, L.P. dated May 20, 2014);
WHEREAS, the Special Limited Partner contributed one hundred thousand (100,000) Partnership Common Units to Spirit Notes Partner, LLC, a Delaware limited liability company and wholly owned subsidiary of the Special Limited Partner, pursuant to that certain Contribution Agreement dated May 20, 2014; and
WHEREAS, the undersigned Partners (as hereinafter defined) desire to amend and restate the Agreement of Limited Partnership of Spirit Realty, L.P. in its entirety;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement:
“ Act ” means the Delaware Revised Uniform Limited Partnership Act, as it may be amended from time to time, and any successor to such statute.
“ Actions ” has the meaning set forth in Section 7.7 hereof.
“ Additional Funds ” has the meaning set forth in Section 4.3.A hereof.
“ Additional Limited Partner ” means a Person who is admitted to the Partnership as a limited partner pursuant to Section 12.2(A) hereof and listed on Exhibit A hereto.

C-1

“ Adjusted Capital Account ” means, with respect to any Partner, the balance in such Partner’s Capital Account as of the end of the relevant Partnership Year or other applicable period, after giving effect to the following adjustments:
(i)    increase such Capital Account by any amounts that such Partner is obligated to restore pursuant to this Agreement upon liquidation of such Partner’s Partnership Interest or that such Person is deemed to be obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii)    decrease such Capital Account by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of “Adjusted Capital Account” is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
“ Adjusted Capital Account Deficit ” means, with respect to any Partner, the deficit balance, if any, in such Partner’s Adjusted Capital Account as of the end of the relevant Partnership Year or other applicable period.
“ Adjustment Factor ” means 1.0; provided, however, that in the event that:
(i)    the Special Limited Partner (a) declares or pays a dividend on its outstanding REIT Shares wholly or partly in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares wholly or partly in REIT Shares, (b) splits or subdivides its outstanding REIT Shares or (c) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction, (i) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (ii) the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination;
(ii)    the Special Limited Partner distributes any rights, options or warrants to all holders of its REIT Shares to subscribe for or to purchase or to otherwise acquire REIT Shares, or other securities or rights convertible into, exchangeable for or exercisable for REIT Shares, at a price per share less than the Value of a REIT Share on the record date for such distribution (other than REIT Shares issuable pursuant to a Qualified DRIP/COPP or as compensation to employees or other service providers) (each a “ Distributed Right ”), then, as of the distribution date of such Distributed Rights or, if later, the time such Distributed Rights become exercisable, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction (a) the numerator of which shall be the

    
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number of REIT Shares issued and outstanding on the record date (or, if later, the date such Distributed Rights become exercisable) plus the maximum number of REIT Shares purchasable under such Distributed Rights and (b) the denominator of which shall be the number of REIT Shares issued and outstanding on the record date (or, if later, the date such Distributed Rights become exercisable) plus a fraction (1) the numerator of which is the maximum number of REIT Shares purchasable under such Distributed Rights times the minimum purchase price per REIT Share under such Distributed Rights and (2) the denominator of which is the Value of a REIT Share as of the record date (or, if later, the date such Distributed Rights become exercisable); provided, however, that, if any such Distributed Rights expire or become no longer exercisable, then the Adjustment Factor shall be adjusted, effective retroactive to the date of distribution of the Distributed Rights (or, if applicable, the later time that the Distributed Rights became exercisable), to reflect a reduced maximum number of REIT Shares or any change in the minimum purchase price for the purposes of the above fraction; and
(iii)    the Special Limited Partner shall, by dividend or otherwise, distribute to all holders of its REIT Shares evidences of its indebtedness or assets (including securities, but excluding any dividend or distribution referred to in subsection (i) or (ii) above), which evidences of indebtedness or assets relate to assets not received by the Special Limited Partner pursuant to a pro rata distribution by the Partnership, then the Adjustment Factor shall be adjusted to equal the amount determined by multiplying the Adjustment Factor in effect immediately prior to the close of business as of the record date by a fraction (a) the numerator of which shall be such Value of a REIT Share as of the record date and (b) the denominator of which shall be the Value of a REIT Share as of the record date less the then fair market value (as determined by the General Partner, whose determination shall be conclusive) of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share.
Notwithstanding the foregoing, no adjustments to the Adjustment Factor will be made for any class or series of Partnership Interests to the extent that the Partnership makes or effects any correlative distribution or payment to all of the Partners holding Partnership Interests of such class or series, or effects any correlative split or reverse split in respect of the Partnership Interests of such class or series. Any adjustments to the Adjustment Factor shall become effective immediately after such event, retroactive to the record date, if any, for such event. For illustrative purposes, examples of adjustments to the Adjustment Factor are set forth on Exhibit B attached hereto.
“ Affiliate ” means, with respect to any Person, any 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.
“ Affiliated REIT ” means the Special Limited Partner and any Affiliate of the Special Limited Partner that has elected to be taxed as a REIT under the Code.

    
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“ Agreement ” means this First Amended and Restated Limited Partnership Agreement of Spirit Realty, L.P., as now or hereafter amended, restated, modified, supplemented or replaced.
“ Applicable Percentage ” has the meaning set forth in Section 15.1.B hereof.
“ Appraisal ” means, with respect to any assets, the written opinion of an independent third party experienced in the valuation of similar assets, selected by the General Partner. Such opinion may be in the form of an opinion by such independent third party that the value for such property or asset as set by the General Partner is fair, from a financial point of view, to the Partnership.
“ Assignee ” means a Person to whom a Partnership Interest has been Transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.5 hereof.
“ Business Day ” means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close.
“ Capital Account ” means, with respect to any Partner, the capital account maintained by the General Partner for such Partner on the Partnership’s books and records in accordance with the following provisions:
(i)    To each Partner’s Capital Account, there shall be added such Partner’s Capital Contributions, such Partner’s distributive share of Net Income and any items in the nature of income or gain that are specially allocated pursuant to Section 6.3 or 6.4 hereof, and the amount of any Partnership liabilities assumed by such Partner or that are secured by any property distributed to such Partner.
(ii)    From each Partner’s Capital Account, there shall be subtracted the amount of cash and the Gross Asset Value of any Partnership Property distributed to such Partner pursuant to any provision of this Agreement, such Partner’s distributive share of Net Losses and any items in the nature of expenses or losses that are specially allocated pursuant to Section 6.3 or 6.4 hereof, and the amount of any liabilities of such Partner assumed by the Partnership or that are secured by any Property contributed by such Partner to the Partnership (except to the extent already reflected in the amount of such Partner’s Capital Contribution).
(iii)    In the event any interest in the Partnership is Transferred in accordance with the terms of this Agreement (which Transfer does not result in the termination of the Partnership for federal income tax purposes), the transferee shall succeed to the Capital Account of the transferor to the extent that it relates to the Transferred interest.
(iv)    In determining the amount of any liability for purposes of subsections (i) and (ii) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.
(v)    The provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations promulgated under Section 704 of the

    
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Code, and shall be interpreted and applied in a manner consistent with such Regulations. If the General Partner shall determine that it is necessary or appropriate to modify the manner in which the Capital Accounts are maintained in order to comply with such Regulations, the General Partner may make such modification, provided that such modification is not likely to have any material effect on the amounts distributable to any Partner pursuant to Article 13 hereof upon the dissolution of the Partnership. The General Partner may, in its sole and absolute discretion, (a) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q) and (b) make any modifications that are necessary or appropriate in the event that unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2.
“ Capital Contribution ” means, with respect to any Partner, the amount of money and the initial Gross Asset Value of any Contributed Property that such Partner contributes or is deemed to contribute to the Partnership pursuant to Article 4 hereof.
“ Capital Share ” means a share of any class or series of stock of the Special Limited Partner now or hereafter authorized other than a REIT Share.
“ Cash Amount ” means an amount of cash equal to the product of (i) the Value of a REIT Share and (ii) the REIT Shares Amount determined as of the applicable Valuation Date.
“ Certificate ” means the Certificate of Limited Partnership of the Partnership filed with the Secretary of State for the State of Delaware, as amended from time to time in accordance with the terms hereof and the Act.
“ Charity ” means an entity described in Section 501(c)(3) of the Code or any trust all the beneficiaries of which are such entities.
“ Charter ” means the charter of the Special Limited Partner, within the meaning of Section 1-101(e) of the Maryland General Corporation Law.
“ Closing Price ” has the meaning set forth in the definition of “ Value .”
“ Code ” means the Internal Revenue Code of 1986, as amended and in effect from time to time or any successor statute thereto, as interpreted by the applicable Regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.
“ Consent ” means the consent to, approval of, or vote in favor of a proposed action by a Partner given in accordance with Article 14 hereof.
“ Consent of the General Partner ” means the Consent of the sole General Partner, which Consent, except as otherwise specifically required by this Agreement, may be obtained prior to or

    
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after the taking of any action for which it is required by this Agreement and may be given or withheld by the General Partner in its sole and absolute discretion.
“ Consent of the Limited Partners ” means the Consent of a Majority in Interest of the Limited Partners, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and, except as otherwise provided in this Agreement, may be given or withheld by each Limited Partner in its sole and absolute discretion.
“ Contributed Property ” means each property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Partnership (or deemed contributed by the Partnership to a “new” partnership pursuant to Code Section 708).
“ Controlled Entity ” means, as to any Partner, (a) any corporation more than fifty percent (50%) of the outstanding voting stock of which is owned by such Partner or such Partner’s Family Members or Affiliates, (b) any trust, whether or not revocable, of which such Partner or such Partner’s Family Members or Affiliates are the sole beneficiaries, (c) any partnership of which such Partner or its Affiliates are the managing partners and in which such Partner, such Partner’s Family Members or Affiliates hold partnership interests representing at least twenty-five percent (25%) of such partnership’s capital and profits and (d) any limited liability company of which such Partner or its Affiliates are the managers and in which such Partner, such Partner’s Family Members or Affiliates hold membership interests representing at least twenty-five percent (25%) of such limited liability company’s capital and profits.
“ Cut-Off Date ” means the fifth (5th) Business Day after the General Partner’s receipt of a Notice of Redemption.
“ Debt ” means, as to any Person, as of any date of determination: (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person; (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Person’s interest in such property, even though such Person has not assumed or become liable for the payment thereof; and (iv) lease obligations of such Person that, in accordance with generally accepted accounting principles, should be capitalized.
“ Delaware Courts ” has the meaning set forth in Section 15.9.B hereof.
“ Depreciation ” means, for each Partnership Year or other applicable period, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided , however , that if the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period

    
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is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner.
“ Disregarded Entity ” means, with respect to any Person, (i) any “qualified REIT subsidiary” (within the meaning of Code Section 856(i)(2)) of such Person, (ii) any entity treated as a disregarded entity for federal income tax purposes with respect to such Person, or (iii) any grantor trust if the sole owner of the assets of such trust for federal income tax purposes is such Person.
“ Distributed Right ” has the meaning set forth in the definition of “ Adjustment Factor .”
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.
“Equity Plan ” means any stock or equity purchase plan, restricted stock or equity plan or other similar equity compensation plan now or hereafter adopted by the Partnership or the General Partner, including the Plan.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and any successor statute thereto, and the rules and regulations of the SEC promulgated thereunder.
“ Family Members ” means, as to a Person that is an individual, such Person’s spouse, ancestors, descendants (whether by blood or by adoption or step-descendants by marriage), brothers and sisters, nieces and nephews and inter vivos or testamentary trusts (whether revocable or irrevocable) of which only such Person and his or her spouse, ancestors, descendants (whether by blood or by adoption or step-descendants by marriage), brothers and sisters and nieces and nephews are beneficiaries.
“ Flow-Through Partners ” has the meaning set forth in Section 11.3.A(4) hereof.
“ Flow-Through Entity ” has the meaning set forth in Section 11.3.A(4) hereof. “ Funding Debt ” means any Debt incurred by or on behalf of the General Partner or the Special Limited Partner for the purpose of providing funds to the Partnership.
“ General Partner ” means Spirit General OP Holdings, LLC and its successors and assigns as a general partner of the Partnership, in each case, that is admitted from time to time to the Partnership as a general partner pursuant to the Act and this Agreement and is listed as a general partner on Exhibit A , as such Exhibit A may be amended or updated from time to time, in such Person’s capacity as a general partner of the Partnership.
“ General Partner Interest ” means the entire Partnership Interest held by a General Partner hereof, which Partnership Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or any other Partnership Units.
“ Gross Asset Value ” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

    
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(a)    The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset on the date of contribution, as determined by the General Partner and agreed to by the contributing Person.
(b)    The Gross Asset Values of all Partnership assets immediately prior to the occurrence of any event described in clauses (i) through (v) and clause (vii) below, and immediately after the occurrence of any event described in clause (vi) below, shall be adjusted to equal their respective gross fair market values, as determined by the General Partner using such reasonable method of valuation as it may adopt, as of the following times:
(i)    the acquisition of an additional interest in the Partnership (other than in connection with the execution of this Agreement but including, without limitation, acquisitions pursuant to Section 4.2 hereof or contributions or deemed contributions by the General Partner pursuant to Section 4.2 hereof) by a new or existing Partner in exchange for more than a de minimis Capital Contribution, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership;
(ii)    the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for an interest in the Partnership if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership;
(iii)    the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
(iv)    the grant of an interest in the Partnership (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Partnership by an existing Partner acting in a partner capacity, or by a new Partner acting in a partner capacity or in anticipation of becoming a Partner of the Partnership, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; and
(v)    the issuance by the Partnership of a Noncompensatory Option which is not treated as a partnership interest pursuant to Section 1.761-3(a) of the Regulations;
(vi)    the acquisition of an interest in the Partnership by any new or existing Partner upon the exercise of a Noncompensatory Option in accordance with Regulations Section 1.704-1(b)(2)(iv)(s); and
(vii)    at such other times as the General Partner shall reasonably determine necessary or advisable in order to comply with Regulations Sections 1.704-1(b) and 1.704-2;

    
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provided however , if any Noncompensatory Options are outstanding upon the occurrence of an event described in this paragraph (b)(i) through (b)(vii), the Partnership shall adjust the Gross Asset Values of its properties in accordance with Regulations Sections 1.704-1(b)(2)(iv)(f)(1) and 1.704-1(b)(2)(iv)(h)(2).
(c)    The Gross Asset Value of any Partnership asset distributed to a Partner shall be the gross fair market value of such asset on the date of distribution, as determined by the distributee and the General Partner; provided , however , that if the distributee is the General Partner or if the distributee and the General Partner cannot agree on such a determination, such gross fair market value shall be determined by Appraisal.
(d)    The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided , however , that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the General Partner reasonably determines that an adjustment pursuant to subsection (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d).
(e)    If the Gross Asset Value of a Partnership asset has been determined or adjusted pursuant to subsection (a), subsection (b) or subsection (d) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Losses.
“ Hart-Scott-Rodino Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
“ Holder ” means either (a) a Partner or (b) an Assignee owning a Partnership Interest.
“ Incapacity ” or “ Incapacitated ” means: (i) as to any Partner who is an individual, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Partner incompetent to manage his or her person or his or her estate; (ii) as to any Partner that is a corporation or limited liability company, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter; (iii) as to any Partner that is a partnership, the dissolution and commencement of winding up of the partnership; (iv) as to any Partner that is an estate, the distribution by the fiduciary of the estate’s entire interest in the Partnership; (v) as to any trustee of a trust that is a Partner, the termination of the trust (but not the substitution of a new trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For purposes of this definition, bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief of or against such Partner under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and non-appealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner, (c) the Partner executes and delivers a general assignment for the benefit of the Partner’s creditors, (d) the Partner files an answer or other pleading admitting or failing to contest the material allegations of

    
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a petition filed against the Partner in any proceeding of the nature described in clause (b) above, (e) the Partner seeks, consents to or acquiesces in the appointment of a trustee, receiver or Liquidator for the Partner or for all or any substantial part of the Partner’s properties, (f) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof, (g) the appointment without the Partner’s consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within ninety (90) days of such appointment, or (h) an appointment referred to in clause (g) above is not vacated within ninety (90) days after the expiration of any such stay.
“ Indemnitee ” means (i) any Person made, or threatened to be made, a party to a proceeding by reason of its status as (a) the General Partner or the Special Limited Partner or (b) a member, manager or managing member of the General Partner or a director or officer of the Special Limited Partner or an employee or agent of the Partnership, the Special Limited Partner or the General Partner and (ii) such other Persons (including Affiliates or employees of the General Partner, the Special Limited Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion.
“ IRS ” means the United States Internal Revenue Service.
“ Limited Partner ” means any Person that is admitted from time to time to the Partnership as a limited partner pursuant to the Act and this Agreement and is listed as a limited partner on Exhibit A attached hereto, as such Exhibit A may be amended or updated from time to time, including the Special Limited Partner, any Substituted Limited Partner or Additional Limited Partner, in such Person’s capacity as a limited partner of the Partnership.
“ Limited Partner Interest ” means a Partnership Interest of a Limited Partner in the Partnership representing a fractional part of the Partnership Interests of all Limited Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or other Partnership Units.
“ Liquidating Event ” has the meaning set forth in Section 13.1 hereof.
“ Liquidating Gains ” means any net gain realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership (including upon the occurrence of any Liquidating Event or Terminating Capital Transaction), including but not limited to net gain realized in connection with an adjustment to the Gross Asset Value of Partnership assets under the definition of Gross Asset Value in Section 1 of this Agreement.
“ Liquidator ” has the meaning set forth in Section 13.2.A hereof.
“ Majority in Interest of the Limited Partners ” means Limited Partners holding in the aggregate Percentage Interests that are greater than fifty percent (50%) of the aggregate Percentage Interests of all Limited Partners.

    
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“ Majority in Interest of the Partners ” means Partners holding in the aggregate Percentage Interests that are greater than fifty percent (50%) of the aggregate Percentage Interests of all Partners entitled to Consent to or withhold Consent from a proposed action.
“ Market Price ” has the meaning set forth in the definition of “ Value .”
“ Net Income ” or “ Net Loss ” means, for each Partnership Year or other applicable period, an amount equal to the Partnership’s taxable income or loss for such year or other applicable period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:
(a)    Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of “Net Income” or “Net Loss” shall be added to (or subtracted from, as the case may be) such taxable income (or loss);
(b)    Any expenditure of the Partnership described in Code Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of “Net Income” or “Net Loss,” shall be subtracted from (or added to, as the case may be) such taxable income (or loss);
(c)    In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subsection (b) or subsection (c) of the definition of “Gross Asset Value,” the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss;
(d)    Gain or loss resulting from any disposition of a Partnership asset with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Partnership asset disposed of, notwithstanding that the adjusted tax basis of such asset differs from its Gross Asset Value;
(e)    In lieu of the depreciation, amortization and other cost recovery deductions that would otherwise be taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Partnership Year or other applicable period;
(f)    To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner’s interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and

    
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(g)    Notwithstanding any other provision of this definition of “Net Income” or “Net Loss,” any item that is specially allocated pursuant to Section 6.3 or 6.4 hereof shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Partnership income, gain, loss or deduction available to be specially allocated pursuant to Section 6.3 or 6.4 hereof shall be determined by applying rules analogous to those set forth in this definition of “Net Income” or “Net Loss.”
“ New Securities ” means (i) any rights, options, warrants or convertible or exchangeable securities having the right to subscribe for or purchase REIT Shares or Preferred Shares, excluding grants under the Stock Option Plans, or (ii) any Debt issued by the Special Limited Partner that provides any of the rights described in clause (i).
“Noncompensatory Option” means a “noncompensatory option” within the meaning of Regulations Sections 1.721-2(f) and 1.761-3(b)(2).
“ Nonrecourse Deductions ” has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).
“ Nonrecourse Liability ” has the meaning set forth in Regulations Sections 1.704-2(b)(3) and 1.752-1(a)(2).
“ Notice of Redemption ” means the Notice of Redemption substantially in the form of Exhibit C attached to this Agreement.
“ Optionee ” means a Person to whom a stock option is granted under any Stock Option Plan.
“ Ownership Limit ” means the restriction or restrictions on the ownership and transfer of stock of the Special Limited Partner imposed under the Charter.
“ Partner ” means the General Partner or a Limited Partner, and “ Partners ” means the General Partner and the Limited Partners.
“ Partner Minimum Gain ” means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).
“ Partner Nonrecourse Debt ” has the meaning set forth in Regulations Section 1.704-2(b)(4).
“ Partner Nonrecourse Deductions ” has the meaning set forth in Regulations Section 1.704-2(i)(1), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2).

    
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“ Partnership ” means the limited partnership formed and continued under the Act and pursuant to this Agreement, and any successor thereto.
“ Partnership Common Unit ” means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2 hereof, but does not include any Partnership Preferred Unit or any other Partnership Unit specified in a Partnership Unit Designation as being other than a Partnership Common Unit.
“ Partnership Equivalent Units ” has the meaning set forth in Section 4.7.A hereof.
“ Partnership Interest ” means an ownership interest in the Partnership held by either a Limited Partner or a General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. There may be one or more classes or series of Partnership Interests. A Partnership Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or other Partnership Units.
“ Partnership Minimum Gain ” has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d).
“ Partnership Preferred Unit ” means a fractional, undivided share of the Partnership Interests that the General Partner has authorized pursuant to Section 4.2 hereof that has distribution rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the Partnership Common Units.
“ Partnership Record Date ” means the record date established by the General Partner for the purpose of determining the Partners entitled to notice of or to vote at any meeting of Partners or to Consent to any matter, or to receive any distribution or the allotment of any other rights, or in order to make a determination of Partners for any other proper purpose, which, in the case of a distribution pursuant to Section 5.1 hereof, which record date shall generally be the same as the record date established by the Special Limited Partner for a distribution to its stockholders of some or all of its portion of such distribution.
“ Partnership Unit ” means a Partnership Common Unit, a Partnership Preferred Unit or any other unit of the fractional, undivided share of the Partnership Interests that the General Partner has authorized pursuant to Section 4.1, Section 4.2 or Section 4.3 hereof; provided , however , that Partnership Units comprising a General Partner Interest or a Limited Partner Interest shall have the differences in rights and privileges as specified in this Agreement.
“ Partnership Unit Designation ” shall have the meaning set forth in Section 4.2.A hereof.
“ Partnership Year ” means the fiscal year of the Partnership, which shall be the calendar year.

    
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“ Percentage Interest ” means, with respect to each Partner, the fraction, expressed as a percentage, the numerator of which is the aggregate number of Partnership Units of all classes and series held by such Partner and the denominator of which is the total number of Partnership Units of all classes and series held by all Partners; provided, however , that, to the extent applicable in context, the term “Percentage Interest” means, with respect to a Partner, the fraction, expressed as a percentage, the numerator of which is the aggregate number of Partnership Units of a specified class or series (or specified group of classes and/or series) held by such Partner and the denominator of which is the total number of Partnership Units of such specified class or series (or specified group of classes and/or series) held by all Partners.
“ Permitted Transfer ” has the meaning set forth in Section 11.3.A hereof.
“ Person ” means an individual or a corporation, partnership, trust, unincorporated organization, association, limited liability company or other entity.
“ Plan ” means the Spirit Realty Capital, Inc and Spirit Realty, LP 2012 Incentive Award Plan.
“ Preferred Share ” means a share of stock of the Special Limited Partner of any class or series 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 REIT Shares.
“ Properties ” means any interests in real property and personal property, including but not limited to, fee interests, interests in ground leases, easements and rights of way, interests in joint ventures, partnerships, limited liability companies, corporations or other entities, interests in mortgages, and Debt instruments.
“ Proposed Section 83 Safe Harbor Regulation ” has the meaning set forth in Section 10.7 hereof.
“ Qualified DRIP/COPP ” means a dividend reinvestment plan or a cash option purchase plan of the Special Limited Partner that permits participants to acquire REIT Shares using the proceeds of dividends paid by the Special Limited Partner or cash of the participant, respectively; provided, however, that if such shares are offered at a discount, such discount must (i) be designed to pass along to the stockholders of the Special Limited Partner the savings enjoyed by the Special Limited Partner in connection with the avoidance of stock issuance costs, and (ii) not exceed 5% of the value of a REIT Share as computed under the terms of such plan.
“ Qualified Transferee ” means an “accredited investor” as defined in Rule 501 promulgated under the Securities Act.
“ Qualifying Party ” means (a) a Limited Partner, (b) an Assignee or (c) a Person who is the transferee of a Limited Partner Interest in a Permitted Transfer; provided , however , that a Qualifying Party shall not include the Special Limited Partner.
“ Redemption ” has the meaning set forth in Section 15.1.A hereof.

    
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“ Regulations ” means the income tax regulations under the Code, whether such regulations are in proposed, temporary or final form, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
“ Regulatory Allocations ” has the meaning set forth in Section 6.4.A(viii) hereof.
“ REIT ” means a real estate investment trust qualifying under Code Section 856.
“ REIT Partner ” means (a) the Special Limited Partner or any Affiliate of the Special Limited Partner to the extent such person has in place an election to qualify as a REIT and, (b) any Disregarded Entity with respect to any such Person.
“ REIT Payment ” has the meaning set forth in Section 15.12 hereof.
“ REIT Requirements ” has the meaning set forth in Section 5.1 hereof.
“ REIT Share ” means a share of common stock of the Special Limited Partner, $0.01 par value per share, but shall not include any class or series of the Special Limited Partner’s common stock classified after the date of this Agreement.
“ REIT Shares Amount ” means a number of REIT Shares equal to the product of (a) the number of Tendered Units and (b) the Adjustment Factor; provided , however , that, in the event that the Special Limited Partner issues to all holders of REIT Shares as of a certain record date rights, options, warrants or convertible or exchangeable securities entitling the Special Limited Partner’s stockholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the “ Rights ”), with the record date for such Rights issuance falling within the period starting on the date of the Notice of Redemption and ending on the day immediately preceding the Specified Redemption Date, which Rights will not be distributed before the relevant Specified Redemption Date, then the REIT Shares Amount shall also include such Rights that a holder of that number of REIT Shares would be entitled to receive, expressed, where relevant hereunder, in a number of REIT Shares determined by the Special Limited Partner.
“ Related Party ” means, with respect to any Person, any other Person to whom ownership of shares of the Special Limited Partner’s stock by the first such Person would be attributed under Code Section 544 (as modified by Code Section 856(h)(1)(B)) or Code Section 318(a) (as modified by Code Section 856(d)(5)).
“ Rights ” has the meaning set forth in the definition of “ REIT Shares Amount .”
“ Safe Harbors ” has the meaning set forth in Section 11.3.D hereof.
“ SEC ” means the Securities and Exchange Commission.
“ Section 83 Safe Harbor ” has the meaning set forth in Section 10.7 hereof.
“ Securities Act ” means the Securities Act of 1933, as amended, and any successor statute thereto, and the rules and regulations of the SEC promulgated thereunder.

    
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“ SLP Subsidiaries ” has the meaning set forth in Section 4.3.G hereof.
“ Special Limited Partner ” means Spirit Realty Capital, Inc., a Maryland corporation, and its successors and assigns as the Special Limited Partner of the Partnership, in each case, that is admitted from time to time as a Limited Partner pursuant to the Act and this Agreement and is listed as the Special Limited Partner on Exhibit A , as such Exhibit A may be amended or updated from time to time, in such Person’s capacity as the Special Limited Partner of the Partnership.
“ Special Redemption ” has the meaning set forth in Section 15.1.A hereof.
“ Specified Redemption Date ” means the tenth (10th) Business Day after the receipt by the General Partner of a Notice of Redemption; provided , however , that no Specified Redemption Date shall occur during the first Twelve-Month Period (except pursuant to a Special Redemption).
“ Stock Option Plans ” means any stock option plan now or hereafter adopted by the Partnership or the General Partner or the Special Limited Partner.
“ Subsidiary ” means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person; provided, however, that, with respect to the Partnership, “Subsidiary” means solely a partnership or limited liability company (taxed, for federal income tax purposes, as a partnership or as a Disregarded Entity and not as an association or publicly traded partnership taxable as a corporation) of which the Partnership is a member or any “taxable REIT subsidiary” of the Special Limited Partner in which the Partnership owns shares of stock, unless the ownership of shares of stock of a corporation or other entity (other than a “taxable REIT subsidiary”) will not jeopardize the Special Limited Partner’s status as a REIT or any Special Limited Partner Affiliate’s status as a “qualified REIT subsidiary” (within the meaning of Code Section 856(i)(2)), in which event the term “Subsidiary” shall include such corporation or other entity.
“ Substituted Limited Partner ” means a Person who is admitted as a Limited Partner to the Partnership pursuant (i) Section 11.4 hereof or (ii) pursuant to any Partnership Unit Designation.
“ Surviving Partnership ” has the meaning set forth in Section 11.2.B(ii) hereof.
“ Tax Items ” has the meaning set forth in Section 6.5.A hereof.
“ Tendered Units ” has the meaning set forth in Section 15.1.A hereof.
“ Tendering Party ” has the meaning set forth in Section 15.1.A hereof.
“ Terminating Capital Transaction ” means any sale or other disposition of all or substantially all of the assets of the Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership, in any case, not in the ordinary course of the Partnership’s business.
“ Termination Transaction ” has the meaning set forth in Section 11.2.B hereof.

    
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“ Transfer ” means any sale, assignment, bequest, conveyance, devise, gift (outright or in trust), encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or act of alienation, whether voluntary, involuntary or by operation of law; provided , however , that when the term is used in Article 11 hereof, except as otherwise expressly provided, “Transfer” does not include (a) any Redemption of Partnership Common Units by the Partnership, or acquisition of Tendered Units by the Special Limited Partner, pursuant to Section 15.1 or (b) any redemption of Partnership Units pursuant to any Partnership Unit Designation. The terms “Transferred” and “Transferring” have correlative meanings.
“ Twelve-Month Period ” means as to any Qualifying Party, a period ending on the day before the first twelve-month anniversary of such Qualifying Party’s first becoming a Holder of Partnership Common Units; provided , however , that the General Partner may, in its sole and absolute discretion, by written agreement with a Qualifying Party, shorten or lengthen the applicable Twelve-Month Period to a period of shorter or longer than twelve (12) months with respect to a Qualifying Party.
“ Valuation Date ” means the date of receipt by the General Partner of a Notice of Redemption pursuant to Section 15.1 herein, or such other date as specified herein, or, if such date is not a Business Day, the immediately preceding Business Day.
“ Value ” means, on any Valuation Date with respect to a REIT Share, the average of the daily Market Prices for ten (10) consecutive trading days immediately preceding the Valuation Date (except that the Market Price for the trading day immediately preceding the date of exercise of a stock option under any Stock Option Plans shall be substituted for such average of daily market prices for purposes of Section 4.4 hereof). The term “ Market Price ” on any date means, with respect to any class or series of outstanding REIT Shares, the Closing Price for such REIT Shares on such date. The “ Closing Price ” on any date means the last sale price for such REIT 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 REIT Shares, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if such REIT Shares are not listed or admitted to trading on the New York Stock Exchange, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such REIT Shares are listed or admitted to trading or, if such REIT 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 National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use or, if such REIT Shares are 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 such REIT Shares selected by the General Partner or, in the event that no trading price is available for such REIT Shares, the fair market value of the REIT Shares, as determined by the Special Limited Partner.
In the event that the REIT Shares Amount includes Rights that a holder of REIT Shares would be entitled to receive, then the Value of such Rights shall be determined by the Special Limited Partner on the basis of such quotations and other information as it considers appropriate.

    
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ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1      Formation . The Partnership is a limited partnership heretofore formed and continued pursuant to the provisions of the Act and upon the terms and subject to the conditions set forth in this Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes.
Section 2.2      Name . The name of the Partnership is “Spirit Realty, L.P.” The Partnership’s business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words “Limited Partnership,” “L.P.,” “Ltd.” or similar words or letters shall be included in the Partnership’s name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Partners of such change in the next regular communication to the Partners.
Section 2.3      Registered Office and Registered Agent; Principal Executive Office . The address of the registered office of the Partnership in the State of Delaware is located at c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, or such other place as the General Partner may from time to time designate, and the registered agent of the Partnership in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, or such other registered agent as the General Partner may from time to time designate. The principal office of the Partnership is located at 16767 N. Perimeter Drive, Suite 210, Scottsdale, Arizona 85260, or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places as the General Partner deems advisable.
Section 2.4      Power of Attorney .
A.      Each Limited Partner and Assignee hereby irrevocably constitutes and appoints the General Partner, any Liquidator, and authorized officers and attorneys-in-fact of each (the “ Attorney in Fact ”), and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:
(1)      execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices: (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments, supplements or restatements thereof) that the Attorney in Fact deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (b) all instruments that the Attorney in Fact deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement duly adopted in accordance with its terms; (c) all conveyances and other instruments or documents that the Attorney in Fact deems appropriate or

    
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necessary to reflect the dissolution and winding up of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all conveyances and other instruments or documents that the Attorney in Fact deems appropriate or necessary to reflect the distribution or exchange of assets of the Partnership pursuant to the terms of this Agreement; (e) all instruments relating to the admission, acceptance, withdrawal, removal or substitution of any Partner pursuant to the terms of this Agreement or the Capital Contribution of any Partner; and (f) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges relating to Partnership Interests; and
(2)      execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the Attorney in Fact, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Partners hereunder or is consistent with the terms of this Agreement.
Nothing contained herein shall be construed as authorizing the Attorney in Fact to amend this Agreement except in accordance with Section 14.2 hereof or as may be otherwise expressly provided for in this Agreement.
B.      The foregoing power of attorney is hereby declared to be irrevocable and a special power coupled with an interest, in recognition of the fact that each of the Limited Partners and Assignees will be relying upon the power of the Attorney in Fact to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the Transfer of all or any portion of such Person’s Partnership Interest and shall extend to such Person’s heirs, successors, assigns and personal representatives. Each such Limited Partner and Assignee hereby agrees to be bound by any representation made by the Attorney in Fact, acting in good faith pursuant to such power of attorney; and, to the fullest extent permitted by law, each such Limited Partner and Assignee hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the General Partner or the Liquidator, taken in good faith under such power of attorney. Each Limited Partner and Assignee shall execute and deliver to the General Partner or the Liquidator, within fifteen (15) days after receipt of the General Partner’s or the Liquidator’s request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator (as the case may be) deems necessary to effectuate this Agreement and the purposes of the Partnership. Notwithstanding anything else set forth in this Section 2.4.B, no Limited Partner shall incur any personal liability for any action of the Attorney in Fact taken under such power of attorney.
Section 2.5      Term . The term of the Partnership shall continue indefinitely unless the Partnership is dissolved sooner pursuant to the provisions of Article 13 hereof or as otherwise provided by law.
Section 2.6      Partnership Interests Are Securities . All Partnership Interests in the Partnership shall constitute a “security” within the meaning of, and governed by, (i) Article 8 of the Uniform Commercial Code (including Section 8‑102(a)(15) thereof) as in effect from time to time in the State of Delaware, and (ii) the corresponding provisions of the Uniform Commercial Code of any other applicable jurisdiction that now or hereafter substantially includes the 1994 revisions to Article

    
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8 thereof as adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws and approved by the American Bar Association on February 14, 1995.
Section 2.7     Admission .    The General Partner has previously been admitted as the general partner of the Partnership. A Person shall be admitted as a limited partner of the Partnership on the date hereof at the time that (a) this Agreement or a counterpart hereof is executed by or on behalf of such Person and (b) such Person is listed by the General Partner as a limited partner of the Partnership on Exhibit A attached hereto. The Special Limited Partner has previously been admitted as a limited partner of the Partnership. The General Partner hereby Consents to the admission of any Person as a limited partner of the Partnership pursuant to this Section 2.7.
ARTICLE 3
PURPOSE
Section 3.1      Purpose and Business . The purpose and nature of the Partnership is to conduct any business, enterprise or activity permitted by or under the Act, including, without limitation, (i) to conduct the business of ownership, construction, reconstruction, development, redevelopment, alteration, improvement, maintenance, operation, sale, leasing, transfer, encumbrance, conveyance and exchange of the Properties, (ii) to acquire and invest in any securities and/or loans relating to the Properties, (iii) to enter into any partnership, joint venture, business or statutory trust arrangement, limited liability company or other similar arrangement to engage in any business permitted by or under the Act, or to own interests in any entity engaged in any business permitted by or under the Act, (iv) to conduct the business of providing property and asset management and brokerage services, whether directly or through one or more partnerships, joint ventures, Subsidiaries, business trusts, limited liability companies or similar arrangements, and (v) to do anything necessary or incidental to the foregoing.
Section 3.2      Powers . The Partnership shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership including, without limitation, full power and authority, directly or through its ownership interest in other entities, to enter into, perform and carry out contracts of any kind, to borrow and lend money and to issue evidence of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien, to acquire, own, manage, improve and develop real property and lease, sell, transfer and dispose of real property. However, the Partnership may not, without the General Partner’s specific consent, which it may give or withhold in its sole and absolute discretion, take or refrain from taking, any action that, in its judgment, in its sole and absolute discretion (i) could adversely affect the Special Limited Partner’s ability to continue to qualify as a REIT, (ii) could subject the Special Limited Partner to any taxes under Sections 857 or 4981 of the Code or any other related or successor provision under the Code, or (iii) could violate any law or regulation of any governmental body or agency having jurisdiction over the Special Limited Partner, its securities or the Partnership.
Section 3.3      Partnership Only for Purposes Specified . The Partnership shall be a limited partnership formed pursuant to the Act to conduct its business in accordance with this Agreement,

    
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and this Agreement shall not be deemed to create a company, venture or partnership between or among the Partners or any other Persons with respect to any activities whatsoever other than the activities within the purposes of the Partnership as specified in Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Partnership, its properties or any other Partner. No Partner, in its capacity as a Partner under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Partner, nor shall the Partnership be responsible or liable for any indebtedness or obligation of any Partner, incurred either before or after the execution and delivery of this Agreement by such Partner, except as to those responsibilities, liabilities, indebtedness or obligations incurred pursuant to and as limited by the terms of this Agreement and the Act.
Section 3.4      Representations and Warranties by the Partners .
A.      Each Partner that is an individual (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or a Substituted Limited Partner) represents and warrants to, and covenants with, each other Partner that (i) the consummation of the transactions contemplated by this Agreement to be performed by such Partner will not result in a breach or violation of, or a default under, any material agreement by which such Partner or any of such Partner’s property is bound, or any statute, regulation, order or other law to which such Partner is subject, (ii) if five percent (5%) or more (by value) of the Partnership’s interests are or will be owned by such Partner within the meaning of Code Section 7704(d)(3), such Partner does not, and for so long as it is a Partner will not, own, directly or indirectly, (a) stock of any corporation that is a tenant of (I) the Special Limited Partner or any Disregarded Entity with respect to the Special Limited Partner, (II) the Partnership or (III) any partnership, venture or limited liability company of which the Special Limited Partner, any Disregarded Entity with respect to the Special Limited Partner, or the Partnership is a direct or indirect member or (b) an interest in the assets or net profits of any non-corporate tenant of (I) the Special Limited Partner or any Disregarded Entity with respect to the Special Limited Partner, (II) the Partnership or (III) any partnership, venture, or limited liability company of which the Special Limited Partner, any Disregarded Entity with respect to the Special Limited Partner, or the Partnership is a direct or indirect member, (iii) such Partner has the legal capacity to enter into this Agreement and perform such Partner’s obligations hereunder, and (iv) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms. Notwithstanding the foregoing, a Partner that is an individual shall not be subject to the ownership restrictions set forth in clause (ii) of the immediately preceding sentence to the extent such Partner obtains the written Consent of the General Partner prior to violating any such restrictions. Each Partner that is an individual shall also represent and warrant to the Partnership that such Partner is neither a “foreign person” within the meaning of Code Section 1445(f) nor a foreign partner within the meaning of Code Section 1446(e).
B.      Each Partner that is not an individual (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or a Substituted Limited Partner) represents and warrants to, and covenants with, each other Partner that (i) all transactions contemplated by this Agreement to be performed by it have been duly authorized by all necessary action, including, without limitation, that of its general partner(s), manager(s),

    
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committee(s), trustee(s), beneficiaries, directors and/or stockholder(s) (as the case may be) as required, (ii) the consummation of such transactions shall not result in a breach or violation of, or a default under, its partnership or operating agreement, trust agreement, charter or bylaws (as the case may be) any material agreement by which such Partner or any of such Partner’s properties or any of its partners, members, beneficiaries, trustees or stockholders (as the case may be) is or are bound, or any statute, regulation, order or other law to which such Partner or any of its partners, members, trustees, beneficiaries or stockholders (as the case may be) is or are subject, (iii) if five percent (5%) or more (by value) of the Partnership’s interests are or will be owned by such Partner within the meaning of Code Section 7704(d)(3), such Partner does not, and for so long as it is a Partner will not, own, directly or indirectly, (a) stock of any corporation that is a tenant of (I) the Special Limited Partner or any Disregarded Entity with respect to the Special Limited Partner, (II) the Partnership or (III) any partnership, venture or limited liability company of which the Special Limited Partner, any Disregarded Entity with respect to the Special Limited Partner, or the Partnership is a direct or indirect member or (b) an interest in the assets or net profits of any non-corporate tenant of (I) the Special Limited Partner, or any Disregarded Entity with respect to the Special Limited Partner, (II) the Partnership or (III) any partnership, venture or limited liability company for which the Special Limited Partner, any Disregarded Entity with respect to the Special Limited Partner, or the Partnership is a direct or indirect member, and (iv) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms. Notwithstanding the foregoing, a Partner that is not an individual shall not be subject to the ownership restrictions set forth in clause (iii) of the immediately preceding sentence to the extent such Partner obtains the written Consent of the General Partner prior to violating any such restrictions. Each Partner that is not an individual shall also represent and warrant to the Partnership that such Partner is neither a “foreign person” within the meaning of Code Section 1445(f) nor a foreign partner within the meaning of Code Section 1446(e).
C.      Each Partner (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or Substituted Limited Partner) represents, warrants and agrees that (i) it is an “accredited investor” as defined in Rule 501 promulgated under the Securities Act, (ii) it has acquired and continues to hold its interest in the Partnership for its own account for investment purposes only and not for the purpose of, or with a view toward, the resale or distribution of all or any part thereof in violation of applicable laws, and not with a view toward selling or otherwise distributing such interest or any part thereof at any particular time or under any predetermined circumstances in violation of applicable laws, and (iii) it is a sophisticated investor, able and accustomed to handling sophisticated financial matters for itself, particularly real estate investments, and that it has a sufficiently high net worth that it does not anticipate a need for the funds that it has invested in the Partnership in what it understands to be a highly speculative and illiquid investment.
D.      The representations and warranties contained in Sections 3.4.A, 3.4.B and 3.4.C hereof shall survive the execution and delivery of this Agreement by each Partner (and, in the case of an Additional Limited Partner or a Substituted Limited Partner, the admission of such Additional Limited Partner or Substituted Limited Partner as a Limited Partner in the Partnership) and the dissolution, winding up and termination of the Partnership.

    
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E.      Each Partner (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or Substituted Limited Partner) hereby acknowledges that no representations as to potential profit, cash flows, funds from operations or yield, if any, in respect of the Partnership, the Special Limited Partner or the General Partner have been made by any Partner or any employee or representative or Affiliate of any Partner, and that projections and any other information, including, without limitation, financial and descriptive information and documentation, that may have been in any manner submitted to such Partner shall not constitute any representation or warranty of any kind or nature, express or implied.
F.      Notwithstanding the foregoing, the General Partner may, in its sole and absolute discretion, permit the modification of any of the representations and warranties contained in Sections 3.4.A, 3.4.B and 3.4.C above as applicable to any Partner (including, without limitation any Additional Limited Partner or Substituted Limited Partner or any transferee of either), provided that such representations and warranties, as modified, shall be set forth in either (i) a Partnership Unit Designation applicable to the Partnership Units held by such Partner or (ii) a separate writing addressed to the Partnership and the General Partner.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1      Capital Contributions of the Partners . The Partners have heretofore made Capital Contributions to the Partnership. Each Partner owns Partnership Units in the amount set forth for such Partner on Exhibit A , as the same may be amended or updated from time to time by the General Partner to the extent necessary to reflect accurately sales, exchanges or other Transfers, redemptions, Capital Contributions, the issuance of additional Partnership Units, or similar events having an effect on a Partner’s ownership of Partnership Units; provided the updating of Exhibit A by the General Partner shall not require the Consent of any other Partner. Except as provided by law or in Section 4.2, 4.3, or 10.4 hereof, the Partners shall have no obligation or, except with the prior Consent of the General Partner, right to make any additional Capital Contributions or loans to the Partnership.
Section 4.2      Issuances of Additional Partnership Interests . Subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation:
A.      General . The General Partner is hereby authorized to cause the Partnership to issue additional Partnership Interests, in the form of Partnership Units, for any Partnership purpose, at any time or from time to time, to the Partners (including the General Partner and the Special Limited Partner) or to other Persons, and to admit such Persons as Additional Limited Partners, for such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute discretion, all without the approval of any Limited Partner or any other Person. Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units (i) upon the conversion, redemption or exchange of any Debt, Partnership Units, or other securities issued by the Partnership, (ii) for less than fair market value, (iii) for no consideration, (iv) in connection with any merger or consolidation of any other Person into the Partnership or (v) upon the contribution of assets to the Partnership. Any additional Partnership Interests may be issued in one or more classes, or one or more series of any of such classes, with

    
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such designations, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption (including, without limitation, terms that may be senior or otherwise entitled to preference over existing Partnership Units) as shall be determined by the General Partner, in its sole and absolute discretion and without the approval of any Limited Partner or any other Person, and set forth in a written document thereafter attached to and made an exhibit to this Agreement, which exhibit shall be an amendment to this Agreement and shall be incorporated herein by this reference (each, a “ Partnership Unit Designation ”) without the approval of any Limited Partner or any other Person. Without limiting the generality of the foregoing, the General Partner shall have authority to specify, in its sole and absolute discretion: (a) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests; (b) the right of each such class or series of Partnership Interests to share (on a pari passu , junior or preferred basis) in Partnership distributions; (c) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership; (d) the voting rights, if any, of each such class or series of Partnership Interests; and (e) the conversion, redemption or exchange rights applicable to each such class or series of Partnership Interests. Upon the issuance of any additional Partnership Interest, the General Partner shall update Exhibit A and the books and records of the Partnership as appropriate to reflect such issuance.
B.      Issuances to the General Partner or Special Limited Partner . No additional Partnership Units shall be issued to the General Partner or the Special Limited Partner unless (i) the additional Partnership Units are issued to all Partners holding Partnership Common Units in proportion to their respective Percentage Interests in Partnership Common Units, (ii) (a) the additional Partnership Units are (x) Partnership Common Units issued in connection with an issuance of REIT Shares, or (y) Partnership Equivalent Units (other than Partnership Common Units) issued in connection with an issuance of Preferred Shares, New Securities or other interests in the Special Limited Partner (other than REIT Shares), with corresponding economic terms, and (b) the General Partner or the Special Limited Partner (as the case may be) contributes directly or indirectly to the Partnership the cash proceeds or other consideration received in connection with the issuance of such REIT Shares, Preferred Shares, New Securities or other interests in the Special Limited Partner, (iii) the additional Partnership Units are issued upon the conversion, redemption or exchange of Debt, Partnership Units or other securities issued by the Partnership or (iv) the additional Partnership Units are issued pursuant to Section 4.3.B, Section 4.3.E, Section 4.4 or Section 4.5.
C.      No Preemptive Rights . Except as expressly provided in this Agreement or in any Partnership Unit Designation, no Person, including, without limitation, any Partner or Assignee, shall have any preemptive, preferential, participation or similar right or rights to subscribe for or acquire any Partnership Interest.
Section 4.3      Additional Funds and Capital Contributions .
A.      General . The General Partner may, at any time and from time to time, determine that the Partnership requires additional funds (“ Additional Funds ”) for the acquisition or development of additional Properties, for the redemption of Partnership Units or for such other purposes as the General Partner may determine, in its sole and absolute discretion. Additional Funds may be obtained by the

    
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Partnership, at the election of the General Partner, in any manner provided in, and in accordance with, the terms of this Section 4.3 without the approval of any Limited Partner or any other Person.
B.      Additional Capital Contributions . The General Partner, on behalf of the Partnership, may obtain any Additional Funds by accepting Capital Contributions from any Partners or other Persons. In connection with any such Capital Contribution (of cash or property), the General Partner is hereby authorized, in its sole and absolute discretion, to cause the Partnership from time to time to issue additional Partnership Units (as set forth in Section 4.2 above) in consideration therefor and the Percentage Interests of the General Partner and the Limited Partners shall be adjusted to reflect the issuance of such additional Partnership Units.
C.      Loans by Third Parties . The General Partner, in its sole and absolute discretion on behalf of the Partnership, may obtain any Additional Funds by causing the Partnership to incur Debt to any Person (other than the General Partner or the Special Limited Partner (but, for this purpose, disregarding any Debt that may be deemed incurred to the General Partner or the Special Limited Partner by virtue of clause (iii) of the definition of Debt)) upon such terms as the General Partner determines appropriate, including making such Debt convertible, redeemable or exchangeable for Partnership Units or REIT Shares; provided , however , that the Partnership shall not incur any such Debt if any Limited Partner would be personally liable for the repayment of such Debt (unless such Limited Partner otherwise agrees).
D.      General Partner and Special Limited Partner Loans . The General Partner, in its sole and absolute discretion on behalf of the Partnership, may obtain any Additional Funds by causing the Partnership to incur Debt to the General Partner and/or the Special Limited Partner if (i) such Debt is, to the extent permitted by law, on substantially the same terms and conditions (including interest rate, repayment schedule, and conversion, redemption, repurchase and exchange rights) as Funding Debt incurred by the General Partner or the Special Limited Partner, as applicable, the net proceeds of which are loaned to the Partnership to provide such Additional Funds, or (ii) such Debt is on terms and conditions no less favorable to the Partnership than would be available to the Partnership from any third party; provided , however , that the Partnership shall not incur any such Debt if any Limited Partner would be personally liable for the repayment of such Debt (unless such Limited Partner otherwise agrees).
E.      Issuance of Securities by the Special Limited Partner . The Special Limited Partner shall not issue any additional REIT Shares, Capital Shares or New Securities unless the Special Limited Partner contributes the net proceeds (including cash and Properties) or the Properties (or interests therein) acquired with such net proceeds from the issuance of such additional REIT Shares, Capital Shares or New Securities (as the case may be) and from the exercise of the rights contained in any such additional Capital Shares or New Securities directly or indirectly to the Partnership in exchange for (x) in the case of an issuance of REIT Shares, Partnership Common Units, or (y) in the case of an issuance of Capital Shares or New Securities, Partnership Equivalent Units; provided , however , that notwithstanding the foregoing, the Special Limited Partner may issue REIT Shares, Capital Shares or New Securities (a) pursuant to Section 4.4 or Section 15.1.B hereof, (b) pursuant to a dividend or distribution (including any stock split) of REIT Shares, Capital Shares or New Securities to all of the holders of REIT Shares, Capital Shares or New Securities (as the case may be), (c) upon

    
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a conversion, redemption or exchange of Capital Shares, (d) upon a conversion, redemption, exchange or exercise of New Securities, or (e) in connection with an acquisition of Partnership Units or a property or other asset to be owned, directly or indirectly, by the Special Limited Partner. In the event of any issuance of additional REIT Shares, Capital Shares or New Securities by the Special Limited Partner, and the contribution to the Partnership, directly or indirectly, by the Special Limited Partner, of the net proceeds (including cash and Properties) or the Properties (or interests therein) acquired with such net proceeds from such issuance, if any, if the cash proceeds actually received by the Special Limited Partner are less than the gross proceeds of such issuance as a result of any underwriter’s discount or other expenses paid or incurred in connection with such issuance, then the Special Limited Partner shall be deemed to have made a Capital Contribution to the Partnership in the amount equal to the sum of the cash proceeds of such issuance plus the amount of such underwriter’s discount and other expenses paid by the Special Limited Partner (which discount and expense shall be treated as an expense for the benefit of the Partnership for purposes of Section 7.4). In the event that the Special Limited Partner issues any additional REIT Shares, Capital Shares or New Securities and contributes, directly or indirectly, the net proceeds (including cash and Properties) or the Properties (or interests therein) acquired with such net proceeds from the issuance thereof to the Partnership, the Partnership is expressly authorized to issue a number of Partnership Common Units or Partnership Equivalent Units to the Special Limited Partner equal to the number of REIT Shares, Capital Shares or New Securities so issued, divided by the Adjustment Factor then in effect, in accordance with this Section 4.3.E without any further act, approval or vote of any Partner or any other Persons. The Special Limited Partner may hold the net proceeds from the issuance of additional REIT Shares, Capital Shares or New Securities, as the case may be, taking into account the intended use of such proceeds, so long as the Special Limited Partner makes a Capital Contribution of such net proceeds, or Properties (or interests therein) acquired with such net proceeds, as soon as reasonably practicable but not later than six (6) months following such issuance, except no such contribution shall be required to the extent the Properties acquired by the Special Limited Partner are direct or indirect interests in Partnership Interests or to the extent such net proceeds are used by the Special Limited Partner to make distributions to its stockholders.
F.      Notwithstanding any other provision of this Agreement, including, without limitation, any other provision of this Section 4.3, the Special Limited Partner is fully authorized to issue Funding Debt, in any form it determines to do so, including, without limitation, Funding Debt that is convertible into REIT Shares and/or redeemable for cash or other property, and, in connection therewith, the Partnership, and the General Partner on behalf of the Partnership, is fully authorized to issue Debt to the Special Limited Partner on substantially the same terms and conditions as the Funding Debt issued by the Special Limited Partner, including, without limitation, Debt that is convertible into Partnership Units and/or redeemable for cash or other property, without any further act, approval or vote of any Partner or any other Person. In furtherance of and not in limitation of the foregoing, in connection with any Funding Debt convertible into REIT Shares issued by the Special Limited Partner that is subsequently converted into REIT Shares, the Partnership, and the General Partner on behalf of the Partnership, is fully authorized to convert a corresponding amount of the Debt issued by the Partnership into the Special Limited Partner to a number of Partnership Common Units equal to the number of REIT Shares, if any, that the Special Limited Partner is required to deliver to settle the conversion of such Funding Debt, divided by the Adjustment Factor then in effect, without any further act, approval or vote of any Partner or any other Person.

    
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G.      Notwithstanding any other provision of this Agreement, including, without limitation, any other provision of Articles 4 and 11 of this Agreement, in connection with any Partnership Common Units owned by the Special Limited Partner, the Special Limited Partner is fully authorized, but shall not be obligated, to transfer, contribute or otherwise assign such Partnership Common Units to one or more wholly-owned Subsidiaries of the Special Limited Partner (the “ SLP Subsidiaries ”). Without the need for any action or consent by any Person, including any Partner or any SLP Subsidiary, effective simultaneously with such transfer, contribution or assignment, each of such SLP Subsidiaries shall automatically be admitted to the Partnership as a limited partner of the Partnership. Such SLP Subsidiaries shall be “Limited Partners” as such term is used in this Agreement but shall not be a “Special Limited Partner” as such term is used in this Agreement. The General Partner shall amend or update Exhibit A to reflect such transfer, contribution or assignment, and such admission. In furtherance of and not in limitation of the foregoing, the other provisions of Article 4 and Article 11 of this Agreement shall have no application to the transactions contemplated by this Section 4.3.G, including, without limitation, matters relating to transfer and admission.
Section 4.4      Stock Option Plans and Equity Plans .
A.      Future Stock Incentive Plans . Nothing in this Agreement shall be construed or applied to preclude or restrain the General Partner or the Special Limited Partner from adopting, modifying or terminating stock incentive plans for the benefit of employees, directors or other business associates of the General Partner, the Special Limited Partner, the Partnership or any of their Affiliates or from issuing REIT Shares, Capital Shares or New Securities pursuant to any such plans. The General Partner may implement such plans and any actions taken under such plans (such as the grant or exercise of options to acquire REIT Shares, or the issuance of restricted REIT Shares), whether taken with respect to or by an employee or other service provider of the Special Limited Partner, the Partnership or its Subsidiaries, in a manner reasonably determined by the General Partner, which may be set forth in plan implementation guidelines that the General Partner may establish or amend from time to time. The Partners acknowledge and agree that, in the event that any such plan is adopted, modified or terminated by the General Partner or the Special Limited Partner, amendments to this Agreement may become necessary or advisable and that any such amendments requested by the General Partner or the Special Limited Partner shall not require any Consent or approval by the Limited Partners.
B.      Issuance of Partnership Common Units . The Partnership is expressly authorized to issue Partnership Common Units (i) in accordance with the terms of any such stock incentive plans, or (ii) in an amount equal to the number of REIT Shares, Capital Shares or New Securities issued pursuant to any such stock incentive plans without any further act, approval or vote of any Partner or any other Persons.
Section 4.5      Dividend Reinvestment Plan, Cash Option Purchase Plan, Stock Incentive Plan or Other Plan . Except as may otherwise be provided in this Article 4, all amounts received or deemed received by the Special Limited Partner in respect of any dividend reinvestment plan, cash option purchase plan, stock incentive or other stock or subscription plan or agreement, either (a) shall be utilized by the Special Limited Partner to effect open market purchases of REIT Shares, or (b) if the Special Limited Partner elects instead to issue new REIT Shares with respect to such amounts,

    
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shall be contributed by the Special Limited Partner to the Partnership in exchange for additional Partnership Common Units. Upon such contribution, the Partnership will issue to the Special Limited Partner a number of Partnership Common Units equal to the quotient of (i) the new REIT Shares so issued, divided by (ii) the Adjustment Factor then in effect. The Partnership is expressly authorized to issue Partnership Common Units as contemplated by this Section 4.5 without any further act, approval or vote of any Partner or any other Persons.
Section 4.6      No Interest; No Return . No Partner shall be entitled to interest on its Capital Contribution or on such Partner’s Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership.
Section 4.7      Conversion or Redemption of REIT Shares and Capital Shares .
A.      Conversion of Capital Shares . If, at any time, any of the Capital Shares are converted into REIT Shares, in whole or in part, then a number of Partnership Units with preferences, conversion and other rights, restrictions (other than restrictions on transfer), rights and limitations as to dividends and other distributions and qualifications that are substantially the same as the preferences, conversion and other rights, restrictions (other than restrictions on transfer), rights and limitations as to distributions and qualifications of such Capital Shares (“ Partnership Equivalent Units ”) (for the avoidance of doubt, Partnership Equivalent Units need not have voting rights, redemption rights or restrictions on transfer that are substantially equivalent to such Capital Shares) equal to the number of Capital Shares so converted shall automatically be converted into a number of Partnership Common Units equal to the quotient of (i) the number of REIT Shares issued upon such conversion divided by (ii) the Adjustment Factor then in effect, and the Percentage Interests of the General Partner and the Limited Partners shall be adjusted to reflect such conversion.
B.      Redemption or Repurchase of Capital Shares or REIT Shares . Except as otherwise provided in Section 7.4.C., if, at any time, any Capital Shares are redeemed or otherwise repurchased (whether by exercise of a put or call, automatically or by means of another arrangement) by the Special Limited Partner for cash, the Partnership shall, immediately prior to such redemption or repurchase of Capital Shares, redeem or repurchase an equal number of the corresponding Partnership Equivalent Units held by the Special Limited Partner upon the same terms and for the same price per Partnership Equivalent Unit as such Capital Shares are redeemed or repurchased. If, at any time, any REIT Shares are forfeited or redeemed or otherwise repurchased or reacquired by the Special Limited Partner, the Partnership shall, immediately prior to such forfeiture, redemption, repurchase or reacquisition of REIT Shares, forfeit, redeem, repurchase or reacquire a number of Partnership Common Units held by the Special Limited Partner equal to the quotient of (i) the REIT Shares so forfeited, redeemed, repurchased or reacquired, divided by (ii) the Adjustment Factor then in effect, such forfeiture, redemption, repurchase or reacquisition to be upon the same terms and for the same price per Partnership Common Unit (after giving effect to application of the Adjustment Factor) as such REIT Shares are forfeited, redeemed, repurchased or otherwise reacquired.
Section 4.8      Other Contribution Provisions . In the event that any Partner is admitted to the Partnership and is given a Capital Account in exchange for services rendered to the Partnership, such transaction shall be treated by the Partnership and the affected Partner as if the Partnership

    
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had compensated such partner in cash and such Partner had contributed the cash that the Partner would have received to the capital of the Partnership. In addition, with the Consent of the General Partner, one or more Partners (including the Special Limited Partner) may enter into contribution agreements with the Partnership which have the effect of providing a guarantee of certain obligations of the Partnership (and/or a wholly-owned Subsidiary of the Partnership).
ARTICLE 5
DISTRIBUTIONS
Section 5.1      Requirement and Characterization of Distributions . Subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, the General Partner may cause the Partnership to distribute such amounts, at such times, as the General Partner may, in its sole and absolute discretion, determine to the Holders as of any Partnership Record Date: (i) first, with respect to any Partnership Units that are entitled to any preference in distribution, in accordance with the rights of Holders of such class(es) of Partnership Units (and, within each such class, among the Holders of each such class, pro rata in proportion to their respective Percentage Interests of such class on such Partnership Record Date); and (ii) second, with respect to any Partnership Units that are not entitled to any preference in distribution, in accordance with the rights of Holders of such class(es) of Partnership Units, as applicable (and, within each such class, among the Holders of each such class, pro rata in proportion to their respective Percentage Interests of such class on such Partnership Record Date). Distributions payable with respect to any Partnership Units, other than any Partnership Units issued to the General Partner or the Special Limited Partner in connection with the issuance of REIT Shares by the Special Limited Partner, that were not outstanding during the entire quarterly period in respect of which any distribution is made shall be prorated based on the portion of the period that such Partnership Units were outstanding. The General Partner shall make such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with the Special Limited Partner’s qualification as a REIT, to cause the Partnership to distribute sufficient amounts to enable the Special Limited Partner, for so long as the Special Limited Partner has determined to qualify as a REIT, to pay stockholder dividends that will (a) satisfy the requirements for qualifying as a REIT under the Code and Regulations (the “ REIT Requirements ”) and (b) except to the extent otherwise determined by the Special Limited Partner, eliminate any federal income or excise tax liability of the Special Limited Partner.
Section 5.2      Distributions in Kind . Except as expressly provided herein, no right is given to any Holder to demand and receive property other than cash as provided in this Agreement. The General Partner may determine, in its sole and absolute discretion, to make a distribution in kind of Partnership assets to the Holders, and such assets shall be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with Articles 5, 6 and 13 hereof; provided , however , that the General Partner shall not make a distribution in kind to any Holder unless the Holder has been given 90 days prior written notice of such distribution.
Section 5.3      Amounts Withheld . All amounts withheld pursuant to the Code or any provisions of any state, local or non-United States tax law and Section 10.4 hereof with respect to any allocation, payment or distribution to any Holder shall be treated as amounts paid or distributed to such Holder pursuant to Section 5.1 hereof for all purposes under this Agreement.

    
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Section 5.4      Distributions upon Liquidation . Notwithstanding the other provisions of this Article 5, net proceeds from a Terminating Capital Transaction, and any other amounts distributed after the occurrence of a Liquidating Event, shall be distributed to the Holders in accordance with Section 13.2 hereof.
Section 5.5      Distributions to Reflect Additional Partnership Units . In the event that the Partnership issues additional Partnership Units pursuant to the provisions of Article 4 hereof, subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, the General Partner is hereby authorized to amend this Article 5 and Articles 6, 11 and 12 hereof as it determines, in its sole an absolute discretion, are necessary or desirable to reflect the issuance of such additional Partnership Units, including, without limitation, making preferential distributions to Holders of certain classes of Partnership Units all without the consent or approval of any other Person.
Section 5.6      Restricted Distributions . Notwithstanding any provision to the contrary contained in this Agreement, neither the Partnership nor the General Partner, on behalf of the Partnership, shall make a distribution to any Holder if such distribution would violate the Act or other applicable law.
ARTICLE 6
ALLOCATIONS
Section 6.1      Timing and Amount of Allocations of Net Income and Net Loss . Net Income and Net Loss of the Partnership shall be determined and allocated with respect to each Partnership Year as of the end of each such year, provided that the General Partner may, in its sole and absolute discretion, allocate Net Income and Net Loss for a shorter period as of the end of such period (and, for purposes of this Article 6, references to the term “Partnership Year” may include such shorter periods). Except as otherwise provided in this Article 6, and subject to Section 11.6.C hereof, an allocation to a Holder of a share of Net Income or Net Loss shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Income or Net Loss.
Section 6.2      General Allocations . Except as otherwise provided in this Article 6 and Section 11.6.C hereof, Net Income and Net Loss for any Partnership Year shall be allocated to each of the Holders as follows:
A.      Net Income.
(i)      First, 100% to the General Partner in an amount equal to the remainder, if any, of the cumulative Net Losses allocated to the General Partner pursuant to clause (iii) in Section 6.2.B for all prior Partnership Years minus the cumulative Net Income allocated to the General Partner pursuant to this clause (i) for all prior Partnership Years;
(ii)      Second, 100% to each Holder in an amount equal to the remainder, if any, of the cumulative Net Losses allocated to each such Holder pursuant to clause (ii) in Section

    
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6.2.B for all prior Partnership Years minus the cumulative Net Income allocated to such Holder pursuant to this clause (ii) for all prior Partnership Years; and
(iii)      Third, 100% to the Holders of Partnership Common Units in accordance with their respective Percentage Interests in the Partnership Common Units.
To the extent the allocations of Net Income set forth above in any paragraph of this Section 6.2.A are not sufficient to entirely satisfy the allocation set forth in such paragraph, such allocation shall be made in proportion to the total amount that would have been allocated pursuant to such paragraph without regard to such shortfall.
B.      Net Losses.
(i)      First, 100% to the Holders of Partnership Common Units in accordance with their respective Percentage Interests in the Partnership Common Units (to the extent consistent with this clause (i)) until the Adjusted Capital Account (ignoring for this purpose any amounts a Holder is obligated to contribute to the capital of the Partnership or is deemed obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c)(2)) of all such Holders is zero;
(ii)      Second, 100% to the Holders (other than the General Partner) to the extent of, and in proportion to, the positive balance (if any) in their Adjusted Capital Accounts; and
(iii)      Third, 100% to the General Partner.
C.      Allocations to Reflect Issuance of Additional Partnership Interests. In the event that the Partnership issues additional Partnership Interests to the General Partner, the Special Limited Partner or any Additional Limited Partner pursuant to Section 4.2 or 4.3, the General Partner shall amend this Section 6.2 or Sections 12.2.C or 13.2.A as it determines, in its sole and absolute discretion, are necessary to reflect the terms of the issuance of such additional Partnership Interests, including making preferential allocations to certain classes of Partnership Interests, subject to the terms of any Partnership Unit Designation with respect to Partnership Interests then outstanding.
Section 6.3      Additional Allocation Provisions . Notwithstanding the foregoing provisions of this Article 6:
A.      Special Allocations Upon Liquidation . Notwithstanding any provision in this Article 6 to the contrary, in the event that the Partnership disposes of all or substantially all of its assets in a transaction that will lead to a liquidation of the Partnership pursuant to Article 13 hereof, then any Net Income or Net Loss realized in connection with such transaction and thereafter (and, if necessary, constituent items of income, gain, loss and deduction) shall be specially allocated for such Partnership Year (and to the extent permitted by Section 761(c) of the Code, for the immediately preceding Partnership Year) among the Holders as required so as to cause liquidating distributions pursuant to Section 13.2.A(4) hereof to be made in the same amounts and proportions as would have resulted had such distributions instead been made pursuant to Article 5 hereof. In addition, if

    
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there is an adjustment to the Gross Asset Value of the assets of the Partnership pursuant to paragraph (b) of the definition of Gross Asset Value, allocations of Net Income or Net Loss arising from such adjustment shall be allocated in the same manner as described in the prior sentence.
B.      Offsetting Allocations . Notwithstanding the provisions of Sections 6.1, 6.2.A and 6.2.B, but subject to Sections 6.3.A and 6.4, in the event Net Income or items thereof are being allocated to a Partner to offset prior Net Loss or items thereof which have been allocated to such Partner, the General Partner shall attempt to allocate such offsetting Net Income or items thereof which are of the same or similar character (including without limitation Section 704(b) book items versus tax items) to the original allocations with respect to such Partner.
Section 6.4      Regulatory Allocation Provisions . Notwithstanding the foregoing provisions of this Article 6:
A.      Regulatory Allocations.
(i)      Minimum Gain Chargeback . Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2 hereof, or any other provision of this Article 6, if there is a net decrease in Partnership Minimum Gain during any Partnership Year, each Holder shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holder’s share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Holder pursuant thereto. The items to be allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.4.A(i) is intended to qualify as a “minimum gain chargeback” within the meaning of Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii)      Partner Minimum Gain Chargeback . Except as otherwise provided in Regulations Section 1.704-2(i)(4) or in Section 6.4.A(i) hereof, if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership Year, each Holder who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holder’s share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Holder pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.4.A(ii) is intended to qualify as a “chargeback of partner nonrecourse debt minimum gain” within the meaning of Regulations Section 1.704-2(i) and shall be interpreted consistently therewith.
(iii)      Nonrecourse Deductions and Partner Nonrecourse Deductions . Any Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Holders

    
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in accordance with their respective Percentage Interests. Any Partner Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Holder(s) who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable, in accordance with Regulations Section 1.704-2(i).
(iv)      Qualified Income Offset . If any Holder unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be specially allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to such Holder in an amount and manner sufficient to eliminate, to the extent required by such Regulations, the Adjusted Capital Account Deficit of such Holder as quickly as possible, provided that an allocation pursuant to this Section 6.4.A(iv) shall be made if and only to the extent that such Holder would have an Adjusted Capital Account Deficit after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.4.A(iv) were not in the Agreement. It is intended that this Section 6.4.A(iv) qualify and be construed as a “qualified income offset” within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(v)      Gross Income Allocation . In the event that any Holder has a deficit Capital Account at the end of any Partnership Year that is in excess of the sum of (1) the amount (if any) that such Holder is obligated to restore to the Partnership upon complete liquidation of such Holder’s Partnership Interest (including, the Holder’s interest in outstanding Partnership Preferred Units and other Partnership Units) and (2) the amount that such Holder is deemed to be obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Holder shall be specially allocated items of Partnership income and gain in the amount of such excess to eliminate such deficit as quickly as possible, provided that an allocation pursuant to this Section 6.4.A(v) shall be made if and only to the extent that such Holder would have a deficit Capital Account in excess of such sum after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.4.A(v) and Section 6.4.A(iv) hereof were not in the Agreement.
(vi)      Limitation on Allocation of Net Loss . To the extent that any allocation of Net Loss would cause or increase an Adjusted Capital Account Deficit as to any Holder, such allocation of Net Loss shall be reallocated (x) first, among the other Holders of Partnership Common Units in accordance with their respective Percentage Interests with respect to Partnership Common Units and (y) thereafter, among the Holders of other classes of Partnership Units as determined by the General Partner, subject to the limitations of this Section 6.4.A(vi).
(vii)      Section 754 Adjustment . To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts

    
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as the result of a distribution to a Holder in complete liquidation of its interest in the Partnership, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Holders in accordance with their respective Percentage Interests in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Holder(s) to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(vii)      Noncompensatory Options . If, as a result of an exercise of a Noncompensatory Option to acquire an interest in the Partnership, a Capital Account reallocation is required under Regulations Section 1.704-1(b)(2)(iv)(s)(3), the Partnership shall make corrective allocations pursuant to Regulations Section 1.704-1(b)(4)(x).
(ix)      Curative Allocations . The allocations set forth in Sections 6.4.A(i), (ii), (iii), (iv), (v), (vi) and (vii) hereof (the “ Regulatory Allocations ”) are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of Sections 6.1 and 6.2 hereof, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Holders so that to the extent possible without violating the requirements giving rise to the Regulatory Allocations, the net amount of such allocations of other items and the Regulatory Allocations to each Holder shall be equal to the net amount that would have been allocated to each such Holder if the Regulatory Allocations had not occurred.
B.      Allocation of Excess Nonrecourse Liabilities. For purposes of determining a Holder’s proportional share of the “excess nonrecourse liabilities” of the Partnership within the meaning of Regulations Section 1.752-3(a)(3), each Holder’s respective interest in Partnership profits shall be equal to such Holder’s Percentage Interest with respect to Partnership Common Units, except as otherwise determined by the General Partner .
Section 6.5      Tax Allocations .
A.      In General. Except as otherwise provided in this Section 6.5, for income tax purposes under the Code and the Regulations, each Partnership item of income, gain, loss and deduction (collectively, “ Tax Items ”) shall be allocated among the Holders in the same manner as its correlative item of “book” income, gain, loss or deduction is allocated pursuant to Sections 6.2, 6.3 and 6.4 hereof.
B.      Section 704(c) Allocations. Notwithstanding Section 6.5.A hereof, Tax Items with respect to Property that is contributed to the Partnership with an initial Gross Asset Value that varies from its basis in the hands of the contributing Partner immediately preceding the date of contribution shall be allocated among the Holders for income tax purposes pursuant to Regulations promulgated under Code Section 704(c) so as to take into account such variation. The Partnership shall account for such variation under any method approved under Code Section 704(c) and the applicable Regulations as chosen by the General Partner. In the event that the Gross Asset Value of any Partnership asset is adjusted pursuant to subsection (b) of the definition of “Gross Asset Value” (provided in Article 1 hereof), subsequent allocations of Tax Items with respect to such asset

    
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shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in a manner consistent with Code Section 704(c) and the applicable Regulations and using the method chosen by the General Partner. Allocations pursuant to this Section 6.5.B are solely for purposes of federal, state and local income taxes and shall not affect, or in any way be taken into account in computing, any Partner’s Capital Account or share of Net Income, Net Loss, or any other items or distributions pursuant to any provision of this Agreement.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1      Management .
A.      Except as otherwise expressly provided in this Agreement, including any Partnership Unit Designation, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner, in its capacity as a Limited Partner, shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership (provided, however, that the Special Limited Partner, in its capacity as the sole member of the General Partner and not in its capacity as a limited partner of the Partnership, may have the power to direct the actions of the General Partner with respect to the Partnership). No General Partner may be removed by the Partners, with or without cause, except with the Consent of the General Partner, which it may give or withhold at its sole and absolute discretion. In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or that are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to the other provisions hereof including, without limitation, Section 3.2 and Section 7.3, and the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, shall have full and exclusive power and authority, in its sole and absolute discretion, without the consent or approval of any Limited Partner, to do or authorize all things deemed necessary or desirable by it to conduct the business and affairs of the Partnership and the General Partner, to exercise or direct the exercise of all of the powers of the Partnership under the Act and this Agreement and to effectuate the purposes of the Partnership including, without limitation:
(1)      the making of any expenditures, the lending or borrowing of money or selling of assets (including, without limitation, making prepayments on loans and borrowing money to permit the Partnership to make distributions to the Holders in such amounts as will permit the Special Limited Partner (so long as the Special Limited Partner qualifies as a REIT) (a) to prevent the imposition of any federal income tax on the Special Limited Partner (including, for this purpose, any excise tax pursuant to Code Section 4981), and (b) to make distributions to its stockholders and payments to any taxing authority sufficient to permit the Special Limited Partner to maintain REIT status or otherwise to satisfy the REIT Requirements), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of same by deed to secure debt, mortgage, deed of trust or other lien or encumbrance on the Partnership’s assets) and the incurring of any obligations that the General Partner deems necessary for the conduct of the activities of the Partnership;

    
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(2)      the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership;
(3)      the taking of any and all acts to ensure that the Partnership will not be classified as a “publicly traded partnership” under Code Section 7704;
(4)      subject to Section 11.2 hereof, the acquisition, sale, transfer, exchange or other disposition of any, all or substantially all of the assets (including the goodwill) of the Partnership (including, but not limited to, the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by the Partnership) or the merger, consolidation, reorganization or other combination of the Partnership with or into another entity;
(5)      the mortgage, pledge, encumbrance or hypothecation of any assets of the Partnership, the assignment of any assets of the Partnership in trust for creditors or on the promise of the assignee to pay the debts of the Partnership, the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms that the General Partner sees fit, including, without limitation, the financing of the operations and activities of the General Partner, the Partnership or any of the Partnership’s Subsidiaries, the lending of funds to other Persons (including, without limitation, the General Partner and/or the Partnership’s Subsidiaries) and the repayment of obligations of the Partnership, its Subsidiaries and any other Person in which the Partnership has an equity investment, and the making of capital contributions to and equity investments in the Partnership’s Subsidiaries;
(6)      the management, operation, leasing, landscaping, repair, alteration, demolition, replacement or improvement of any Property;
(7)      the negotiation, execution and performance of any contracts, including leases (including ground leases), easements, management agreements, rights of way and other property-related agreements, conveyances or other instruments that the General Partner considers useful or necessary to the conduct of the Partnership’s operations or the implementation of the General Partner’s powers under this Agreement, including contracting with contractors, developers, consultants, governmental authorities, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation, as applicable, out of the Partnership’s assets;
(8)      the distribution of Partnership cash or other Partnership assets in accordance with this Agreement, the holding, management, investment and reinvestment of cash and other assets of the Partnership, and the collection and receipt of revenues, rents and income of the Partnership;
(9)      the selection and dismissal of employees of the Partnership (if any) or the General Partner (if any) (including, without limitation, employees having titles or offices such as “president,” “vice president,” “secretary” and “treasurer”), and agents, outside attorneys, accountants, consultants and contractors of the Partnership or the General Partner and the determination of their compensation and other terms of employment or hiring;

    
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(10)      the maintenance of such insurance (including, without limitation, directors and officers insurance) for the benefit of the Partnership and the Partners (including, without limitation, the Special Limited Partner) as the General Partner deems necessary or appropriate;
(11)      the formation of, or acquisition of an interest in, and the contribution of property to, any further limited or general partnerships, limited liability companies, joint ventures or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to, any Subsidiary and any other Person in which the General Partner has an equity investment from time to time); provided , however , that, as long as the Special Limited Partner has determined to continue to qualify as a REIT, the Partnership will not engage in any such formation, acquisition or contribution that would cause the Special Limited Partner to fail to qualify as a REIT;
(12)      the control of any matters affecting the rights and obligations of the Partnership, including the settlement, compromise, submission to arbitration or any other form of dispute resolution, or abandonment, of any claim, cause of action, liability, debt or damages, due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, and the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense, and the indemnification of any Person against liabilities and contingencies to the extent permitted by law;
(13)      the undertaking of any action in connection with the Partnership’s direct or indirect investment in any Subsidiary or any other Person (including, without limitation, the contribution or loan of funds by the Partnership to such Persons);
(14)      the determination of the fair market value of any Partnership property distributed in kind using such reasonable method of valuation as the General Partner may adopt; provided , however , that such methods are otherwise consistent with the requirements of this Agreement;
(15)      the enforcement of any rights against any Partner pursuant to representations, warranties, covenants and indemnities relating to such Partner’s contribution of property or assets to the Partnership;
(16)      the exercise, directly or indirectly, through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any asset or investment held by the Partnership;
(17)      the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, or jointly with any such Subsidiary or other Person;
(18)      the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have an interest, pursuant to contractual or other arrangements with such Person;

    
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(19)      the making, execution and delivery of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases, confessions of judgment or any other legal instruments or agreements in writing necessary or appropriate in the judgment of the General Partner for the accomplishment of any of the powers of the General Partner enumerated in this Agreement;
(20)      the issuance of additional Partnership Units in connection with Capital Contributions by Additional Limited Partners and additional Capital Contributions by Partners pursuant to Article 4 hereof;
(21)      an election to dissolve the Partnership pursuant to Section 13.1.B hereof;
(22)      the distribution of cash to acquire Partnership Common Units held by a Limited Partner in connection with a Redemption under Section 15.1 hereof;
(23)      an election to require the Special Limited Partner to acquire Tendered Units in exchange for REIT Shares;
(24)      Any update to Exhibit A hereto to reflect accurately at all times the Capital Contributions and Percentage Interests of the Partners as the same are adjusted from time to time to the extent necessary to reflect redemptions, Capital Contributions, the issuance of Partnership Units, the admission of any Additional Limited Partner or any Substituted Limited Partner or otherwise, which update, notwithstanding anything in this Agreement to the contrary, shall not be deemed an amendment to this Agreement, as long as the matter or event being reflected in Exhibit A hereto otherwise is authorized by this Agreement; and
(25)      the registration of any class of securities of the Partnership under the Securities Act or the Exchange Act, and the listing of any debt securities of the Partnership on any exchange.
B.      Each of the Limited Partners agrees that, except as provided in Section 7.3 hereof and subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, the General Partner, in its sole and absolute discretion, is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Partnership, and otherwise to exercise any power of the General Partner under this Agreement and the Act, without any further act, approval or vote of the Partners or any other Persons, notwithstanding any other provision of the Act or any applicable law, rule or regulation, and, for so long as the Special Limited Partner is the sole member of the General Partner and in the absence of any specific corporate action on the part of the Special Limited Partner, or any specific limited liability company action of the General Partner, to the contrary, the taking of any such action or the execution of any such document or writing by an officer of the Special Limited Partner, in the name and on behalf of the Special Limited Partner, in the Special Limited Partner’s capacity as the sole member of the General Partner, in the General Partner’s capacity as the general partner of the Partnership, shall conclusively evidence (1) the approval thereof by the General Partner, in its capacity as the general partner of the Partnership, (2) the General Partner’s determination that such action, document or writing is necessary or desirable to conduct the business and affairs of the Partnership, exercise the powers of the Partnership under this Agreement and the Act or effectuate the purposes of the Partnership,

    
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or any other determination by the General Partner required by this Agreement in connection with the taking of such action or execution of such document or writing, (3) the authority of such officer with respect thereto, and (4) the authorization of such document or writing under this Agreement. The Partnership is hereby authorized to execute, deliver and perform, and the General Partner on behalf of the Partnership is hereby authorized to execute and deliver, an Underwriting Agreement relating to the issuance and sale of common stock of the Special Limited Partner and all documents, agreements or certificates contemplated thereby or related thereto, all without any further act, vote or approval of any other Person notwithstanding any other provision of this Agreement. The foregoing authorization shall not be deemed a restriction on the powers of the General Partner to enter into other agreements on behalf of the Partnership.
C.      At all times from and after the date hereof, the General Partner may cause the Partnership to obtain and maintain (i) casualty, liability and other insurance on the Properties and (ii) liability insurance for the Indemnitees hereunder.
D.      At all times from and after the date hereof, the General Partner may cause the Partnership to establish and maintain working capital and other reserves in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time.
E.      In exercising its authority under this Agreement, the General Partner may, but shall be under no obligation to (except as otherwise provided by this Agreement with respect to the qualification of the Special Limited Partner as a REIT), take into account the tax consequences to any Partner of any action taken (or not taken) by it. The General Partner, the Special Limited Partner and the Partnership shall not have liability to a Limited Partner under any circumstances as a result of any income tax liability incurred by such Limited Partner as a result of an action (or inaction) by the General Partner pursuant to its authority under this Agreement.
F.      The determination as to any of the following matters, made by or at the direction of the General Partner consistent with the this Agreement and the Act, shall be final and conclusive and shall be binding upon the Partnership and every Limited Partner and shall not constitute a breach of this Agreement, of any agreement contemplated herein or therein, or of any duty existing at law, in equity or otherwise, including any fiduciary duty: the amount of assets at any time available for distribution or the redemption of Partnership Common Units; the amount and timing of any distribution; 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); the amount of any Partner’s Capital Account, Adjusted Capital Account or Adjusted Capital Account Deficit; the amount of Net Income, Net Loss or Depreciation for any period; any special allocations of Net Income or Net Loss pursuant to Sections 6.2.C, 6.3, 6.4 or 6.5; the Gross Asset Value of any Partnership asset; the Value of any REIT Share; the timing and amount of any adjustment to the Adjustment Factor; the timing, number and redemption or repurchase price of the redemption or repurchase of any Partnership Units pursuant to Section 4.7.B; any interpretation of the terms, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to dividends or distributions, qualifications or terms or conditions of redemption of any class or series of Partnership Interest; the fair value, or any sale, bid or asked price to be applied in determining

    
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the fair value, of any asset owned or held by the Partnership or of any Partnership Interest; the number of authorized or outstanding Units of any class or series; any matter relating to the acquisition, holding and disposition of any assets by the Partnership; or any other matter relating to the business and affairs of the Partnership or required or permitted by applicable law, this Agreement or otherwise to be determined by the General Partner.
Section 7.2      Certificate of Limited Partnership . To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and each other state, the District of Columbia or any other jurisdiction, in which the Partnership may elect to do business or own property. Subject to the terms of Section 8.5.A hereof, the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Limited Partner. The General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Delaware and any other state, or the District of Columbia or other jurisdiction, in which the Partnership may elect to do business or own property.
Section 7.3      Restrictions on General Partner’s Authority .
A.      The General Partner may not take any action in contravention of an express prohibition or limitation of this Agreement without the Consent of the Limited Partners, and may not, without limitation:
(1)      take any action that would make it impossible to carry on the ordinary business of the Partnership, except as otherwise provided in this Agreement; or
(2)      perform any act that would subject a Limited Partner to liability as a general partner in any jurisdiction or any other liability except as provided herein or under the Act.
B.      Except as provided in Section 7.3.C hereof, the General Partner shall not, without the prior Consent of the Limited Partners, amend, modify or terminate this Agreement.
C.      Notwithstanding Section 7.3.B and 14.2 hereof but subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, the General Partner shall have the power, without the Consent of the Limited Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes:
(1)      to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners;
(2)      to reflect the admission, substitution or withdrawal of Partners, a Transfer or any other redemption, conversion or purchase of any Partnership Interest, the termination of the Partnership in accordance with this Agreement and to update Exhibit A in connection with such admission, substitution, withdrawal, Transfer, adjustment or other event;

    
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(3)      to reflect a change that is of an inconsequential nature or does not adversely affect the Limited Partners in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement;
(4)      to set forth or amend the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of the Holders of any additional Partnership Interests issued pursuant to Article 4, including as contemplated by Section 4.2.A and Section 5.5;
(5)      to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law;
(6)      (a) to reflect such changes as are reasonably necessary for the Special Limited Partner to maintain its status as a REIT or to satisfy the REIT Requirements, or (b) to reflect the Transfer of all or any part of a Partnership Interest among the Special Limited Partner and any Disregarded Entity with respect to the Special Limited Partner;
(7)      to modify either or both of the manner in which items of Net Income or Net Loss are allocated pursuant to Article 6 or the manner in which Capital Accounts are adjusted, computed, or maintained (but in each case only to the extent otherwise provided in this Agreement and as may be permitted under applicable law);
(8)      to reflect the issuance of additional Partnership Interests in accordance with Section 4.2;
(9)      to reflect any modification to this Agreement permitted by Section 4.4.A or any other provision of this Agreement that authorizes the General Partner to make amendments without the consent of any other Person; and
(10)      to reflect any other modification to this Agreement as is reasonably necessary for the business or operations of the Partnership or the Special Limited Partner and which does not violate Section 7.3.D.
D.      Notwithstanding Sections 7.3.B, 7.3.C and 14.2 hereof, this Agreement shall not be amended without the Consent of each Partner materially adversely affected thereby, if such amendment would (i) convert a Limited Partner Interest in the Partnership into a General Partner Interest (except as a result of the General Partner acquiring such Partnership Interest), (ii) adversely modify the limited liability of a Limited Partner, (iii) alter the rights of any Partner to receive the distributions to which such Partner is entitled pursuant to Article 5 or Section 13.2.A(4) hereof, or alter the allocations specified in Article 6 hereof (except, in any case, as permitted pursuant to Sections 4.2, 5.5, 7.3.C and Article 6 hereof), (iv) alter or modify the Redemption rights, Cash Amount or REIT Shares Amount as set forth in Section 15.1 hereof, or amend or modify any related definitions, (v) subject to Section 7.9.D, remove, alter or amend the powers and restrictions related to REIT Requirements or permitting the Special Limited Partner to avoid paying tax under Code Sections 857 or 4981 contained in Sections 3.2, 7.1 and 7.3, or (vi) amend this Section 7.3.D. Any such amendment or

    
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action consented to by any Partner shall be effective as to that Partner, notwithstanding the absence of such consent by any other Partner.
Section 7.4      Reimbursement of the General Partner and the Special Limited Partner .
A.      Neither the General Partner nor the Special Limited Partner shall be compensated for its services as general partner or limited partner of the Partnership except as provided in this Agreement (including the provisions of Articles 5 and 6 hereof regarding distributions, payments and allocations to which the General Partner or Special Limited Partner may be entitled in its capacity as the General Partner or the Special Limited Partner, as applicable).
B.      Subject to Sections 7.4.D and 15.12 hereof, the Partnership shall be responsible for and shall pay all expenses relating to the Partnership’s, the Special Limited Partner’s and the General Partner’s organization and the ownership of each of their assets and operations. The General Partner is hereby authorized to cause the Partnership to pay compensation for accounting, administrative, legal, technical, management and other services rendered to the Partnership. The Partnership shall be liable for, and shall reimburse the General Partner or the Special Limited Partner, as applicable, on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all sums expended in connection with the Partnership’s business, including, without limitation, (i) expenses relating to the ownership of interests in and management and operation of the Partnership, (ii) compensation of officers and employees, including, without limitation, payments under future compensation plans, of the Special Limited Partner, the General Partner, or the Partnership that may provide for stock units, or phantom stock, pursuant to which employees of the Special Limited Partner, the General Partner, or the Partnership will receive payments based upon dividends on or the value of REIT Shares, (iii) director fees and expenses of the Special Limited Partner or its Affiliates, (iv) any expenses (other than the purchase price) incurred by the Special Limited Partner in connection with the redemption or other repurchase of REIT Shares or Capital Shares, (v) all costs and expenses of the Special Limited Partner being a public company, including, without limitation, costs of filings with the SEC, reports and other distributions to its stockholders, and (vi) all costs and expenses of the Special Limited Partner in connection with its operation as a REIT; provided , however , that the amount of any reimbursement shall be reduced by any interest earned by the General Partner or the Special Limited Partner with respect to bank accounts or other instruments or accounts held by it on behalf of the Partnership as permitted pursuant to Section 7.5 hereof. The Partners acknowledge that all such expenses of the General Partner and the Special Limited Partner are deemed to be for the benefit of the Partnership. Such reimbursements shall be in addition to any reimbursement of the General Partner and the Special Limited Partner as a result of indemnification pursuant to Section 7.7 hereof.
C.      If the Special Limited Partner shall elect to purchase from its stockholders REIT Shares or Capital Shares for the purpose of delivering such REIT Shares or Capital Shares to satisfy an obligation under any dividend reinvestment program adopted by the Special Limited Partner, any employee stock purchase plan adopted by the Special Limited Partner or any similar obligation or arrangement undertaken by the Special Limited Partner in the future, in lieu of the treatment specified in Section 4.7.B., the purchase price paid by the Special Limited Partner for such REIT Shares or Capital Shares shall be considered expenses of the Partnership and shall be advanced to the Special Limited

    
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Partner or reimbursed to the Special Limited Partner, subject to the condition that: (1) if such REIT Shares subsequently are sold by the Special Limited Partner, the Special Limited Partner shall pay or cause to be paid to the Partnership any proceeds received by the Special Limited Partner for such REIT Shares (which sales proceeds shall include the amount of dividends reinvested under any dividend reinvestment or similar program; provided, that a transfer of REIT Shares for Partnership Common Units pursuant to Section 15.1 would not be considered a sale for such purposes); and (2) if such REIT Shares are not retransferred by the Special Limited Partner within 30 days after the purchase thereof, or the Special Limited Partner otherwise determines not to retransfer such REIT Shares, the Partnership shall redeem from the Special Limited Partner a number of Partnership Common Units determined in accordance with Section 4.7.B, as adjusted, to the extent the General Partner determines is necessary or advisable in its sole and absolute discretion, (x) pursuant to Section 7.5 (in the event the Special Limited Partner acquires material assets, other than on behalf of the Partnership) and (y) for stock dividends and distributions, stock splits and subdivisions, reverse stock splits and combinations, distributions of rights, warrants or options, and distributions of evidences of indebtedness or assets relating to assets not received by the Special Limited Partner pursuant to a pro rata distribution by the Partnership (in which case such advancement or reimbursement of expenses shall be treated as having been made as a distribution in redemption of such number of Partnership Units held by the Special Limited Partner).
D.      To the extent practicable, Partnership expenses shall be billed directly to and paid by the Partnership and, subject to Section 15.12 hereof, if and to the extent any reimbursements to the General Partner, the Special Limited Partner or any of its Affiliates by the Partnership pursuant to this Section 7.4 constitute gross income to such Person (as opposed to the repayment of advances made by such Person on behalf of the Partnership), such amounts shall be treated as “guaranteed payments” within the meaning of Code Section 707(c) and shall not be treated as distributions for purposes of computing the Partners’ Capital Accounts.
Section 7.5      Outside Activities of the General Partner and the Special Limited Partner .
A.      Neither the General Partner nor the Special Limited Partner shall directly or indirectly enter into or conduct any business, other than in connection with, (a) the ownership, acquisition and disposition of Partnership Interests, (b)  with respect to the General Partner, the management of the business and affairs of the Partnership, (c) with respect to the Special Limited Partner, the operation of the Special Limited Partner as a reporting company with a class (or classes) of securities registered under the Exchange Act, (d) with respect to the Special Limited Partner, its operations as a REIT, (e) with respect to the Special Limited Partner, the offering, sale, syndication, private placement or public offering of stock, bonds, securities or other interests, (f) financing or refinancing of any type related to the Partnership or its assets or activities, and (g) such activities as are incidental thereto; provided , however , that, except as otherwise provided herein, any funds raised by the Special Limited Partner pursuant to the preceding clauses (e) and (f) shall be made available to the Partnership, whether as Capital Contributions, loans or otherwise, as appropriate, and, provided , further that each of the General Partner and the Special Limited Partner may, in its sole and absolute discretion, from time to time hold or acquire Properties in its own name or otherwise other than through the Partnership so long as the General Partner or the Special Limited Partner, as applicable, takes commercially reasonable measures to ensure that the economic benefits and burdens of such Property

    
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are otherwise vested in the Partnership, through assignment, mortgage loan or otherwise or, if it is not commercially reasonable to vest such economic interests in the Partnership, the Partners shall negotiate in good faith to amend this Agreement, including, without limitation, the definition of “Adjustment Factor,” to reflect such activities and the direct ownership of assets by the General Partner or the Special Limited Partner, as applicable. Nothing contained herein shall be deemed to prohibit the General Partner from executing guarantees of Partnership Debt. Notwithstanding the foregoing, the General Partner or the Special Limited Partner may acquire Properties in exchange for REIT Shares, other shares of capital stock or New Securities, or cash, in each case solely to the extent such Properties (or interests therein) are contributed by the General Partner or the Special Limited Partner, as applicable, to the Partnership, pursuant to the terms described in Section 4.3, except no such contribution shall be required to the extent the Properties acquired by the General Partner or the Special Limited Partner, as applicable, are direct or indirect interests in Partnership Interests. Any Limited Partner Interests directly or indirectly acquired by the General Partner, whether pursuant to exercise by a Limited Partner of its right of Redemption, or otherwise, shall be automatically converted into a General Partner Interest comprised of an identical number of Partnership Units with the same rights, priorities and preferences as the class or series so acquired. If, at any time, the General Partner or the Special Limited Partner acquires material assets (other than on behalf of the Partnership), to the extent reasonably determined by the General Partner to be necessary, the definition of “Adjustment Factor” shall be adjusted, as reasonably agreed to by the General Partner and the other Limited Partners, to reflect such acquisition of material assets by the General Partner or the Special Limited Partner, as applicable. The General Partner’s General Partner Interest in the Partnership, the Special Limited Partner’s Limited Partner Interest in the Partnership, a minority interest in any Subsidiary of the Partnership that the General Partner or the Special Limited Partner holds in order to maintain such Subsidiary’s status as a partnership for federal income tax purposes or otherwise, Properties which meet the requirements of this Section 7.5.A (and prior to their contribution to the Partnership pursuant to Section 4.3), interests in such short-term liquid investments, bank accounts or similar instruments as the General Partner deems necessary to carry out the General Partner’s and the Special Limited Partner’s responsibilities contemplated under this Agreement and the Charter, and interests in Disregarded Entities with respect to the General Partner or the Special Limited Partner which hold any of the foregoing, are interests which the General Partner and the Special Limited Partner are permitted to acquire and hold for purposes of this Section 7.5.A.
B.      In the event the Special Limited Partner exercises its rights under the Charter to purchase REIT Shares or Preferred Shares, then the General Partner shall cause the Partnership to redeem from the Special Limited Partner a number of Partnership Units of the appropriate class as determined based on, in the case of REIT Shares the REIT Shares Amount equal to the number of REIT Shares so purchased, or in the case of Preferred Shares an equal number of Partnership Preferred Units of the class or series which correspond to the class or series, as the case may be, of the Preferred Shares so purchased, in each case on the same terms that the Special Limited Partner purchased such REIT Shares or Preferred Shares (as applicable). For the avoidance of doubt, nothing contained herein shall restrict or prohibit the General Partner from causing the Partnership to redeem a Partnership Interest held by the Special Limited Partner for cash.
Section 7.6      Transactions with Affiliates .

    
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A.      The Partnership may lend or contribute funds to, and borrow funds from, Persons in which the Partnership has an equity investment, and such Persons may borrow funds from, and lend or contribute funds to, the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Person.
B.      Except as provided in Section 7.5 hereof, the Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts, statutory trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law.
C.      The General Partner, the Special Limited Partner and their respective Affiliates may sell, transfer or convey any Property to, or purchase any Property from, the Partnership, directly or indirectly, on terms and conditions established by the General Partner in its sole and absolute discretion.
D.      The General Partner or the Special Limited Partner, in their respective sole and absolute discretion and without the approval of the Partners or any of them or any other Persons, may propose and adopt (on behalf of the Partnership) employee benefit plans funded by the Partnership for the benefit of employees of the General Partner, the Special Limited Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the General Partner, the Special Limited Partner, the Partnership or any of the Partnership’s Subsidiaries.
Section 7.7      Indemnification .
A.      To the fullest extent permitted by applicable law, the Partnership shall indemnify each Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, reasonable attorney’s fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, whether by or in the right of the Partnership or otherwise (subject to (y) below) that relate to the operations of the Partnership (“ Actions ”) as set forth in this Agreement in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise; provided , however , that the Partnership shall not indemnify an Indemnitee (i) if the act or omission of the Indemnitee was material to the matter giving rise to the Action and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) in the case of any criminal proceeding, if the Indemnitee had reasonable cause to believe that the act or omission was unlawful; or (iii) for any loss resulting from any transaction for which such Indemnitee actually received an improper personal benefit in money, property or services or otherwiese in violation or breach of any provision of this Agreement; and provided , further , that no payments pursuant to this Agreement shall be made by the Partnership (x) to indemnify or advance expenses to any Indemnitee with respect to any Action initiated or brought voluntarily by such Indemnitee (and not by way of defense) unless (I) approved or authorized by the General Partner or (II) incurred to establish or enforce such Indemnitee’s right to indemnification under this Agreement, (y) to advance expenses in connection with one or more Actions or claims brought by or in the right of the Partnership or (z) to indemnify an Indemnitee in connection with one or more Actions involving such Indemnitee if such Indemnitee is found liable to the Partnership with respect

    
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to such claim or Action. If Indemnitee is entitled to indemnification hereunder with respect to one or more but less than all claims, issues or matters in any Action, the Partnership shall provide indemnification hereunder in connection with each such claim, issue or matter, allocated on a reasonable and proportionate basis.
Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of the Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, in its sole and absolute discretion on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnitee having or potentially having liability for any such indebtedness. It is the intention of this Section 7.7.A that the Partnership indemnify each Indemnitee to the fullest extent permitted by law and this Agreement. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.7.A. The termination of any proceeding by conviction of an Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an entry of an order of probation against an Indemnitee prior to judgment, does not create a presumption that such Indemnitee acted in a manner contrary to that specified in this Section 7.7.A with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Partnership, and neither the General Partner nor any other Holder shall have any obligation to pay or otherwise satisfy such indemnification obligation or to contribute to the capital of the Partnership or otherwise provide funds to enable the Partnership to fund its obligations under this Section 7.7.
B.      To the fullest extent permitted by law, expenses incurred by an Indemnitee who is a party to a proceeding or otherwise subject to or the focus of or is involved in any Action shall be paid or reimbursed by the Partnership as incurred by the Indemnitee in advance of the final disposition of the Action upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in Section 7.7.A has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.
C.      The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee unless otherwise provided in a written agreement with such Indemnitee or in the writing pursuant to which such Indemnitee is indemnified.
D.      The Partnership may, but shall not be obligated to, purchase and maintain insurance, on behalf of any of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection

    
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with the Partnership’s activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.
E.      Any liabilities which an Indemnitee incurs as a result of acting on behalf of the Partnership, the General Partner or the Special Limited Partner (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the IRS, penalties assessed by the U.S. Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise) shall be treated as liabilities or judgments or fines under this Section 7.7, unless such liabilities arise as a result of (i) an act or omission of such Indemnitee that was material to the matter giving rise to the Action and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) in the case of any criminal proceeding, an act or omission that such Indemnitee had reasonable cause to believe was unlawful, or (iii) any transaction in which such Indemnitee actually received an improper personal benefit in violation or breach of any provision of this Agreement.
F.      In no event may an Indemnitee subject any of the Holders to personal liability by reason of the indemnification provisions set forth in this Agreement.
G.      An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
H.      The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Partnership’s liability to any Indemnitee under this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
I.      Any obligation or liability whatsoever of the General Partner which may arise at any time under this Agreement or any other instrument, transaction, or undertaking contemplated hereby shall be satisfied, if at all, out of the assets of the General Partner or the Partnership only. No such obligation or liability shall be personally binding upon, nor shall resort for the enforcement thereof be had to, any of the General Partner’s directors, stockholders, officers, employees, or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise.
J.      It is the intent of the parties that any amounts paid by the Partnership to the General Partner or the Special Limited Partner pursuant to this Section 7.7 shall be treated as “guaranteed payments” within the meaning of Code Section 707(c) and shall not be treated as distributions for purposes of computing the Partners’ Capital Accounts.

    
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Section 7.8      Liability of the General Partner and the Special Limited Partner .
A.      To the fullest extent permitted by law: (i) The General Partner (and the Special Limited Partner, as the sole member of the General Partner) is acting for the benefit of not only the Partnership and the Partners, but also the Special Limited Partner’s stockholders collectively; (ii) in the event of a conflict between the interests of the Partnership or any Partner, on the one hand, and the separate interests of the Special Limited Partner or its stockholders, on the other hand, the General Partner and the Special Limited Partner, as the sole member of the General Partner, are under no obligation not to give priority to the separate interests of the Special Limited Partner or the stockholders of the Special Limited Partner and may give priority to the separate interests of the Special Limited Partner and its stockholders (including, without limitation, with respect to tax consequences to Limited Partners, Assignees or the Special Limited Partner’s stockholders) in a manner that is adverse to the Partnership and its Partners, and any action or failure to act on the part of the Special Limited Partner or its directors that gives priority to the separate interests of the Special Limited Partner or its stockholders does not violate the duty of loyalty otherwise owed by the General Partner or the Special Limited Partner, as the sole member of the General Partner, to the Partnership and/or the Partners or any other Person bound by this Agreement; and (iii) neither the General Partner nor the Special Limited Partner shall be liable to the Partnership or to any Partner or any other Person bound by this Agreement for monetary damages for losses sustained, liabilities incurred or benefits not derived by the Partnership or any Partner in connection with such decisions, except for liability for the General Partner’s or the Special Limited Partner’s intentional harm or gross negligence. In furtherance and not in limitation of the foregoing, to the fullest extent permitted by law and notwithstanding any other provision of this Agreement or any other agreement contemplated herein or applicable provisions of law or equity or otherwise, whenever a conflict arises between the interests of stockholders of the Special Limited Partner, on one hand, and any other Limited Partner, on the other hand, the General Partner will endeavor in good faith to resolve the conflict in a manner not adverse to either the stockholders of the Special Limited Partner or any other Limited Partner; provided, however, that for so long as the Special Limited Partner owns a controlling interest in the Partnership, any conflict that cannot be resolved in a manner not adverse to either the stockholders of the Special Limited Partner or any other Limited Partner shall be resolved in favor of the stockholders of the Special Limited Partner, and any action taken by the General Partner in connection with any such conflict of interests shall not constitute a breach of this Agreement or any duty in law, at equity or otherwise.
B.      Subject to its obligations and duties as General Partner set forth in this Agreement and applicable law, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its employees or agents (subject to the supervision and control of the General Partner). The General Partner shall not be liable to the Partnership or any Partner for any misconduct or negligence on the part of any such employee or agent appointed by it in good faith.
C.      Any obligation or liability whatsoever of the General Partner or the Partnership which may arise at any time under this Agreement or any other instrument, transaction, or undertaking contemplated hereby shall be satisfied, if at all, out of the assets of the General Partner or the Partnership only. To the fullest extent permitted by law, no such obligation or liability shall be personally binding upon,

    
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nor shall resort for the enforcement thereof be had to, any of the General Partner’s members, managers or agents, or the directors, officers, stockholders, employees or agents of the General Partner’s members or managers, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise. Notwithstanding anything to the contrary set forth in this Agreement, none of the members, managers or agents of the General Partner, and none of the directors, officers, stockholders, employees or agents of the General Partner’s members or managers, shall be liable or accountable in damages or otherwise to the Partnership, any Partners, or any other Person bound by this Agreement for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission, except for liability for such Person’s intentional harm or gross negligence.
D.      Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability of the General Partner or the members, managers or agents of the General Partner, the Special Limited Partner, or of the directors, officers, stockholders, employees or agents of the Special Limited Partner, or the Indemnitiees, to the Partnership, the Partners or any other Person bound by this Agreement under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
E.      Notwithstanding anything herein to the contrary, except for liability for intentional harm or gross negligence on the part of such Partner or pursuant to any express indemnities given to the Partnership by any Partner pursuant to any other written instrument to the fullest extent permitted by law, no Partner shall have any personal liability whatsoever, to the Partnership or to the other Partners or to any other Person bound by this Agreement, including any damages arising out of the breach of any such Partner’s fiduciary duties as such duties may have been modified by this Agreement. Without limitation of the foregoing, no property or assets of such Partner, other than its interest in the Partnership, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) in favor of any other Partner(s) or any other Person bound by this Agreement and arising out of, or in connection with, this Agreement. This Agreement is executed by the officers of the Special Limited Partner, in the name and on behalf of the Special Limited Partner, in its capacity as managing member of the General Partner, solely as officers of the Special Limited Partner, and not in their own individual capacities.
F.      To the extent that, at law or in equity, the General Partner or the Special Limited Partner, as the managing member of the General Partner or in its capacity as a Limited Partner, has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or the Limited Partners, neither the General Partner nor the Special Limited Partner, as the managing member of the General Partner or in its capacity as a Limited Partner, shall be liable to the Partnership or to any other Partner for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict or eliminate the duties and liabilities of the General Partner, the Special Limited Partner or any other Person under the Act or otherwise existing at law or in equity, are agreed by the Partners to replace such other duties and liabilities of the General Partner and the Special Limited Partner.

    
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G.      To the fullest extent permitted by law and notwithstanding any other provision of this Agreement or any other agreement contemplated herein or applicable provisions of law or equity or otherwise, whenever in this Agreement any Person is permitted or required to make a decision (i) in its “sole and absolute discretion,” “sole discretion”, “discretion”, “at its election” or under a grant of similar authority or latitude, such Person shall be entitled to consider only such interests and factors as it desires, including its own interests, shall have no duty or obligation to give any consideration to any interest or factors affecting the Partnership, the Partners, or any other Person bound by this Agreement, and shall be entitled to act in a manner adverse to the interests of the Partnership, the Partners or any other Person bound by this Agreement, or (ii) in its “good faith” or under another expressed standard, such Person shall act under such express standard and shall not be subject to any other or different standards imposed by this Agreement or any other agreement contemplated herein or by relevant provisions of law or in equity or otherwise. If any question should arise with respect to the operation of the Partnership, which is not otherwise specifically provided for in this Agreement or the Act, or with respect to the interpretation of this Agreement, the General Partner is hereby authorized to make a final determination with respect to any such question and to interpret this Agreement in such a manner as it shall deem, in its sole discretion, to be fair and equitable, and its determination and interpretations so made shall be final and binding on all parties and shall not constitute a breach of this Agreement, of any agreement contemplated herein or therein, or of any duty existing at law, in equity or otherwise, including any fiduciary duty.
H.      To the fullest extent permitted by applicable law, no Indemnitee shall be liable to the Partnership, any Partner or any other Person bound by this Agreement for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnitee in good faith on behalf of the Partnership and in a manner reasonably believed to be within the scope of the authority conferred on such Indemnitee by this Agreement, except that an Indemnitee shall be liable for any such loss, damage or claim incurred by reason of such Indemnitee’s intentional harm or gross negligence.
Section 7.9      Other Matters Concerning the General Partner and the Special Limited Partner .
A.      The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties.
B.      The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers, architects, engineers, environmental consultants and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters that the General Partner reasonably believes to be within such Person’s professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.
C.      The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any duly authorized agents or a duly appointed attorney or attorneys-in-fact (including, without limitation, the Special Limited Partner). Each such agent or attorney shall, to the extent

    
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authorized by the General Partner, have full power and authority to do and perform all and every act and duty that is permitted or required to be done by the General Partner hereunder.
D.      Notwithstanding any other provision of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the Special Limited Partner to continue to qualify as a REIT, (ii) for the Special Limited Partner otherwise to satisfy the REIT Requirements, (iii) for the Special Limited Partner to avoid incurring any taxes under Code Section 857 or Code Section 4981, or (iv) for any Special Limited Partner Affiliate to continue to qualify as a “qualified REIT subsidiary” (within the meaning of Code Section 856(i)(2)) or “taxable REIT subsidiary” (within the meaning of Code Section 856(l)), is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners and shall not constitute a breach of this Agreement, of any agreement contemplated herein or therein, or of any duty existing at law, in equity or otherwise, including any fiduciary duty.
E.      To the extent the Special Limited Partner, or its officers or directors, take any action in the name or on behalf of the General Partner, in the General Partner’s capacity as the sole general partner of the Partnership, the Special Limited Partner and its officers and directors shall be entitled to the same protection as the General Partner and its members, managers and agents.
Section 7.10      Title to Partnership Assets . Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively with other Partners or Persons, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner, or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner or the Special Limited Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner, or any nominee or Affiliate of the General Partner or the Special Limited Partner shall be held by the General Partner or such nominee or Affiliate for the use and benefit of the Partnership in accordance with the provisions of this Agreement. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held.
Section 7.11      Reliance by Third Parties . Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority, without the consent or approval of any other Partner or Person, to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and take any and all actions on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if it were the Partnership’s sole party in interest, both legally and beneficially. To the fullest extent permitted by law, each Limited Partner hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with

    
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or to inquire into the necessity or expediency of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1      Limitation of Liability . No Limited Partner, including the Special Limited Partner, acting in its capacity as such, shall have any liability under this Agreement except for intentional harm or gross negligence on the part of such Limited Partner or as expressly provided in this Agreement (including, without limitation, Section 10.4 hereof) or under the Act.
Section 8.2      Management of Business . No Limited Partner or Assignee (other than the General Partner, any of its Affiliates or any member, manager, employee, partner or agent of the General Partner or the Partnership, in their capacity as such, including the Special Limited Partner, in its capacity as the sole member of the General Partner) shall take part in the operations, management or control (within the meaning of the Act) of the Partnership’s business, transact any business in the Partnership’s name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, or any member, manager or agent of the General Partner, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement.
Section 8.3      Outside Activities of Limited Partners . To the fullest extent permitted by law and notwithstanding any other provision of this Agreement or any other agreement contemplated herein or applicable provisions of law or equity or otherwise , subject to any agreements entered into pursuant to Section 7.6 hereof and any other agreements entered into by a Limited Partner or any of its Affiliates with the General Partner, the Partnership or a Subsidiary (including, without limitation, any employment agreement), any Limited Partner (including, subject to Section 7.5 hereof, the Special Limited Partner) and any Assignee, officer, director, employee, agent, trustee, Affiliate, member or stockholder of any Limited Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities that are in direct or indirect competition with the Partnership or that are enhanced by the activities of the Partnership. To the fullest extent permitted by law and notwithstanding any other provision of this Agreement or any other agreement contemplated herein or applicable provisions of law or equity or otherwise , neither the Partnership nor any Partner shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. Subject to such agreements, none of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any business ventures of any other Person (other than the General Partner or the Special Limited Partner,

    
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to the extent expressly provided herein), and such Person shall have no obligation pursuant to this Agreement, subject to Section 7.6 hereof and any other agreements entered into by a Limited Partner or its Affiliates with the General Partner, the Partnership or a Subsidiary, to offer any interest in any such business ventures to the Partnership, any Limited Partner, or any such other Person, even if such opportunity is of a character that, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person. Notwithstanding any other provision of this Agreement, or any other agreement contemplated herein or applicable provisions of law or equity or otherwise, to the fullest extent permitted by law , including without limitation Section 7.1.A and Section 7.5, one or more Affiliates of the Special Limited Partner may own membership interests or similar equity interests in one or more Subsidiaries, provided that the aggregate amount of such interests owned by the Affiliates of the Special Limited Partner in any one Subsidiary shall not exceed 5% of such Subsidiary’s outstanding membership or similar equity interests.
Section 8.4      Return of Capital . Except pursuant to the rights of Redemption set forth in Section 15.1 hereof or in any Partnership Unit Designation, no Limited Partner shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein. Except to the extent provided in Article 5 and Article 6 hereof or otherwise expressly provided in this Agreement or in any Partnership Unit Designation, no Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions.
Section 8.5      Rights of Limited Partners Relating to the Partnership .
A.      Except as limited by Section 8.5.C hereof, the General Partner shall deliver to each Limited Partner a copy of any information mailed or electronically delivered to all of the common stockholders of the Special Limited Partner as soon as practicable after such mailing.
B.      The Partnership shall notify any Limited Partner that is a Qualifying Party, on request, of the then current Adjustment Factor and any change made to the Adjustment Factor shall be set forth in the quarterly report required by Section 9.3.B hereof immediately following the date such change becomes effective.
C.      Notwithstanding any other provision of this Section 8.5, the General Partner may keep confidential from the Limited Partners (or any of them), for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that (i) the General Partner believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or the General Partner or (ii) the Partnership or the General Partner is required by law or by agreement to keep confidential.
D.      Upon written request by any Limited Partner, the General Partner shall cause the ownership of Partnership Units by such Limited Partner to be evidenced by a certificate for units in such form as the General Partner may determine with respect to any class of Partnership Units issued from time to time under this Agreement. Any officer of the General Partner may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Partnership alleged to have been lost, destroyed, stolen or mutilated, upon the making of an affidavit

    
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of that fact by the person claiming the certificate to be lost, destroyed, stolen or mutilated. Unless otherwise determined by an officer of the General Partner, 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 Partnership a bond in such sums as the General Partner may direct as indemnity against any claim that may be made against the Partnership.
Section 8.6      Partnership Right to Call Limited Partner Interests .
Notwithstanding any other provision of this Agreement, on and after the date on which the aggregate Percentage Interests of the Limited Partners (other than the Special Limited Partner) are less than one percent (1%), the Partnership shall have the right, but not the obligation, from time to time and at any time to redeem any and all outstanding Limited Partner Interests (other than the Special Limited Partner’s Limited Partner Interests) by treating any Limited Partner as a Tendering Party who has delivered a Notice of Redemption pursuant to Section 15.1 hereof for the amount of Partnership Common Units to be specified by the General Partner, in its sole and absolute discretion, by notice to such Limited Partner that the Partnership has elected to exercise its rights under this Section 8.6. Such notice given by the General Partner to a Limited Partner pursuant to this Section 8.6 shall be treated as if it were a Notice of Redemption delivered to the General Partner by such Limited Partner. For purposes of this Section 8.6, (a) any Limited Partner (whether or not otherwise a Qualifying Party) may, in the General Partner’s sole and absolute discretion, be treated as a Qualifying Party that is a Tendering Party and (b) the provisions of Sections 15.1.F(2) and 15.1.F(3) hereof shall not apply, but the remainder of Section 15.1 hereof shall apply, mutatis mutandis.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1      Records and Accounting .
A.      The General Partner shall keep or cause to be kept at the principal place of business of the Partnership those records and documents, if any, required to be maintained by the Act and any other books and records deemed by the General Partner to be appropriate with respect to the Partnership’s business, including, without limitation, all books and records necessary to provide to the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 8.5.A, Section 9.3 or Article 13 hereof. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on any information storage device, provided that the records so maintained are convertible into clearly legible written form within a reasonable period of time.
B.      The books of the Partnership shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles, or on such other basis as the General Partner determines to be necessary or appropriate. To the extent permitted by sound accounting practices and principles, the Partnership and the General Partner may operate with integrated or consolidated accounting records, operations and principles.

    
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Section 9.2      Partnership Year . For purposes of this Agreement, “Partnership Year” means the fiscal year of the Partnership, which shall be the same as the tax year of the Partnership. The tax year shall be the calendar year unless otherwise required by the Code.
Section 9.3      Reports .
A.      As soon as practicable, but in no event later than one hundred five (105) days after the close of each Partnership Year, the General Partner shall cause to be mailed to each Limited Partner of record as of the close of the Partnership Year, financial statements of the Partnership, or of the Special Limited Partner if such statements are prepared solely on a consolidated basis with the Special Limited Partner, for such Partnership Year, presented in accordance with generally accepted accounting principles, such statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner.
B.      As soon as practicable, but in no event later than sixty (60) days after the close of each calendar quarter (except the last calendar quarter of each year), the General Partner shall cause to be mailed to each Limited Partner of record as of the last day of the calendar quarter, a report containing unaudited financial statements of the Partnership for such calendar quarter, or of the Special Limited Partner if such statements are prepared solely on a consolidated basis with the Special Limited Partner, and such other information as may be required by applicable law or regulation or as the General Partner determines to be appropriate.
C.      The General Partner shall have satisfied its obligations under Section 9.3.A and Section 9.3.B by posting or making available the reports required by this Section 9.3 on the website maintained from time to time by the Partnership or the Special Limited Partner, provided that such reports are able to be printed or downloaded from such website.
D.      At the request of any Limited Partner, for any purpose reasonably related to such Limited Partner’s interest in the Partnership, the General Partner shall, subject to Section 17-305(b) of the Act, provide access to the books, records and workpapers upon which the reports required by this Section 9.3 are based, to the extent required by the Act.
ARTICLE 10
TAX MATTERS
Section 10.1      Preparation of Tax Returns . The General Partner shall arrange for the preparation and timely filing of all returns with respect to Partnership income, gains, deductions, losses and other items required of the Partnership for federal and state income tax purposes and shall use all reasonable efforts to furnish, (i) within ninety (90) days of the close of each taxable year or as soon as reasonably practicable thereafter, a Schedule K-1 form to each Limited Partner, and (ii) within ninety (90) days of the close of each taxable year or as soon as reasonably practicable thereafter, other tax information reasonably required by Limited Partners for federal and state income tax and any other tax reporting purposes. The Limited Partners shall promptly provide the General Partner with such information relating to the Contributed Properties as is readily available to the Limited Partners, including tax basis and other relevant information, as may be reasonably requested by the General Partner from time to time.

    
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Section 10.2      Tax Elections . Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code, including, but not limited to, the election under Code Section 754. The General Partner shall have the right to seek to revoke any such election (including, without limitation, any election under Code Section 754) upon the General Partner’s determination in its sole and absolute discretion that such revocation is in the best interests of the Partners.
Section 10.3      Tax Matters Partner .
A.      The General Partner shall be the “tax matters partner” of the Partnership for federal income tax purposes. The tax matters partner shall receive no compensation for its services. All third-party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Partnership in addition to any reimbursement pursuant to Section 7.4 hereof. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm to assist the tax matters partner in discharging its duties hereunder.
B.      The tax matters partner is authorized, but not required:
(1)      to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceedings being referred to as a “tax audit” and such judicial proceedings being referred to as “judicial review”), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners, except that such settlement agreement shall not bind any Partner (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Partner (as the case may be) or (ii) who is a “notice partner” (as defined in Code Section 6231) or a member of a “notice group” (as defined in Code Section 6223(b)(2));
(2)      in the event that a notice of a final administrative adjustment at the Partnership level of any item required to be taken into account by a Partner for tax purposes (a “ Final Adjustment ”) is mailed to the tax matters partner, to seek judicial review of such Final Adjustment, including the filing of a petition for readjustment with the United States Tax Court or the United States Claims Court, or the filing of a complaint for refund with the District Court of the United States for the district in which the Partnership’s principal place of business is located;
(3)      to intervene in any action brought by any other Partner for judicial review of a final adjustment;
(4)      to file a request for an administrative adjustment with the IRS at any time and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request;

    
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(5)      to enter into an agreement with the IRS to extend the period for assessing any tax that is attributable to any item required to be taken into account by a Partner for tax purposes, or an item affected by such item; and
(6)      to take any other action on behalf of the Partners or any of them in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the tax matters partner and the provisions relating to indemnification of the General Partner set forth in Section 7.7 hereof shall be fully applicable to the tax matters partner in its capacity as such.
Section 10.4      Withholding . Each Limited Partner hereby authorizes the Partnership to withhold from or pay on behalf of or with respect to such Limited Partner any amount of federal, state, local or foreign taxes that the General Partner determines, in its sole and absolute discretion, the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Limited Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partnership pursuant to Code Section 1441, Code Section 1442, Code Section 1445 or Code Section 1446. Any amount withheld with respect to a Limited Partner pursuant to this Section 10.4 shall be treated as paid or distributed, as applicable, to such Limited Partner for all purposes under this Agreement. Any amount paid on behalf of or with respect to a Limited Partner, in excess of any such withheld amount, shall constitute a loan by the Partnership to such Limited Partner, which loan shall be repaid by such Limited Partner within thirty (30) days after the affected Limited Partner receives written notice from the General Partner that such payment must be made, provided that the Limited Partner shall not be required to repay such deemed loan if either (i) the Partnership withholds such payment from a distribution that would otherwise be made to the Limited Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the funds of the Partnership that would, but for such payment, be distributed to the Limited Partner. Any amounts payable by a Limited Partner hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal (but not higher than the maximum lawful rate) from the date such amount is due (i.e., thirty (30) days after the Limited Partner receives written notice of such amount) until such amount is paid in full.
Section 10.5      Organizational Expenses . The General Partner may cause the Partnership to elect to deduct expenses, if any, incurred by it in organizing the Partnership ratably over a 180-month period as provided in Section 709 of the Code.
Section 10.6      Treatment of Partnership as Disregarded Entity .     Notwithstanding anything to the contrary in this Agreement, if the Partnership is treated as a Disregarded Entity with respect to the Special Limited Partner during any period, then the other provisions of this Agreement shall be applied (or not applied) in a manner consistent with such treatment with respect to such period, as determined by the General Partner in its sole and absolute discretion. In the event of any conflict between this Section 10.6 and any other provision of this Agreement, this Section 10.6 shall control.

    
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Section 10.7     Section 83 Safe Harbor . Each Partner authorizes the General Partner to elect to apply the safe harbor (the “ Section 83 Safe Harbor ”) set forth in proposed Regulations Section 1.83-3(l) and proposed IRS Revenue Procedure published in Notice 2005-43 (together, the “ Proposed Section 83 Safe Harbor Regulation ”) (under which the fair market value of a Partnership Interest that is Transferred in connection with the performance of services is treated as being equal to the liquidation value of the interest) if such Proposed Section 83 Safe Harbor Regulation or similar Regulations are promulgated as a final or temporary Regulations. If the General Partner determines that the Partnership should make such election, the General Partner is hereby authorized to amend this Agreement without the consent of any other Partner to provide that (i) the Partnership is authorized and directed to elect the Section 83 Safe Harbor, (ii) the Partnership and each of its Partners (including any Person to whom a Partnership Interest is Transferred in connection with the performance of services) will comply with all requirements of the Section 83 Safe Harbor with respect to all Partnership Interests Transferred in connection with the performance of services while such election remains in effect and (iii) the Partnership and each of its Partners will take all actions necessary, including providing the Partnership with any required information, to permit the Partnership to comply with the requirements set forth or referred to in the applicable Regulations for such election to be effective until such time (if any) as the General Partner determines, in its sole discretion, that the Partnership should terminate such election. The General Partner is further authorized to amend this Agreement to modify Article 6 to the extent the General Partner determines in its discretion that such modification is necessary or desirable as a result of the issuance of any applicable law, Regulations, notice or ruling relating to the tax treatment of the transfer of a Partnership Interests in connection with the performance of services. Notwithstanding anything to the contrary in this Agreement, each Partner expressly confirms that it will be legally bound by any such amendment.
ARTICLE 11
PARTNER TRANSFERS AND WITHDRAWALS
Section 11.1      Transfer .
A.      To the fullest extent permitted by law, no part of the interest of a Partner shall be subject to the claims of any creditor, to any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement.
B.      No Partnership Interest shall be Transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 11. To the fullest extent permitted by law, any Transfer or purported Transfer of a Partnership Interest not made in accordance with this Article 11 shall be null and void ab initio .
C.      No Transfer of any Partnership Interest may be made to a lender to the Partnership or any Person who is related (within the meaning of Section 1.752-4(b) of the Regulations) to any lender to the Partnership whose loan constitutes a Nonrecourse Liability, without the Consent of the General Partner; provided , however , that, as a condition to such Consent, the lender may be required to enter into an arrangement with the Partnership and the General Partner to redeem or exchange for the REIT Shares Amount any Partnership Units in which a security interest is held by such lender

    
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simultaneously with the time at which such lender would be deemed to be a partner in the Partnership for purposes of allocating liabilities to such lender under Section 752 of the Code (provided that, for purpose of calculating the REIT Shares Amount in this Section 11.1.C, “ Tendered Units ” shall mean all such Partnership Units in which a security interest is held by such lender).
Section 11.2      Transfer of General Partner’s Partnership Interest .
A.      Subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation and subject to Section 11.2.B, the General Partner may not Transfer all or any portion of its Partnership Interest (whether by sale, disposition, statutory merger or consolidation, liquidation or otherwise) without the Consent of the Limited Partners (but may do so with the Consent of the Limited Partners). It is a condition to any Transfer of a Partnership Interest of a General Partner otherwise permitted hereunder that: (i) coincident with such Transfer, the transferee is admitted as a General Partner pursuant to Section 12.1 hereof; (ii) the transferee assumes, by operation of law or express agreement, all of the obligations of the transferor General Partner under this Agreement with respect to such Transferred Partnership Interest; and (iii) the transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Partnership Interest so acquired and the admission of such transferee as a General Partner.
B.      Certain Transactions of the General Partner . Subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, the General Partner may, without the Consent of the Limited Partners, Transfer all of its Partnership Interest in connection with (a) a merger, consolidation or other combination of its, the Special Limited Partner’s or the Partnership’s assets with another entity, (b) a sale of all or substantially all of its, the Special Limited Partner’s or the Partnership’s assets not in the ordinary course of the Partnership’s business or (c) a reclassification, recapitalization or change of any outstanding shares of the General Partner’s or the Special Limited Partner’s stock or other outstanding equity interests (each, a “ Termination Transaction ”) if:
(1)      in connection with such Termination Transaction, all of the Limited Partners will receive, or will have the right to elect to receive, for each Partnership Common Unit an amount of cash, securities or other property equal to the product of the Adjustment Factor and the greatest amount of cash, securities or other property paid to a holder of one REIT Share in consideration of one REIT Share pursuant to the terms of such Termination Transaction; provided, that if, in connection with such Termination Transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of the outstanding REIT Shares, each holder of Partnership Common Units shall receive, or shall have the right to elect to receive, the greatest amount of cash, securities or other property which such holder of Partnership Common Units would have received had it exercised its right to Redemption pursuant to Article 15 hereof and received REIT Shares in exchange for its Partnership Common Units immediately prior to the expiration of such purchase, tender or exchange offer and had thereupon accepted such purchase, tender or exchange offer and then such Termination Transaction shall have been consummated; or
(2)      all of the following conditions are met: (w) substantially all of the assets directly or indirectly owned by the surviving entity are owned directly or indirectly by the Partnership or another limited partnership or limited liability company which is the survivor of a merger, consolidation or

    
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combination of assets with the Partnership (in each case, the “ Surviving Partnership ”); (x) the Limited Partners that held Partnership Common Units immediately prior to the consummation of such Termination Transaction own a percentage interest of the Surviving Partnership based on the relative fair market value of the net assets of the Partnership and the other net assets of the Surviving Partnership immediately prior to the consummation of such transaction; (y) the rights, preferences and privileges in the Surviving Partnership of such Limited Partners are substantially similar to those in effect with respect to the Partnership Common Units immediately prior to the consummation of such transaction and as those applicable to any other limited partners or non-managing members of the Surviving Partnership; and (z) the rights of such Limited Partners include at least one of the following: (a) the right to redeem their interests in the Surviving Partnership for the consideration available to such persons pursuant to Section 11.2.B(1) or (b) the right to redeem their interests in the Surviving Partnership for cash on terms substantially equivalent to those in effect with respect to their Partnership Common Units immediately prior to the consummation of such transaction, or, if the ultimate controlling person of the Surviving Partnership has publicly traded common equity securities, such common equity securities, with an exchange ratio based on the determination of relative fair market value of such securities and the REIT Shares.
C.      Notwithstanding the other provisions of this Article 11 (other than Section 11.6.D hereof), the General Partner may Transfer all of its Partnership Interests at any time to any Person that is, at the time of such Transfer an Affiliate of the General Partner, including any “qualified REIT subsidiary” (within the meaning of Code Section 856(i)(2)), without the Consent of any Limited Partners. The provisions of Section 11.2.B, 11.3, 11.4.A and 11.5 hereof shall not apply to any Transfer permitted by this Section 11.2.C.
D.      Except in connection with Transfers permitted in this Article 11 and as otherwise provided in Section 12.1 in connection with the Transfer of the General Partner’s entire Partnership Interest, the General Partner may not voluntarily withdraw as a general partner of the Partnership without the Consent of the Limited Partners.
Section 11.3      Limited Partners’ Rights to Transfer .
A.      General . Prior to the end of the first Twelve-Month Period and except as provided in Section 11.1.C hereof, no Limited Partner shall Transfer all or any portion of its Partnership Interest to any transferee without the Consent of the General Partner, which may be given or withheld in its sole and absolute discretion; provided , however , that any Limited Partner may, at any time, without the consent or approval of the General Partner, Transfer all of its Partnership Interest to any Family Member (including a Transfer by a Family Member that is an inter vivos or testamentary trust (whether revocable or irrevocable) to a Family Member that is a beneficiary of such trust), any Charity, any Controlled Entity or any Affiliate (any Transfer permitted by this proviso is hereinafter referred to as a “ Permitted Transfer ”). After such first Twelve-Month Period, each Limited Partner, and each transferee of Partnership Units or Assignee pursuant to a Permitted Transfer, shall have the right to Transfer all its Partnership Interest to any Person, without the Consent of the General Partner but subject to the provisions of Section 11.4 hereof and to satisfaction of each of the following conditions:

    
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(1)      Special Limited Partner Right of First Refusal . The transferor Limited Partner (or the Partner’s estate in the event of the Partner’s death) shall give written notice of the proposed Transfer to the General Partner and the Special Limited Partner, which notice shall state (i) the identity and address of the proposed transferee and (ii) the amount and type of consideration proposed to be received for the Transferred Partnership Units. The Special Limited Partner shall have ten (10) Business Days upon which to give the transferor Limited Partner notice of its election to acquire the Partnership Units on the terms set forth in such notice. If it so elects, it shall purchase the Partnership Units on such terms within ten (10) Business Days after giving notice of such election; provided , however , that in the event that the proposed terms involve a purchase for cash, the Special Limited Partner may at its election deliver in lieu of all or any portion of such cash a note from the Special Limited Partner payable to the transferor Limited Partner at a date as soon as reasonably practicable, but in no event later than one hundred eighty (180) days after such purchase, and bearing interest at an annual rate equal to the total dividends declared with respect to one (1) REIT Share for the four (4) preceding fiscal quarters of the Special Limited Partner, divided by the Value as of the closing of such purchase; and provided , further , that such closing may be deferred to the extent necessary to effect compliance with the Hart-Scott-Rodino Act, if applicable, and any other applicable requirements of law. If it does not so elect, the transferor Limited Partner may Transfer such Partnership Units to a third party, on terms no more favorable to the transferee than the proposed terms, subject to the other conditions of this Section 11.3.
(2)      Qualified Transferee . Any Transfer of a Partnership Interest shall be made only to a single Qualified Transferee; provided , however , that, for such purposes, all Qualified Transferees that are Affiliates, or that comprise investment accounts or funds managed by a single Qualified Transferee and its Affiliates, shall be considered together to be a single Qualified Transferee; and provided , further , that each Transfer meeting the minimum Transfer restriction of Section 11.3.A(4) hereof may be to a separate Qualified Transferee.
(3)      Opinion of Counsel . The transferor Limited Partner shall deliver or cause to be delivered to the General Partner an opinion of counsel reasonably satisfactory to it to the effect that the proposed Transfer may be effected without registration under the Securities Act and will not otherwise violate the registration provisions of the Securities Act and the regulations promulgated thereunder or violate any state securities laws or regulations applicable to the Partnership or the Partnership Interests Transferred; provided , however , that the General Partner may, in its sole and absolute discretion, waive this condition upon the request of the transferor Limited Partner. If, in the opinion of such counsel, such Transfer would require the filing of a registration statement under the Securities Act or would otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Units, the General Partner may prohibit any Transfer otherwise permitted under this Section 11.3 by a Limited Partner of Partnership Interests.
(4)      Transfer Restriction . Any Transferring Partner may not Transfer less than all of the Partnership Units owned by such Transferring Partner to a single transferee without the Consent of the General Partner, which may be given or withheld in its sole and absolute discretion; provided , however , that, for purposes of determining compliance with the foregoing restriction, all Partnership Units owned by Affiliates of a Limited Partner shall be considered to be owned by such Limited Partner. Without the Consent of the General Partner, no Transferring Partner shall take any action

    
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that would cause (a) the Partnership at any time to have more than 100 partners, including as partners those persons (“ Flow-Through Partners ”) indirectly owning an interest in the Partnership through an entity treated as a partnership, Disregarded Entity, S corporation or grantor trust (each such entity, a “ Flow-Through Entity ”), but only if substantially all of the value of such person’s interest in the Flow-Through Entity is attributable to the Flow-Through Entity’s interest (direct or indirect) in the Partnership; or (b) the Partnership Interest initially issued to such Partner or its predecessors to be held by more than one partner, including as partners any Flow-Through Partners.
(5)      Exception for Permitted Transfers . The conditions of Sections 11.3.A(1) through 11.3.A(3) hereof shall not apply in the case of a Permitted Transfer.
It is a condition to any Transfer otherwise permitted hereunder (whether or not such Transfer is effected during or after the first Twelve-Month Period) that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such Transferred Partnership Interest, and no such Transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Partner are assumed by a successor corporation by operation of law) shall relieve the transferor Partner of its obligations under this Agreement without the Consent of the General Partner. Notwithstanding the foregoing, any transferee of any Transferred Partnership Interest shall be subject to any restrictions on ownership and transfer of stock of the Special Limited Partner contained in the Charter that may limit or restrict such transferee’s ability to exercise its Redemption rights, including, without limitation, the Ownership Limit. Any transferee, whether or not admitted as a Substituted Limited Partner, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Limited Partner, no transferee, whether by a voluntary Transfer, by operation of law or otherwise, shall have any rights hereunder, other than the rights of an Assignee as provided in Section 11.5 hereof.
B.      Certain Transactions of the Special Limited Partner . Notwithstanding anything to the contrary in this Agreement, the Special Limited Partner may Transfer its interest in the Partnership in connection with a Termination Transaction with the Consent of the Limited Partners or without the Consent of the Limited Partners if:
(1)      In connection with such Termination Transaction, all of the Limited Partners (other than the Special Limited Partner) will receive, or will have the right to elect to receive, for each Partnership Common Unit an amount of cash, securities or other property equal to the product of the Adjustment Factor and the greatest amount of cash, securities or other property paid to a holder of one REIT Share in consideration of one REIT Share pursuant to the terms of such Terminating Transaction; provided , that if, in connection with such Termination Transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of the outstanding REIT Shares, each holder of Partnership Common Units (other than the Special Limited Partner) shall receive, or shall have the right to elect to receive, the greatest amount of cash, securities or other property which such holder of Partnership Common Units would have received had it exercised its right to Redemption pursuant to Article 15 hereof and received REIT Shares in exchange for its Partnership Common Units immediately prior to the expiration of such purchase, tender or exchange offer and

    
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had thereupon accepted such purchase, tender or exchange offer and then such Termination Transaction shall have been consummated; or
(2)      the following conditions are met: (w) substantially all of the assets directly or indirectly owned by the surviving entity are owned directly or indirectly by the Surviving Partnership; (x) the Limited Partners that held Partnership Common Units immediately prior to the consummation of such Termination Transaction own a percentage interest of the Surviving Partnership based on the relative fair market value of the net assets of the Partnership and the other net assets of the Surviving Partnership immediately prior to the consummation of such transaction; (y) the rights, preferences and privileges of such Limited Partners in the Surviving Partnership are substantially similar to those in effect with respect to Partnership Common Units immediately prior to the consummation of such transaction and as those applicable to any other limited partners or non-managing members of the Surviving Partnership; and (z) the rights of such Limited Partners include at least one of the following: (a) the right to redeem their Partnership Units for the consideration available to such persons pursuant to Section 11.3.B(1) or cash on terms equivalent to those in effect with respect to their Partnership Common Units immediately prior to the consummation of such transaction, or, if the ultimate controlling person of the Surviving Partnership has publicly traded common equity securities, such common equity securities, with an exchange ratio based on the determination of relative fair market value of such securities and the REIT Shares.
C.      Incapacity . If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Limited Partner’s estate shall have all the rights of a Limited Partner, but not more rights than those enjoyed by other Limited Partners, for the purpose of settling or managing the estate, and such power as the Incapacitated Limited Partner possessed to Transfer all or any part of its interest in the Partnership. The Incapacity of a Limited Partner, in and of itself, shall not dissolve or terminate the Partnership.
D.      Adverse Tax Consequences . Notwithstanding anything to the contrary in this Agreement, the General Partner shall have the authority (but shall not be required) to take any steps it determines are necessary or appropriate in its sole and absolute discretion to prevent the Partnership from being taxable as a corporation for federal income tax purposes. In furtherance of the foregoing, except with the Consent of the General Partner, no Transfer by a Limited Partner of its Partnership Interests (including any Redemption, any other acquisition of Partnership Units by the Special Limited Partner or the General Partner or any acquisition of Partnership Units by the Partnership) may be made to or by any Person if such Transfer could (i) result in the Partnership being treated as an association taxable as a corporation; (ii) result in a termination of the Partnership under Code Section 708; (iii) be treated as effectuated through an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Code Section 7704 and the Regulations promulgated thereunder, (iv) result in the Partnership being unable to qualify for one or more of the “safe harbors” set forth in Regulations Section 1.7704-1 (or such other guidance subsequently published by the IRS setting forth safe harbors under which interests will not be treated as “readily tradable on a secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code) (the “ Safe Harbors ”) or (v) in the General Partner’s judgment in its sole and absolute discretion, adversely affect the ability of the Special Limited Partner to continue to qualify as a

    
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REIT or subject the Special Limited Partner to any additional taxes under Code Section 857 or Code Section 4981.
Section 11.4      Admission of Substituted Limited Partners .
A.      No Limited Partner shall have the right to substitute a transferee (including any transferees pursuant to Transfers permitted by Section 11.3 hereof) as a Limited Partner in its place. A transferee of a Limited Partner Interest may be admitted as a Substituted Limited Partner only with the Consent of the General Partner, which may be given or withheld in its sole and absolute discretion. The failure or refusal by the General Partner to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action against the Partnership or the General Partner. Subject to the foregoing, an Assignee shall not be admitted as a Substituted Limited Partner until and unless it furnishes to the General Partner (i) evidence of acceptance, in form and substance satisfactory to the General Partner, of all the terms, conditions and applicable obligations of this Agreement, (ii) a counterpart signature page to this Agreement executed by such Assignee and (iii) such other documents and instruments as may be required or advisable, in the sole and absolute discretion of the General Partner, to effect such Assignee’s admission as a Substituted Limited Partner.
B.      Concurrently with, and as evidence of, the admission of a Substituted Limited Partner, the General Partner shall update Exhibit A and the books and records of the Partnership to reflect the name, address and number and class and/or series of Partnership Units of such Substituted Limited Partner and to eliminate or adjust, if necessary, the name, address and number of Partnership Units of the predecessor of such Substituted Limited Partner.
C.      A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article 11 shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement.
Section 11.5      Assignees . If the General Partner does not Consent to the admission of any permitted transferee under Section 11.3 hereof as a Substituted Limited Partner, as described in Section 11.4 hereof, or in the event that any Partnership Interest is deemed to have been Transferred notwithstanding the restrictions set forth in this Article 11, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a limited partnership interest under the Act, including the right to receive distributions from the Partnership and the share of Net Income, Net Losses and other items of income, gain, loss, deduction and credit of the Partnership attributable to the Partnership Interest assigned to such transferee and the rights to Transfer the Partnership Interest provided in this Article 11, but shall not be deemed to be a holder of a Partnership Interest for any other purpose under this Agreement (other than as expressly provided in Section 15.1 hereof with respect to a Qualifying Party that becomes a Tendering Party), and shall not be entitled to effect a Consent or vote with respect to such Partnership Interest on any matter presented to the Partners for approval (such right to Consent or vote, to the extent provided in this Agreement or under the Act, fully remaining with the transferor Limited Partner). In the event that any such transferee desires to make a further Transfer of any such Partnership Interest, such transferee shall be subject to all the provisions of this Article 11 to the

    
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same extent and in the same manner as any Limited Partner desiring to make a Transfer of a Limited Partner Interest.
Section 11.6      General Provisions .
A.      No Limited Partner may withdraw from the Partnership other than as a result of: (i) a permitted Transfer of all of such Limited Partner’s Partnership Units in accordance with this Article 11 with respect to which the transferee becomes a Substituted Limited Partner; (ii) pursuant to a redemption (or acquisition by the Special Limited Partner) of all of its Partnership Units pursuant to a Redemption under Section 15.1 hereof and/or pursuant to any Partnership Unit Designation or (iii) the acquisition by the General Partner or the Special Limited Partner of all of such Limited Partner’s Partnership Interest, whether or not pursuant to Section 15.1.B hereof.
B.      Any Limited Partner who shall Transfer all of its Partnership Units in a Transfer (i) permitted pursuant to this Article 11 where such transferee was admitted as a Substituted Limited Partner, (ii) pursuant to the exercise of its rights to effect a redemption of all of its Partnership Units pursuant to a Redemption under Section 15.1 hereof and/or pursuant to any Partnership Unit Designation or (iii) to the General Partner or the Special Limited Partner, whether or not pursuant to Section 15.1.B hereof, shall cease to be a Limited Partner.
C.      If any Partnership Unit is Transferred in compliance with the provisions of this Article 11, or is redeemed by the Partnership, or acquired by the Special Limited Partner pursuant to Section 15.1 hereof, on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit attributable to such Partnership Unit for such Partnership Year shall be allocated to the transferor Partner or the Tendering Party (as the case may be) and, in the case of a Transfer other than a Redemption, to the transferee Partner, by taking into account their varying interests during the Partnership Year in accordance with Code Section 706(d), using the “interim closing of the books” method or another permissible method selected by the General Partner in its sole and absolute discretion. Solely for purposes of making such allocations, unless the General Partner decides in its sole and absolute discretion to use another method permitted under the Code, each of such items for the calendar month in which a Transfer occurs shall be allocated to the transferee Partner and none of such items for the calendar month in which a Transfer or a Redemption occurs shall be allocated to the transferor Partner, or the Tendering Party (as the case may be) if such Transfer occurs on or before the fifteenth (15th) day of the month, otherwise such items shall be allocated to the transferor. All distributions of funds attributable to such Partnership Unit with respect to which the Partnership Record Date is before the date of such Transfer, assignment or Redemption shall be made to the transferor Partner or the Tendering Party (as the case may be) and, in the case of a Transfer other than a Redemption, all distributions of funds thereafter attributable to such Partnership Unit shall be made to the transferee Partner.
D.      In addition to any other restrictions on Transfer herein contained, in no event may any Transfer of a Partnership Interest by any Partner (including any Redemption, any acquisition of Partnership Units by the Special Limited Partner or any other acquisition of Partnership Units by the Partnership) be made: (i) to any person or entity who lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of applicable law; (iii) except with the Consent of the General Partner,

    
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which may be given or withheld in its sole and absolute discretion, of any component portion of a Partnership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Partnership Interest; (iv) in the event that such Transfer could cause either the Special Limited Partner or any Special Limited Partner Affiliate to cease to comply with the REIT Requirements or to cease to qualify as a “qualified REIT subsidiary” (within the meaning of Code Section 856(i)(2)); (v) except with the Consent of the General Partner, which may be given or withheld in its sole and absolute discretion, if such Transfer could, based on the advice of counsel to the Partnership or the General Partner, cause a termination of the Partnership for federal or state income tax purposes (except as a result of the Redemption (or acquisition by the Special Limited Partner) of all Partnership Common Units held by all Limited Partners (other than the Special Limited Partner)); (vi) if such Transfer could, based on the advice of legal counsel to the Partnership or the General Partner, cause the Partnership to cease to be classified as a partnership for federal income tax purposes (except as a result of the Redemption (or acquisition by the Special Limited Partner) of all Partnership Common Units held by all Limited Partners (other than the Special Limited Partner)); (vii) if such Transfer would cause the Partnership to become, with respect to any employee benefit plan subject to Title I of ERISA, a “party-in-interest” (as defined in ERISA Section 3(14)) or a “disqualified person” (as defined in Code Section 4975(c)); (viii) if such Transfer could, based on the advice of legal counsel to the Partnership or the General Partner, cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.3-101; (ix) if such Transfer requires the registration of such Partnership Interest pursuant to any applicable federal or state securities laws; (x) except with the Consent of the General Partner, which may be given or withheld in its sole and absolute discretion, if such Transfer could (1) be treated as effectuated through an “established securities market” or a “secondary market” (or the substantial equivalent thereof) within the meaning of Section 7704 of the Code and the Regulations promulgated thereunder, (2) cause the Partnership to become a “publicly traded partnership,” as such term is defined in Sections 469(k)(2) or 7704(b) of the Code, (3) could be in violation of Section 11.3.A(4), or (4) could cause the Partnership to fail one or more of the Safe Harbors; (xi) if such Transfer causes the Partnership (as opposed to the Special Limited Partner) to become a reporting company under the Exchange Act; or (xii) if such Transfer subjects the Partnership to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended. The General Partner shall, in its sole and absolute discretion, be permitted to take all action necessary to prevent the Partnership from being classified as a “publicly traded partnership” under Code Section 7704.
E.      Transfers pursuant to this Article 11 may only be made on the first day of a fiscal quarter of the Partnership, unless the General Partner, in its sole and absolute discretion, otherwise Consents.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1      Admission of Successor General Partner . A successor to all of the General Partner’s General Partner Interest pursuant to a Transfer permitted by Section 11.2 hereof who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective immediately upon such Transfer. Upon any such Transfer and the admission of any such transferee as a successor General Partner in accordance with this Section 12.1, the transferor

    
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General Partner shall be relieved of its obligations under this Agreement and shall cease to be a general partner of the Partnership without any separate Consent of the Limited Partners or the consent or approval of any other Partners. Any such successor General Partner shall carry on the business and affairs of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission of such Person as a General Partner. Upon any such Transfer, the transferee shall become the successor General Partner for all purposes herein, and shall be vested with the powers and rights of the transferor General Partner, and shall be liable for all obligations and responsible for all duties of the General Partner. Concurrently with, and as evidence of, the admission of a successor General Partner, the General Partner shall update Exhibit A and the books and records of the Partnership to reflect the name, address and number and classes and/or series of Partnership Units of such successor General Partner.
Section 12.2      Admission of Additional Limited Partners .
A.      A Person (other than an existing Partner) who makes a Capital Contribution to the Partnership in exchange for Partnership Units and in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance, in form and substance satisfactory to the General Partner, of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to this Agreement executed by such Person and (iii) such other documents or instruments as may be required in the sole and absolute discretion of the General Partner in order to effect such Person’s admission as an Additional Limited Partner. Concurrently with, and as evidence of, the admission of an Additional Limited Partner, the General Partner shall update Exhibit A and the books and records of the Partnership to reflect the name, address and number and classes and/or series of Partnership Units of such Additional Limited Partner.
B.      Notwithstanding anything to the contrary in this Section 12.2, no Person shall be admitted as an Additional Limited Partner without the Consent of the General Partner, which may be given or withheld in its sole and absolute discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on Exhibit A and the books and records of the Partnership, following the Consent of the General Partner to such admission and the satisfaction of all the conditions set forth in Section 12.2.A.
C.      If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit allocable among Holders for such Partnership Year shall be allocated among such Additional Limited Partner and all other Holders by taking into account their varying interests during the Partnership Year in accordance with Code Section 706(d), using the “interim closing of the books” method or another permissible method selected by the General Partner, in its sole and absolute discretion. Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all the Holders including such Additional Limited Partner, in accordance with the principles

    
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described in Section 11.6.C hereof. All distributions of funds with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner, and all distributions of funds thereafter shall be made to all the Partners and Assignees including such Additional Limited Partner.
D.      Any Additional Limited Partner admitted to the Partnership that is an Affiliate of the Special Limited Partner shall be deemed to be a “Special Limited Partner Affiliate” hereunder and shall be reflected as such on Exhibit A and the books and records of the Partnership.
Section 12.3      Amendment of Agreement and Certificate of Limited Partnership . For the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to update the records of the Partnership and, if necessary, to prepare as soon as practical an amendment of this Agreement (and to update Exhibit A ) and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 2.4 hereof.
Section 12.4      Limit on Number of Partners . Unless otherwise permitted by the General Partner in its sole and absolute discretion, no Person shall be admitted to the Partnership as an Additional Limited Partner if the effect of such admission would be to cause the Partnership to have a number of Partners that would cause the Partnership to become a reporting company under the Exchange Act.
Section 12.5      Admission . A Person shall be admitted to the Partnership as a limited partner of the Partnership or a general partner of the Partnership only upon strict compliance, and not upon substantial compliance, with the requirements set forth in this Agreement for admission to the Partnership as a Limited Partner or a General Partner.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1      Dissolution . The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner shall continue the business and affairs of the Partnership without dissolution. However, the Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following (each a “ Liquidating Event ”):
A.      an event of withdrawal, as defined in Section 17-402 of the Act (including, without limitation, bankruptcy), or the withdrawal in violation of this Agreement, of the last remaining General Partner unless, within ninety (90) days after the withdrawal, a Majority in Interest of the Partners remaining agree in writing, in their sole and absolute discretion, to continue the business of the Partnership and to the appointment, effective as of the date of such withdrawal, of a successor General Partner;
B.      an election to dissolve the Partnership made by the General Partner in its sole and absolute discretion, with or without the Consent of the Limited Partners;

    
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C.      entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act;
D.      any sale or other disposition of (other than the attachment of a lien or security interest in) all or substantially all of the assets of the Partnership outside the ordinary course of the Partnership’s business or a related series of transactions that, taken together, result in the sale or other disposition of (other than the attachment of a lien or security interest in) all or substantially all of the assets of the Partnership outside the ordinary course of the Partnership’s business; and
E.      at any time that there are no limited partners of the Partnership unless the business of the Partnership is continued in accordance with the Act.
Section 13.2      Winding Up .
A.      Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets and satisfying the claims of its creditors and the Holders. After the occurrence of a Liquidating Event, no Holder shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnership’s business and affairs. The General Partner (or, in the event that there is no remaining General Partner or the General Partner has dissolved, become bankrupt within the meaning of the Act or ceased to operate, any Person elected by a Majority in Interest of the Partners (the General Partner or such other Person being referred to herein as the “ Liquidator ”)) shall be responsible for overseeing the winding up and termination of the Partnership and shall take full account of the Partnership’s liabilities and property, and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, include shares of stock in the Special Limited Partner) shall be applied and distributed in the following order:
(1)      First, to the satisfaction of all of the Partnership’s debts and liabilities to creditors other than the Holders (whether by payment or the making of reasonable provision for payment thereof);
(2)      Second, to the satisfaction of all of the Partnership’s debts and liabilities to the General Partner and the Special Limited Partner (whether by payment or the making of reasonable provision for payment thereof), including, but not limited to, amounts due as reimbursements under Section 7.4 hereof;
(3)      Third, to the satisfaction of all of the Partnership’s debts and liabilities to the other Holders (whether by payment or the making of reasonable provision for payment thereof); and
(4)      Fourth, to the Partners in accordance with their positive Capital Account balances, determined after taking into account all Capital Account adjustments for all prior periods and the Partnership taxable year during which the liquidation occurs (other than those made as a result of the liquidating distribution set forth in this Section 13.2.A(4)).
The General Partner shall not receive any additional compensation for any services performed pursuant to this Article 13 other than reimbursement of its expenses as set forth in Section 7.4.

    
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B.      Notwithstanding the provisions of Section 13.2.A hereof that require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to the termination of the Partnership, the Liquidator determines that an immediate sale of part or all of the Partnership’s assets would be impractical or would cause undue loss to the Holders, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Holders as creditors) and/or distribute to the Holders, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.2.A hereof, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Holders, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt.
C.      If any Holder has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), except as otherwise agreed to by such Holder, such Holder shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit shall not be considered a debt owed to the Partnership or to any other Person for any purpose whatsoever.
D.      In the sole and absolute discretion of the Liquidator, a pro rata portion of the distributions that would otherwise be applied and distributed in the order of priority set forth in Section 13.2A may be:
(1)      distributed to a trust established for the Partnership for the purpose of liquidating Partnership assets, collecting amounts owed to the Partnership, and paying any contingent, conditional or unmatured liabilities or obligations of the Partnership or of the General Partner arising out of or in connection with the Partnership and/or Partnership activities. The assets of any such trust shall be applied and distributed, from time to time, in the sole and absolute discretion of the Liquidator, in the same proportions and amounts as would otherwise have been applied and distributed as set forth in Section 13.2A; or
(2)      withheld or escrowed to provide a reasonable reserve for Partnership liabilities (contingent, conditional or unmatured) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided that such withheld or escrowed amounts shall be applied and distributed in the manner and order of priority set forth in Section 13.2.A hereof as soon as practicable.
Section 13.3      Deemed Contribution and Distribution . Notwithstanding any other provision of this Article 13, in the event that the Partnership is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership’s Property shall not be liquidated, the Partnership’s liabilities shall not be paid or discharged and the Partnership’s affairs shall not be wound up. Instead, for federal income tax purposes the Partnership shall be deemed to have contributed all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership; and immediately thereafter, distributed Partnership Units to the Partners in the new partnership in accordance with their respective Capital Accounts in liquidation of the Partnership, and the new partnership is deemed to continue the business of the Partnership.

    
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Nothing in this Section 13.3 shall be deemed to have constituted a Transfer to an Assignee as a Substituted Limited Partner without compliance with the provisions of Section 11.4 or Section 13.3 hereof.
Section 13.4      Rights of Holders . Except as otherwise provided in this Agreement and subject to the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, (a) each Holder shall look solely to the assets of the Partnership for the return of its Capital Contribution, (b) no Holder shall have the right or power to demand or receive property other than cash from the Partnership and (c) no Holder shall have priority over any other Holder as to the return of its Capital Contributions, distributions or allocations.
Section 13.5      Notice of Dissolution . In the event that a Liquidating Event occurs, the General Partner shall, within thirty (30) days thereafter, provide written notice thereof to each Holder and, in the General Partner’s sole and absolute discretion or as required by the Act, to all other parties with whom the Partnership regularly conducts business (as determined in the sole and absolute discretion of the General Partner), and the General Partner may publish notice thereof in a newspaper of general circulation in each place in which the Partnership regularly conducts business (as determined in the sole and absolute discretion of the General Partner).
Section 13.6      Cancellation of Certificate of Limited Partnership . Upon the completion of the winding up of the Partnership the Certificate shall be canceled in the manner required by the Act.
Section 13.7      Reasonable Time for Winding-Up . A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.2 hereof, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect between and among the Partners during the period of winding up; provided, however, reasonable efforts shall be made to complete such winding-up within twenty-four (24) months after the adoption of a plan of liquidation of the General Partner, as provided in Section 562(b)(1)(B) of the Code, if necessary, in the sole and absolute discretion of the General Partner.
ARTICLE 14
PROCEDURES FOR ACTIONS AND CONSENTS
OF PARTNERS; AMENDMENTS; MEETINGS
Section 14.1      Procedures for Actions and Consents of Partners . The actions requiring Consent of any Partner or Partners pursuant to this Agreement, including Section 7.3 hereof, or otherwise pursuant to applicable law, are subject to the procedures set forth in this Article 14.
Section 14.2      Amendments . Amendments to this Agreement may be proposed by the General Partner or by Limited Partners holding twenty-five percent (25%) or more of the Partnership Interests held by Limited Partners and, except as set forth in Section 7.3.D and Section 7.3.C, and subject to Section 7.3.D and the rights of any Holder of any Partnership Interest set forth in a Partnership Unit Designation, shall be approved by the Consent of the Partners. Following such proposal, the General Partner shall submit to the Partners entitled to vote thereon any proposed amendment that, pursuant to the terms of this Agreement, requires the consent, approval or vote of such Partners. The General

    
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Partner shall seek the consent, approval or vote of the Partners entitled to vote thereon on any such proposed amendment in accordance with Section 14.3 hereof. Upon obtaining any such required Consent, or any other Consent required by this Agreement, and without any further action or execution by any other Person, including any Limited Partner, (i) any amendment may be implemented and reflected in writing executed solely by the General Partner and (ii) the Limited Partners shall be deemed a party to and bound by such amendment to this Agreement.
Section 14.3      Actions and Consents of the Partners .
A.      Meetings of the Partners may be called only by the General Partner to transact any business that the General Partner determines. The call shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Partners entitled to act at the meeting not less than seven (7) days nor more than sixty (60) days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Unless approval by a different number or proportion of the Partners is required by this Agreement, the Consent of the General Partner and the Consent of the Limited Partners shall be required to approve such proposal at a meeting of the Partners. Whenever the Consent of Partners is permitted or required under this Agreement, such Consent may be given at a meeting of Partners or in accordance with the procedure prescribed in Section 14.3.B hereof.
B.      Any action requiring the Consent of any Partner or group of Partners pursuant to this Agreement or that is required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a Consent in writing or by electronic transmission (as defined in Section 17-405(d) of the Act) setting forth the action so taken or consented to is given by Partners whose Consent would be sufficient to approve such action at a meeting of the Partners. Such Consent may be in one instrument or in several instruments, and shall have the same force and effect as the affirmative vote of such Partners at a meeting of the Partners. Such Consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. For purposes of obtaining a Consent in writing or by electronic transmission, the General Partner may require a response within a reasonable specified time, but not less than fifteen (15) days, and failure to respond in such time period shall constitute a Consent that is consistent with the General Partner’s recommendation with respect to the proposal; provided , however , that an action shall become effective at such time as requisite Consents are received even if prior to such specified time.
C.      Each Partner entitled to act at a meeting of the Partners may authorize any Person or Persons to act for it by proxy on all matters in which a Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Each proxy must be signed by the Partner or its attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy (or there is receipt of a proxy authorizing a later date). Every proxy shall be revocable at the pleasure of the Partner executing it, such revocation to be effective upon the Partnership’s receipt of written notice of such revocation from the Partner executing such proxy, unless such proxy states that it is irrevocable and is coupled with an interest.
D.      The General Partner may set, in advance, a record date for the purpose of determining the Partners (i) entitled to Consent to any action, (ii) entitled to receive notice of any meeting of the Partners or (iii) in order to make a determination of Partners for any other proper purpose. Such date, in any

    
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case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than ninety (90) days and, in the case of a meeting of the Partners, not less than five (5) days, before the date on which the meeting is to be held. If no record date is fixed, the record date for the determination of Partners entitled to notice of a meeting of the Partners shall be at the close of business on the day on which the notice of the meeting is sent, and the record date for any other determination of Partners shall be the effective date of such Partner action, distribution or other event. When a determination of the Partners entitled to Consent at any meeting of the Partners has been made as provided in this section, such determination shall apply to any adjournment thereof.
E.      Each meeting of Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate in its sole and absolute discretion. Without limitation, meetings of Partners may be conducted in the same manner as meetings of the Special Limited Partner’s stockholders and may be held at the same time as, and as part of, the meetings of the Special Limited Partner’s stockholders.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1      Redemption Rights of Qualifying Parties .
A.      After the applicable Twelve-Month Period, a Qualifying Party shall have the right (subject to the terms and conditions set forth herein) to require the Partnership to redeem all or a portion of the Partnership Common Units held by such Tendering Party (Partnership Common Units that have in fact been tendered for redemption being hereafter referred to as “ Tendered Units”) in exchange (a “ Redemption ”) for the Cash Amount payable on the Specified Redemption Date; provided , however , that a Qualifying Party may not effect a Redemption pursuant to this Section 15.1 (i) more than twice in any Partnership Year or (ii) during the period commencing the forth (4th) Monday of November of each Partnership Year and ending the fifteenth (15th) Business Day following January 1 of the succeeding Partnership Year, without, in each case, the Consent of the General Partner, which may be given or withheld in its sole and absolute discretion. The Partnership may, in the General Partner’s sole and absolute discretion, redeem Tendered Units at the request of the Holder thereof prior to the end of the applicable Twelve-Month Period (subject to the terms and conditions set forth herein) (a “ Special Redemption ”); provided , however , that the General Partner first receives a legal opinion to the same effect as the legal opinion described in Section 15.1.G(4) of this Agreement. Any Redemption shall be exercised pursuant to a Notice of Redemption delivered to the General Partner and the Special Limited Partner by the Qualifying Party when exercising the Redemption right (the “ Tendering Party ”). The Partnership’s obligation to effect a Redemption, however, shall not arise or be binding against the Partnership until the earlier of (i) the date the General Partner notifies the Tendering Party that the General Partner has declined to elect to require the Special Limited Partner to acquire some or all of the Tendered Units under Section 15.1.B hereof following receipt of a Notice of Redemption and (ii) the Business Day following the Cut-Off Date. In the event of a Redemption, the Cash Amount shall be delivered as a certified or bank check payable to the Tendering Party or, in the General Partner’s sole and absolute discretion, in immediately available funds, in each case, on or before the tenth (10th) Business Day following

    
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the date on which the Partnership’s obligation to effect a Redemption arises and becomes binding pursuant to this Section 15.1.A.
B.      Notwithstanding the provisions of Section 15.1.A hereof, on or before the close of business on the Cut-Off Date, the General Partner may, in the General Partner’s sole and absolute discretion but subject to the Ownership Limit, elect to require the Special Limited Partner to acquire some or all (such percentage being referred to as the “ Applicable Percentage ”) of the Tendered Units from the Tendering Party in exchange for REIT Shares. If the General Partner elects to require the Special Limited Partner to acquire some or all of the Tendered Units pursuant to this Section 15.1.B, the General Partner shall give written notice thereof to the Tendering Party on or before the close of business on the Cut-Off Date. If the General Partner elects to require the Special Limited Partner to acquire any of the Tendered Units for REIT Shares, the Special Limited Partner shall issue and deliver such REIT Shares to the Tendering Party pursuant to the terms of this Section 15.1.B, in which case (1) the Special Limited Partner shall assume directly the obligation with respect thereto and shall satisfy the Tendering Party’s exercise of its Redemption right with respect to such Tendered Units and (2) such transaction shall be treated, for federal income tax purposes, as a transfer by the Tendering Party of such Tendered Units to the Special Limited Partner in exchange for the REIT Shares Amount. If the General Partner so elects, on the Specified Redemption Date, the Tendering Party shall sell such number of the Tendered Units to the Special Limited Partner in exchange for a number of REIT Shares equal to the product of the REIT Shares Amount and the Applicable Percentage. The Tendering Party shall submit (i) such information, certification or affidavit as the Special Limited Partner may reasonably require in connection with the application of the Ownership Limit to any such acquisition and (ii) such written representations, investment letters, legal opinions or other instruments necessary, in the Special Limited Partner’s view, to effect compliance with the Securities Act. In the event of an election by the General Partner to require the Special Limited Partner to purchase the Tendered Units pursuant to this Section 15.1.B, the Tendering Party shall no longer have the right to cause the Partnership to effect a Redemption of such Tendered Units and, upon notice to the Tendering Party by the General Partner given on or before the close of business on the Cut-Off Date that the General Partner has elected to require the Special Limited Partner to acquire some or all of the Tendered Units pursuant to this Section 15.1.B, the obligation of the Partnership to effect a Redemption of the Tendered Units as to which the General Partner’s notice relates shall not accrue or arise. A number of REIT Shares equal to the product of the Applicable Percentage and the REIT Shares Amount, if applicable, shall be delivered by the Special Limited Partner as duly authorized, validly issued, fully paid and non-assessable REIT Shares and, if applicable, Rights, free of any pledge, lien, encumbrance or restriction, other than the Ownership Limit, the Securities Act and relevant state securities or “blue sky” laws. Neither any Tendering Party whose Tendered Units are acquired by the Special Limited Partner pursuant to this Section 15.1.B, any Partner, any Assignee nor any other interested Person shall have any right to require or cause the Special Limited Partner to register, qualify or list any REIT Shares owned or held by such Person, whether or not such REIT Shares are issued pursuant to this Section 15.1.B, with the SEC, with any state securities commissioner, department or agency, under the Securities Act or the Exchange Act or with any stock exchange; provided , however , that this limitation shall not be in derogation of any registration or similar rights granted pursuant to any other written agreement between the Special Limited Partner and any such Person. REIT Shares issued upon an acquisition of the Tendered Units by the Special Limited Partner pursuant to this Section 15.1.B

    
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may contain such legends regarding restrictions under the Securities Act and applicable state securities laws as the Special Limited Partner in good faith determines to be necessary or advisable in order to ensure compliance with such laws.
Notwithstanding anything herein to the contrary, with respect to any Redemption or acquisition of Tendered Units pursuant to Section 15.1.A or Section 15.1.B, the Tendering Party shall continue to own all Tendered Units subject to any Redemption (and be treated as a Limited Partner, an Assignee or a Person who is the transferee of a Limited Partner Interest in a Permitted Transfer, as the case may be, with respect to such Tendered Units for all purposes of this Agreement) until such Tendered Units are Transferred to the Partnership or the Special Limited Partner, as the case may be, and such Tendering Party has received the Cash Amount or REIT Share Amount, as the case may be, in exchange for such Tendered Units. Unless and until the Tendering Party has received the REIT Share Amount in exchange for such Tendered Units pursuant to this Section 15.1.B, the Tendering Party shall have no rights as a stockholder of the Special Limited Partner with respect to the REIT Shares issuable in connection with such Redemption (including, without limitation, rights to vote or consent, receive dividends and exercise other rights).
C.      Notwithstanding the provisions of Section 15.1.A and 15.1.B hereof, the Tendering Parties shall have no rights under this Agreement that would otherwise be prohibited by the Charter and shall have no rights to require the Partnership to redeem Tendered Units or require the Special Limited Partner to acquire Tendered Units if such a redemption or the acquisition of such Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof would cause any Person to violate the Ownership Limit. To the extent that any attempted Redemption or acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof would be in violation of this Section 15.1.C, to the fullest extent permitted by law, it shall be null and void ab initio , and the Tendering Party shall not acquire any rights or economic interests in REIT Shares otherwise issuable by the Special Limited Partner under Section 15.1.B hereof or cash otherwise payable under Section 15.1.A hereof.
D.      If the General Partner does not elect to require the Special Limited Partner to acquire the Tendered Units pursuant to Section 15.1.B hereof:
(1)      The Partnership may elect to raise funds for the payment of the Cash Amount either (a) by requiring that the Special Limited Partner contribute to the Partnership funds from the proceeds of a registered public offering by the Special Limited Partner of REIT Shares sufficient to purchase the Tendered Units or (b) from any other sources (including, but not limited to, the sale of any Property and the incurrence of additional Debt) available to the Partnership. The Special Limited Partner shall make a Capital Contribution of any such amounts to the Partnership in exchange for additional Partnership Units, and the Partnership is hereby authorized from time to time to issue such additional Partnership Units in consideration therefor without any further act, approval or vote of any Partner or other Persons. Any such contribution shall entitle the Special Limited Partner to an equitable Percentage Interest adjustment.
(2)      If the Cash Amount is not paid on or before the Specified Redemption Date, interest shall accrue with respect to the Cash Amount from the day after the Specified Redemption Date to and including the date on which the Cash Amount is paid at a rate equal to the base rate on corporate

    
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loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal (but not higher than the maximum lawful rate).
E.      Notwithstanding the provisions of Section 15.1.B hereof, the Special Limited Partner shall not acquire any Tendered Units in exchange for REIT Shares if such exchange would be prohibited under the Charter.
F.      Notwithstanding anything herein to the contrary (but subject to Section 15.1.C hereof), with respect to any Redemption (or any tender of Partnership Common Units for Redemption if the Tendered Units are acquired by the Special Limited Partner pursuant to Section 15.1.B hereof) pursuant to this Section 15.1:
(1)      All Partnership Common Units acquired by the Special Limited Partner pursuant to Section 15.1.B hereof shall automatically, and without further action required, be converted into and deemed to be a Special Limited Partner’s Partnership Interest comprised of the same number of Partnership Common Units.
(2)      Subject to the Ownership Limit, no Tendering Party may effect a Redemption for less than one thousand (1,000) Partnership Common Units or, if such Tendering Party holds (as a Limited Partner or, economically, as an Assignee) less than one thousand (1,000) Partnership Common Units, all of the Partnership Common Units held by such Tendering Party, without, in each case, the Consent of the General Partner, which may be given or withheld in its sole and absolute discretion.
(3)      If (i) a Tendering Party surrenders its Tendered Units during the period after the Partnership Record Date with respect to a distribution and before the record date established by the Special Limited Partner for a distribution to its stockholders of some or all of its portion of such Partnership distribution, and (ii) the General Partner elects to require the Special Limited Partner to acquire any of such Tendered Units in exchange for REIT Shares pursuant to Section 15.1.B, such Tendering Party shall pay to the Special Limited Partner on the Specified Redemption Date an amount in cash equal to the portion of the Partnership distribution in respect of the Tendered Units exchanged for REIT Shares, insofar as such distribution relates to the same period for which such Tendering Party would receive a distribution in respect of such REIT Shares.
(4)      The consummation of such Redemption (or an acquisition of Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof, as the case may be) shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Act.
(5)      The Tendering Party shall continue to own (subject, in the case of an Assignee, to the provisions of Section 11.5 hereof) all Partnership Common Units subject to any Redemption, and be treated as a Limited Partner or an Assignee, as applicable, with respect to such Partnership Common Units for all purposes of this Agreement, until such Partnership Common Units are either paid for by the Partnership pursuant to Section 15.1.A hereof or transferred to the Special Limited Partner and paid for, by the issuance of the REIT Shares, pursuant to Section 15.1.B hereof on the Specified Redemption Date. Until a Specified Redemption Date and an acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof, the Tendering Party shall

    
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have no rights as a stockholder of the Special Limited Partner with respect to the REIT Shares issuable in connection with such acquisition.
G.      In connection with an exercise of Redemption rights pursuant to this Section 15.1, except as otherwise Consented to by the General Partner, in its sole and absolute discretion, the Tendering Party shall submit the following to the General Partner, in addition to the Notice of Redemption:
(1)      A written affidavit, dated the same date as the Notice of Redemption, (a) disclosing the actual and constructive ownership, as determined for purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares by (i) such Tendering Party and (ii) to the best of their knowledge any Related Party and (b) representing that, after giving effect to the Redemption or an acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof, neither the Tendering Party nor to the best of their knowledge any Related Party will own REIT Shares in violation of the Ownership Limit;
(2)      A written representation that neither the Tendering Party nor to the best of their knowledge any Related Party has any intention to acquire any additional REIT Shares prior to the closing of the Redemption or an acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof on the Specified Redemption Date;
(3)      An undertaking to certify, at and as a condition to the closing of (i) the Redemption or (ii) the acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof on the Specified Redemption Date, that either (a) the actual and constructive ownership of REIT Shares by the Tendering Party and to the best of their knowledge any Related Party remain unchanged from that disclosed in the affidavit required by Section 15.1.G(1) or (b) after giving effect to the Redemption or an acquisition of the Tendered Units by the Special Limited Partner pursuant to Section 15.1.B hereof, neither the Tendering Party nor to the best of their knowledge any Related Party shall own REIT Shares in violation of the Ownership Limit; and
(4)      In connection with any Special Redemption, the Special Limited Partner shall have the right to receive an opinion of counsel reasonably satisfactory to it to the effect that the proposed Special Redemption will not cause the Partnership, the General Partner or the Special Limited Partner to violate any federal or state securities laws or regulations applicable to the Special Redemption, the issuance and sale of the Tendered Units to the Tendering Party or the issuance and sale of REIT Shares to the Tendering Party pursuant to the Section 15.1.B of this Agreement.
H.      In connection with the exercise of Redemption rights pursuant to this Section 15.1, the Tendering Party shall reimburse the Partnership or the Special Limited Partners, as applicable, for all out-of-pocket costs and expenses (including, without limitation, reasonable attorney’s fees and other legal fees and expenses) incurred by the Partnership or the Special Limited Partner, as applicable.
Section 15.2      Addresses and Notice . Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written or electronic communication (including by telecopy, facsimile, electronic mail or commercial courier service) to the Partner, or Assignee at the address set forth in Exhibit A

    
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or such other address of which the Partner shall notify the General Partner in accordance with this Section 15.2.
Section 15.3      Titles and Captions . All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to “Articles” or “Sections” are to Articles and Sections of this Agreement.
Section 15.4      Pronouns and Plurals . Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.
Section 15.5      Further Action . The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.6      Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.
Section 15.7      Waiver .
A.      To the fullest extent permitted by law, no failure 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 a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.
B.      The restrictions, conditions and other limitations on the rights and benefits of the Limited Partners contained in this Agreement, and the duties, covenants and other requirements of performance or notice by the Limited Partners, are for the benefit of the Partnership and, except for an obligation to pay money to the Partnership, may be waived or relinquished by the General Partner, in its sole and absolute discretion, on behalf of the Partnership in one or more instances from time to time and at any time; provided , however , that any such waiver or relinquishment may not be made if it would have the effect of (i) creating liability for any other Limited Partner, (ii) causing the Partnership to cease to qualify as a limited partnership, (iii) reducing the amount of cash otherwise distributable to the Limited Partners (other than any such reduction that affects all of the Limited Partners holding the same class or series of Partnership Units on a uniform or pro rata basis, if approved by a Majority in Interest of the Limited Partners holding such class or series of Partnership Units), (iv) resulting in the classification of the Partnership as an association or publicly traded partnership taxable as a corporation for federal income tax purposes or (v) violating the Securities Act, the Exchange Act or any state “blue sky” or other securities laws; and provided , further , that any waiver relating to compliance with the Ownership Limit or other restrictions in the Charter shall be made and shall be effective only as provided in the Charter.
Section 15.8      Counterparts . This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto.
Section 15.9      Applicable Law; Consent to Jurisdiction; Waiver of Jury Trial .
A.      This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law. In the event of a conflict between any provision of this Agreement and any non-mandatory provision of the Act, the provisions of this Agreement shall control and take precedence.
B.      Each Partner hereby (i) submits to the non-exclusive jurisdiction of any state or federal court sitting in the State of Delaware (collectively, the “ Delaware Courts ”), with respect to any dispute arising out of this Agreement or any transaction contemplated hereby to the extent such courts would have subject matter jurisdiction with respect to such dispute, (ii) to the fullest extent permitted by law, irrevocably waives, and agrees not to assert by way of motion, defense, or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of any of the Delaware Courts, that its property is exempt or immune from attachment or execution, that the action is brought in an inconvenient forum, or that the venue of the action is improper, (iii) to the fullest extent permitted by law, agrees that notice or the service of process in any action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be properly served or delivered if delivered to such Partner at such Partner’s last known address as set forth in the Partnership’s books and records, and (iv) to the fullest extent permitted by law, irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or related to this Agreement or the transactions contemplated hereby.
Section 15.10      Entire Agreement . This Agreement contains all of the understandings and agreements between and among the Partners with respect to the subject matter of this Agreement and the rights, interests and obligations of the Partners with respect to the Partnership. Notwithstanding anything to the contrary in this Agreement, the Partners hereby acknowledge and agree that the General Partner, on its own behalf and/or on behalf of the Partnership, without the approval of any Limited Partner, may enter into side letters or similar written agreements with Limited Partners that are not Affiliates of the General Partner, executed contemporaneously with the admission of such Limited Partner to the Partnership, which have the effect of establishing rights under, or altering or supplementing, the terms hereof, as negotiated with such Limited Partner and which the General Partner in its sole discretion deems necessary, desirable or appropriate. The parties hereto agree that any terms, conditions or provisions contained in such side letters or similar written agreements with a Limited Partner shall govern with respect to such Limited Partner notwithstanding the provisions of this Agreement.
Section 15.11      Invalidity of Provisions . If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
Section 15.12      Limitation to Preserve REIT Status . Notwithstanding anything else in this Agreement, to the extent that the amount to be paid, credited, distributed or reimbursed by the Partnership to any REIT Partner or its officers, directors, employees or agents, whether as a

    
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reimbursement, fee, expense or indemnity (a “ REIT Payment ”), would constitute gross income to the REIT Partner for purposes of Code Section 856(c)(2) or Code Section 856(c)(3), then, notwithstanding any other provision of this Agreement, the amount of such REIT Payments, as selected by the General Partner in its sole and absolute discretion from among items of potential distribution, reimbursement, fees, expenses and indemnities, shall be reduced for any Partnership Year so that the REIT Payments, as so reduced, for or with respect to such REIT Partner shall not exceed the lesser of:
(i)      an amount equal to the excess, if any, of (a) four and nine-tenths percent (4.9%) of the REIT Partner’s total gross income (but excluding the amount of any REIT Payments and amounts excluded from gross income pursuant to Section 856(c) of the Code) for the Partnership Year that is described in subsections (A) through (I) of Code Section 856(c)(2) over (b) the amount of gross income (within the meaning of Code Section 856(c)(2)) derived by the REIT Partner from sources other than those described in subsections (A) through (I) of Code Section 856(c)(2) (but not including the amount of any REIT Payments and amounts excluded from gross income pursuant to Section 856(c) of the Code); or
(ii)      an amount equal to the excess, if any, of (a) twenty-four percent (24%) of the REIT Partner’s total gross income (but excluding the amount of any REIT Payments and amounts excluded from gross income pursuant to Section 856(c) of the Code) for the Partnership Year that is described in subsections (A) through (I) of Code Section 856(c)(3) over (b) the amount of gross income (within the meaning of Code Section 856(c)(3)) derived by the REIT Partner from sources other than those described in subsections (A) through (I) of Code Section 856(c)(3) (but not including the amount of any REIT Payments and amounts excluded from gross income pursuant to Section 856(c) of the Code);
provided, however , that REIT Payments in excess of the amounts set forth in clauses (i) and (ii) above may be made if the General Partner, as a condition precedent, obtains an opinion of tax counsel that the receipt of such excess amounts should not adversely affect the REIT Partner’s ability to qualify as a REIT. To the extent that REIT Payments may not be made in a Partnership Year as a consequence of the limitations set forth in this Section 15.12, such REIT Payments shall carry over and shall be treated as arising in the following Partnership Year if such carry over does not adversely affect the REIT Partner’s ability to qualify as a REIT, provided, however, that any such REIT Payment shall not be carried over more than three Partnership Years, and any such remaining payments shall no longer be due and payable. The purpose of the limitations contained in this Section 15.12 is to prevent any REIT Partner from failing to qualify as a REIT under the Code by reason of such REIT Partner’s share of items, including distributions, reimbursements, fees, expenses or indemnities, receivable directly or indirectly from the Partnership, and this Section 15.12 shall be interpreted and applied to effectuate such purpose.
Section 15.13      No Partition . No Partner nor any successor-in-interest to a Partner shall have the right while this Agreement remains in effect to have any property of the Partnership partitioned, or to file a complaint or institute any proceeding at law or in equity to have such property of the Partnership partitioned, and each Partner, on behalf of itself and its successors and assigns hereby waives any such right. It is the intention of the Partners that the rights of the parties hereto and their successors-in-interest to Partnership property, as among themselves, shall be governed by the terms of this Agreement, and that the rights of the Partners and their respective successors-in-interest shall be subject to the limitations and restrictions as set forth in this Agreement.
Section 15.14      No Third-Party Rights Created Hereby . The provisions of this Agreement are solely for the purpose of defining the interests of the Holders, inter se; and no other person, firm or entity (i.e., a party who is not a signatory hereto or a permitted successor to such signatory hereto) shall have any right, power, title or interest by way of subrogation or otherwise, in and to the rights, powers, title and provisions of this Agreement. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans to the Partnership or to pursue any other right or remedy hereunder or at law or in equity. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may any such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or any of the Partners.
Section 15.15      No Rights as Stockholders . Nothing contained in this Agreement shall be construed as conferring upon the Holders of Partnership Units any rights whatsoever as stockholders of the Special Limited Partner, including without limitation any right to receive dividends or other distributions made to stockholders of the Special Limited Partner or to vote or to consent or receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the Special Limited Partner or any other matter.
[Remainder of Page Left Blank Intentionally]

    
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Exhibit 31.1
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

  I, Thomas H. Nolan, Jr., certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Spirit Realty Capital, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
November 4, 2014
/s/ THOMAS H. NOLAN, JR.
 
 
Thomas H. Nolan, Jr.
 
 
Chief Executive Officer




Exhibit 31.2
CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael A. Bender, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Spirit Realty Capital, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
November 4, 2014
/s/ MICHAEL A. BENDER
 
 
Michael A. Bender
 
 
Executive Vice President,
 
 
Chief Financial Officer and Treasurer




Exhibit 32.1

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C 1350)

Each of the undersigned officers of Spirit Realty Capital, Inc. (the “Company”) hereby certifies, for purposes of Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
(i)
the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
November 4, 2014
/s/ THOMAS H. NOLAN, JR.
 
 
Thomas H. Nolan, Jr.
 
 
Chief Executive Officer
 
 
 
 
 
/s/ MICHAEL A. BENDER
 
 
Michael A. Bender
 
 
Executive Vice President,
 
 
Chief Financial Officer and Treasurer
The foregoing certification is being furnished with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2014 pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.