UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
OR
☐ |
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 |
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|
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SPIRIT REALTY CAPITAL, INC.
(Exact name of registrant as specified in its charter)
Maryland |
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20-1676382 |
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|
||
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
||
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2727 North Harwood Street, Suite 300, Dallas, Texas 75201 |
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(972) 476-1900 |
||
(Address of principal executive offices; zip code) |
|
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|||
Common stock, par value $0.05 per share |
SRC |
New York Stock Exchange |
|||
6.000% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share |
SRC-A |
New York Stock Exchange |
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 ☒ No □
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|
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No □
|
|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ |
Accelerated filer □ |
Non-accelerated filer □ |
Smaller reporting company ☐ |
Emerging growth company ☐ |
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||
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. □
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
|
|
As of July 29, 2022, there were 136,341,685 shares of common stock, par value $0.05, of Spirit Realty Capital, Inc. outstanding.
INDEX
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3 |
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5 |
||||
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Item 1. |
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|
5 |
|
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
25 |
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Item 3. |
|
|
41 |
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Item 4. |
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|
41 |
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|
42 |
||||
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Item 1. |
|
|
42 |
|
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Item 1A. |
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|
42 |
|
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Item 2. |
|
|
42 |
|
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Item 3. |
|
|
42 |
|
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Item 4. |
|
|
42 |
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Item 5. |
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|
42 |
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Item 6. |
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43 |
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|
44 |
GLOSSARY
3
Unless otherwise indicated or unless the context requires otherwise, all references to the “registrant, the "Company," "Spirit Realty Capital," "we," "us" or "our" refer to the Corporation and its consolidated subsidiaries, including the Operating Partnership. Unless otherwise indicated or unless the context requires otherwise, all references to the "Operating Partnership" refer to Spirit Realty, L.P. and its consolidated subsidiaries.
4
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SPIRIT REALTY CAPITAL, INC.
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
(Unaudited)
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Assets |
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
Real estate assets held for investment: |
|
|
|
|
|
|
|
|
Land and improvements |
|
$ |
2,705,232 |
|
|
$ |
2,516,715 |
|
Buildings and improvements |
|
|
5,564,537 |
|
|
|
4,962,203 |
|
Less: accumulated depreciation |
|
|
(1,141,430 |
) |
|
|
(1,033,391 |
) |
Total real estate assets held for investment, net |
|
|
7,128,339 |
|
|
|
6,445,527 |
|
Intangible lease assets, net |
|
|
443,345 |
|
|
|
426,972 |
|
Real estate assets under direct financing leases, net |
|
|
7,441 |
|
|
|
7,442 |
|
Real estate assets held for sale, net |
|
|
4,679 |
|
|
|
8,264 |
|
Loans receivable, net |
|
|
23,023 |
|
|
|
10,450 |
|
Total investments, net |
|
|
7,606,827 |
|
|
|
6,898,655 |
|
Cash and cash equivalents |
|
|
5,444 |
|
|
|
17,799 |
|
Deferred costs and other assets, net |
|
|
244,362 |
|
|
|
188,816 |
|
Goodwill |
|
|
225,600 |
|
|
|
225,600 |
|
Total assets |
|
$ |
8,082,233 |
|
|
$ |
7,330,870 |
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Revolving credit facilities |
|
$ |
694,500 |
|
|
$ |
288,400 |
|
Senior Unsecured Notes, net |
|
|
2,720,562 |
|
|
|
2,718,641 |
|
Mortgages payable, net |
|
|
5,271 |
|
|
|
5,551 |
|
Total debt, net |
|
|
3,420,333 |
|
|
|
3,012,592 |
|
Intangible lease liabilities, net |
|
|
123,497 |
|
|
|
128,077 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
185,532 |
|
|
|
190,402 |
|
Total liabilities |
|
|
3,729,362 |
|
|
|
3,331,071 |
|
Commitments and contingencies (see Note 6) |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock and paid in capital, $0.01 par value, 20,000,000 shares authorized: 6,900,000 shares issued and outstanding at both June 30, 2022 and December 31, 2021 |
|
|
166,177 |
|
|
|
166,177 |
|
Common stock, $0.05 par value, 350,000,000 shares authorized: 136,341,685 and 127,699,235 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively |
|
|
6,817 |
|
|
|
6,385 |
|
Capital in excess of common stock par value |
|
|
7,071,150 |
|
|
|
6,673,440 |
|
Accumulated deficit |
|
|
(2,886,830 |
) |
|
|
(2,840,356 |
) |
Accumulated other comprehensive loss |
|
|
(4,443 |
) |
|
|
(5,847 |
) |
Total stockholders’ equity |
|
|
4,352,871 |
|
|
|
3,999,799 |
|
Total liabilities and stockholders’ equity |
|
$ |
8,082,233 |
|
|
$ |
7,330,870 |
|
See accompanying notes.
5
SPIRIT REALTY CAPITAL, INC.
Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Data)
(Unaudited)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
173,559 |
|
|
$ |
164,449 |
|
|
$ |
340,634 |
|
|
$ |
299,107 |
|
Interest income on loans receivable |
|
|
522 |
|
|
|
— |
|
|
|
841 |
|
|
|
— |
|
Earned income from direct financing leases |
|
|
131 |
|
|
|
132 |
|
|
|
262 |
|
|
|
263 |
|
Other operating income |
|
|
723 |
|
|
|
45 |
|
|
|
1,594 |
|
|
|
397 |
|
Total revenues |
|
|
174,935 |
|
|
|
164,626 |
|
|
|
343,331 |
|
|
|
299,767 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
13,421 |
|
|
|
13,450 |
|
|
|
28,095 |
|
|
|
26,496 |
|
Property costs (including reimbursable) |
|
|
6,950 |
|
|
|
6,319 |
|
|
|
15,205 |
|
|
|
11,771 |
|
Deal pursuit costs |
|
|
655 |
|
|
|
257 |
|
|
|
1,020 |
|
|
|
499 |
|
Interest |
|
|
27,594 |
|
|
|
26,170 |
|
|
|
53,617 |
|
|
|
52,794 |
|
Depreciation and amortization |
|
|
72,898 |
|
|
|
60,074 |
|
|
|
142,006 |
|
|
|
117,161 |
|
Impairments |
|
|
9,398 |
|
|
|
7,800 |
|
|
|
9,525 |
|
|
|
14,530 |
|
Total expenses |
|
|
130,916 |
|
|
|
114,070 |
|
|
|
249,468 |
|
|
|
223,251 |
|
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt extinguishment |
|
|
— |
|
|
|
(10 |
) |
|
|
(172 |
) |
|
|
(29,187 |
) |
Gain on disposition of assets |
|
|
38,928 |
|
|
|
37,507 |
|
|
|
39,805 |
|
|
|
39,343 |
|
Other income |
|
|
— |
|
|
|
— |
|
|
|
5,679 |
|
|
|
— |
|
Total other income |
|
|
38,928 |
|
|
|
37,497 |
|
|
|
45,312 |
|
|
|
10,156 |
|
Income before income tax expense |
|
|
82,947 |
|
|
|
88,053 |
|
|
|
139,175 |
|
|
|
86,672 |
|
Income tax expense |
|
|
(207 |
) |
|
|
(129 |
) |
|
|
(379 |
) |
|
|
(217 |
) |
Net income |
|
|
82,740 |
|
|
|
87,924 |
|
|
|
138,796 |
|
|
|
86,455 |
|
Dividends paid to preferred shareholders |
|
|
(2,588 |
) |
|
|
(2,588 |
) |
|
|
(5,176 |
) |
|
|
(5,176 |
) |
Net income attributable to common stockholders |
|
$ |
80,152 |
|
|
$ |
85,336 |
|
|
$ |
133,620 |
|
|
$ |
81,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.60 |
|
|
$ |
0.74 |
|
|
$ |
1.02 |
|
|
$ |
0.71 |
|
Diluted |
|
$ |
0.60 |
|
|
$ |
0.74 |
|
|
$ |
1.02 |
|
|
$ |
0.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
134,147,541 |
|
|
|
115,005,740 |
|
|
|
131,066,799 |
|
|
|
114,840,397 |
|
Diluted |
|
|
134,219,450 |
|
|
|
115,557,555 |
|
|
|
131,307,057 |
|
|
|
115,212,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share issued |
|
$ |
0.6380 |
|
|
$ |
0.6250 |
|
|
$ |
1.2760 |
|
|
$ |
1.2500 |
|
See accompanying notes.
6
SPIRIT REALTY CAPITAL, INC.
Consolidated Statements of Comprehensive Income
(In Thousands)
(Unaudited)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income attributable to common stockholders |
|
$ |
80,152 |
|
|
$ |
85,336 |
|
|
$ |
133,620 |
|
|
$ |
81,279 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reclassification of amounts from AOCL |
|
|
702 |
|
|
|
702 |
|
|
|
1,404 |
|
|
|
1,404 |
|
Total comprehensive income |
|
$ |
80,854 |
|
|
$ |
86,038 |
|
|
$ |
135,024 |
|
|
$ |
82,683 |
|
See accompanying notes.
7
SPIRIT REALTY CAPITAL, INC.
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Data)
(Unaudited)
Six Months Ended June 30, 2022 |
|
Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Shares |
|
|
Par Value and Capital in Excess of Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital in Excess of Par Value |
|
|
Accumulated Deficit |
|
|
AOCL |
|
|
Total Stockholders’ Equity |
|
||||||||
Balances, December 31, 2021 |
|
|
6,900,000 |
|
|
$ |
166,177 |
|
|
|
127,699,235 |
|
|
$ |
6,385 |
|
|
$ |
6,673,440 |
|
|
$ |
(2,840,356 |
) |
|
$ |
(5,847 |
) |
|
$ |
3,999,799 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
56,056 |
|
|
|
— |
|
|
|
56,056 |
|
Dividends declared on preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,588 |
) |
|
|
— |
|
|
|
(2,588 |
) |
Net income attributable to common stockholders |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
53,468 |
|
|
|
— |
|
|
|
53,468 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
702 |
|
|
|
702 |
|
Dividends declared on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(85,688 |
) |
|
|
— |
|
|
|
(85,688 |
) |
Tax withholdings related to net stock settlements |
|
|
— |
|
|
|
— |
|
|
|
(39,028 |
) |
|
|
(2 |
) |
|
|
— |
|
|
|
(6,408 |
) |
|
|
— |
|
|
|
(6,410 |
) |
Issuance of shares of common stock, net |
|
|
— |
|
|
|
— |
|
|
|
6,559,406 |
|
|
|
328 |
|
|
|
299,440 |
|
|
|
— |
|
|
|
— |
|
|
|
299,768 |
|
Stock-based compensation, net |
|
|
— |
|
|
|
— |
|
|
|
86,888 |
|
|
|
4 |
|
|
|
4,021 |
|
|
|
(496 |
) |
|
|
— |
|
|
|
3,529 |
|
Balances, March 31, 2022 |
|
|
6,900,000 |
|
|
$ |
166,177 |
|
|
|
134,306,501 |
|
|
$ |
6,715 |
|
|
$ |
6,976,901 |
|
|
$ |
(2,879,480 |
) |
|
$ |
(5,145 |
) |
|
$ |
4,265,168 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
82,740 |
|
|
|
— |
|
|
|
82,740 |
|
Dividends declared on preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,588 |
) |
|
|
— |
|
|
|
(2,588 |
) |
Net income attributable to common stockholders |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
80,152 |
|
|
|
— |
|
|
|
80,152 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
702 |
|
|
|
702 |
|
Dividends declared on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(86,987 |
) |
|
|
— |
|
|
|
(86,987 |
) |
Tax withholdings related to net stock settlements |
|
|
— |
|
|
|
— |
|
|
|
(403 |
) |
|
|
— |
|
|
|
— |
|
|
|
(17 |
) |
|
|
— |
|
|
|
(17 |
) |
Issuance of shares of common stock, net |
|
|
— |
|
|
|
— |
|
|
|
1,999,996 |
|
|
|
100 |
|
|
|
89,864 |
|
|
|
— |
|
|
|
— |
|
|
|
89,964 |
|
Stock-based compensation, net |
|
|
— |
|
|
|
— |
|
|
|
35,591 |
|
|
|
2 |
|
|
|
4,385 |
|
|
|
(498 |
) |
|
|
— |
|
|
|
3,889 |
|
Balances, June 30, 2022 |
|
|
6,900,000 |
|
|
$ |
166,177 |
|
|
|
136,341,685 |
|
|
$ |
6,817 |
|
|
$ |
7,071,150 |
|
|
$ |
(2,886,830 |
) |
|
$ |
(4,443 |
) |
|
$ |
4,352,871 |
|
See accompanying notes.
8
SPIRIT REALTY CAPITAL, INC.
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Data)
(Unaudited)
Six Months Ended June 30, 2021 |
|
Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Shares |
|
|
Par Value and Capital in Excess of Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital in Excess of Par Value |
|
|
Accumulated Deficit |
|
|
AOCL |
|
|
Total Stockholders’ Equity |
|
||||||||
Balances, December 31, 2020 |
|
|
6,900,000 |
|
|
$ |
166,177 |
|
|
|
114,812,615 |
|
|
$ |
5,741 |
|
|
$ |
6,126,503 |
|
|
$ |
(2,688,647 |
) |
|
$ |
(8,654 |
) |
|
$ |
3,601,120 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,469 |
) |
|
|
— |
|
|
|
(1,469 |
) |
Dividends declared on preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,588 |
) |
|
|
— |
|
|
|
(2,588 |
) |
Net loss attributable to common stockholders |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(4,057 |
) |
|
|
— |
|
|
|
(4,057 |
) |
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
702 |
|
|
|
702 |
|
Dividends declared on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(71,837 |
) |
|
|
— |
|
|
|
(71,837 |
) |
Tax withholdings related to net stock settlements |
|
|
— |
|
|
|
— |
|
|
|
(98,413 |
) |
|
|
(6 |
) |
|
|
— |
|
|
|
(3,837 |
) |
|
|
— |
|
|
|
(3,843 |
) |
Stock-based compensation, net |
|
|
— |
|
|
|
— |
|
|
|
233,784 |
|
|
|
12 |
|
|
|
3,366 |
|
|
|
(407 |
) |
|
|
— |
|
|
|
2,971 |
|
Balances, March 31, 2021 |
|
|
6,900,000 |
|
|
$ |
166,177 |
|
|
|
114,947,986 |
|
|
$ |
5,747 |
|
|
$ |
6,129,869 |
|
|
$ |
(2,768,785 |
) |
|
$ |
(7,952 |
) |
|
$ |
3,525,056 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
87,924 |
|
|
|
— |
|
|
|
87,924 |
|
Dividends declared on preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,588 |
) |
|
|
— |
|
|
|
(2,588 |
) |
Net income attributable to common stockholders |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
85,336 |
|
|
|
— |
|
|
|
85,336 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
702 |
|
|
|
702 |
|
Dividends declared on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(74,436 |
) |
|
|
— |
|
|
|
(74,436 |
) |
Tax withholdings related to net stock settlements |
|
|
— |
|
|
|
— |
|
|
|
(12,597 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
(548 |
) |
|
|
— |
|
|
|
(549 |
) |
Issuance of shares of common stock, net |
|
|
— |
|
|
|
— |
|
|
|
4,116,932 |
|
|
|
206 |
|
|
|
145,255 |
|
|
|
— |
|
|
|
— |
|
|
|
145,461 |
|
Stock-based compensation, net |
|
|
— |
|
|
|
— |
|
|
|
51,591 |
|
|
|
3 |
|
|
|
3,611 |
|
|
|
(360 |
) |
|
|
— |
|
|
|
3,254 |
|
Balances, June 30, 2021 |
|
|
6,900,000 |
|
|
$ |
166,177 |
|
|
|
119,103,912 |
|
|
$ |
5,955 |
|
|
$ |
6,278,735 |
|
|
$ |
(2,758,793 |
) |
|
$ |
(7,250 |
) |
|
$ |
3,684,824 |
|
See accompanying notes.
9
SPIRIT REALTY CAPITAL, INC.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
138,796 |
|
|
$ |
86,455 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
142,006 |
|
|
|
117,161 |
|
Impairments |
|
|
9,525 |
|
|
|
14,530 |
|
Amortization of deferred financing costs |
|
|
2,162 |
|
|
|
2,116 |
|
Amortization of debt discounts |
|
|
629 |
|
|
|
1,523 |
|
Amortization of deferred losses on interest rate swaps |
|
|
1,404 |
|
|
|
1,404 |
|
Stock-based compensation expense |
|
|
8,412 |
|
|
|
6,992 |
|
Loss on debt extinguishment |
|
|
172 |
|
|
|
29,187 |
|
Gain on dispositions of real estate and other assets |
|
|
(39,805 |
) |
|
|
(39,343 |
) |
Non-cash revenue |
|
|
(18,815 |
) |
|
|
(28,801 |
) |
Other |
|
|
— |
|
|
|
9 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Deferred costs and other assets, net |
|
|
(2,627 |
) |
|
|
(1,091 |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
(17,517 |
) |
|
|
1,351 |
|
Net cash provided by operating activities |
|
|
224,342 |
|
|
|
191,493 |
|
Investing activities |
|
|
|
|
|
|
|
|
Acquisitions of real estate |
|
|
(872,742 |
) |
|
|
(480,180 |
) |
Capitalized real estate expenditures |
|
|
(37,319 |
) |
|
|
(2,627 |
) |
Investments in loans receivable |
|
|
(12,700 |
) |
|
|
— |
|
Proceeds from dispositions of real estate and other assets, net |
|
|
111,244 |
|
|
|
87,439 |
|
Net cash used in investing activities |
|
|
(811,517 |
) |
|
|
(395,368 |
) |
Financing activities |
|
|
|
|
|
|
|
|
Borrowings under revolving credit facilities |
|
|
991,600 |
|
|
|
457,700 |
|
Repayments under revolving credit facilities |
|
|
(585,500 |
) |
|
|
(444,700 |
) |
Repayments under mortgages payable |
|
|
(258 |
) |
|
|
(208,640 |
) |
Repayments under term loans |
|
|
— |
|
|
|
(178,000 |
) |
Repayments under Convertible Notes |
|
|
— |
|
|
|
(190,426 |
) |
Borrowings under Senior Unsecured Notes |
|
|
— |
|
|
|
794,842 |
|
Debt extinguishment costs |
|
|
— |
|
|
|
(26,686 |
) |
Deferred financing costs |
|
|
(8,692 |
) |
|
|
(7,066 |
) |
Proceeds from issuance of common stock, net of offering costs |
|
|
389,674 |
|
|
|
145,659 |
|
Repurchase of shares of common stock, including tax withholdings related to net stock settlements |
|
|
(6,427 |
) |
|
|
(4,392 |
) |
Common stock dividends paid |
|
|
(168,884 |
) |
|
|
(144,981 |
) |
Preferred stock dividends paid |
|
|
(5,176 |
) |
|
|
(5,176 |
) |
Net cash provided by financing activities |
|
|
606,337 |
|
|
|
188,134 |
|
Net increase in cash, cash equivalents and restricted cash |
|
|
19,162 |
|
|
|
(15,741 |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
17,799 |
|
|
|
83,298 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
36,961 |
|
|
$ |
67,557 |
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of interest capitalized |
|
$ |
49,241 |
|
|
$ |
43,791 |
|
Interest capitalized |
|
|
326 |
|
|
|
— |
|
Cash paid for income taxes |
|
|
527 |
|
|
|
493 |
|
10
SPIRIT REALTY CAPITAL, INC.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
|
Supplemental Disclosures of Non-Cash Activities: |
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Dividends declared and unpaid |
|
$ |
86,987 |
|
|
$ |
74,440 |
|
Accrued market-based award dividend rights |
|
|
994 |
|
|
|
750 |
|
Accrued capitalized costs |
|
|
14,749 |
|
|
|
1,703 |
|
Accrued deferred financing costs |
|
|
— |
|
|
|
5 |
|
See accompanying notes.
11
SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
NOTE 1. ORGANIZATION
Organization and Operations
Spirit Realty Capital, Inc. (the "Corporation" or "Spirit" or, with its consolidated subsidiaries, the "Company") operates as a self-administered and self-managed REIT that seeks to generate sustainable and attractive returns for stockholders by primarily investing 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 to tenants operating retail, industrial and other property types. Single-tenant, operationally essential real estate refers to free-standing, commercial real estate facilities where tenants conduct activities that are essential to the generation of their sales and profits.
The Company’s operations are generally carried out through Spirit Realty, L.P. (the "Operating Partnership") and its subsidiaries. Spirit General OP Holdings, LLC, one of the Corporation’s wholly-owned subsidiaries, is the sole general partner and owns approximately 1% of the Operating Partnership. The Corporation and a wholly-owned subsidiary (Spirit Notes Partner, LLC) are the only limited partners and, together, own the remaining 99% of the Operating Partnership.
NOTE 2. SUMMARY OF SIGNIFICANT ACOUNTING POLICIES
Basis of Accounting and Principles of Consolidation
The accompanying consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the SEC. In the opinion of management, the consolidated financial statements include the normal, recurring adjustments necessary for 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 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 year ended December 31, 2021.
The consolidated financial statements of the Company include the accounts of the Corporation and its wholly-owned subsidiaries, including the Operating Partnership. All significant intercompany balances and transactions have been eliminated in consolidation.
These consolidated financial statements include certain special purpose entities that were formed to acquire and hold real estate encumbered by indebtedness (see Note 4). Each special purpose entity is a separate legal entity and is the sole owner of its assets and responsible for its liabilities. The assets of these special purpose entities are not available to pay, or otherwise satisfy obligations to, the creditors of any affiliate or owner of another entity unless the special purpose entities have expressly agreed and are permitted to do so under their governing documents. As of June 30, 2022 and December 31, 2021, net assets totaling $11.9 million and $12.3 million, respectively, were held, and net liabilities totaling $5.2 million and $5.5 million, respectively, were owed by these encumbered special purpose entities and are included in the accompanying 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.
Segment Reporting
The Company views its operations as one segment, which consists of net leasing operations. The Company has no other reportable segments.
12
Revenue Recognition
Rental Income: Cash and Straight-line Rent
The Company primarily leases real estate to its tenants under long-term, triple-net leases that are classified as operating leases. To evaluate lease classification, the Company assesses the terms and conditions of the lease to determine the appropriate lease term. Options to extend, terminate or purchase are not included in the evaluation for lease classification or for recognition of rental income unless the Company is reasonably certain the tenant will exercise the option. Evaluation of lease classification also requires an estimate of the residual value of the real estate at the end of the lease term. For acquisitions, the Company uses the tangible value of the property at the date of acquisition. For lease modifications, the Company generally uses sales comparables or a direct capitalization approach to determine residual value.
The Company elected to account for lease concessions related to the COVID-19 pandemic consistent with ASC 842 as though enforceable rights and obligations for those concessions existed (regardless of whether they explicitly exist in the lease). As such, rent deferrals are recorded as an increase to rent receivables and recognized as income during the deferral period. For the three and six months ended June 30, 2022, $0.2 million and $0.4 million, respectively, of deferrals were recognized in rental income, compared to $9.1 million and $11.8 million for the three and six months ended June 30, 2021, respectively. Lease concessions other than rent deferrals are evaluated to determine if a substantive change to the consideration in the original lease contract has occurred and should be accounted for as a lease modification.
The Company’s leases generally provide for rent escalations throughout the term of the lease. For leases with fixed rent escalators, rental income is recognized on a straight-line basis to produce a constant periodic rent over the term of the lease. Accordingly, the difference between rental income recognized on a straight-line basis and billed rents is recorded as rent receivables, which the Company will receive only if the tenant makes all rent payments required through the initial term of their lease. For leases with variable rent escalators, rental income typically increases at a multiple of any increase in the CPI over a specified period and may adjust annually or over multiple-year periods. Because of the volatility and uncertainty regarding future changes in the CPI and the Company’s inability to determine the extent to which any specific future change in the CPI is probable, increases from variable rent escalators are recognized when the changes in the rental rates have occurred.
Some of the Company’s leases also provide for contingent rent based on a percentage of the tenant’s gross sales, which is recognized as rental income when the change in the factor on which the contingent lease payment is based has occurred.
Rental income is subject to an evaluation for collectability, which includes management’s estimates of amounts that will not be realized based on an assessment of the risks inherent in the portfolio, considering historical experience, as well as the tenant's payment history and financial condition. The Company does not recognize rental income for amounts that are not probable of collection. For lease concessions granted in conjunction with the COVID-19 pandemic, management reviewed all amounts recognized on a tenant-by-tenant basis for collectability.
Rental Income: Tenant Reimbursement Revenue
Under a triple-net lease, the tenant is typically responsible for all improvements and is contractually obligated to pay all property operating expenses, such as real estate taxes, insurance premiums and repair and maintenance costs. Certain leases contain additional amounts recoverable from tenants for common area maintenance and certain other expenses, which are non-lease components. The Company elected to combine all its non-lease components, which were determined to have the same pattern of transfer as the related operating lease component, into a single combined lease component. Tenant reimbursement revenue is variable and is recognized in the period in which the related expenses are incurred, with the related expenses included in property costs (including reimbursable) on the Company’s consolidated statements of operations. Tenant reimbursements are recorded on a gross basis in instances when our tenants reimburse us for property costs which we incur. Tenant receivables are reduced for amounts that are not probable of collection.
Rental Income: Intangible Amortization
Initial direct costs associated with the origination of a lease are deferred and amortized as an adjustment to rental revenue. Above- and below-market lease intangibles are amortized as a decrease and increase, respectively, to rental revenue. Amortization of in-place lease intangibles is included in depreciation and amortization expense. All lease intangibles are amortized on a straight-line basis over the term of the lease, which includes any renewal options the Company is reasonably certain the tenant will exercise. If the Company subsequently determines it is reasonably certain that the tenant will not exercise the renewal options, the unamortized portion of any related lease intangible is accelerated over the remaining initial term of the lease. If the Company believes a lease intangible balance is no longer recoverable, the unamortized portion is immediately recognized in impairments in the Company’s consolidated statements of operations.
13
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash and highly liquid investment securities with maturities at acquisition of three months or less. The Company invests cash primarily in money market funds of major financial institutions with fund investments consisting of highly-rated money market instruments and other short-term investments. Restricted cash is classified within deferred costs and other assets, net in the accompanying consolidated balance sheets. Cash, cash equivalents and restricted cash consisted of the following (in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
June 30, 2021 |
|
|||
Cash and cash equivalents |
|
$ |
5,444 |
|
|
$ |
17,799 |
|
|
$ |
9,403 |
|
Restricted cash: |
|
|
|
|
|
|
|
|
|
|
|
|
Funds held in escrow(1) |
|
|
2,347 |
|
|
|
— |
|
|
|
— |
|
1031 Exchange proceeds |
|
|
29,170 |
|
|
|
— |
|
|
|
58,154 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
36,961 |
|
|
$ |
17,799 |
|
|
$ |
67,557 |
|
(1) Deposits related to acquisitions held in third-party escrow accounts.
Tenant Receivables
The Company reviews its rent and other tenant receivables for collectability on a regular basis, considering changes in factors such as the tenant’s payment history, the tenant’s financial condition, industry conditions in which the tenant operates and economic conditions in the geographic area in which the tenant operates. If a receivable is not probable of collection, a direct write-off of the receivable will be made. The Company had accounts receivable balances of $18.4 million and $21.7 million at June 30, 2022 and December 31, 2021, respectively, after the impact of $1.9 million and $3.9 million of receivables, respectively, that were deemed not probable of collection. These receivables are recorded within deferred cost and other assets, net in the accompanying consolidated balance sheets.
For receivable balances related to the straight-line method of recognizing rental income, the collectability is generally assessed in conjunction with the evaluation of rental income as described above. The Company had straight-line rent receivables of $154.3 million and $137.6 million at June 30, 2022 and December 31, 2021, respectively, after the impact of $1.4 million and $2.6 million of receivables, respectively, that were deemed not probable of collection. These receivables are recorded within deferred costs and other assets, net in the accompanying consolidated balance sheets.
Goodwill
Goodwill arises from business combinations as the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the identifiable assets acquired and the liabilities assumed. Goodwill is tested for impairment at the reporting unit level annually or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Company performs a qualitative assessment to determine if the quantitative impairment test is necessary. The quantitative impairment test, if deemed necessary, compares the fair value of each reporting unit with its carrying amount and impairment is recognized as the amount by which the carrying amount exceeds the reporting unit’s fair value. No impairment was recorded for the periods presented.
Income Taxes
The Corporation has elected to be taxed as a REIT under the Code. As a REIT, the Corporation 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 the Company’s assets, the amounts distributed to the Corporation’s stockholders and the ownership of Corporation stock. Management believes the Corporation has qualified and will continue to qualify as a REIT. Even if the Corporation 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. Taxable income earned by any of the Company's taxable REIT subsidiaries, including from non-REIT activities, is subject to federal, state and local taxes. Taxable income from non-REIT activities managed through any of the Company's taxable REIT subsidiaries is subject to federal, state and local taxes, which are not material.
Earnings Per Share
The Company’s unvested restricted common stock, which contains non-forfeitable rights to receive dividends, are considered participating securities requiring the two-class method of computing earnings per share. Under the two-class method, earnings per common share are 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 their respective weighted average shares outstanding during the period.
14
Under the terms of the Amended Incentive Award Plan, restricted stock awards are not allocated losses, including undistributed losses as a result of dividends declared exceeding net income. The Company uses income (loss) from continuing operations to determine whether potential common shares are dilutive or anti-dilutive and undistributed net income (loss) to determine whether undistributed earnings are allocable to participating securities.
Forward Equity Sale Agreements
The Corporation may enter into forward sale agreements for the sale and issuance of shares of its common stock, either through an underwritten public offering or through the 2021 ATM Program. These agreements may be physically settled in stock, settled in cash, or net share settled at the Company’s election. The Company evaluated the forward sale agreements and concluded they meet the conditions to be classified within stockholders’ equity. Prior to settlement, a forward sale agreement will be reflected in the diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of the Corporation’s common stock used in diluted earnings per share is deemed to be increased by the excess, if any, of the number of shares of the Corporation’s common stock that would be issued upon full physical settlement of such forward sale agreement over the number of shares of the Corporation’s common stock that could be purchased by the Company in the market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period). Consequently, prior to settlement of a forward sale agreement, there will be no dilutive effect on the Company’s earnings per share except during periods when the average market price of the Corporation’s common stock is above the adjusted forward sale price. However, upon settlement of a forward sales agreement, if the Corporation elects to physically settle or net share settle such forward sale agreement, delivery of the Corporation’s shares will result in dilution to the Company’s earnings per share.
NOTE 3. INVESTMENTS
Owned Properties
As of June 30, 2022, the Company's gross investment in owned real estate properties totaled approximately $8.8 billion. The gross investment is comprised of land, buildings, lease intangible assets and lease intangible liabilities, as adjusted for any impairment, real estate assets held under direct financing leases and real estate assets held for sale. The portfolio is geographically dispersed throughout 49 states with Texas, at 14.1%, as the only state with a gross investment greater than 10.0% of the total gross investment of the Company's entire portfolio. During the six months ended June 30, 2022, the Company had the following real estate activity (dollars in thousands):
|
|
Number of Properties |
|
|
Dollar Amount of Investments |
|
||||||||||||||||||
|
|
Held in Use |
|
|
Held for Sale |
|
|
Total |
|
|
Held in Use |
|
|
Held for Sale |
|
|
Total |
|
||||||
Gross balance, December 31, 2021 |
|
|
2,000 |
|
|
|
3 |
|
|
|
2,003 |
|
|
$ |
7,934,823 |
|
|
$ |
8,362 |
|
|
$ |
7,943,185 |
|
Acquisitions/improvements (1) |
|
|
97 |
|
|
|
— |
|
|
|
97 |
|
|
|
920,368 |
|
|
|
— |
|
|
|
920,368 |
|
Dispositions of real estate (2) (3) |
|
|
(11 |
) |
|
|
(11 |
) |
|
|
(22 |
) |
|
|
(60,657 |
) |
|
|
(17,471 |
) |
|
|
(78,128 |
) |
Transfers to Held for Sale |
|
|
(10 |
) |
|
|
10 |
|
|
|
— |
|
|
|
(14,985 |
) |
|
|
14,985 |
|
|
|
— |
|
Impairments (4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,398 |
) |
|
|
— |
|
|
|
(9,398 |
) |
Reset of gross balances (5) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,853 |
) |
|
|
— |
|
|
|
(11,853 |
) |
Gross balance, June 30, 2022 |
|
|
2,076 |
|
|
|
2 |
|
|
|
2,078 |
|
|
|
8,758,298 |
|
|
|
5,876 |
|
|
|
8,764,174 |
|
Accumulated depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,302,670 |
) |
|
|
(1,197 |
) |
|
|
(1,303,867 |
) |
Net balance, June 30, 2022 (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,455,628 |
|
|
$ |
4,679 |
|
|
$ |
7,460,307 |
|
(1) |
Includes investments of $36.5 million in revenue producing capitalized expenditures, as well as $8.0 million of non-revenue producing capitalized expenditures during the six months ended June 30, 2022. |
(2) |
For the six months ended June 30, 2022, the net gains on disposal of properties held in use and held for sale were $37.0 million and $2.8 million, respectively. |
(3) |
During the six months ended June 30, 2022, the Company sold eight properties pursuant to a 1031 Exchange for $88.1 million. As of June 30, 2022, $58.9 million of the proceeds had been used to fund acquisitions. |
(4) |
Impairments on owned real estate is comprised of real estate and intangible asset impairment. |
(5) |
Represents write-off of gross investment balances against the related accumulated depreciation and amortization balances as a result of basis reset due to impairment or intangibles which have been fully amortized. |
(6) |
Reconciliation of total owned investments to the accompanying consolidated balance sheet at June 30, 2022 is as follows: |
Real estate assets held for investment, net |
|
$ |
7,128,339 |
|
||
Intangible lease assets, net |
|
|
|
|
443,345 |
|
Real estate assets under direct financing leases, net |
|
|
|
|
7,441 |
|
Real estate assets held for sale, net |
|
|
|
|
4,679 |
|
Intangible lease liabilities, net |
|
|
|
|
(123,497 |
) |
Net balance |
|
|
|
$ |
7,460,307 |
|
15
Operating Leases
As of June 30, 2022, December 31, 2021 and June 30, 2021, the Company held 2,073; 1,998; and 1,880 properties under operating leases, respectively. The following table summarizes the components of rental income recognized on these operating leases in the accompanying consolidated statements of operations (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Base Cash Rent (1) |
|
$ |
157,950 |
|
|
$ |
137,784 |
|
|
$ |
308,585 |
|
|
$ |
262,981 |
|
Variable cash rent (including reimbursables) |
|
|
6,016 |
|
|
|
4,311 |
|
|
|
13,234 |
|
|
|
7,325 |
|
Straight-line rent, net of uncollectible reserve (2) |
|
|
9,015 |
|
|
|
21,428 |
|
|
|
17,590 |
|
|
|
27,101 |
|
Amortization of above- and below- market lease intangibles, net (3) |
|
|
578 |
|
|
|
926 |
|
|
|
1,225 |
|
|
|
1,700 |
|
Total rental income |
|
$ |
173,559 |
|
|
$ |
164,449 |
|
|
$ |
340,634 |
|
|
$ |
299,107 |
|
(1) |
Includes net impact of amounts recovered of zero and $0.1 million for the three and six months ended June 30, 2022, and $6.8 million and $5.7 million for the three and six months ended June 30, 2021, respectively. |
(2) |
Includes net impact of amounts (reserved)/recovered of $(0.1) million for both the three and six months ended June 30, 2022, and $13.2 million and $11.0 million for the three and six months ended June 30, 2021, respectively. |
(3) |
Excludes amortization of in-place leases of $10.9 million and $21.3 million for the three and six months ended June 30, 2022, respectively, and $9.7 million and $18.8 million for the three and six months ended June 30, 2021, respectively, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. |
Scheduled minimum future rent to be received under the remaining non-cancellable term of these operating leases (including contractual fixed rent increases occurring on or after July 1, 2022) at June 30, 2022 are as follows (in thousands):
|
|
June 30, 2022 |
|
|
Remainder of 2022 |
|
$ |
323,147 |
|
2023 |
|
|
641,754 |
|
2024 |
|
|
627,075 |
|
2025 |
|
|
615,170 |
|
2026 |
|
|
587,254 |
|
Thereafter |
|
|
4,599,918 |
|
Total future minimum rentals |
|
$ |
7,394,318 |
|
Because lease renewal periods are exercisable at the lessees' options, 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 rents based on a percentage of the lessees' gross sales or lease escalations based on future changes in the CPI.
The following table details lease intangible assets and liabilities, net of accumulated amortization (in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
In-place leases |
|
$ |
565,999 |
|
|
$ |
536,344 |
|
Above-market leases |
|
|
101,522 |
|
|
|
100,837 |
|
Less: accumulated amortization |
|
|
(224,176 |
) |
|
|
(210,209 |
) |
Intangible lease assets, net |
|
$ |
443,345 |
|
|
$ |
426,972 |
|
|
|
|
|
|
|
|
|
|
Below-market leases |
|
$ |
186,434 |
|
|
$ |
188,718 |
|
Less: accumulated amortization |
|
|
(62,937 |
) |
|
|
(60,641 |
) |
Intangible lease liabilities, net |
|
$ |
123,497 |
|
|
$ |
128,077 |
|
Direct Financing Leases
As of June 30, 2022, the Company held one property under a direct financing lease, which was held in use. As of June 30, 2022, this property had $2.8 million in scheduled minimum future payments to be received under its remaining non-cancellable lease term. As of June 30, 2022, the Company had a reserve of $0.1 million against the investment balance of $7.5 million, which was initially recorded in 2020 as a result of the initial term of the direct financing lease extending until 2027.
16
Loans Receivable
During 2022, the Company issued a fixed-rate, construction loan for $12.7 million. The Company evaluated the collectability of the amounts receivable under the loan and recorded an allowance for loan losses of $0.1 million for the six months ended June 30, 2022. As of June 30, 2022, the Company held two fixed rate loans receivable with total outstanding principal of $23.7 million and a total allowance for credit losses of $0.7 million.
Impairments
The following table summarizes total impairments recognized in the accompanying consolidated statements of operations (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Real estate asset impairment |
|
$ |
8,903 |
|
|
$ |
7,749 |
|
|
$ |
8,903 |
|
|
$ |
13,783 |
|
Intangible asset impairment |
|
|
495 |
|
|
|
51 |
|
|
|
495 |
|
|
|
747 |
|
Allowance for credit losses on loans receivable |
|
|
— |
|
|
|
— |
|
|
|
127 |
|
|
|
— |
|
Total impairment loss |
|
$ |
9,398 |
|
|
$ |
7,800 |
|
|
$ |
9,525 |
|
|
$ |
14,530 |
|
NOTE 4. DEBT
The Company's debt is summarized below (dollars in thousands):
|
|
Weighted Average Effective Interest Rates (1) |
|
|
Weighted Average Stated Interest Rates (2) |
|
|
Weighted Average Remaining Years to Maturity (3) |
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|||||
Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facilities |
|
2.06% |
|
|
1.62% |
|
|
|
|
|
|
$ |
694,500 |
|
|
$ |
288,400 |
|
||
Senior Unsecured Notes |
|
3.42% |
|
|
3.25% |
|
|
|
|
|
|
|
2,750,000 |
|
|
|
2,750,000 |
|
||
Mortgages payable |
|
4.87% |
|
|
5.82% |
|
|
|
|
|
|
|
5,091 |
|
|
|
5,350 |
|
||
Total debt |
|
3.19% |
|
|
2.92% |
|
|
|
|
|
|
|
3,449,591 |
|
|
|
3,043,750 |
|
||
Debt discount, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,196 |
) |
|
|
(10,824 |
) |
Deferred financing costs, net (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,062 |
) |
|
|
(20,334 |
) |
Total debt, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,420,333 |
|
|
$ |
3,012,592 |
|
(1) |
Includes amortization of debt discount/premium, amortization of deferred financing costs, facility fees, and non-utilization fees, where applicable, calculated for the six months ended June 30, 2022 based on the average principal balance outstanding during the period. |
(2) |
Represents the weighted average stated interest rate based on the outstanding principal balance as of June 30, 2022. |
(3) |
Represents the weighted average remaining years to maturity based on the outstanding principal balance as of June 30, 2022. |
(4) |
Excludes deferred financing costs for the revolving credit facilities. |
Deferred financing costs and offering discount/premium incurred in connection with entering into debt agreements are amortized to interest expense over the initial term of the respective agreement. Both deferred financing costs and offering discount/premium are recorded net against the principal debt balance on the consolidated balance sheets, except for deferred costs related to revolving credit facilities, which are recorded in deferred costs and other assets, net.
Revolving Credit Facilities
On January 14, 2019, the Operating Partnership entered into the 2019 Revolving Credit and Term Loan Agreement, which included the 2019 Credit Facility with a borrowing capacity of $800.0 million. On March 30, 2022, the Operating Partnership amended and restated the 2019 Revolving Credit and Term Loan Agreement, increasing the borrowing capacity of the 2019 Credit Facility to $1.2 billion. The borrowing capacity can be further increased by $500.0 million through exercise of an accordion feature, subject to satisfying certain requirements. The 2019 Credit Facility has a maturity date of March 31, 2026 and includes two
extensions that can be exercised at the Company’s option. Borrowings may be repaid, in whole or in part, at any time, without premium or penalty, but subject to applicable breakage fees, if any.As of June 30, 2022, outstanding loans under the 2019 Credit Facility bore interest at a 1-Month adjusted SOFR rate plus an applicable margin of 0.775% per annum and the aggregate revolving commitments incurred a facility fee of 0.150% per annum, in each case, based on the Operating Partnership’s credit rating and leverage ratio (as defined in the agreement). Prior to March 30, 2022, outstanding loans under the 2019 Credit Facility bore interest at 1-Month LIBOR plus an applicable margin of 0.90% per annum and the aggregate revolving commitments incurred a facility fee of 0.20% per annum.
17
In connection with the amendment and restatement of the 2019 Credit Facility, the Company wrote off $0.2 million in deferred financing costs and incurred deferred financing costs of $8.6 million. The unamortized deferred financing costs were $9.1 million as of June 30, 2022, compared to $1.4 million as of December 31, 2021.
As of June 30, 2022, $505.5 million of borrowing capacity was available under the 2019 Credit Facility and there were no outstanding letters of credit. The Operating Partnership's ability to borrow under the 2019 Credit Facility is subject to ongoing compliance with a number of customary financial and other affirmative and negative covenants, all of which the Company and the Operating Partnership were in compliance with as of June 30, 2022.
Term Loans
On April 2, 2020, the Operating Partnership entered into the 2020 Term Loan Agreement. On January 4, 2021, the remaining $178.0 million of 2020 Term Loans were fully repaid and the related unamortized deferred financing costs were written-off.
Senior Unsecured Notes
The Senior Unsecured Notes were issued by the Operating Partnership and are guaranteed by the Company. The following is a summary of the Senior Unsecured Notes outstanding (dollars in thousands):
|
|
Maturity Date |
|
Interest Payment Dates |
|
Stated Interest Rate |
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
2026 Senior Notes |
|
September 15, 2026 |
|
March 15 and September 15 |
|
4.45% |
|
|
$ |
300,000 |
|
|
$ |
300,000 |
|
2027 Senior Notes |
|
January 15, 2027 |
|
January 15 and July 15 |
|
3.20% |
|
|
|
300,000 |
|
|
|
300,000 |
|
2028 Senior Notes |
|
March 15, 2028 |
|
March 15 and September 15 |
|
2.10% |
|
|
|
450,000 |
|
|
|
450,000 |
|
2029 Senior Notes |
|
July 15, 2029 |
|
January 15 and July 15 |
|
4.00% |
|
|
|
400,000 |
|
|
|
400,000 |
|
2030 Senior Notes |
|
January 15, 2030 |
|
January 15 and July 15 |
|
3.40% |
|
|
|
500,000 |
|
|
|
500,000 |
|
2031 Senior Notes |
|
February 15, 2031 |
|
February 15 and August 15 |
|
3.20% |
|
|
|
450,000 |
|
|
|
450,000 |
|
2032 Senior Notes |
|
February 15, 2032 |
|
February 15 and August 15 |
|
2.70% |
|
|
|
350,000 |
|
|
|
350,000 |
|
Total Senior Unsecured Notes |
|
|
|
3.25% |
|
|
$ |
2,750,000 |
|
|
$ |
2,750,000 |
|
On March 3, 2021, the Operating Partnership issued $800.0 million aggregate principal amount of Senior Unsecured Notes, comprised of the 2028 Senior Notes and 2032 Senior Notes, resulting in net proceeds of $787.7 million. In connection with the March 2021 offering, the Operating Partnership incurred $7.1 million in deferred financing costs and an offering discount of $5.2 million.
The Senior Unsecured Notes are redeemable in whole at any time or in part from time to time, at the Operating Partnership’s option, at a redemption price equal to the sum of 100% of the principal amount of the respective Senior Unsecured Notes to be redeemed plus accrued and unpaid interest and liquidated damages, if any, up to, but not including, the redemption date; and a make-whole premium. If any of the Senior Unsecured Notes are redeemed three months or less (or two months or less in the case of the 2027 Senior Notes and 2028 Senior Notes) prior to their respective maturity dates, the redemption price will not include a make-whole premium.
As of June 30, 2022 and December 31, 2021, the unamortized deferred financing costs were $19.1 million and $20.3 million, respectively, and the unamortized discount was $10.4 million and $11.0 million, respectively. In connection with the issuance of the Senior Unsecured Notes, the Company and Operating Partnership are subject to ongoing compliance with a number of customary financial and other affirmative and negative covenants, all of which the Company and the Operating Partnership were in compliance with as of June 30, 2022.
Mortgages Payable
Indirect wholly-owned special purpose entity subsidiaries of the Company were borrowers under five fixed-rate non-recourse loans, which were securitized into CMBS and secured by the borrowers’ respective leased properties and related assets. In connection with the issuance of the 2028 and 2032 Senior Unsecured Notes, the Company repaid three of these loans in March 2021 and, as of June 30, 2022, had two non-defaulted loans with stated interest rates of 5.80% and 6.00%, respectively. Each loan was secured by one property. There were no unamortized deferred financing costs as of either June 30, 2022 and December 31, 2021, and the unamortized net premium as of both June 30, 2022 and December 31, 2021 was $0.2 million.
18
Convertible Notes
In May 2014, the Company issued $345.0 million aggregate principal amount of 3.75% convertible notes. During the year ended December 31, 2020, the Company repurchased $154.6 million of the 2021 Convertible Notes in cash. The remaining 2021 Convertible Notes matured on May 15, 2021 at which time they were settled in cash and the remaining discount and deferred financing costs were fully amortized.
Debt Extinguishment
During the six months ended June 30, 2022, the Company recognized a loss on debt extinguishment of $0.2 million as a result of the amendment and restatement of the 2019 Revolving Credit and Term Loan Agreement.
During the six months ended June 30, 2021, the Company extinguished the following debt:
|
• |
$178.0 million of indebtedness outstanding under the 2020 Term Loans, resulting in a loss on debt extinguishment of $0.7 million, |
|
• |
$207.4 million aggregate principal amount of CMBS indebtedness on three loans secured by 86 properties, resulting in a loss on debt extinguishment of $28.5 million, and |
|
• |
$190.4 million of Convertible Notes upon their maturity. |
Debt Maturities
As of June 30, 2022, scheduled debt maturities, including balloon payments, were as follows (in thousands):
|
|
Scheduled Principal |
|
|
Balloon Payment |
|
|
Total |
|
|||
Remainder of 2022 |
|
$ |
266 |
|
|
$ |
— |
|
|
$ |
266 |
|
2023 |
|
|
556 |
|
|
|
— |
|
|
|
556 |
|
2024 |
|
|
590 |
|
|
|
— |
|
|
|
590 |
|
2025 |
|
|
610 |
|
|
|
16 |
|
|
|
626 |
|
2026 |
|
|
468 |
|
|
|
994,500 |
|
|
|
994,968 |
|
Thereafter |
|
|
2,532 |
|
|
|
2,450,053 |
|
|
|
2,452,585 |
|
Total |
|
$ |
5,022 |
|
|
$ |
3,444,569 |
|
|
$ |
3,449,591 |
|
Interest Expense
The following table is a summary of the components of interest expense related to the Company's borrowings (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revolving credit facilities (1) |
|
$ |
3,148 |
|
|
$ |
558 |
|
|
$ |
4,970 |
|
|
$ |
1,353 |
|
Term loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24 |
|
Senior Unsecured Notes |
|
|
22,313 |
|
|
|
22,313 |
|
|
|
44,626 |
|
|
|
41,370 |
|
Mortgages payable |
|
|
75 |
|
|
|
82 |
|
|
|
152 |
|
|
|
2,346 |
|
Convertible Notes |
|
|
— |
|
|
|
873 |
|
|
|
— |
|
|
|
2,658 |
|
Non-cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs |
|
|
1,240 |
|
|
|
1,005 |
|
|
|
2,162 |
|
|
|
2,116 |
|
Amortization of debt discount, net |
|
|
316 |
|
|
|
637 |
|
|
|
629 |
|
|
|
1,523 |
|
Amortization of net losses related to interest rate swaps |
|
|
702 |
|
|
|
702 |
|
|
|
1,404 |
|
|
|
1,404 |
|
Capitalized interest |
|
|
(200 |
) |
|
|
— |
|
|
|
(326 |
) |
|
|
— |
|
Total interest expense |
|
$ |
27,594 |
|
|
$ |
26,170 |
|
|
$ |
53,617 |
|
|
$ |
52,794 |
|
(1) |
Includes facility fees of approximately $0.4 million and $0.9 million for both the three and six months ended June 30, 2022 and 2021, respectively. |
19
NOTE 5. STOCKHOLDERS’ EQUITY
Common Stock
In January 2022, the Company entered into forward sale agreements in connection with an offering of 9.4 million shares of common stock at an initial public offering price of $47.60 per share, before underwriting discounts and offering expenses. The Company did not receive any proceeds from the sale of its shares of common stock by the forward purchasers at the time of the offering. During the six months ended June 30, 2022, the Company settled 8.3 million of these shares, generating net proceeds of $376.4 million. As of June 30, 2022, 1.1 million of these shares remained open, with a final settlement date of July 19, 2023.
In November 2020, the Board of Directors approved a new $500.0 million ATM Program, and the Company terminated its 2016 ATM Program. From inception of the 2020 ATM Program through its termination in November 2021, 9.3 million shares of the Company’s common stock were sold, all through forward sale agreements. All of these shares were settled during the year ended December 31, 2021, generating net proceeds of $391.4 million.
In November 2021, the Board of Directors approved a new $500.0 million ATM Program, and the Company terminated its 2020 ATM Program. Since inception of the 2021 ATM Program through June 30, 2022, 2.9 million shares of the Company’s common stock have been sold, of which 2.5 million were sold through forward sale agreements. 0.2 million of these shares were sold during the six months ended June 30, 2022. During the six months ended June 30, 2022, 0.3 million shares were issued to settle forward contracts for net proceeds of $13.3 million. As of June 30, 2022, there were no open forward contracts under the 2021 ATM Program and approximately $364.9 million of capacity remained available.
Preferred Stock
As of June 30, 2022, the Company had 6.9 million shares of 6.00% Series A Preferred Stock outstanding. The Series A Preferred Stock pays cumulative cash dividends at the rate of 6.00% per annum on the liquidation preference of $25.00 per share (equivalent to $1.50 per share on an annual basis).
Dividends Declared
For the six months ended June 30, 2022, the Company's Board of Directors declared the following dividends:
Declaration Date |
|
Dividend Per Share |
|
|
Record Date |
|
Total Amount (in thousands) |
|
|
Payment Date |
||
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
February 9, 2022 |
|
$ |
0.638 |
|
|
March 31, 2022 |
|
$ |
85,688 |
|
|
April 14, 2022 |
May 18, 2022 |
|
$ |
0.638 |
|
|
June 30, 2022 |
|
$ |
86,987 |
|
|
July 15, 2022 |
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
February 9, 2022 |
|
$ |
0.375 |
|
|
March 15, 2022 |
|
$ |
2,588 |
|
|
March 31, 2022 |
May 18, 2022 |
|
$ |
0.375 |
|
|
June 15, 2022 |
|
$ |
2,588 |
|
|
June 30, 2022 |
The common stock dividend declared on May 18, 2022 is included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheet as of June 30, 2022.
NOTE 6. 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 typically insured against such claims. The Company was contingently liable for $5.7 million of debt owed by one of its former tenants, which was fully accrued in accounts payable, accrued expenses and other liabilities in the consolidated balance sheet as of December 31, 2021. No payments were made in relation to this contingent liability. Therefore, upon the maturity of the tenant’s debt on March 15, 2022, the Company reversed the full $5.7 million of the accrued liability, which is reflected as other income in the consolidated statement of operations.
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 consolidated financial statements. As of June 30, 2022, no accruals have been made.
20
As of June 30, 2022, 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.
Purchase and Capital Improvement Commitments
As of June 30, 2022, the Company had commitments totaling $214.5 million, of which $126.1 million relates to future acquisitions and the remainder relates to improvements on properties the Company already owns. Acquisition commitments contain standard cancellation clauses contingent on the results of due diligence. $155.1 million of the Company’s commitments are expected to be funded during 2022, with the remainder to be funded by the end of 2023.
Lessee Contracts
The Company leases its corporate office space and certain office equipment, which are classified as operating leases. The Company's corporate office lease has an initial term through January 31, 2027 and is renewable at the Company's option for two additional periods of five years each after the initial term. The corporate office lease contains a variable cost for the lease of parking spaces and a non-lease component related to the reimbursement of certain common area maintenance expenses, both of which are recognized as incurred.
As of June 30, 2022, the Company is also a lessee under four long-term, non-cancellable ground leases under which it is obligated to pay monthly rent. For all of the ground leases, rental expenses are reimbursed by unrelated third parties, and the corresponding rental revenue is recorded in rental income on the accompanying consolidated statements of operations. All leases are classified as operating leases and have a weighted average remaining lease term of 5.5 years. As of June 30, 2022 and December 31, 2021, the Company had a right-of-use lease asset balance of $3.8 million and $3.7 million, respectively, and operating lease liabilities of $5.1 million as of both June 30, 2022 and December 31, 2021 for these leases.
NOTE 7. DERIVATIVE AND HEDGING ACTIVITIES
The Company may use 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. Assessments of hedge effectiveness are performed quarterly using either a qualitative or quantitative approach. The Company recognizes the entire change in the fair value in AOCL and the change is reflected as cash flow hedge changes in fair value in the supplemental disclosures of non-cash investing and financing activities in the consolidated statement of cash flows. Amounts will subsequently be reclassified to earnings when the hedged item affects earnings. The Company does not enter into derivative contracts for speculative or trading purposes and does not have derivative netting arrangements.
In December 2018, the Company entered into interest rate swap agreements. In the third quarter of 2019, the Company terminated those interest rate swaps and accelerated the reclassification of a loss of $12.5 million from AOCL to termination of interest rate swaps as a result of a portion of the hedged forecasted transactions becoming probable not to occur. There were no events of default related to the interest rate swaps prior to their termination. Given that a portion of the hedged transactions remained probable to occur, $12.3 million of the loss was deferred in other comprehensive loss and is being amortized over the remaining initial term of the interest rate swaps, which ends January 31, 2024. As of June 30, 2022, the unamortized portion of loss in AOCL related to terminated interest rate swaps was $4.4 million.
The amount of loss reclassified from AOCL to interest expense was $0.7 million for both the three months ended June 30, 2022 and 2021. The amount of loss reclassified from AOCL to interest expense was $1.4 million for both the six months ended June 30, 2022 and 2021. During the next 12 months, we estimate that approximately $2.8 million will be reclassified as an increase to interest expense related to terminated hedges of existing floating-rate debt.
NOTE 8. FAIR VALUE MEASUREMENTS
Nonrecurring Fair Value Measurements
Fair value measurement of an asset on a nonrecurring basis occurs when events or changes in circumstances related to an asset indicate that the carrying amount of the asset is no longer recoverable. Real estate assets and their related intangible assets are evaluated for impairment based on certain indicators including, but not limited to: the asset being held for sale, vacant, tenant bankruptcy or delinquency, and leases expiring in 60 days or less. The fair values of real estate and intangible assets were determined using the following information, depending on availability, in order of preference: signed purchase and sale agreements (“PSA”) or letters of intent (“LOI”); broker opinions of value (“BOV”); recently quoted bid or ask prices, or market prices for comparable properties; estimates of discounted cash flows, which consider, among other things, contractual and forecasted rental revenues, leasing assumptions, expenses based upon market conditions and capitalization rates; and expectations for the use of the real estate.
21
The following table sets forth the Company’s assets that were accounted for at fair value on a nonrecurring basis as of their respective measurement dates (in thousands):
|
|
|
|
|
|
Fair Value Hierarchy Level |
|
|||||||||
Description |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets held at June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired at March 31, 2022 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Impaired at June 30, 2022 |
|
$ |
9,206 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held at December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired at March 31, 2021 |
|
$ |
1,739 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,739 |
|
Impaired at June 30, 2021 |
|
$ |
9,655 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,655 |
|
Impaired at September 30, 2021 |
|
$ |
3,479 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,479 |
|
Impaired at December 31, 2021 |
|
$ |
11,656 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,656 |
|
As of June 30, 2022, the Company held three properties that were impaired during 2022. As of December 31, 2021, the Company held 14 properties that were impaired during 2021. For one property held at December 31, 2021, the Company estimated fair value using a capitalization rate of 14.00% based on capitalization rates from market comparables. For the remaining properties, the Company estimated property fair value using price per square foot from unobservable inputs. The unobservable inputs for the remaining properties are as follows:
Unobservable Input |
|
Asset Type |
|
Property Count |
|
|
Price Per Square Foot Range |
|
Weighted Average Price Per Square Foot |
|
|
Square Footage |
|
|||
June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSA, LOI or BOV |
|
Retail |
|
|
1 |
|
|
$115.95 |
|
$ |
115.95 |
|
|
|
10,349 |
|
PSA, LOI or BOV |
|
Data Center |
|
|
1 |
|
|
$24.94 |
|
$ |
24.94 |
|
|
|
188,475 |
|
Comparable Properties |
|
Retail |
|
|
1 |
|
|
$60.14 - $75.51 |
|
$ |
69.28 |
|
|
|
48,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSA, LOI or BOV |
|
Retail |
|
|
6 |
|
|
$63.83 - $418.57 |
|
$ |
102.35 |
|
|
|
39,603 |
|
PSA, LOI or BOV |
|
Medical |
|
|
2 |
|
|
$65.63 - $105.16 |
|
$ |
75.60 |
|
|
|
41,496 |
|
PSA, LOI or BOV |
|
Data Center |
|
|
1 |
|
|
$38.57 |
|
$ |
38.57 |
|
|
|
188,475 |
|
Comparable Properties |
|
Retail |
|
|
3 |
|
|
$29.35 - $483.09 |
|
$ |
67.48 |
|
|
|
42,357 |
|
Comparable Properties |
|
Medical |
|
|
1 |
|
|
$78.66 - $106.35 |
|
$ |
95.00 |
|
|
|
15,974 |
|
Estimated Fair Value of Financial Instruments
Financial assets and liabilities for which the carrying values approximate their fair values include cash and cash equivalents, restricted cash and escrow deposits; and accounts receivable and payable. Generally, these assets and liabilities are short-term in duration and are recorded at cost, which approximates fair value, on the accompanying consolidated balance sheets. In addition, 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 measurement date. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities. The estimated fair values of these financial instruments have been derived either based on (i) market quotes for identical or similar instruments in markets or (ii) discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. The estimated fair values of the Senior Unsecured Notes are classified as Level 1 of the fair value of the hierarchy and the remaining estimates are classified as Level 2.
The following table discloses fair value information for these financial instruments (in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
|
Carrying Value |
|
|
Estimated Fair Value |
|
|
Carrying Value |
|
|
Estimated Fair Value |
|
||||
Loans receivable, net(1) |
|
$ |
23,023 |
|
|
$ |
23,884 |
|
|
$ |
10,450 |
|
|
$ |
11,381 |
|
2019 Credit Facility |
|
|
694,500 |
|
|
|
717,596 |
|
|
|
288,400 |
|
|
|
288,549 |
|
Senior Unsecured Notes, net (2) |
|
|
2,720,562 |
|
|
|
2,408,658 |
|
|
|
2,718,641 |
|
|
|
2,865,187 |
|
Mortgages payable, net (2) |
|
|
5,271 |
|
|
|
5,088 |
|
|
|
5,551 |
|
|
|
5,748 |
|
(1) |
The carrying value of the loans receivable are net of an allowance for credit losses. |
(2) |
The carrying value of the debt instruments are net of unamortized deferred financing costs and certain debt discounts/premiums. |
22
NOTE 9. INCENTIVE AWARD PLAN
Amended Incentive Award Plan
Pursuant to the Amended Incentive Award Plan, restricted share awards and market-based awards are granted to certain of the Company’s officers, directors and other employees. The vesting of these awards results in federal and state income tax liabilities for the recipients. As permitted by the terms of the Amended Incentive Award Plan and the award grants, certain executive officers and employees elected to surrender shares of common stock valued at $6.4 million during the six months ended June 30, 2022 solely to pay the associated statutory tax withholdings.
Restricted Share Awards
During the six months ended June 30, 2022, the Company granted 122 thousand restricted shares under the Amended Incentive Award Plan to certain directors and employees and recorded $5.6 million in deferred compensation associated with these grants. Deferred compensation for restricted shares will be recognized in expense over the requisite service period, which generally ranges from one to three years. As of June 30, 2022, there were approximately 216 thousand unvested restricted shares outstanding.
Market-Based Awards
During the six months ended June 30, 2022, the Board of Directors, or committee thereof, approved target grants of 166 thousand market-based awards to executive officers of the Company. The performance period of these grants is generally three years. Potential shares of the Corporation’s common stock that each participant is eligible to receive is based on the initial target number of shares granted, multiplied by a percentage range between 0% and 375%. Grant date fair value of the market-based awards was calculated using the Monte Carlo simulation model, which incorporated stock price volatility of the Company and each of the Company’s peers and other variables over the time horizons matching the performance periods. Significant inputs for the calculation for the grants approved in 2022 were expected volatility of the Company of 39.5% and expected volatility of the Company's peers, ranging from 21.5% to 53.6%, with an average volatility of 35.7% and a risk-free interest rate of 1.59%. The fair value of the market-based award per share of these grants was $93.26 as of the grant date.
Approximately $2.4 million and $3.3 million in dividend rights have been accrued as of June 30, 2022 and December 31, 2021, respectively. For outstanding non-vested awards at June 30, 2022, 0.3 million shares would have been released based on the Corporation’s TSR relative to the specified peer groups through that date.
Stock-based Compensation Expense
Stock-based compensation is recognized on a straight-line basis over the minimum required service period of each award described above. The Company recorded stock-based compensation expense of $4.4 million and $8.4 million for the three and six months ended June 30, 2022, respectively, and $3.6 million and $7.0 million for the three and six months ended June 30, 2021, respectively. These amounts are included in general and administrative expenses in the accompanying consolidated statements of operations.
The following is a summary of remaining unamortized stock-based compensation expense (in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Restricted share awards |
|
$ |
7,551 |
|
|
$ |
4,787 |
|
Market-based awards |
|
|
21,130 |
|
|
|
11,143 |
|
Total unamortized stock-based compensation expense |
|
$ |
28,681 |
|
|
$ |
15,930 |
|
23
NOTE 10. INCOME PER SHARE
The table below is a reconciliation of the numerator and denominator used in the computation of basic and diluted net income per share computed using the two-class method (dollars in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Basic and diluted income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
82,740 |
|
|
$ |
87,924 |
|
|
$ |
138,796 |
|
|
$ |
86,455 |
|
Less: dividends paid to preferred stockholders |
|
|
(2,588 |
) |
|
|
(2,588 |
) |
|
|
(5,176 |
) |
|
|
(5,176 |
) |
Less: dividends and income attributable to unvested restricted stock |
|
|
(138 |
) |
|
|
(164 |
) |
|
|
(269 |
) |
|
|
(286 |
) |
Net income attributable to common stockholders used in basic and diluted income per share |
|
$ |
80,014 |
|
|
$ |
85,172 |
|
|
$ |
133,351 |
|
|
$ |
80,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding |
|
|
134,359,638 |
|
|
|
115,244,135 |
|
|
|
131,293,692 |
|
|
|
115,097,726 |
|
Less: unvested weighted average shares of restricted stock |
|
|
(212,097 |
) |
|
|
(238,395 |
) |
|
|
(226,893 |
) |
|
|
(257,329 |
) |
Basic weighted average shares of common stock outstanding |
|
|
134,147,541 |
|
|
|
115,005,740 |
|
|
|
131,066,799 |
|
|
|
114,840,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common stockholders - basic |
|
$ |
0.60 |
|
|
$ |
0.74 |
|
|
$ |
1.02 |
|
|
$ |
0.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares of common stock outstanding: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: unvested market-based awards |
|
|
71,909 |
|
|
|
385,588 |
|
|
|
195,130 |
|
|
|
287,049 |
|
Plus: unsettled shares under open forward equity contracts |
|
|
— |
|
|
|
166,227 |
|
|
|
45,128 |
|
|
|
84,848 |
|
Diluted weighted average shares of common stock outstanding |
|
|
134,219,450 |
|
|
|
115,557,555 |
|
|
|
131,307,057 |
|
|
|
115,212,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common stockholders - diluted |
|
$ |
0.60 |
|
|
$ |
0.74 |
|
|
$ |
1.02 |
|
|
$ |
0.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive shares of common stock related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted share awards |
|
|
33,614 |
|
|
|
70,575 |
|
|
|
71,921 |
|
|
|
85,220 |
|
(1) |
Assumes the most dilutive issuance of potentially issuable shares between the two-class and treasury stock method unless the result would be anti-dilutive. |
NOTE 11. SUBSEQUENT EVENTS
On July 28, 2022, the Company entered into two interest rate swaps for notional amounts of $300.0 million and $200.0 million, to swap 1-Month SOFR with fixed interest rates of 2.501% and 2.507%, respectively. Both interest rate swaps have an effective date of September 15, 2022 and mature on August 22, 2027.
On August 1, 2022, the Company entered into one interest rate swap for a notional amount of $300.0 million, to swap 1-Month SOFR with a fixed interest rate of 2.636%. The interest rate swap has an effective date of September 15, 2022 and matures on August 22, 2025.
24
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, Section 21E of the Exchange Act, the Private Securities Litigation Reform Act of 1995 and other federal securities laws. 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 or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management.
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all).
The following risks and uncertainties, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
|
• |
industry and economic conditions; |
|
• |
volatility and uncertainty in the financial markets, including potential fluctuations in the CPI and interest rates; |
|
• |
our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate, integrate and manage diversifying acquisitions or investments; |
|
• |
the financial performance of our retail tenants and the demand for retail space; |
|
• |
our ability to diversify our tenant base; |
|
• |
the nature and extent of future competition; |
|
• |
increases in our costs of borrowing as a result of changes in interest rates and other factors; |
|
• |
our ability to access debt and equity capital markets; |
|
• |
our ability to pay down, refinance, restructure and/or extend our indebtedness as it becomes due; |
|
• |
our ability and willingness to renew our leases upon expiration and to reposition our properties on the same or better terms upon expiration in the event such properties are not renewed by tenants or we exercise our rights to replace existing tenants upon default; |
|
• |
the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us or our major tenants; |
|
• |
our ability to manage our expanded operations; |
|
• |
our ability and willingness to maintain our qualification as a REIT; |
|
• |
the impact on our business and those of our tenants from epidemics, pandemics or other outbreaks of illness, disease or virus (such as the strain of coronavirus known as COVID-19); and |
|
• |
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. |
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. Additional factors that may cause risks and uncertainties include those discussed in the sections entitled "Business", "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021 and this report and subsequent filings with the SEC. All forward-looking statements are based on information that was available, and speak only, to the date on which they were made. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.
25
Overview
Spirit Realty Capital, Inc. is a New York Stock Exchange listed company under the ticker symbol "SRC."
We are a self-administered and self-managed REIT with in-house capabilities including acquisition, credit research, asset management, portfolio management, real estate research, legal, finance and accounting functions. We primarily invest in single-tenant, operationally essential real estate assets throughout the United States, which are subsequently leased on a long-term, triple-net basis to high quality tenants with operations in retail, industrial and certain other industries. Single-tenant, operationally essential real estate consists of properties that are free-standing, commercial real estate facilities where our tenants conduct activities that are essential to the generation of their sales and profits. Under a triple-net lease, the tenant is responsible for all improvements and is contractually obligated to pay all property operating expenses, such as real estate taxes, insurance premiums and repair and maintenance costs.
As of June 30, 2022, our diverse portfolio consisted of 2,078 owned properties across 49 states, which were leased to 342 tenants operating in 35 industries. As of June 30, 2022, our properties were approximately 99.8% occupied.
Our operations are carried out through the Operating Partnership. OP Holdings, one of our wholly-owned subsidiaries, is the sole general partner and owns approximately 1% of the Operating Partnership. We and one of our wholly-owned subsidiaries are the only limited partners, and together own the remaining 99% of the Operating Partnership. As of June 30, 2022, our assets, liabilities, and results of operations are materially the same as those of the Operating Partnership.
We have elected to be taxed as a REIT for federal income tax purposes and believe we have been organized and have operated in a manner that allows us to qualify as a REIT for federal income tax purposes.
Business Impact of the COVID-19 Pandemic
At the onset of the COVID-19 pandemic in 2020, many of our tenants, particularly those in the movie theater, casual dining restaurant, entertainment, health and fitness and hotel industries, requested rent deferrals or other forms of relief. Since the beginning of 2021, we have seen a significant reduction in the impact of the COVID-19 pandemic and we expect that trend to continue. For the six months ended June 30, 2022, we deferred $0.2 million of rent and reversed previous reserves against deferred rent of $0.2 million, both of which were recognized in rental income. Additionally, we did not recognize any rent abatements for the six months ended June 30, 2022.
As of June 30, 2022, we had an accounts receivable balance of $11.5 million related to deferred rent, with 61% of the balance expected to be repaid by the end of 2023. Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, we can provide no assurance that such efforts or our efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic and restrictions intended to prevent its spread continue for a prolonged period.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires 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 various other assumptions deemed reasonable under the circumstances. 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 the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021. We have not made any material changes to these policies during the periods covered by this quarterly report.
26
Results of Operations
Comparison of the three and six months ended June 30, 2022 to the three and six months ended June 30, 2021
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
Increase / (Decrease) |
|
|||||||||||||||
(In Thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
Three Months |
|
|
Six Months |
|
||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
173,559 |
|
|
$ |
164,449 |
|
|
$ |
340,634 |
|
|
$ |
299,107 |
|
|
$ |
9,110 |
|
|
$ |
41,527 |
|
Interest income on loans receivable |
|
|
522 |
|
|
|
— |
|
|
|
841 |
|
|
|
— |
|
|
|
522 |
|
|
|
841 |
|
Earned income from direct financing leases |
|
|
131 |
|
|
|
132 |
|
|
|
262 |
|
|
|
263 |
|
|
|
(1 |
) |
|
|
(1 |
) |
Other operating income |
|
|
723 |
|
|
|
45 |
|
|
|
1,594 |
|
|
|
397 |
|
|
|
678 |
|
|
|
1,197 |
|
Total revenues |
|
|
174,935 |
|
|
|
164,626 |
|
|
|
343,331 |
|
|
|
299,767 |
|
|
|
10,309 |
|
|
|
43,564 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
13,421 |
|
|
|
13,450 |
|
|
|
28,095 |
|
|
|
26,496 |
|
|
|
(29 |
) |
|
|
1,599 |
|
Property costs (including reimbursable) |
|
|
6,950 |
|
|
|
6,319 |
|
|
|
15,205 |
|
|
|
11,771 |
|
|
|
631 |
|
|
|
3,434 |
|
Deal pursuit costs |
|
|
655 |
|
|
|
257 |
|
|
|
1,020 |
|
|
|
499 |
|
|
|
398 |
|
|
|
521 |
|
Interest |
|
|
27,594 |
|
|
|
26,170 |
|
|
|
53,617 |
|
|
|
52,794 |
|
|
|
1,424 |
|
|
|
823 |
|
Depreciation and amortization |
|
|
72,898 |
|
|
|
60,074 |
|
|
|
142,006 |
|
|
|
117,161 |
|
|
|
12,824 |
|
|
|
24,845 |
|
Impairments |
|
|
9,398 |
|
|
|
7,800 |
|
|
|
9,525 |
|
|
|
14,530 |
|
|
|
1,598 |
|
|
|
(5,005 |
) |
Total expenses |
|
|
130,916 |
|
|
|
114,070 |
|
|
|
249,468 |
|
|
|
223,251 |
|
|
|
16,846 |
|
|
|
26,217 |
|
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt extinguishment |
|
|
— |
|
|
|
(10 |
) |
|
|
(172 |
) |
|
|
(29,187 |
) |
|
|
10 |
|
|
|
29,015 |
|
Gain on disposition of assets |
|
|
38,928 |
|
|
|
37,507 |
|
|
|
39,805 |
|
|
|
39,343 |
|
|
|
1,421 |
|
|
|
462 |
|
Other income |
|
|
— |
|
|
|
— |
|
|
|
5,679 |
|
|
|
— |
|
|
|
— |
|
|
|
5,679 |
|
Total other income |
|
|
38,928 |
|
|
|
37,497 |
|
|
|
45,312 |
|
|
|
10,156 |
|
|
|
1,431 |
|
|
|
35,156 |
|
Income before income tax expense |
|
|
82,947 |
|
|
|
88,053 |
|
|
|
139,175 |
|
|
|
86,672 |
|
|
|
(5,106 |
) |
|
|
52,503 |
|
Income tax expense |
|
|
(207 |
) |
|
|
(129 |
) |
|
|
(379 |
) |
|
|
(217 |
) |
|
|
(78 |
) |
|
|
(162 |
) |
Net income |
|
$ |
82,740 |
|
|
$ |
87,924 |
|
|
$ |
138,796 |
|
|
$ |
86,455 |
|
|
$ |
(5,184 |
) |
|
$ |
52,341 |
|
Changes related to operating properties
The components of rental income are summarized below (in thousands):
27
Base Cash Rent; Depreciation and amortization
The increase in Base Cash Rent, the largest component of rental income, was driven by our net acquisitions, which also was the driver for the increase in depreciation and amortization. We acquired 220 properties during the trailing twelve months ended June 30, 2022, with a total of $105.5 million of annual in-place rent. During the same period, we disposed of 29 properties, 18 of which were vacant and the remaining 11 had annual in-place rents of $4.2 million. Our acquisitions and dispositions for the trailing twelve months ended June 30, 2022 is summarized below (in thousands):
We have had minimal tenant credit issues since March 31, 2021 and have seen continued recovery from the COVID-19 pandemic. For the three and six months ended June 30, 2021, we recognized recoveries of Base Cash Rent previously reserved due to the COVID-19 pandemic and had minimal new reserves, resulting in net recoveries of $6.8 million and $5.7 million, respectively. The trend for minimal new reserves has continued in 2022, along with minor recoveries from amounts previously reserved due to the COVID-19 pandemic, resulting in zero and $0.1 million net recoveries for the three and six months ended June 30, 2022. Further, rent abatements executed as relief for the COVID-19 pandemic also decreased from $0.2 million and $1.1 million for the three and six months ended June 30, 2021, respectively, to zero for both the three and six months ended June 30, 2022.
Variable cash rent; Property costs (including reimbursable)
Variable cash rent income is primarily comprised of tenant reimbursements, where our tenants are obligated under the lease agreement to reimburse us for certain property costs we incur, less reimbursements we deem not probable of collection. As such, the change in variable cash rent is driven by the change in reimbursable property costs. For the three and six months ended June 30, 2022, we recognized reimbursable property costs of $5.0 million and $11.2 million, respectively, compared to $3.8 million and $6.5 million, respectively, for the three and six months ended June 30, 2021. The increase for both comparative periods was primarily due to increased reimbursable property taxes due to our net acquisitions. For the three and six months ended June 30, 2022, we recognized non-reimbursable property costs of $1.9 million and $4.0 million, respectively, compared to $2.5 million and $5.3 million, respectively, for the three and six months ended June 30, 2021. The decrease for both comparative periods was primarily due to a reduction in non-reimbursable property taxes driven by fewer tenant credit issues in 2022.
Other variable cash income increased to $1.1 million and $2.2 million, respectively, for the three and six months ended June 30, 2022, compared to $0.4 million and $0.6 million for the three and six months ended June 30, 2021. This increase was primarily due to a lease converting to a contingent rent arrangement based on tenant sales during 2021.
Non-cash rental income
Non-cash rental income consists of straight-line rental revenue and amortization of above- and below- market lease intangibles, less amounts we deem not probable of collection. Straight-line rental revenue and amortization of lease intangibles increased minimally for both comparative periods due to net acquisitions and certain lease modifications. Due to the reduction in tenant credit issues, we recognized significant recoveries for straight-line rent previously deemed not probable of collection in the second quarter of 2021 and had minimal reserves during 2022. For the three months and six months ended June 30, 2021, net recoveries of $13.2 million and $11.0 million were recognized, compared to net reserves of $0.1 million for both the three and six months ended June 30, 2022.
28
Impairments
The number of impaired properties declined from 2021, driven by tenant performance and continued low vacancy rates. We recorded $8.6 million of impairments on two underperforming properties for the three and six months ended June 30, 2022, compared to $6.1 million recorded on six properties for the three months ended June 30, 2021 and $11.8 million recorded on 15 properties for the six months ended June 30, 2021. We recorded $0.8 million of impairment on one vacant property for the three and six months ended June 30, 2022, compared to $1.7 million recorded on three vacant properties for the three months ended June 30, 2021 and $2.7 million recorded on five vacant properties for the six months ended June 30, 2021.
Additionally, an allowance for credit loss of $0.1 million was recorded in 2022 as a result of entering into a new loan receivable in the first quarter of 2022, with no allowance for credit loss in the comparative period.
Gain on disposition of assets
Gain on disposition of assets remained relatively flat for both comparative periods. During the three months ended June 30, 2022, we disposed of 10 active properties, resulting in net gains of $37.3 million, and disposed of seven vacant properties, resulting in net gains of $1.4 million. During the six months ended June 30, 2022, we disposed of 11 active properties, resulting in net gains of $37.4 million, and disposed of 11 vacant properties, resulting in net gains of $2.0 million. Additionally, we recognized other gains of $0.2 million and $0.4 million, respectively, for the three and six months ended June 30, 2022.
During the three months ended June 30, 2021, we disposed of four active properties, resulting in net gains of $36.2 million, and disposed of seven vacant properties, resulting in net gains of $0.7 million. During the six months ended June 30, 2021, we disposed of eight active properties, resulting in net gains of $38.1 million, and disposed of eight vacant properties, resulting in net gains of $0.6 million. Additionally, we recognized a $0.6 million gain on an asset substitution during the three and six months ended June 30, 2021.
Changes related to debt
Interest expense; Loss on debt extinguishment
Our debt is summarized below (in thousands):
In January 2021, we repaid the 2020 Term Loan in full, resulting in a loss on debt extinguishment of $0.7 million primarily due to the write-off of unamortized deferred financing costs. In March 2021, we issued $800.0 million aggregate principal amount of the 2028 and 2032 Senior Notes. Proceeds from these issuances were used to extinguish $207.4 million of CMBS loans, resulting in a loss on debt extinguishment of $28.5 million primarily due to pre-payment penalties. The Convertible Notes matured in May 2021, at which time they were settled in cash and the remaining discount and deferred financing costs were fully amortized. In March 2022, we amended and restated the 2019 Revolving Credit and Term Loan Agreement, resulting in a loss of $0.2 million on the partial debt extinguishment.
29
Our weighted average effective interest rate decreased from 3.64% at June 30, 2021 to 3.19% at June 30, 2022 primarily as a result of these changes in our debt structure. However, the higher level of borrowings outstanding under the 2019 Credit Facility paired with the increased effective interest rate on those borrowings due to rising market rates have resulted in increased interest expense. The components of interest expense are summarized below (in thousands):
Changes related to general and administrative expenses
General and administrative expenses remained relatively flat for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. For the six months ended June 30, 2022 compared to the six months ended June 30, 2021, the increase was primarily driven by an increase of $2.6 million in compensation expenses. The increase in compensation expenses was comprised of an increase in cash compensation of $1.1 million, primarily due to internal promotions and new hires, and an increase in non-cash compensation of $1.5 million, primarily due to a higher grant date fair value for the 2022 market-based awards due to a high expected volatility and the maximum potential pay-out percentage. These increases were partially offset by a decrease of $0.7 million in expenses related to the COVID-19 pandemic.
Changes related to other income
We were contingently liable for $5.7 million of debt owed by one of our former tenants, which we fully reserved in 2018 due to the tenant filing for bankruptcy. No payments were made in relation to this contingent liability and, as the underlying debt had a maturity of March 15, 2022, we reversed our reserve in the first quarter of 2022.
30
Property Portfolio Information
|
||||
|
|
|
|
|
2,078 |
99.8% |
49 |
342 |
35 |
Properties |
Occupancy |
States |
Tenants |
Tenant Industries |
Diversification By Tenant
The following is a summary of tenant concentration for our owned real estate properties as of June 30, 2022:
Tenant Concept (1) |
|
Number of Properties |
|
|
Total Square Feet (in thousands) |
|
|
Percent of ABR |
|
|||
Life Time Fitness |
|
|
12 |
|
|
|
1,399 |
|
|
|
4.2 |
% |
ClubCorp |
|
|
20 |
|
|
|
962 |
|
|
|
2.6 |
% |
BJ's Wholesale Club |
|
|
10 |
|
|
|
1,130 |
|
|
|
2.2 |
% |
At Home |
|
|
16 |
|
|
|
1,861 |
|
|
|
2.2 |
% |
Dave & Buster's / Main Event |
|
|
15 |
|
|
|
807 |
|
|
|
2.2 |
% |
Church's Chicken |
|
|
160 |
|
|
|
231 |
|
|
|
2.0 |
% |
Home Depot |
|
|
8 |
|
|
|
946 |
|
|
|
1.8 |
% |
Circle K |
|
|
76 |
|
|
|
230 |
|
|
|
1.7 |
% |
Dollar Tree / Family Dollar |
|
|
117 |
|
|
|
1,045 |
|
|
|
1.7 |
% |
GPM |
|
|
108 |
|
|
|
303 |
|
|
|
1.6 |
% |
Other(2) |
|
|
1,532 |
|
|
|
45,035 |
|
|
|
77.8 |
% |
Vacant |
|
|
4 |
|
|
|
355 |
|
|
|
— |
|
Total |
|
|
2,078 |
|
|
|
54,304 |
|
|
|
100.0 |
% |
(1) Tenant concentration represents concentration by the legal entities ultimately responsible for obligations under the lease agreements or affiliated entities. Concentration is shown by tenant concept, which represents the brand or trade name under which the tenant operates. Other tenants may operate under the same or similar brand or trade name.
(2) No tenants within other individually account for greater than 1.6% of ABR.
Lease Expirations
As of June 30, 2022, the weighted average remaining non-cancelable initial term of our leases (based on ABR) was 10.3 years. The following is a summary of lease expirations for our owned real estate as of June 30, 2022, assuming that tenants do not exercise any renewal options or early termination rights:
Leases Expiring In: |
|
Number of Properties |
|
|
Total Square Feet (in thousands) |
|
|
ABR (in thousands) |
|
|
Percent of ABR |
|
||||
Remainder of 2022 |
|
|
11 |
|
|
|
244 |
|
|
$ |
3,255 |
|
|
|
0.5 |
% |
2023 |
|
|
80 |
|
|
|
1,920 |
|
|
|
23,452 |
|
|
|
3.6 |
% |
2024 |
|
|
48 |
|
|
|
1,571 |
|
|
|
17,670 |
|
|
|
2.7 |
% |
2025 |
|
|
56 |
|
|
|
2,437 |
|
|
|
22,315 |
|
|
|
3.5 |
% |
2026 |
|
|
130 |
|
|
|
4,969 |
|
|
|
45,587 |
|
|
|
7.0 |
% |
2027 |
|
|
163 |
|
|
|
4,456 |
|
|
|
57,842 |
|
|
|
8.9 |
% |
2028 |
|
|
130 |
|
|
|
2,637 |
|
|
|
36,072 |
|
|
|
5.6 |
% |
2029 |
|
|
317 |
|
|
|
2,905 |
|
|
|
43,604 |
|
|
|
6.8 |
% |
2030 |
|
|
80 |
|
|
|
2,496 |
|
|
|
24,775 |
|
|
|
3.8 |
% |
2031 |
|
|
75 |
|
|
|
4,718 |
|
|
|
39,690 |
|
|
|
6.1 |
% |
Thereafter |
|
|
984 |
|
|
|
25,596 |
|
|
|
332,906 |
|
|
|
51.5 |
% |
Vacant |
|
|
4 |
|
|
|
355 |
|
|
|
— |
|
|
|
— |
|
Total owned properties |
|
|
2,078 |
|
|
|
54,304 |
|
|
$ |
647,168 |
|
|
|
100.0 |
% |
31
Diversification By Geography
The following is a summary of geographic concentration for our owned real estate properties as of June 30, 2022:
Location |
|
Number of Properties |
|
|
Total Square Feet (in thousands) |
|
|
Percent of ABR |
|
|
Location (continued) |
|
Number of Properties |
|
|
Total Square Feet (in thousands) |
|
|
Percent of ABR |
|
||||||
Texas |
|
|
288 |
|
|
|
6,512 |
|
|
|
13.8 |
% |
|
Massachusetts |
|
|
7 |
|
|
|
707 |
|
|
|
1.2 |
% |
Florida |
|
|
160 |
|
|
|
2,739 |
|
|
|
7.8 |
% |
|
Arkansas |
|
|
42 |
|
|
|
637 |
|
|
|
1.1 |
% |
Georgia |
|
|
148 |
|
|
|
2,864 |
|
|
|
6.2 |
% |
|
Utah |
|
|
18 |
|
|
|
405 |
|
|
|
1.1 |
% |
Ohio |
|
|
99 |
|
|
|
4,117 |
|
|
|
5.5 |
% |
|
Wisconsin |
|
|
15 |
|
|
|
850 |
|
|
|
0.9 |
% |
Michigan |
|
|
94 |
|
|
|
2,522 |
|
|
|
4.3 |
% |
|
Kansas |
|
|
18 |
|
|
|
805 |
|
|
|
0.9 |
% |
California |
|
|
32 |
|
|
|
1,717 |
|
|
|
4.2 |
% |
|
New Jersey |
|
|
14 |
|
|
|
471 |
|
|
|
0.8 |
% |
Tennessee |
|
|
118 |
|
|
|
2,432 |
|
|
|
4.0 |
% |
|
Alaska |
|
|
9 |
|
|
|
319 |
|
|
|
0.8 |
% |
Illinois |
|
|
56 |
|
|
|
1,553 |
|
|
|
3.4 |
% |
|
New Hampshire |
|
|
17 |
|
|
|
645 |
|
|
|
0.8 |
% |
North Carolina |
|
|
93 |
|
|
|
2,013 |
|
|
|
3.3 |
% |
|
Connecticut |
|
|
7 |
|
|
|
910 |
|
|
|
0.7 |
% |
New York |
|
|
37 |
|
|
|
1,943 |
|
|
|
3.0 |
% |
|
Idaho |
|
|
16 |
|
|
|
273 |
|
|
|
0.7 |
% |
South Carolina |
|
|
73 |
|
|
|
1,100 |
|
|
|
2.9 |
% |
|
Iowa |
|
|
12 |
|
|
|
1,304 |
|
|
|
0.7 |
% |
Arizona |
|
|
48 |
|
|
|
968 |
|
|
|
2.7 |
% |
|
Washington |
|
|
9 |
|
|
|
160 |
|
|
|
0.5 |
% |
Colorado |
|
|
33 |
|
|
|
1,264 |
|
|
|
2.6 |
% |
|
Maine |
|
|
28 |
|
|
|
103 |
|
|
|
0.4 |
% |
Missouri |
|
|
65 |
|
|
|
1,536 |
|
|
|
2.6 |
% |
|
Nebraska |
|
|
9 |
|
|
|
247 |
|
|
|
0.4 |
% |
Alabama |
|
|
102 |
|
|
|
1,341 |
|
|
|
2.5 |
% |
|
West Virginia |
|
|
12 |
|
|
|
191 |
|
|
|
0.3 |
% |
Maryland |
|
|
11 |
|
|
|
1,401 |
|
|
|
2.5 |
% |
|
Delaware |
|
|
2 |
|
|
|
128 |
|
|
|
0.3 |
% |
Virginia |
|
|
47 |
|
|
|
1,348 |
|
|
|
2.1 |
% |
|
Montana |
|
|
3 |
|
|
|
152 |
|
|
|
0.3 |
% |
Indiana |
|
|
45 |
|
|
|
2,163 |
|
|
|
2.0 |
% |
|
North Dakota |
|
|
4 |
|
|
|
110 |
|
|
|
0.3 |
% |
Minnesota |
|
|
29 |
|
|
|
1,065 |
|
|
|
2.0 |
% |
|
Rhode Island |
|
|
3 |
|
|
|
94 |
|
|
|
0.3 |
% |
Pennsylvania |
|
|
33 |
|
|
|
1,073 |
|
|
|
1.8 |
% |
|
Oregon |
|
|
3 |
|
|
|
104 |
|
|
|
0.2 |
% |
New Mexico |
|
|
32 |
|
|
|
814 |
|
|
|
1.8 |
% |
|
South Dakota |
|
|
2 |
|
|
|
30 |
|
|
|
0.2 |
% |
Oklahoma |
|
|
56 |
|
|
|
1,053 |
|
|
|
1.7 |
% |
|
Wyoming |
|
|
1 |
|
|
|
35 |
|
|
|
0.1 |
% |
Mississippi |
|
|
52 |
|
|
|
1,003 |
|
|
|
1.7 |
% |
|
U.S. Virgin Islands |
|
|
1 |
|
|
|
38 |
|
|
|
0.1 |
% |
Kentucky |
|
|
45 |
|
|
|
541 |
|
|
|
1.3 |
% |
|
Nevada |
|
|
1 |
|
|
|
12 |
|
|
* |
|
|
Louisiana |
|
|
28 |
|
|
|
490 |
|
|
|
1.2 |
% |
|
Vermont |
|
|
1 |
|
|
|
2 |
|
|
* |
|
* Less than 0.1%
32
Diversification By Asset Type and Tenant Industry
The following is a summary of asset type concentration, the industry of the underlying tenant operations for our retail properties and the underlying property use for our non-retail properties as of June 30, 2022:
Asset Type |
Tenant Industry / Underlying Use |
Number of Properties |
|
|
Total Square Feet (in thousands) |
|
|
Percent of ABR |
|
|||
Retail |
|
|
1,802 |
|
|
|
29,492 |
|
|
|
70.9 |
% |
|
Health and Fitness |
|
51 |
|
|
|
3,166 |
|
|
|
8.2 |
% |
|
Convenience Stores |
|
318 |
|
|
|
1,012 |
|
|
|
6.0 |
% |
|
Restaurants - Quick Service |
|
358 |
|
|
|
782 |
|
|
|
5.1 |
% |
|
Restaurants - Casual Dining |
|
132 |
|
|
|
940 |
|
|
|
4.8 |
% |
|
Car Washes |
|
111 |
|
|
|
527 |
|
|
|
4.5 |
% |
|
Movie Theaters |
|
37 |
|
|
|
1,953 |
|
|
|
3.9 |
% |
|
Dealerships |
|
29 |
|
|
|
1,048 |
|
|
|
3.5 |
% |
|
Entertainment |
|
28 |
|
|
|
1,220 |
|
|
|
3.4 |
% |
|
Drug Stores / Pharmacies |
|
75 |
|
|
|
961 |
|
|
|
3.3 |
% |
|
Automotive Service |
|
128 |
|
|
|
1,046 |
|
|
|
3.2 |
% |
|
Home Improvement |
|
35 |
|
|
|
2,114 |
|
|
|
3.1 |
% |
|
Dollar Stores |
|
201 |
|
|
|
1,873 |
|
|
|
2.9 |
% |
|
Warehouse Club and Supercenters |
|
16 |
|
|
|
1,761 |
|
|
|
2.7 |
% |
|
Home Décor |
|
19 |
|
|
|
2,459 |
|
|
|
2.6 |
% |
|
Grocery |
|
34 |
|
|
|
1,579 |
|
|
|
2.3 |
% |
|
Sporting Goods |
|
20 |
|
|
|
1,154 |
|
|
|
2.0 |
% |
|
Department Stores |
|
18 |
|
|
|
1,619 |
|
|
|
1.9 |
% |
|
Home Furnishings |
|
22 |
|
|
|
1,100 |
|
|
|
1.8 |
% |
|
Other |
|
29 |
|
|
|
900 |
|
|
|
1.7 |
% |
|
Early Education |
|
42 |
|
|
|
461 |
|
|
|
1.5 |
% |
|
Specialty Retail |
|
32 |
|
|
|
668 |
|
|
|
1.1 |
% |
|
Automotive Parts |
|
55 |
|
|
|
388 |
|
|
|
0.8 |
% |
|
Pet Supplies & Service |
|
4 |
|
|
|
133 |
|
|
|
0.3 |
% |
|
Discount Retail |
|
4 |
|
|
|
273 |
|
|
|
0.3 |
% |
|
Vacant |
|
4 |
|
|
|
355 |
|
|
|
— |
|
Non-Retail |
|
|
276 |
|
|
|
24,812 |
|
|
|
29.1 |
% |
|
Distribution |
|
136 |
|
|
|
12,217 |
|
|
|
10.5 |
% |
|
Manufacturing |
|
61 |
|
|
|
8,621 |
|
|
|
7.5 |
% |
|
Office |
|
9 |
|
|
|
1,097 |
|
|
|
2.7 |
% |
|
Country Club |
|
20 |
|
|
|
962 |
|
|
|
2.6 |
% |
|
Medical |
|
31 |
|
|
|
543 |
|
|
|
2.2 |
% |
|
Industrial Outdoor Storage |
|
10 |
|
|
|
423 |
|
|
|
1.3 |
% |
|
Data Center |
|
4 |
|
|
|
497 |
|
|
|
1.2 |
% |
|
Flex |
|
4 |
|
|
|
330 |
|
|
|
0.6 |
% |
|
Hotel |
|
1 |
|
|
|
122 |
|
|
|
0.5 |
% |
Total |
|
|
2,078 |
|
|
|
54,304 |
|
|
|
100.0 |
% |
33
Liquidity and Capital Resources
ATM PROGRAM
In November 2021, the Board of Directors approved a new $500.0 million 2021 ATM Program, and we terminated the 2020 ATM Program. Sales of shares of our common stock under the 2021 ATM Program may be made in sales deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act. The 2021 ATM Program contemplates that, in addition to the issuance and sale by us of shares of our common stock to or through the agents, we may enter into separate forward sale agreements with one of the agents or one of their respective affiliates (in such capacity, each, a “forward purchaser”). When we enter into a forward sale agreement, we expect that the forward purchaser will attempt to borrow from third parties and sell, through a forward seller, shares of our common stock to hedge the forward purchaser's exposure under the forward sale agreement. We will not initially receive any proceeds from any sale of shares of our common stock borrowed by a forward purchaser and sold through a forward seller.
We currently expect to fully physically settle any forward sale agreement with the respective forward purchaser on one or more dates specified by us on or prior to the maturity date of such forward sale agreement, in which case we expect to receive aggregate net cash proceeds at settlement equal to the number of shares specified in such forward sale agreement multiplied by the relevant forward price per share. The forward sale price that we receive upon physical settlement of the agreements is subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchasers’ stock borrowing costs and (iii) scheduled dividends during the term of the forward sale agreements. However, subject to certain exceptions, we may also elect, in our sole discretion, to cash settle or net share settle all or any portion of our obligations under any forward sale agreement, in which case we may not receive any proceeds (in the case of cash settlement) or will not receive any proceeds (in the case of net share settlement), and we may owe cash (in the case of cash settlement) or shares of our common stock (in the case of net share settlement) to the relevant forward purchaser.
As of June 30, 2022, 2.9 million shares of our common stock have been sold under the 2021 ATM Program, of which 2.5 million of these shares were sold through forward sale agreements. 0.2 million of these shares were sold during the six months ended June 30, 2022. As of June 30, 2022, there were no open forward contracts and approximately $364.9 million of capacity remained available under the 2021 ATM Program as of June 30, 2022.
FORWARD EQUITY OFFERING
In January 2022, we entered into forward sale agreements with certain financial institutions acting as forward purchasers in connection with an offering of 9.4 million shares of common stock at an initial public offering price of $47.60 per share, before underwriting discounts and offering expenses, and an initial forward sales price of $45.696 per share. We did not receive any proceeds from the sale of our shares of common stock by the forward purchasers at the time of the offering. As of June 30, 2022, we had settled 8.3 million of these shares for net proceeds of $376.4 million and 1.1 million shares remained open, with a final settlement date of July 19, 2023.
SHORT-TERM LIQUIDITY AND CAPITAL RESOURCES
On a short-term basis, our principal demands for funds will be for operating expenses, acquisitions, distributions to stockholders and payment of interest and principal on current and any future debt financings. We expect to fund these demands primarily through cash provided by operating activities, borrowings under the 2019 Credit Facility and, when market conditions warrant, issuances of equity securities, including shares of our common stock under our 2021 ATM program. As of June 30, 2022, available liquidity was comprised of $5.4 million in cash and cash equivalents, $31.5 million in restricted cash, $505.5 million of borrowing capacity under the 2019 Credit Facility and $51.8 million of expected proceeds available assuming the full physical settlement of our open forward equity contracts.
LONG-TERM LIQUIDITY AND CAPITAL RESOURCES
We plan to meet our long-term capital needs, including long-term financing of property acquisitions, by issuing registered debt or equity securities, by obtaining asset level financing and by issuing fixed-rate secured or unsecured notes and bonds. In the future, some of our property acquisitions could be made by issuing partnership interests of our Operating Partnership in exchange for property owned by third parties. These partnership interests would be exchangeable for cash or, at our election, shares of our common stock. We continually evaluate financing alternatives and believe that we can obtain financing on reasonable terms. However, we cannot be sure that we will have access to the capital markets at times and on terms that are acceptable to us, particularly as uncertainty related to rising interest rates, rising inflation rates, economic outlook, geopolitical events (including the military conflict between Russia and Ukraine) and other factors have contributed and may continue to contribute to significant volatility and negative pressure in financial markets. We expect that our primary uses of capital will be for property and other asset acquisitions, the payment of tenant improvements, operating expenses, debt service payments and distributions to our stockholders.
34
DESCRIPTION OF CERTAIN DEBT
The following descriptions of debt should be read in conjunction with Note 4 to the consolidated financial statements herein.
2019 Credit Facility
On March 30, 2022, we amended and restated the 2019 Revolving Credit and Term Loan Agreement. As of June 30, 2022, the aggregate gross commitment under the 2019 Credit Facility was $1.2 billion, which may be increased up to $1.7 billion by exercising an accordion feature, subject to satisfying certain requirements. The 2019 Credit Facility has a maturity of March 31, 2026 and includes two six-month extensions that can be exercised at our option.
We may voluntarily prepay the 2019 Credit Facility, in whole or in part, at any time without premium or penalty. Payment of the 2019 Credit Facility is unconditionally guaranteed by the Company and material subsidiaries that meet certain conditions. As of June 30, 2022, there were no subsidiaries that met this requirement.
As of June 30, 2022, the 2019 Credit Facility bore interest at a 1-Month adjusted SOFR rate plus 0.775% and incurred a facility fee of 0.150% per annum, in each case, based on the Operating Partnership’s credit rating and leverage ratio (as defined in the agreement). As of June 30, 2022, $694.5 million in borrowings were outstanding and there were no letters of credit outstanding.
Senior Unsecured Notes
As of June 30, 2022, we had the following Senior Unsecured Notes outstanding (dollars in thousands):
|
|
Maturity Date |
|
Interest Payment Dates |
|
Stated Interest Rate |
|
|
June 30, 2022 |
|
|
2026 Senior Notes |
|
September 15, 2026 |
|
March 15 and September 15 |
|
4.45% |
|
|
$ |
300,000 |
|
2027 Senior Notes |
|
January 15, 2027 |
|
January 15 and July 15 |
|
3.20% |
|
|
|
300,000 |
|
2028 Senior Notes |
|
March 15, 2028 |
|
March 15 and September 15 |
|
2.10% |
|
|
|
450,000 |
|
2029 Senior Notes |
|
July 15, 2029 |
|
January 15 and July 15 |
|
4.00% |
|
|
|
400,000 |
|
2030 Senior Notes |
|
January 15, 2030 |
|
January 15 and July 15 |
|
3.40% |
|
|
|
500,000 |
|
2031 Senior Notes |
|
February 15, 2031 |
|
February 15 and August 15 |
|
3.20% |
|
|
|
450,000 |
|
2032 Senior Notes |
|
February 15, 2032 |
|
February 15 and August 15 |
|
2.70% |
|
|
|
350,000 |
|
Total Senior Unsecured Notes |
|
|
|
3.25% |
|
|
$ |
2,750,000 |
|
The Senior Unsecured Notes are redeemable in whole at any time or in part from time to time, at the Operating Partnership’s option, at a redemption price equal to the sum of: an amount equal to 100% of the principal amount of the respective Senior Unsecured Notes to be redeemed plus accrued and unpaid interest and liquidated damages, if any, up to, but not including, the redemption date; and a make-whole premium calculated in accordance with the respective indenture. Notwithstanding the foregoing, if any of the Senior Unsecured Notes are redeemed three months or less (or two months or less in the case of the 2027 Senior Notes and 2028 Senior Notes) prior to their respective maturity dates, the redemption price will not include a make-whole premium.
Mortgages payable
The obligors of our property level debt are special purpose entities that hold the real estate and other collateral securing the indebtedness. Each special purpose entity is a bankruptcy remote separate legal entity and is the sole owner of its assets and solely responsible for its liabilities other than typical non-recurring covenants. As of June 30, 2022, we had two fixed-rate CMBS loans with $5.1 million of aggregate outstanding principal. One of the CMBS loans, with principal outstanding of $4.5 million, matures in August 2031 and has a stated interest rate of 5.80%. The other CMBS loan, with principal outstanding of $0.6 million, matures in December 2025 and has a stated interest rate of 6.00%. Both CMBS loans are partially amortizing and require a balloon payment at maturity.
DEBT MATURITIES
Future principal payments due on our various types of debt outstanding as of June 30, 2022 (in thousands):
|
|
Total |
|
|
Remainder of 2022 |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
Thereafter |
|
|||||||
2019 Credit Facility |
|
$ |
694,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
694,500 |
|
|
$ |
— |
|
Senior Unsecured Notes |
|
|
2,750,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
300,000 |
|
|
|
2,450,000 |
|
Mortgages payable |
|
|
5,091 |
|
|
|
266 |
|
|
|
556 |
|
|
|
590 |
|
|
|
626 |
|
|
|
468 |
|
|
|
2,585 |
|
|
|
$ |
3,449,591 |
|
|
$ |
266 |
|
|
$ |
556 |
|
|
$ |
590 |
|
|
$ |
626 |
|
|
$ |
994,968 |
|
|
$ |
2,452,585 |
|
35
CONTRACTUAL OBLIGATIONS
During the three months ended March 31, 2022, we amended and restated the 2019 Revolving Credit and Term Loan Agreement, which increased our borrowing capacity under the 2019 Credit Facility. There were no other material changes during the six months ended June 30, 2022 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, 2021, 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 are generally classified as ordinary income, whereas distributions in excess of our current and accumulated earnings, to the extent of a stockholder’s federal income tax basis in our common stock, are generally characterized as a return of capital. Under the 2017 Tax Legislation, U.S. stockholders that are individuals, trusts and estates generally may deduct up to 20% of the ordinary dividends (e.g., dividends not designated as capital gain dividends or qualified dividend income) received from a REIT for taxable years beginning after December 31, 2017 and before January 1, 2026. Distributions in excess of a stockholder’s federal income tax basis in our common stock are generally characterized as capital gain.
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 laws and such other factors as our Board of Directors deems relevant.
Cash Flows
The following table presents a summary of our cash flows for the six months ended June 30, 2022 and 2021 (in thousands):
|
|
Six Months Ended June 30, |
|
|
|
|
|
|||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Net cash provided by operating activities |
|
$ |
224,342 |
|
|
$ |
191,493 |
|
|
$ |
32,849 |
|
Net cash used in investing activities |
|
|
(811,517 |
) |
|
|
(395,368 |
) |
|
|
(416,149 |
) |
Net cash provided by financing activities |
|
|
606,337 |
|
|
|
188,134 |
|
|
|
418,203 |
|
Net increase in cash, cash equivalents and restricted cash |
|
$ |
19,162 |
|
|
$ |
(15,741 |
) |
|
$ |
34,903 |
|
As of June 30, 2022, we had $37.0 million of cash, cash equivalents and restricted cash as compared to $17.8 million as of December 31, 2021 and $67.6 million as of June 30, 2021.
Operating Activities
Our cash flows from operating activities are primarily dependent upon the occupancy level of our portfolio, the rental rates specified in our leases, the collectability of rent and the level of our operating expenses and other general and administrative costs.
The increase in net cash provided by operating activities was driven by the net increase in cash rental revenue of $53.2 million, driven by net acquisitions over the trailing twelve month period. The increase in net cash provided by operating activities was partially offset by an increase in cash interest paid of $5.8 million driven by the issuance of the 2028 Senior Notes and 2032 Senior Notes during 2021 and other changes within our debt structure (see Management’s Discussion and Analysis of Financial Condition: Results of Operations), an increase of $5.7 million in lease incentives paid and an increase of approximately $2.9 million in cash bonus payments.
36
Investing Activities
Cash used in investing activities is generally used to fund property acquisitions, for investments in loans receivable and 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 during the six months ended June 30, 2022 included $872.7 million for the acquisition of 97 properties, $37.3 million of capitalized real estate expenditures and $12.7 million for investment in one loan receivable. These outflows were partially offset by $111.2 million in net proceeds from the disposition of 22 properties.
During the same period in 2021, net cash used in investing activities included $480.2 million for the acquisition of 43 properties and $2.6 million of capitalized real estate expenditures. These outflows were partially offset by $87.4 million in net proceeds from the disposition of 16 properties and $2.0 million that was collected from a disposal that occurred in 2020.
Financing Activities
Generally, our net cash provided by or used in financing activities is impacted by our borrowings under our revolving credit facilities and term loans, issuances of net-lease mortgage notes, common stock and debt offerings and repurchases and dividend payments on our common and preferred stock.
Net cash provided by financing activities during the six months ended June 30, 2022 was primarily attributable to net borrowings of $406.1 million under our revolving credit facilities and net proceeds from the issuance of common stock of $389.7 million. These amounts were partially offset by payment of dividends to equity owners of $174.1 million, deferred financing costs of $8.7 million, common stock repurchases for employee tax withholdings totaling $6.4 million and repayments of $0.3 million on mortgages payable
During the same period in 2021, net cash provided by financing activities was primarily attributable to borrowings of $794.8 million under Senior Unsecured Notes, net proceeds from the issuance of common stock of $145.7 million and net borrowings of $13.0 million under our revolving credit facilities. These amounts were partially offset by repayments of $208.6 million on mortgages payable, repayments of $190.4 million on convertible notes, repayments of $178.0 million on term loans, payment of dividends to equity owners of $150.2 million, debt extinguishment costs of $26.7 million, deferred financing costs of $7.1 million and common stock repurchases for employee tax withholdings totaling $4.4 million.
Off-Balance Sheet Arrangements
As of June 30, 2022, we did not have any material off-balance sheet arrangements.
New Accounting Pronouncements
See Note 2 to the consolidated financial statements herein.
Non-GAAP Financial Measures
FFO: FFO is a non-GAAP financial measure calculated in accordance with the standards established by NAREIT. FFO represents net income (loss) attributable to common stockholders (computed in accordance with GAAP), excluding real estate-related depreciation and amortization, impairment charges and net (gains) losses from property dispositions. 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, impairment charges and net (gains) losses from property dispositions, 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.
37
AFFO: AFFO is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. We adjust FFO to eliminate the impact of certain items that we believe are not indicative of our core operating performance, such as net gains (losses) on debt extinguishment, deal pursuit costs, costs related to the COVID-19 pandemic, income associated with expiration of a contingent liability related to a guarantee of a former tenant's debt and certain non-cash items. These certain non-cash items include certain non-cash interest expenses (comprised of amortization of deferred financing costs and amortization of net debt discount/premium), non-cash revenues (comprised of straight-line rents net of bad debt expense, amortization of lease intangibles, and amortization of net premium/discount on loans receivable), and non-cash compensation expense.
Other equity REITs may not calculate FFO and AFFO as we do, and, accordingly, our FFO and AFFO may not be comparable to such other equity REITs’ FFO and AFFO. FFO and AFFO do not represent cash generated from operating activities determined in accordance with GAAP, are not necessarily indicative of cash available to fund cash needs and should only be considered a supplement, and not an alternative, to net income (loss) attributable to common stockholders (computed in accordance with GAAP) as a performance measure.
Adjusted Debt: Adjusted Debt represents interest bearing debt (reported in accordance with GAAP) adjusted to exclude unamortized debt discount/premium and deferred financing costs and reduced by cash and cash equivalents and restricted cash. By excluding these amounts, the result provides an estimate of the contractual amount of borrowed capital to be repaid, net of cash available to repay it. We believe this calculation constitutes a beneficial supplemental non-GAAP financial disclosure to investors in understanding our financial condition.
EBITDAre: EBITDAre is a non-GAAP financial measure computed in accordance with the standards established by NAREIT. EBITDAre represents net income (loss) (computed in accordance with GAAP), excluding interest expense, income tax expense, depreciation and amortization, net (gains) losses from property dispositions, and impairment charges.
Adjusted EBITDAre: Adjusted EBITDAre represents EBITDAre as adjusted for revenue producing acquisitions and dispositions for the quarter (as if such acquisitions and dispositions had occurred as of the beginning of the quarter), construction rent collected, not yet recognized in earnings, and for other certain items that we believe are not indicative of our core operating performance. These other certain items include deal pursuit costs, net (gains) losses on debt extinguishment, costs related to the COVID-19 pandemic, and non-cash compensation. We believe that excluding these items, which are not key drivers of our investment decisions and may cause short-term fluctuations in net income (loss), provides a useful supplemental measure to investors and analysts in assessing the net earnings contribution of our real estate portfolio. Because these measures do not represent net income (loss) that is computed in accordance with GAAP, they should only be considered a supplement, and not an alternative, to net income (loss) (computed in accordance with GAAP) as a performance measure.
Annualized Adjusted EBITDAre: Annualized Adjusted EBITDAre is calculated as Adjusted EBITDAre, adjusted for straight-line rent related to prior periods, including amounts deemed not probable of collection (recoveries), and items where annualization would not be appropriate, multiplied by four. Our computation of Adjusted EBITDAre and Annualized Adjusted EBITDAre may differ from the methodology used by other equity REITs to calculate these measures and, therefore, may not be comparable to such other REITs.
Adjusted Debt to Annualized Adjusted EBITDAre: Adjusted Debt to Annualized Adjusted EBITDAre is a non-GAAP financial measure we use to evaluate the level of borrowed capital being used to increase the potential return of our real estate investments, and a proxy for a measure we believe is used by many lenders and ratings agencies to evaluate our ability to repay and service our debt obligations. We believe the ratio is a beneficial disclosure to investors as a supplemental means of evaluating our ability to meet obligations senior to those of our equity holders. Our computation of this ratio may differ from the methodology used by other equity REITs, and, therefore, may not be comparable to such other REITs.
38
FFO and AFFO
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income attributable to common stockholders |
|
$ |
80,152 |
|
|
$ |
85,336 |
|
|
$ |
133,620 |
|
|
$ |
81,279 |
|
Portfolio depreciation and amortization |
|
|
72,755 |
|
|
|
59,933 |
|
|
|
141,720 |
|
|
|
116,875 |
|
Portfolio impairments |
|
|
9,398 |
|
|
|
7,800 |
|
|
|
9,525 |
|
|
|
14,530 |
|
Gain on disposition of assets |
|
|
(38,928 |
) |
|
|
(37,507 |
) |
|
|
(39,805 |
) |
|
|
(39,343 |
) |
FFO attributable to common stockholders |
|
$ |
123,377 |
|
|
$ |
115,562 |
|
|
$ |
245,060 |
|
|
$ |
173,341 |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
10 |
|
|
|
172 |
|
|
|
29,187 |
|
Deal pursuit costs |
|
|
655 |
|
|
|
257 |
|
|
|
1,020 |
|
|
|
499 |
|
Non-cash interest expense, excluding capitalized interest |
|
|
2,258 |
|
|
|
2,344 |
|
|
|
4,195 |
|
|
|
5,043 |
|
Straight-line rent, net of uncollectible reserve |
|
|
(9,015 |
) |
|
|
(21,428 |
) |
|
|
(17,590 |
) |
|
|
(27,101 |
) |
Other amortization and non-cash charges |
|
|
(578 |
) |
|
|
(761 |
) |
|
|
(1,225 |
) |
|
|
(1,535 |
) |
Non-cash compensation expense |
|
|
4,387 |
|
|
|
3,614 |
|
|
|
8,412 |
|
|
|
6,992 |
|
Costs related to COVID-19 (1) |
|
|
— |
|
|
|
274 |
|
|
|
6 |
|
|
|
706 |
|
Other income |
|
|
— |
|
|
|
— |
|
|
|
(5,679 |
) |
|
|
— |
|
AFFO attributable to common stockholders |
|
$ |
121,084 |
|
|
$ |
99,872 |
|
|
$ |
234,371 |
|
|
$ |
187,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of common stock - Diluted |
|
$ |
0.60 |
|
|
$ |
0.74 |
|
|
$ |
1.02 |
|
|
$ |
0.70 |
|
FFO per share of common stock - Diluted (2) |
|
$ |
0.92 |
|
|
$ |
1.00 |
|
|
$ |
1.86 |
|
|
$ |
1.50 |
|
AFFO per share of common stock - Diluted (2) |
|
$ |
0.90 |
|
|
$ |
0.86 |
|
|
$ |
1.78 |
|
|
$ |
1.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding - Diluted |
|
|
134,219,450 |
|
|
|
115,557,555 |
|
|
|
131,307,057 |
|
|
|
115,212,294 |
|
(1) |
Costs related to COVID-19 are included in general and administrative expense and primarily relate to legal fees for executing rent deferral or abatement agreements. |
(2) |
Dividends paid and undistributed earnings allocated, if any, to unvested restricted stockholders are deducted from FFO and AFFO for the computation of the per share amounts. The following amounts were deducted: |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
FFO |
|
$0.2 million |
|
$0.2 million |
|
$0.4 million |
|
$0.3 million |
AFFO |
|
$0.2 million |
|
$0.2 million |
|
$0.4 million |
|
$0.4 million |
39
Adjusted Debt, Adjusted EBITDAre and Annualized Adjusted EBITDAre
|
|
June 30, |
|
|||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
||
2019 Credit Facility |
|
$ |
694,500 |
|
|
$ |
13,000 |
|
Senior Unsecured Notes, net |
|
|
2,720,562 |
|
|
|
2,716,752 |
|
Mortgages payable, net |
|
|
5,271 |
|
|
|
5,823 |
|
Total debt, net |
|
|
3,420,333 |
|
|
|
2,735,575 |
|
Unamortized debt discount, net |
|
|
10,196 |
|
|
|
11,441 |
|
Unamortized deferred financing costs |
|
|
19,062 |
|
|
|
21,585 |
|
Cash and cash equivalents |
|
|
(5,444 |
) |
|
|
(9,403 |
) |
Restricted cash |
|
|
(31,517 |
) |
|
|
(58,154 |
) |
Adjusted Debt |
|
$ |
3,412,630 |
|
|
$ |
2,701,044 |
|
|
|
Three Months Ended June 30, |
|
|||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
||
Net income |
|
$ |
82,740 |
|
|
$ |
87,924 |
|
Interest |
|
|
27,594 |
|
|
|
26,170 |
|
Depreciation and amortization |
|
|
72,898 |
|
|
|
60,074 |
|
Income tax expense |
|
|
207 |
|
|
|
129 |
|
Gain on disposition of assets |
|
|
(38,928 |
) |
|
|
(37,507 |
) |
Portfolio impairments |
|
|
9,398 |
|
|
|
7,800 |
|
EBITDAre |
|
$ |
153,909 |
|
|
$ |
144,590 |
|
Adjustments to revenue producing acquisitions and dispositions |
|
|
3,408 |
|
|
|
1,564 |
|
Construction rent collected, not yet recognized in earnings (1) |
|
|
640 |
|
|
|
— |
|
Deal pursuit costs |
|
|
655 |
|
|
|
257 |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
10 |
|
Costs related to COVID-19 (2) |
|
|
— |
|
|
|
274 |
|
Non-cash compensation expense |
|
|
4,387 |
|
|
|
3,614 |
|
Adjusted EBITDAre |
|
$ |
162,999 |
|
|
$ |
150,309 |
|
Adjustments related to straight-line rent (3) |
|
|
— |
|
|
|
(9,981 |
) |
Other adjustments for Annualized EBITDAre (4) |
|
|
(157 |
) |
|
|
(5,272 |
) |
Annualized Adjusted EBITDAre |
|
$ |
651,368 |
|
|
$ |
540,224 |
|
Adjusted Debt / Annualized Adjusted EBITDAre (5) |
|
|
5.2 |
x |
|
|
5.0 |
x |
(1) |
Construction rent collected, not yet recognized in earnings was not included as an adjustment to EBITDAre during the three months ended June 30, 2021. |
|
(2) |
Costs related to COVID-19 are included in general and administrative expense and primarily relate to legal fees for executing rent deferral or abatement agreements. |
|
(3) |
Adjustment for the three months ended June 30, 2021 relates to net recoveries related to prior period straight-line rent deemed not probable of collection. |
|
(4) |
Adjustment for the three months ended June 30, 2022 relates to current period recoveries related to prior period rent deemed not probable of collection, prior period rental income, and prior period property costs. For the same period in 2021, the adjustment is comprised of net recoveries related to prior period rent deemed not probable of collection and prior period property costs. |
|
(5) |
Adjusted Debt / Annualized Adjusted EBITDAre would be 5.2x if the 1.1 million shares under open forward sales agreements had been settled as of June 30, 2022. Adjusted Debt / Annualized Adjusted EBITDAre would be 4.9x if the 1.9 million shares under open forward sales agreements had been settled as of June 30, 2021. |
|
40
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks, including interest rate risk. Interest rates and other factors, such as occupancy, rental rates and our tenants’ financial condition, influence our performance more than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. As described above, we generally enter into leases that provide for payments of rent with scheduled increases 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, our exposure to rising property operating costs due to inflation is mitigated.
Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and global economic and political conditions, which are beyond our control. Our operating results 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 2019 Credit Facility. 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, which 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.
As of June 30, 2022, our assets were primarily leased on a long-term, triple-net basis and the vast majority of our leases have scheduled rent increases during the term of the lease. As of June 30, 2022, $2.8 billion of our indebtedness outstanding was fixed-rate, consisting of our Senior Unsecured Notes and mortgages payable, with a weighted average stated interest rate of 3.25%, excluding amortization of deferred financing costs and debt discounts/premiums. The remaining $694.5 million of our indebtedness was variable-rate borrowings outstanding under our 2019 Credit Facility, with a stated interest rate of 2.31% as of June 30, 2022. If 1-Month SOFR as of June 30, 2022 increased by 100 basis points, or 1.0%, the resulting increase in annual interest expense with respect to the $694.5 million outstanding under the 2019 Credit Facility would impact our future earnings and cash flows by $6.9 million. There continues to be uncertainty in market and economic conditions, including the possibility of additional measures that could be taken by the Federal Reserve and other government agencies related to concerns over inflation risk, which could result in continued increases in market interest rates and, thus, increased interest expenses on our borrowings outstanding under the 2019 Credit Facility in future periods.
The estimated fair values of our Senior Unsecured Notes have been derived based on quoted prices in active markets, while the estimated fair values of the remaining debt instruments have been derived based on discounted cash flow analysis using estimates of the amount and timing of future cash flows, market rates and credit spreads. The debt instrument balances as of June 30, 2022 are as follows (in thousands):
|
|
Carrying Value |
|
|
Estimated Fair Value |
|
||
2019 Credit Facility |
|
$ |
694,500 |
|
|
$ |
717,596 |
|
Senior Unsecured Notes, net (1) |
|
|
2,720,562 |
|
|
|
2,408,658 |
|
Mortgages payable, net (1) |
|
|
5,271 |
|
|
|
5,088 |
|
(1) |
The carrying value of the debt instruments are net of unamortized deferred financing costs and certain debt discounts/premiums. |
Item 4. Controls and Procedures
Evaluation of 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 June 30, 2022 of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded 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 June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
41
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. We are not currently a party as plaintiff or defendant to any legal proceedings that we believe to be material or that individually or in the aggregate would be expected to have a material effect on our business, financial condition or results of operations if determined adversely to us.
Item 1A. Risk Factors.
There have been no material changes to the risk factors as disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021.
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.
42
Item 6. Exhibits.
Exhibit No. |
Description |
|
|
3.1 |
|
|
|
3.2 |
|
|
|
3.3 |
|
|
|
3.4 |
|
|
|
3.5 |
|
|
|
3.6 |
|
|
|
3.7 |
|
|
|
10.1 |
|
|
|
10.2*
|
Form of Indemnification Agreement of Spirit Realty Capital, Inc. adopted on May 18, 2022.
|
31.1* |
|
|
|
31.2* |
|
|
|
32.1* |
|
|
|
101.INS* |
Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
|
|
101.SCH* |
Inline XBRL Taxonomy Extension Schema |
|
|
101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase |
|
|
101.DEF* |
Inline XBRL Taxonomy Extension Definition Linkbase |
|
|
101.LAB* |
Inline XBRL Taxonomy Extension Label Linkbase |
|
|
101.PRE* |
Inline XBRL Taxonomy Extension Presentation Linkbase |
|
|
104.1* |
Cover Page Interactive Data File - The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
|
|
* |
Filed herewith. |
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
|
SPIRIT REALTY CAPITAL, INC. |
||
|
(Registrant) |
||
|
|
|
|
|
By: |
|
/s/ Prakash J. Parag |
|
Name: |
|
Prakash J. Parag |
|
Title: |
|
Senior Vice President and Chief Accounting Officer |
|
|
|
(Principal Accounting Officer) |
Date: August 3, 2022
44
Exhibit 10.2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (“Agreement”) is made and entered into as of the ______ day of ____________, 20 ____, by and between Spirit Realty Capital, Inc., a Maryland corporation (the “Company”), and ___________ (“Indemnitee”).
WHEREAS, at the request of the Company, Indemnitee currently serves as a [director][officer] of the Company and may, therefore, be subjected to claims, suits or proceedings arising as a result of his service; and
WHEREAS, as an inducement to Indemnitee to continue to serve as such [director][officer], the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law; and
WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses;
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
Section 1.Definitions. For purposes of this Agreement:
(a)“Adjudged” shall mean adjudged finally by a court or arbitral or other authority of competent jurisdiction and not subject to appeal.
(b)“Change of Control” means a change of control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change of Control shall be deemed to have occurred if, after the Effective Date: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of all of the Company’s then-outstanding securities entitled to vote generally in the election of directors without the prior approval of at least two-thirds of the members of the Board of Directors of the Company (the “Board of Directors”) in office immediately prior to such person’s attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) at any time, a majority of the members of the Board of Directors are not comprised of (A) individuals who were directors as of the Effective Date and/or (B) individuals whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by the affirmative vote of at least two-thirds
of the directors then in office who were directors as of the Effective Date or whose election for nomination for election was previously so approved.
(c)“Corporate Status” means the status of a person as a present or former director, officer, employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent, or as the “partnership representative” for all federal income tax purposes set forth in the Internal Revenue Code of 1986, as amended (the “Code”), of any other Enterprise.
(d)“Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification and/or advance of Expenses is sought by Indemnitee.
(e)“Effective Date” means the date set forth in the first paragraph of this Agreement.
(f)“Enterprise” means any foreign or domestic corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise in which Indemnitee is or was serving as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent, or as the “partnership representative” for all federal income tax purposes set forth in the Code, at the request of the Company. As a clarification and without limiting the circumstances in which Indemnitee may be serving at the request of the Company, service by Indemnitee shall be deemed to be at the request of the Company (a) if Indemnitee serves or served as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent, or as the “partnership representative” for all federal income tax purposes set forth in the Code, of any corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise (i) of which a majority of the voting power or equity interest is or was at the time of service owned directly or indirectly by the Company or (ii) the management of which is or was at the time of service controlled directly or indirectly by the Company, or (b) if, as a result of or in connection with Indemnitee’s service to the Company or any of its affiliated entities, Indemnitee is or was subject to duties to, or required to perform services for, an employee benefit plan or its participants or beneficiaries, including as a deemed fiduciary thereof.
(g)“Expenses” means any and all disbursements or expenses incurred by Indemnitee in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in or otherwise participating in a Proceeding, including, without limitation, reasonable attorneys’ fees and costs, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, and any Employee Retirement Income Security Act of I 974, as amended (“ERISA”), excise taxes and penalties. Expenses shall also include (i) expenses incurred in connection with any appeal resulting from any Proceeding including, without limitation, the premium, security for and other costs relating to any cost bond, supersedeas bond or other appeal bond or its equivalent, (ii) expenses incurred in
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connection with recovery under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether the Indemnitee is ultimately determined to be entitled to such indemnification, advancement or expenses or insurance recovery, as the case may be, and (iii) expenses incurred by Indemnitee in establishing or enforcing his right to indemnification or reimbursement under this Agreement. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments, fines or penalties against Indemnitee (other than ERISA excise tax penalties).
(h)“Independent Counsel” means a law firm, or a member of a law firm, experienced in matters of corporation law and neither is, nor in the past five years preceding the date of selection has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement or of other indemnitees under similar indemnification agreements); or (ii) any other party to or participant or witness in the Proceeding giving rise to a claim for indemnification or advance of Expenses hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel.
(i)“Proceeding” means any threatened, pending or completed action, suit, arbitration, mediation, alternate dispute resolution procedure, investigation, inquiry, administrative hearing or any other proceeding, whether brought by or in the right of the Company or otherwise and whether of a civil (including intentional or unintentional tort claims), criminal, administrative or investigative (formal or informal) nature, including any appeal therefrom, in which Indemnitee was, is, will or might be involved as a party or otherwise, by reason of any action taken by or omission by Indemnitee, or of any action or omission on Indemnitee’s part, in each case in or in connection with Indemnitee’s Corporate Status and whether or not acting or serving in such capacity at the time any liability or Expense is incurred for which indemnification, reimbursement or advancement of Expenses can be provided under this Agreement, except one pending or completed on or before the Effective Date, unless otherwise specifically agreed in writing by the Company and Indemnitee. If Indemnitee reasonably believes that a given situation may lead to or culminate in the institution of a Proceeding, such situation shall also be considered a Proceeding. The term “Proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration or appeal of, and the giving of testimony in or related to, any threatened, pending or completed claim, action, suit or other proceeding, whether of a civil, criminal, administrative or investigative nature.
Section 2.Services by Indemnitee. The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce the Indemnitee to serve or continue to serve as a [director][officer] of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving or continuing to serve as a [director][officer]. However, this Agreement shall not impose any independent obligation on Indemnitee or the Company to continue Indemnitee’s service to the
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Company. This Agreement shall not be deemed an employment contract between the Company (or any other entity) and Indemnitee.
Section 3.General. The Company shall indemnify and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent not prohibited by Maryland law in effect on the Effective Date and as amended from time to time; provided, however, that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the Effective Date. The rights of Indemnitee provided in this Section 3 shall include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418 of the Maryland General Corporation Law (the “MGCL”).
Section 4.Indemnification. If Indemnitee is, or is threatened to be, made a party to any Proceeding, the Company shall indemnify Indemnitee against all judgments, penalties, fines and amounts paid in settlement and all Expenses actually and reasonably incurred by him or on his behalf in connection with any such Proceeding unless (and only to the extent) it is established that (a) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) Indemnitee actually received an improper personal benefit in money, property or services or (c) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that the act or omission was unlawful.
Section 5.Certain Limits on Indemnification. Notwithstanding any other provision of this Agreement (other than Section 6), Indemnitee shall not be entitled to:
(a)indemnification hereunder if the Proceeding was one by or in the right of the Company and Indemnitee is Adjudged to be liable to the Company;
(b)indemnification hereunder if Indemnitee is Adjudged to be liable on the basis that personal benefit was improperly received in any Proceeding charging improper personal benefit to Indemnitee; or
(c)indemnification or advance of Expenses hereunder if the Proceeding was brought by Indemnitee unless: (i) the Proceeding was brought to establish or enforce indemnification rights under this Agreement, and then only to the extent in accordance with and as authorized by Section 12 of this Agreement; or (ii) the Company’s charter or Bylaws, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise.
Section 6.Court-Ordered Indemnification. Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court shall require, may order indemnification in the following circumstances:
(a)if it determines Indemnitee is entitled to reimbursement under Section 2- 418(d)(I) of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to recover the Expenses of securing such reimbursement; or
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(b)if it determines that Indemnitee is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standards of conduct set forth in Section 2-4 l 8(b) of the MGCL or (ii) has been Adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification as the court shall deem proper. However, indemnification with respect to any Proceeding by or in the right of the Company or in which liability shall have been Adjudged in the circumstances described in Section 2-418(c) of the MGCL shall be limited to Expenses.
Section 7.Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, and without limiting any such provision, to the extent that Indemnitee was or is made a party to (or otherwise becomes a participant in) any Proceeding and is successful, on the merits or otherwise, in the defense of such Proceeding, Indemnitee shall be indemnified for all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 7 for all Expenses actually and reasonably incurred by him or on his behalf in connection with each such claim, issue or matter, allocated on a reasonable and proportionate basis. For purposes of this Section 7 and, without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
Section 8.Advance of Expenses for a Party. If Indemnitee was, is, or is threatened to be, made a party to any Proceeding, the Company shall, without requiring a preliminary determination of Indemnitee’s ultimate entitlement to indemnification hereunder, advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with such Proceeding within ten days after the receipt by the Company of a statement or statements requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding, and such advance or advances may be in the form of, in the reasonable discretion of Indemnitee (but without duplication), (a) payment of such Expenses directly to third parties on behalf of Indemnitee, (b) advance of funds to Indemnitee in an amount sufficient to pay such Expenses, or (c) reimbursement to Indemnitee for Indemnitee’s payment of such Expenses. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by law and by this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the Company for any Expenses advanced to Indemnitee relating to claims, issues or matters in the Proceeding as to which it shall ultimately be established that the standard of conduct set forth in Exhibit A has not been met by Indemnitee and which have not been successfully resolved as described in Section 7 of this Agreement. Advances shall be interest-free and unsecured. The undertaking required by this Section 8 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee’s financial ability to repay such advanced Expenses and without any requirement to post security therefor.
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Section 9.Indemnification and Advance of Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee was, is or may be made a witness or otherwise asked to participate in any Proceeding, whether instituted by the Company or any other party, and to which Indemnitee is not a party, he shall be advanced all reasonable Expenses and indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith within ten days after the receipt by the Company of a statement or statements requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee. Advances shall be interest-free and unsecured.
Section 10.Procedure for Determination of Entitlement to Indemnification.
(a)To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. Indemnitee may submit one or more such requests from time to time and at such time(s) as Indemnitee deems appropriate in his sole discretion. The officer of the Company receiving any such request from Indemnitee shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.
(b)Upon written request by Indemnitee for indemnification pursuant to Section 10(a) above, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall promptly be made in the specific case: (i) if a Change of Control has occurred, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, which Independent Counsel shall be selected by the Indemnitee and approved by the Board of Directors in accordance with Section 2-4 I 8(e)(2)(ii) of the MGCL, which approval will not be unreasonably withheld or delayed; or (ii) if a Change of Control has not occurred, (A) by the Board of Directors by a majority vote of a quorum consisting entirely of Disinterested Directors or, if such a quorum cannot be obtained, then by a majority vote of a duly authorized committee of the Board of Directors consisting solely of one or more Disinterested Directors, (B) if Independent Counsel has been selected by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL and approved by the Indemnitee, which approval shall not be unreasonably withheld or delayed, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee or (C) if so directed by a majority of the members of the Board of Directors, by the stockholders of the Company. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination in the discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B) of this Section 10(b). Any Expenses incurred by
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Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.
(c)The Company shall pay the reasonable fees and expenses of Independent Counsel, if one is appointed.
Section 11.Presumptions and Effect of Certain Proceedings.
(a)In making any determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(a) of this Agreement, and the Company shall have the burden of proof and the burden of persuasion by clear and convincing evidence to overcome that presumption in connection with the making of any determination contrary to that presumption.
(b)The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, upon a plea of nolo contendere or its equivalent, or entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.
(c)The knowledge and/or actions, or failure to act, of any other director, officer, employee or agent of the Company or any other director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any Enterprise shall not be imputed to Indemnitee for purposes of determining any other right to indemnification under this Agreement.
(d)For purposes of this Agreement, Indemnitee shall be considered to have been wholly successful with respect to any Proceeding if such Proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to Indemnitee, (ii) it being Adjudged that Indemnitee was liable to the Company, (iii) a plea of guilty by Indemnitee, (iv) it being Adjudged that an act or omission of Indemnitee was material to the matter giving rise to the Proceeding and was (A) committed in bad faith or (B) the result of Indemnitee’s active and deliberate dishonesty, (v) it being Adjudged that Indemnitee actually received an improper personal benefit in money, property or services or (vi) with respect to any criminal proceeding, it being Adjudged that Indemnitee had reasonable cause to believe the act or omission was unlawful.
Section 12.Remedies of Indemnitee.
(a)If (i) a determination is made pursuant to Section 10(b) of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Section 8 or Section 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made
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pursuant to Section l0(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 7 of this Agreement within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification pursuant to any other section of this Agreement or the charter or Bylaws of the Company is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court located in the State of Maryland, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advance of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence a proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing clause shall not apply to a proceeding brought by Indemnitee to enforce his rights under Section 7 of this Agreement. Except as set forth herein, the provisions of Maryland law (without regard to its conflicts of laws rules) shall apply to any such arbitration. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.
(b)In any judicial proceeding or arbitration commenced pursuant to this Section 12, Indemnitee shall be presumed to be entitled to indemnification or advance of Expenses, as the case may be, under this Agreement and the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 12, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section of this Agreement until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed). The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all of the provisions of this Agreement.
(c)If a determination shall have been made pursuant to Section l0(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification that was not introduced in evidence in connection with the determination.
(d)In the event that Indemnitee, pursuant to this Section 12, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to advancement from the Company for any and all Expenses actually and reasonably incurred by him in such judicial adjudication or arbitration in accordance with this Agreement; provided, however, that if Indemnitee’s claim pursuant to this Section 12 is unsuccessful, then all such
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Expenses advanced to Indemnitee by the Company shall be repaid by Indemnitee to the Company.
(e)Interest shall be paid by the Company to Indemnitee at the maximum rate allowed to be charged for judgments under the Courts and Judicial Proceedings Article of the Annotated Code of Maryland for amounts which the Company pays or is obligated to pay for the period commencing with the date that is the tenth day following the date on which the Indemnitee requests indemnification or advancement of Expenses in accordance with this Agreement and ending on the date such payment is made to Indemnitee by the Company.
Section 13.Defense of the Underlying Proceeding.
(a)Indemnitee shall notify the Company promptly in writing upon being served with any summons, citation, subpoena, complaint, indictment, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder and shall include with such notice a description of the nature of the Proceeding and a summary of the facts underlying the Proceeding. The failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company’s ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.
(b)Subject to the provisions of the last sentence of this Section 13(b) and of Section l3(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder using a law firm of the Company’s choice, subject to the prior written approval of the Indemnitee, which shall not be unreasonably withheld or delayed; provided, however, that the Company shall notify Indemnitee in writing of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section l3(a) above. Indemnitee shall have the right to retain a separate law firm in any such Proceeding at Indemnitee’s sole expense. The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee, (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee or (iii) would impose any Expense, judgment, fine, penalty or limitation on Indemnitee. This Section l3(b) shall not apply to a Proceeding brought by Indemnitee under Section 12 of this Agreement, a Proceeding by or in the right of the Company or in the case of clause (ii) of Section 13(c).
(c)Notwithstanding the provisions of Section 13(b) above, if in a Proceeding to which Indemnitee is a party (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld or delayed, that he may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding,
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(ii) Indemnitee reasonably concludes that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee’s choice, subject, except in the case of (ii) or (iii) above, to the prior approval of the Company, which shall not be unreasonably withheld or delayed, at the expense of the Company. In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee’s choice, at the expense of the Company (subject to Section 12(d) of this Agreement), to represent Indemnitee in connection with any such matter.
Section 14.Jointly Indemnifiable Claims.
(a)Given that certain Jointly Indemnifiable Claims may arise, the Company acknowledges and agrees that the Company shall, and to the extent applicable shall cause any Enterprise to (i) be fully and primarily responsible for, and be the indemnitor of first resort with respect to, payment to or payment on behalf of the Indemnitee in respect of indemnification or advancement of Expenses in connection with any such Jointly Indemnifiable Claim, irrespective of any right of recovery the Indemnitee may have from the Third-Party Indemnitors, and (ii) be required to advance the full amount of Expenses incurred by the Indemnitee and shall be liable for the full amount of all Expenses, judgments, fines, penalties and amounts paid in settlement to the extent not prohibited by (and not merely to the extent affirmatively permitted by) applicable law and as required by the terms of this Agreement, without regard to any rights the Indemnitee may have against the Third-Party Indemnitors. Under no circumstance shall the Company or any Enterprise be entitled to, and the Company hereby irrevocably waives, relinquishes and releases, any claims against the Third-Party Indemnitors for subrogation, contribution or recovery of any kind and no right of advancement or recovery the Indemnitee may have from the Third-Party Indemnitors shall reduce or otherwise alter the rights of the Indemnitee or the obligations of the Company or any Enterprise. The Company further agrees that no advancement or payment by any Third-Party Indemnitor on behalf of Indemnitee with respect to any Proceeding for which Indemnitee has sought indemnification rights from the Company shall affect the foregoing and the Third-Party Indemnitor(s) shall have a right to receive from the Company, contribution and/or be subrogated, to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and the Indemnitee agree that each of the Third-Party Indemnitors shall be third-party beneficiaries with respect to this Agreement entitled to enforce this Section 14 as though each such Third-Party Indemnitor were a party to this Agreement.
(b)For purposes of this Agreement “Third-Party Indemnitor” means any person or entity that has or may in the future provide to the Indemnitee any indemnification or Expense advancement rights and/or insurance benefits other than (i) the
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Company, (ii) any Enterprise and (iii) any entity or entities through which the Company maintains liability insurance applicable to the Indemnitee.
(c)For purposes of this Agreement, “Jointly Indemnifiable Claims” shall mean any Proceeding for which the Indemnitee shall be entitled to indemnification, advancement of Expenses or insurance from (i) the Company and/or any Enterprise pursuant to this Agreement, the charter or Bylaws or other governing documents of the Company or any Enterprise, any agreement or a resolution of the stockholders of the Company entitled to vote generally in the election of directors or of the Board of Directors, or otherwise, on the one hand, and (ii) any Third-Party Indemnitor pursuant to any agreement between any Third-Party Indemnitor and the Indemnitee pursuant to which the Indemnitee is indemnified, the laws of the jurisdiction of incorporation or organization of any Third-Party Indemnitor and/or the certificate of incorporation, certificate of organization, bylaws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership or other organizational or governing documents of any Third-Party Indemnitor, on the other hand.
Section 15.Non-Exclusivity; Survival of Rights; Subrogation.
(a)The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the charter or Bylaws or other governing documents of the Company or any Enterprise, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise. Unless consented to in writing by Indemnitee, no amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in or by reason of his Corporate Status prior to such amendment, alteration or repeal, regardless of whether a claim with respect to such action or inaction is raised prior or subsequent to such amendment, alteration or repeal. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right or remedy shall be cumulative and in addition to every other right or remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion of any right or remedy hereunder, or otherwise, shall not prohibit the concurrent assertion or employment of any other right or remedy.
(b)Except as set forth in Section 14, in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
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Section 16.Insurance. The Company will use its reasonable best efforts to acquire directors and officers liability insurance, on terms and conditions deemed appropriate by the Board of Directors, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee by reason of his Corporate Status or by reason of alleged actions or omissions by Indemnitee in such capacity and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against Indemnitee by reason of his Corporate Status or by reason of alleged actions or omissions by Indemnitee in such capacity. In the event of a Change of Control, the Company shall maintain in force any and all directors and officers liability insurance policies that were maintained by the Company immediately prior to the Change of Control by purchasing run-off coverage which shall extend the reporting period of the insurance policy in place at the time of the Change in Control for a period of six years; provided, however, in no event shall the Company be required to expend in the aggregate in excess of 400% of the annual premium or premiums paid by the Company for directors and officers liability insurance in effect on the date of the Change of Control. In the event that 400% of the annual premium paid by the Company for such existing directors and officers liability insurance is insufficient for such run-off coverage, the Company shall spend up to that amount to purchase such lesser coverage as may be obtained with such amount. Without in any way limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all judgments, penalties, fines, settlements and Expenses incurred by Indemnitee in connection with a Proceeding over the coverage of any insurance referred to in the previous sentence. The purchase, establishment and maintenance of any such insurance shall not in any way limit or affect the rights or obligations of the Company or Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and the Indemnitee shall not in any way limit or affect the rights or obligations of the Company under any such insurance policies. If, at the time the Company receives notice from any source of a Proceeding to which Indemnitee is a party or a participant (as a witness or otherwise) the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies.
Section 17.Coordination of Payments. Except as set forth in Section 14, the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
Section 18.Reports to Stockholders. To the extent required by the MGCL, the Company shall report in writing to its stockholders the payment of any amounts for indemnification of, or advance of Expenses to, Indemnitee under this Agreement arising out of a Proceeding by or in the right of the Company with the notice of the meeting of stockholders of the Company next following the date of the payment of any such indemnification or advance of Expenses or prior to such meeting.
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Section 19.Duration of Agreement; Binding Effect.
(a)This Agreement shall be effective as of the Effective Date and may apply to acts or omissions of Indemnitee taken in or in connection with Indemnitee’s Corporate Status which occurred prior to such date if Indemnitee was an officer, director, employee or agent of the Company or was a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any Enterprise at the time such act or omission occurred.
(b)This Agreement shall continue until and terminate on the later of (i) the date that Indemnitee shall have ceased to serve as a director, officer, employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any Enterprise and (ii) the date that Indemnitee is no longer subject to any actual or possible Proceeding (including any rights of appeal thereto and any Proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement).
(c)The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any Enterprise, and shall inure to the benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.
(d)The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
(e)The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which he may be entitled. Indemnitee shall further be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertakings in connection therewith. The Company acknowledges that, in the absence of a waiver, a bond or undertaking may be required of Indemnitee by a court, and the Company hereby waives any such requirement of such a bond or undertaking.
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Section 20.Section 409A. It is intended that any indemnification payment or advancement of Expenses made hereunder shall be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, and the guidance issued thereunder (“Section 409A”) pursuant to Treasury Regulation Section l .409A-l (b)(10). Notwithstanding the foregoing, if any indemnification payment or advancement of Expenses made hereunder shall be determined to be “nonqualified deferred compensation” within the meaning of Section 409A, then (i) the amount of the indemnification payment or advancement of Expenses during one taxable year shall not affect the amount of the indemnification payments or advancement of Expenses during any other taxable year, (ii) the indemnification payments or advancement of Expenses must be made on or before the last day of the Indemnitee’s taxable year following the year in which the expense was incurred, and (iii) the right to indemnification payments or advancement of Expenses hereunder is not subject to liquidation or exchange for another benefit.
Section 21.Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
Section 22.Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.
Section 23.Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
Section 24.Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor, unless otherwise expressly stated, shall such waiver constitute a continuing waiver.
Section 25.Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:
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(a)If to Indemnitee, to the address set forth on the signature page hereto.
(b)If to the Company, to:
Spirit Realty Capital, Inc.
2727 N. Harwood Street, Suite 300
Dallas, TX 75201
Attn: Rochelle Thomas, General Counsel
or to such other address as may have been furnished in writing to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
Section 26.Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland, without regard to its conflicts of laws rules.
Section 27.Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.
Section 28. Contribution. If the indemnification provided in this Agreement is unavailable in whole or in part and may not be paid to Indemnitee for any reason, other than for failure to satisfy the standard of conduct for indemnification under applicable law or due to the provisions of Section 5, then, with respect to any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), to the fullest extent permissible under applicable law, the Company, in lieu of indemnifying and holding harmless Indemnitee, shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for Expenses or liabilities, in connection with any Proceeding without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have at any time against Indemnitee.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
SPIRIT REALTY CAPITAL, INC.
By:_________________________
Name:______________________
Title:_______________________
INDEMNITEE
___________________________
Name:______________________
Address:____________________
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EXHIBIT A
FORM OF AFFIRMATION AND UNDERTAKING TO REPAY EXPENSES ADVANCED
To: Board of Directors of Spirit Realty Capital, Inc.
Re: Affirmation and Undertaking to Repay Expenses Advanced
Ladies and Gentleman,
This affirmation and undertaking is being provided pursuant to that certain Indemnification Agreement dated ________ by and between Spirit Realty Capital, Inc., a Maryland corporation (the “Company”), and the undersigned Indemnitee (the “Indemnification Agreement”), pursuant to which I am entitled to advance of Expenses in connection with [Description of Proceeding] (the “Proceeding”).
Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.
I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity. I hereby affirm my good faith belief that at all times, insofar as I was involved as [a director] [an officer] of the Company, in any of the facts or events giving rise to the Proceeding, I (1) did not act with bad faith or active or deliberate dishonesty, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.
In consideration of the advance of Expenses by the Company for reasonable attorneys’ fees and related Expenses incurred by me in connection with the Proceeding (the “Advanced Expenses”), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established.
IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this _____________ day of __ 20_.
Name:
A-1
Exhibit 31.1
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jackson Hsieh, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Spirit Realty Capital, Inc.; |
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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; |
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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; |
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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: |
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(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; |
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(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; |
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(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 |
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(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 |
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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): |
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(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 |
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(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: |
August 3, 2022 |
/s/ Jackson Hsieh |
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Jackson Hsieh |
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President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Hughes, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Spirit Realty Capital, Inc.; |
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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; |
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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; |
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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; |
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(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; |
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(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 |
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(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 |
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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): |
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(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 |
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(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: |
August 3, 2022 |
/s/ Michael Hughes |
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Michael Hughes |
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Executive Vice President and Chief Financial Officer |
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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:
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(i) |
the accompanying Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2022 (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 |
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(ii) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: |
August 3, 2022 |
/s/ Jackson Hsieh |
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Jackson Hsieh |
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President and Chief Executive Officer |
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/s/ Michael Hughes |
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Michael Hughes |
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Executive Vice President and Chief Financial Officer |
The foregoing certification is being furnished with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 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.