Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q/A
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 001-36004
_______________________________________________
SPIRIT REALTY CAPITAL, INC.
(Exact name of registrant as specified in its charter)
_______________________________________________
Maryland
 
20-1676382
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
2727 North Harwood Street, Suite 300, Dallas, TX 75201
 
(972) 476-1900
(Address of principal executive offices; zip code)
 
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)
______________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x   No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
Accelerated filer
o
Non-accelerated filer
o
(Do not check if smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o    No x
As of May 2, 2016, there were 479,655,830 shares of common stock, par value $0.01, of Spirit Realty Capital, Inc. outstanding.
 




SPIRIT REALTY CAPITAL, INC.
INDEX
Explanatory Note
Glossary
 
 
Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015
Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (Unaudited)
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015 (Unaudited)
Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2016 (Unaudited)
Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (Unaudited)
 

 

2



Explanatory Note
The Company is restating its interim unaudited consolidated financial statements for the quarter ended March 31, 2016. See the Company's Current Report on Form 8-K filed with the SEC on October 19, 2016 for additional details.
When the Company disposes of real estate assets, if the real estate assets constitute a business, a portion of the Company’s goodwill should be allocated to the carrying value of the business disposed of to determine the gain/loss on disposal. Further, when the Company classifies real estate assets that constitute a business as held for sale, the carrying amount used to determine an impairment loss, if any, should include an allocation of goodwill, in accordance with ASC 350 “Intangibles - Goodwill and Other.” Historically, the Company did not allocate goodwill resulting from the Cole II Merger to real estate assets disposed of or consider the amount of goodwill attributable to real estate assets held for sale in assessing impairment in the Company’s consolidated financial statements as of and for the three months ended March 31, 2016.
As explained in Note 2 to the consolidated financial statements included within this Form 10-Q/A (as defined below), the restatement is a correction of an error in the application of the accounting treatment under ASC 350. For each real estate asset that constitutes a business that was disposed of or classified as held for sale, the restatement reflects an allocation of goodwill that has been derived based upon the proportionate fair value of the real estate asset to the fair value of the Company’s reporting unit (i.e. the Company's equity).
The allocation of goodwill to real estate assets disposed of resulted in a decrease in gain on disposition of assets of $2.4 million for the three months ended March 31, 2016 and a decrease of $29.5 million to goodwill as of March 31, 2016. The allocation of goodwill to real estate assets held for sale resulted in an increase of $0.5 million to impairments for the three months ended March 31, 2016 and a decrease of $1.4 million to real estate assets held for sale, net as of March 31, 2016. Additionally, the correction of these errors resulted in an increase of $30.9 million to accumulated deficit as of March 31, 2016.
This Amendment No. 1 on Form 10-Q/A (“Form 10-Q/A”) to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, initially filed with the SEC on May 5, 2016 (the “Original Filing”), is being filed to reflect the restatement of (i) the Company’s consolidated balance sheet at March 31, 2016 and December 31, 2015, (ii) the Company’s consolidated statements of operations, comprehensive income, and cash flows for the three months ended March 31, 2016 and 2015 and (iii) the Company's consolidated statement of stockholders’ equity for the three months ended March 31, 2016, and the notes related thereto. For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing in its entirety and only amends and restates Items 1, 2, and 4 of Part I of the Original Filing to reflect the adjustments described above and in Note 2, and the related impact on disclosures. No other information in the Original Filing is amended. For a more detailed description of these matters, see Note 2 to the accompanying consolidated financial statements in this Form 10-Q/A.
Notably, these adjustments did not negatively impact the following metrics of the Company:
Revenues;
Cash position or its total cash flows from operating, investing or financing activities;
Liquidity;
Funds from operations (“FFO”);
Adjusted funds from operations (“AFFO”);
Reported capitalization rates on the sale of assets; and
Any metric utilized in the determination of executive compensation.
Additionally, the Company remains in compliance with all of its debt agreements and financial covenants.
Pursuant to the rules of the SEC, Item 6 of Part II of the Original Filing has been amended to contain the currently-dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of our Chief Executive Officer and Chief Financial Officer are attached to this Form 10-Q/A as Exhibits 31.1, 31.2 and 32.1, respectively.

3


GLOSSARY
Definitions:
 
1031 Exchange
Tax-deferred like-kind exchange of properties held for business or investment purposes, pursuant to Section 1031 of the Code
2013 Credit Facility
$400.0 million secured credit facility pursuant to the credit agreement between the Operating Partnership and certain lenders dated July 17, 2013
2015 Credit Facility
$600.0 million unsecured credit facility pursuant to the Credit Agreement
2019 Notes
$402.5 million convertible notes of the Corporation due in 2019
2021 Notes
$345.0 million convertible notes of the Corporation due in 2021
AFFO
Adjusted Funds From Operations
AOCL
Accumulated Other Comprehensive Loss
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
ATM Program
At the Market equity distribution program, pursuant to which the Corporation may offer and sell registered shares of common stock from time to time
CAM
Tenant Common Area Maintenance costs
CMBS
Commercial Mortgage Backed Securities
Code
Internal Revenue Code of 1986, as amended
Cole II
Cole Credit Property Trust II, Inc.
Cole II Merger
Acquisition on July 17, 2013 of Cole II by the Company, in which the Company merged with and into the Cole II legal entity
Collateral Pools
Pools of collateral assets that are pledged to the indenture trustee for the benefit of the noteholders and secure obligations of issuers under the Spirit Master Funding Program
Company
The Corporation and its consolidated subsidiaries
Convertible Notes
The 2019 Notes and 2021 Notes, together
Corporation
Spirit Realty Capital, Inc., a Maryland corporation
CPI
Consumer Price Index
Credit Agreement
2015 credit facility agreement between the Operating Partnership and certain lenders dated March 31, 2015, as amended on November 3, 2015
EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
FFO
Funds From Operations
GAAP
Generally Accepted Accounting Principles in the United States
Incentive Award Plan
Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan
IPO
Initial Public Offering
LIBOR
London Interbank Offered Rate
Line of Credit
$40.0 million secured revolving credit facility pursuant to the loan agreement between an indirect wholly-owned subsidiary of the Corporation and a certain lender dated March 27, 2013, as amended
Master Trust 2013
The net-lease mortgage securitization trust established in December 2013 under the Spirit Master Funding Program
Master Trust 2014
The net-lease mortgage securitization trust established in 2005 and amended and restated in 2014 under the Spirit Master Funding Program
Master Trust Notes
The Master Trust 2013 and Master Trust 2014 notes, together
Master Trust Release
Proceeds from the sale of assets securing the Master Trust Notes held in restricted accounts until a qualifying substitution is made
Moody's
Moody's Investor Services
NAREIT
National Association of Real Estate Investment Trusts

4


Definitions:
 
Normalized Rental Revenue
Total rental revenues and earned income from direct financing leases from our owned properties during the final month of the reporting period normalized to exclude total rental revenues and earned income from direct financing leases from our owned properties during the final month of the reporting period contributed by properties sold during that period
Normalized Revenue
Total revenues normalized to exclude total revenues contributed by properties sold during that period
OP Holdings
Spirit General OP Holdings, LLC
Operating Partnership
Spirit Realty, L.P., a Delaware limited partnership
REIT
Real Estate Investment Trust
Revolving Credit Facilities
The 2013 Credit Facility, the 2015 Credit Facility and Line of Credit, together
S&P
Standard & Poor's Rating Services
SEC
Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
Shopko
Specialty Retail Shops Holding Corp. and certain of its affiliates
Spirit Master Funding Program
The Company's asset-backed securitization program that comprises Master Trust 2013 and Master Trust 2014
Term Loan
$325.0 million senior unsecured term facility pursuant to the Term Loan Agreement as amended from time to time
Term Loan Agreement
Term loan agreement between the Operating Partnership and certain lenders dated November 3, 2015
Total Debt
Principal debt outstanding before discounts, premiums or deferred financing costs
TSR
Total Shareholder Return
Walgreens
Walgreen Company

Unless otherwise indicated or unless the context requires otherwise, all references to "we," "us" or "our" refer to the Corporation and its consolidated subsidiaries, including the Operating Partnership.

5


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SPIRIT REALTY CAPITAL, INC.
Consolidated Balance Sheets (As Restated, see Note 2)
(In Thousands, Except Share and Per Share Data)
(Unaudited)

 
March 31,
2016
 
December 31,
2015
 
(Restated)
 
(Restated)
Assets



Investments:



Real estate investments:



Land and improvements
$
2,679,409


$
2,710,888

Buildings and improvements
4,767,151


4,816,481

Total real estate investments
7,446,560


7,527,369

Less: accumulated depreciation
(891,909
)

(860,954
)

6,554,651


6,666,415

Loans receivable, net
101,602


104,003

Intangible lease assets, net
509,089


526,718

Real estate assets under direct financing leases, net
41,499


44,324

Real estate assets held for sale, net
114,050


84,259

Net investments
7,320,891


7,425,719

Cash and cash equivalents
8,992


21,790

Deferred costs and other assets, net
173,295


179,180

Goodwill
261,934


264,350

Total assets
$
7,765,112


$
7,891,039

Liabilities and stockholders’ equity



Liabilities:



Revolving Credit Facilities
$
24,000


$

Term Loan, net
332,019

 
322,902

Mortgages and notes payable, net
2,969,893


3,079,787

Convertible Notes, net
693,173


690,098

Total debt, net
4,019,085


4,092,787

Intangible lease liabilities, net
187,211


193,903

Accounts payable, accrued expenses and other liabilities
136,743


142,475

Total liabilities
4,343,039


4,429,165

Commitments and contingencies (see Note 8)





Stockholders’ equity:



Common stock, $0.01 par value, 750,000,000 shares authorized: 443,435,556 and 441,819,964 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
4,434


4,418

Capital in excess of par value
4,737,534


4,721,323

Accumulated deficit
(1,318,246
)

(1,262,839
)
Accumulated other comprehensive loss
(1,649
)

(1,028
)
Total stockholders’ equity
3,422,073


3,461,874

Total liabilities and stockholders’ equity
$
7,765,112


$
7,891,039

See accompanying notes.

6


SPIRIT REALTY CAPITAL, INC.
Consolidated Statements of Operations (As Restated, see Note 2)
(In Thousands, Except Share and Per Share Data)
(Unaudited)


 
Three Months Ended 
 March 31,
 
2016
 
2015
 
(Restated)
 
(Restated)
Revenues:
 
 
 
Rentals
$
161,819

 
$
154,518

Interest income on loans receivable
1,659

 
1,722

Earned income from direct financing leases
724

 
795

Tenant reimbursement income
3,824

 
4,631

Other income and interest from real estate transactions
331

 
621

Total revenues
168,357

 
162,287

Expenses:
 
 
 
General and administrative
11,649

 
12,600

Restructuring charges
649

 

Property costs
7,327

 
7,407

Real estate acquisition costs
57

 
1,093

Interest
53,017

 
57,914

Depreciation and amortization
64,664

 
66,296

Impairments
12,618

 
2,200

Total expenses
149,981

 
147,510

Income from continuing operations before other expense and income tax expense
18,376

 
14,777

Other expense:
 
 
 
Loss on debt extinguishment
(5,341
)
 
(1,230
)
Total other expense
(5,341
)
 
(1,230
)
Income from continuing operations before income tax expense
13,035

 
13,547

Income tax expense
(81
)
 
(362
)
Income from continuing operations
12,954

 
13,185

Discontinued operations:
 
 
 
Income from discontinued operations

 
227

Income before gain on disposition of assets
12,954

 
13,412

Gain on disposition of assets
10,146

 
9,151

Net income attributable to common stockholders
$
23,100

 
$
22,563

Net income per share of common stock—basic:
 
 
 
Continuing operations
$
0.05

 
$
0.05

Discontinued operations

 

Net income per share attributable to common stockholders—basic
$
0.05

 
$
0.05

Net income per share of common stock—diluted:
 
 
 
Continuing operations
$
0.05

 
$
0.05

Discontinued operations

 

Net income per share attributable to common stockholders—diluted
$
0.05

 
$
0.05

Weighted average shares of common stock outstanding:
 
 
 
Basic
441,365,927

 
411,017,895

Diluted
441,368,407

 
411,622,434

Dividends declared per common share issued
$
0.17500

 
$
0.17000

See accompanying notes.

7


SPIRIT REALTY CAPITAL, INC.
Consolidated Statements of Comprehensive Income (As Restated, see Note 2)
(In Thousands)
(Unaudited)

 
Three Months Ended 
 March 31,
 
2016
 
2015
 
(Restated)
 
(Restated)
Net income attributable to common stockholders
$
23,100

 
$
22,563

Other comprehensive income (loss):
 
 
 
Change in net unrealized losses on cash flow hedges
(856
)
 
(852
)
Net cash flow hedge losses reclassified to operations
235

 
317

Total comprehensive income
$
22,479

 
$
22,028

See accompanying notes.


8


SPIRIT REALTY CAPITAL, INC.
Consolidated Statement of Stockholders’ Equity (As Restated, see Note 2)
(In Thousands, Except Share Data)
(Unaudited)

 
Common Stock
 
 
 
 
 
 
 
Shares
 
Par 
Value
 
Capital in
Excess of
Par Value
 
Accumulated
Deficit
 
AOCL
 
Total
Stockholders’
Equity
Balances, December 31, 2015 (Restated)
441,819,964

 
$
4,418

 
$
4,721,323

 
$
(1,262,839
)
 
$
(1,028
)
 
$
3,461,874

Net income (Restated)

 

 

 
23,100

 

 
23,100

Other comprehensive loss

 

 

 

 
(621
)
 
(621
)
Dividends declared on common stock

 

 

 
(77,596
)
 

 
(77,596
)
Repurchase of shares of common stock
(71,658
)
 
(1
)
 

 
(737
)
 

 
(738
)
Issuance of shares of common stock, net
1,282,560

 
13

 
13,910

 

 

 
13,923

Stock-based compensation, net
404,690

 
4

 
2,301

 
(174
)
 

 
2,131

Balances, March 31, 2016 (Restated)
443,435,556

 
$
4,434

 
$
4,737,534

 
$
(1,318,246
)
 
$
(1,649
)
 
$
3,422,073

See accompanying notes.

9


SPIRIT REALTY CAPITAL, INC.
Consolidated Statements of Cash Flows (As Restated, see Note 2)
(In Thousands)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2016
 
2015
 
(Restated)
 
(Restated)
Operating activities
 
 
 
Net income attributable to common stockholders
$
23,100

 
$
22,563

Adjustments to reconcile net income attributable to common stockholders to net cash provided by operating activities:
 
 
 
Depreciation and amortization
64,664

 
66,296

Impairments
12,618

 
2,234

Amortization of deferred financing costs
2,166

 
2,072

Derivative amortization and interest rate net settlements
30

 
(28
)
Amortization of debt discounts
760

 
476

Stock-based compensation expense
2,305

 
3,827

Loss on debt extinguishment
5,341

 
1,230

Debt extinguishment costs
(540
)
 
(2,733
)
Gains on dispositions of real estate and other assets, net
(10,146
)
 
(9,151
)
Non-cash revenue
(6,587
)
 
(4,809
)
Other
(14
)
 
(14
)
Changes in operating assets and liabilities:
 
 
 
Deferred costs and other assets, net
95

 
(1,938
)
Accounts payable, accrued expenses and other liabilities
(3,085
)
 
(420
)
Accrued restructuring charges
(1,072
)
 

Net cash provided by operating activities
89,635

 
79,605

Investing activities
 
 
 
Acquisitions of real estate
(72,458
)
 
(265,314
)
Capitalized real estate expenditures
(3,552
)
 
(426
)
Collections of principal on loans receivable and real estate assets under direct financing leases
2,151

 
1,452

Proceeds from dispositions of real estate and other assets
89,349

 
71,547

Transfers of net sales proceeds from (to) restricted accounts pursuant to 1031 Exchanges
39,867

 
(6,937
)
Transfers of net sales proceeds (to) from Master Trust Release
(30,578
)
 
43,412

Net cash provided by (used in) investing activities
24,779

 
(156,266
)
Financing activities
 
 
 
Borrowings under Revolving Credit Facilities
60,000

 
345,000

Repayments under Revolving Credit Facilities
(36,000
)
 
(175,101
)
Repayments under mortgages and notes payable
(96,732
)
 
(167,102
)
Borrowings under Term Loan
45,000

 

Repayments under Term Loan
(36,000
)
 

Deferred financing costs
(125
)
 
(3,562
)
Proceeds from issuance of common stock, net of offering costs
13,923

 
78,552

Repurchase of shares of common stock
(738
)
 
(720
)
Dividends paid to equity owners
(77,381
)
 
(70,046
)
Transfers from reserve/escrow deposits with lenders
841

 
1,593

Net cash (used in) provided by financing activities
(127,212
)
 
8,614

Net decrease in cash and cash equivalents
(12,798
)
 
(68,047
)
Cash and cash equivalents, beginning of period
21,790

 
176,181

Cash and cash equivalents, end of period
$
8,992

 
$
108,134

See accompanying notes.

10


SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements
March 31, 2016
(Unaudited)



Note 1. Organization
Company Organization and Operations
The Company operates as a self-administered and self-managed REIT that seeks to generate and deliver sustainable and attractive returns for stockholders by investing primarily in and managing a portfolio of single-tenant, operationally essential real estate throughout the U.S. that is generally leased on a long-term, triple-net basis to tenants operating within predominantly retail, but also office and industrial property types. Single tenant, operationally essential real estate generally refers to free-standing, commercial real estate facilities where tenants conduct activities that are essential to the generation of their sales and profits.
The Company’s operations are generally carried out through the Operating Partnership. OP Holdings, one of the Corporation's wholly-owned subsidiaries, is the sole general partner and owns 1.0% of the Operating Partnership. The Corporation and a wholly-owned subsidiary are the only limited partners and together own the remaining 99.0% of the Operating Partnership.

As of March 31, 2016, our undepreciated investment in real estate and loans totaled approximately $8.25 billion, representing investments in 2,610 properties, including properties securing mortgage loans made by the Company. Of this amount, 98.8% consisted of our $8.15 billion investment in real estate, representing ownership of 2,467 properties, and the remaining 1.2% consisted of $101.6 million in commercial mortgage and other loans receivable, primarily secured by the remaining 143 properties or other related assets.

Note 2. Restatement
The restatement of the Company's consolidated financial statements results from the Company's subsequent accounting for goodwill resulting from the Cole II Merger. Previously, the Company did not allocate goodwill to the disposal of real estate assets or held for sale real estate assets that met the definition of a business under GAAP, as required by ASC 350 “Intangibles - Goodwill and Other” in order to determine gain on disposition of assets or impairments, if any, respectively.
For the disposal of real estate assets that constituted a business, goodwill and gain on disposition of assets both should have been reduced by the proportionate amount of goodwill allocated to each disposed real estate asset. The amount of goodwill allocated is derived as the proportionate fair value of the real estate considered to be a business under GAAP at the time of sale to the fair value of the Company’s reporting unit. As a result, the restated consolidated balance sheet includes a reduction to goodwill of $29.5 million at March 31, 2016 and the restated consolidated statement of operations includes a reduction to gain on disposition of assets of $2.4 million for the three months ended March 31, 2016. The restated consolidated balance sheet includes a reduction to goodwill of $27.1 million at December 31, 2015 and the restated consolidated statement of operations includes a reduction to gain on disposition of assets of $2.2 million for the three months ended March 31, 2015.
Further, in evaluating the impairment on held for sale real estate assets considered to be a business under GAAP, the proportionate amount of goodwill attributable to the real estate asset held for sale should be considered in determining the amount of impairment, if any. The amount of goodwill attributed is derived as the proportionate fair value of the real estate asset considered to be a business under GAAP held for sale at measurement date to the fair value of the Company’s reporting unit. As a result, the restated consolidated balance sheet includes a reduction to real estate assets held for sale, net of $1.4 million at March 31, 2016 and the restated consolidated statement of operations includes an increase to impairments of $0.5 million for the three months ended March 31, 2016. The restated consolidated balance sheet includes a reduction to real estate assets held for sale, net of $0.9 million at December 31, 2015 and the restated consolidated statement of operations includes an increase to impairments of $0.6 million for the three months ended March 31, 2015.
The consolidated financial statements included in this Form 10-Q/A have been restated as of March 31, 2016 and for the three months then ended to reflect the adjustments described above. The consolidated financial statements included in this Form 10-Q/A have been restated as of December 31, 2015 and for the three months ended March 31, 2015 to reflect the adjustments described above. The following statements present the effect of the restatement on (i) the

11

SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)


Company's consolidated balance sheets at March 31, 2016 and December 31, 2015, (ii) the Company's consolidated statements of operations for the three months ended March 31, 2016 and 2015 and (iii) the Company's consolidated statements of cash flows for the three months ended March 31, 2016 and 2015. The Company did not present a summary of the effect of the restatement on the consolidated statement of stockholders' equity for any of the above referenced periods because the impact to stockholders' equity is reflected below in the restated consolidated balance sheets. The Company did not present a summary of the effect of the restatement on the consolidated statements of comprehensive income for any of the above referenced periods because the impact to net income is reflected below in the restated consolidated statements of operations and the restatement adjustments did not affect any other component of comprehensive income.


12

SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)


The following table presents the consolidated balance sheet as previously reported, restatement adjustments and the consolidated balance sheet as restated at March 31, 2016 (in thousands except per share data):
 
As Previously Reported
 
Restatement Adjustments
 
As Restated
Assets
 
 
 
 
 
Investments:
 
 
 
 
 
Real estate investments:
 
 
 
 
 
Land and improvements
$
2,679,409

 
$

 
$
2,679,409

Buildings and improvements
4,767,151

 

 
4,767,151

Total real estate investments
7,446,560

 

 
7,446,560

Less: accumulated depreciation
(891,909
)
 

 
(891,909
)
 
6,554,651

 

 
6,554,651

Loans receivable, net
101,602

 

 
101,602

Intangible lease assets, net
509,089

 

 
509,089

Real estate assets under direct financing leases, net
41,499

 

 
41,499

Real estate assets held for sale, net
115,423

 
(1,373
)
 
114,050

Net investments
7,322,264

 
(1,373
)
 
7,320,891

Cash and cash equivalents
8,992

 

 
8,992

Deferred costs and other assets, net
173,295

 

 
173,295

Goodwill
291,421

 
(29,487
)
 
261,934

Total assets
$
7,795,972

 
$
(30,860
)
 
$
7,765,112

Liabilities and stockholders’ equity
 
 
 
 
 
Liabilities:
 
 
 
 
 
Revolving credit facilities
$
24,000

 
$

 
$
24,000

Term Loan, net
332,019

 

 
332,019

Mortgages and notes payable, net
2,969,893

 

 
2,969,893

Convertible Notes, net
693,173

 

 
693,173

Total debt, net
4,019,085

 

 
4,019,085

Intangible lease liabilities, net
187,211

 

 
187,211

Accounts payable, accrued expenses and other liabilities
136,743

 

 
136,743

Total liabilities
4,343,039

 

 
4,343,039

Commitments and contingencies (see Note 8)


 


 


Stockholders’ equity:
 
 
 
 
 
Common stock, $0.01 par value
4,434

 

 
4,434

Capital in excess of par value
4,737,534

 

 
4,737,534

Accumulated deficit
(1,287,386
)
 
(30,860
)
 
(1,318,246
)
Accumulated other comprehensive loss
(1,649
)
 

 
(1,649
)
Total stockholders’ equity
3,452,933

 
(30,860
)
 
3,422,073

Total liabilities and stockholders’ equity
$
7,795,972

 
$
(30,860
)
 
$
7,765,112



13

SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)


The following table presents the consolidated balance sheet as previously reported, restatement adjustments and the consolidated balance sheet as restated at December 31, 2015 (in thousands except per share data):
 
As Previously Reported
 
Restatement Adjustments
 
As Restated
Assets
 
 
 
 
 
Investments:
 
 
 
 
 
Real estate investments:
 
 
 
 
 
Land and improvements
$
2,710,888

 
$

 
$
2,710,888

Buildings and improvements
4,816,481

 

 
4,816,481

Total real estate investments
7,527,369

 

 
7,527,369

Less: accumulated depreciation
(860,954
)
 

 
(860,954
)
 
6,666,415

 

 
6,666,415

Loans receivable, net
104,003

 

 
104,003

Intangible lease assets, net
526,718

 

 
526,718

Real estate assets under direct financing leases, net
44,324

 

 
44,324

Real estate assets held for sale, net
85,145

 
(886
)
 
84,259

Net investments
7,426,605

 
(886
)
 
7,425,719

Cash and cash equivalents
21,790

 

 
21,790

Deferred costs and other assets, net
179,180

 

 
179,180

Goodwill
291,421

 
(27,071
)
 
264,350

Total assets
$
7,918,996

 
$
(27,957
)
 
$
7,891,039

Liabilities and stockholders’ equity
 
 
 
 
 
Liabilities:
 
 
 
 
 
Revolving credit facilities
$

 
$

 
$

Term Loan, net
322,902

 

 
322,902

Mortgages and notes payable, net
3,079,787

 

 
3,079,787

Convertible Notes, net
690,098

 

 
690,098

Total debt, net
4,092,787

 

 
4,092,787

Intangible lease liabilities, net
193,903

 

 
193,903

Accounts payable, accrued expenses and other liabilities
142,475

 

 
142,475

Total liabilities
4,429,165

 

 
4,429,165

Commitments and contingencies (see Note 8)


 


 


Stockholders’ equity:
 
 
 
 
 
Common stock, $0.01 par value
4,418

 

 
4,418

Capital in excess of par value
4,721,323

 

 
4,721,323

Accumulated deficit
(1,234,882
)
 
(27,957
)
 
(1,262,839
)
Accumulated other comprehensive loss
(1,028
)
 

 
(1,028
)
Total stockholders’ equity
3,489,831

 
(27,957
)
 
3,461,874

Total liabilities and stockholders’ equity
$
7,918,996

 
$
(27,957
)
 
$
7,891,039




14

SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)


The following table presents the consolidated statement of operations as previously reported, restatement adjustments and the consolidated statement of operations as restated for the three months ended March 31, 2016 (in thousands except share and per share data):
 
As Previously Reported
 
Restatement Adjustments
 
As Restated
Revenues:
 
 
 
 
 
Rentals
$
161,819

 
$

 
$
161,819

Interest income on loans receivable
1,659

 

 
1,659

Earned income from direct financing leases
724

 

 
724

Tenant reimbursement income
3,824

 

 
3,824

Other income and interest from real estate transactions
331

 

 
331

Total revenues
168,357

 

 
168,357

Expenses:
 
 
 
 
 
General and administrative
11,649

 

 
11,649

Restructuring charges
649

 

 
649

Property costs
7,327

 

 
7,327

Real estate acquisition costs
57

 

 
57

Interest
53,017

 

 
53,017

Depreciation and amortization
64,664

 

 
64,664

Impairments
12,131

 
487

 
12,618

Total expenses
149,494

 
487

 
149,981

Income from continuing operations before other expense and income tax expense
18,863

 
(487
)
 
18,376

Other expense:
 
 
 
 
 
Loss on debt extinguishment
(5,341
)
 

 
(5,341
)
Total other expense
(5,341
)
 

 
(5,341
)
Income from continuing operations before income tax expense
13,522

 
(487
)
 
13,035

Income tax expense
(81
)
 
 
 
(81
)
Income from continuing operations
13,441

 
(487
)
 
12,954

Income before gain on disposition of assets
13,441

 
(487
)
 
12,954

Gain on disposition of assets
12,562

 
(2,416
)
 
10,146

Net income attributable to common stockholders
$
26,003

 
$
(2,903
)
 
$
23,100

Net income per share of common stock—basic:
 
 
 
 
 
Continuing operations
0.06

 
(0.01
)
 
0.05

Net income per share attributable to common stockholders—basic
$
0.06

 
$
(0.01
)
 
$
0.05

Net income per share of common stock—diluted:
 
 
 
 
 
Continuing operations
0.06

 
(0.01
)
 
0.05

Net income per share attributable to common stockholders—diluted
$
0.06

 
$
(0.01
)
 
$
0.05

Weighted average shares of common stock outstanding:
 
 
 
 
 
Basic
441,365,927

 

 
441,365,927

Diluted
441,368,407

 

 
441,368,407


15

SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)


The following table presents the consolidated statement of operations as previously reported, restatement adjustments and the consolidated statement of operations as restated for the three months ended March 31, 2015 (in thousands except share and per share data):
 
As Previously Reported
 
Restatement Adjustments
 
As Restated
Revenues:
 
 
 
 
 
Rentals
$
154,518

 
$

 
$
154,518

Interest income on loans receivable
1,722

 

 
1,722

Earned income from direct financing leases
795

 

 
795

Tenant reimbursement income
4,631

 

 
4,631

Other income and interest from real estate transactions
621

 

 
621

Total revenues
162,287

 

 
162,287

Expenses:
 
 
 
 
 
General and administrative
12,600

 

 
12,600

Property costs
7,407

 

 
7,407

Real estate acquisition costs
1,093

 

 
1,093

Interest
57,914

 

 
57,914

Depreciation and amortization
66,296

 

 
66,296

Impairments
1,624

 
576

 
2,200

Total expenses
146,934

 
576

 
147,510

Income from continuing operations before other expense and income tax expense
15,353

 
(576
)
 
14,777

Other expense:
 
 
 
 
 
Loss on debt extinguishment
(1,230
)
 

 
(1,230
)
Total other expense
(1,230
)
 

 
(1,230
)
Income from continuing operations before income tax expense
14,123

 
(576
)
 
13,547

Income tax expense
(362
)
 
 
 
(362
)
Income from continuing operations
13,761

 
(576
)
 
13,185

Discontinued operations:
 
 
 
 
 
Income from discontinued operations
227

 

 
227

Income before gain on disposition of assets
13,988

 
(576
)
 
13,412

Gain on disposition of assets
11,336

 
(2,185
)
 
9,151

Net income attributable to common stockholders
$
25,324

 
$
(2,761
)
 
$
22,563

Net income per share of common stock—basic:
 
 
 
 
 
Continuing operations
0.06

 
(0.01
)
 
0.05

Discontinued operations

 

 

Net income per share attributable to common stockholders—basic
$
0.06

 
$
(0.01
)
 
$
0.05

Net income per share of common stock—diluted:
 
 
 
 
 
Continuing operations
0.06

 
(0.01
)
 
0.05

Discontinued operations

 

 

Net income per share attributable to common stockholders—diluted
$
0.06

 
$
(0.01
)
 
$
0.05

Weighted average shares of common stock outstanding:
 
 
 
 
 
Basic
411,017,895

 

 
411,017,895

Diluted
411,622,434

 

 
411,622,434


16

SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)


The following table presents the consolidated statement of cash flows as previously reported, restatement adjustments and the consolidated statement of cash flows as restated for the three months ended March 31, 2016 (in thousands):
 
As Previously Reported
 
Restatement Adjustments
 
As Restated
Operating activities
 
 
 
 
 
Net income attributable to common stockholders
$
26,003

 
$
(2,903
)
 
$
23,100

Adjustments to reconcile net income attributable to common stockholders to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
64,664

 

 
64,664

Impairments
12,131

 
487

 
12,618

Amortization of deferred financing costs
2,166

 

 
2,166

Derivative amortization and interest rate net settlements
30

 

 
30

Amortization of debt discounts
760

 

 
760

Stock-based compensation expense
2,305

 

 
2,305

Loss on debt extinguishment
5,341

 

 
5,341

Debt extinguishment costs
(540
)
 

 
(540
)
Gains on dispositions of real estate and other assets, net
(12,562
)
 
2,416

 
(10,146
)
Non-cash revenue
(6,587
)
 

 
(6,587
)
Other
(14
)
 

 
(14
)
Changes in operating assets and liabilities:
 
 
 
 
 
Deferred costs and other assets, net
95

 

 
95

Accounts payable, accrued expenses and other liabilities
(3,085
)
 

 
(3,085
)
Accrued restructuring charges
(1,072
)
 

 
(1,072
)
Net cash provided by operating activities
89,635

 

 
89,635

Investing activities
 
 
 
 
 
Acquisitions of real estate
(72,458
)
 

 
(72,458
)
Capitalized real estate expenditures
(3,552
)
 

 
(3,552
)
Collections of principal on loans receivable and real estate assets under direct financing leases
2,151

 

 
2,151

Proceeds from dispositions of real estate and other assets
89,349

 

 
89,349

Transfers of net sales proceeds from restricted accounts pursuant to 1031 Exchanges
39,867

 

 
39,867

Transfers of net sales proceeds to Master Trust Release
(30,578
)
 

 
(30,578
)
Net cash provided by investing activities
24,779

 

 
24,779

Financing activities
 
 
 
 
 
Borrowings under Revolving Credit Facilities
60,000

 

 
60,000

Repayments under Revolving Credit Facilities
(36,000
)
 

 
(36,000
)
Repayments under mortgages and notes payable
(96,732
)
 

 
(96,732
)
Borrowings under Term Loan
45,000

 

 
45,000

Repayments under Term Loan
(36,000
)
 

 
(36,000
)
Deferred financing costs
(125
)
 

 
(125
)
Proceeds from issuance of common stock, net of offering costs
13,923

 

 
13,923

Repurchase of shares of common stock
(738
)
 

 
(738
)
Dividends paid to equity owners
(77,381
)
 

 
(77,381
)
Transfers from reserve/escrow deposits with lenders
841

 

 
841

Net cash used in financing activities
(127,212
)
 

 
(127,212
)
Net decrease in cash and cash equivalents
(12,798
)
 

 
(12,798
)
Cash and cash equivalents, beginning of period
21,790

 

 
21,790

Cash and cash equivalents, end of period
$
8,992

 
$

 
$
8,992



17

SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)


The following table presents the consolidated statement of cash flows as previously reported, restatement adjustments and the consolidated statement of cash flows as restated for the three months ended March 31, 2015 (in thousands):
 
As Previously Reported
 
Restatement Adjustments
 
As Restated
Operating activities
 
 
 
 
 
Net income attributable to common stockholders
$
25,324

 
$
(2,761
)
 
$
22,563

Adjustments to reconcile net income attributable to common stockholders to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
66,296

 

 
66,296

Impairments
1,658

 
576

 
2,234

Amortization of deferred financing costs
2,072

 

 
2,072

Derivative amortization and interest rate net settlements
(28
)
 

 
(28
)
Amortization of debt discounts
476

 

 
476

Stock-based compensation expense
3,827

 

 
3,827

Loss on debt extinguishment
1,230

 

 
1,230

Debt extinguishment costs
(2,733
)
 

 
(2,733
)
Gains on dispositions of real estate and other assets, net
(11,336
)
 
2,185

 
(9,151
)
Non-cash revenue
(4,809
)
 

 
(4,809
)
Other
(14
)
 

 
(14
)
Changes in operating assets and liabilities:
 
 
 
 
 
Deferred costs and other assets, net
(1,938
)
 

 
(1,938
)
Accounts payable, accrued expenses and other liabilities
(420
)
 

 
(420
)
Accrued restructuring charges

 

 

Net cash provided by operating activities
79,605

 

 
79,605

Investing activities
 
 
 
 
 
Acquisitions of real estate
(265,314
)
 

 
(265,314
)
Capitalized real estate expenditures
(426
)
 

 
(426
)
Collections of principal on loans receivable and real estate assets under direct financing leases
1,452

 

 
1,452

Proceeds from dispositions of real estate and other assets
71,547

 

 
71,547

Transfers of net sales proceeds to restricted accounts pursuant to 1031 Exchanges
(6,937
)
 

 
(6,937
)
Transfers of net sales proceeds from Master Trust Release
43,412

 

 
43,412

Net cash used in investing activities
(156,266
)
 

 
(156,266
)
Financing activities
 
 
 
 
 
Borrowings under Revolving Credit Facilities
345,000

 

 
345,000

Repayments under Revolving Credit Facilities
(175,101
)
 

 
(175,101
)
Repayments under mortgages and notes payable
(167,102
)
 

 
(167,102
)
Deferred financing costs
(3,562
)
 

 
(3,562
)
Proceeds from issuance of common stock, net of offering costs
78,552

 

 
78,552

Repurchase of shares of common stock
(720
)
 

 
(720
)
Dividends paid to equity owners
(70,046
)
 

 
(70,046
)
Transfers from reserve/escrow deposits with lenders
1,593

 

 
1,593

Net cash provided by financing activities
8,614

 

 
8,614

Net decrease in cash and cash equivalents
(68,047
)
 

 
(68,047
)
Cash and cash equivalents, beginning of period
176,181

 

 
176,181

Cash and cash equivalents, end of period
$
108,134

 
$

 
$
108,134



18


SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)

Note 3. Summary of Significant Accounting Policies
Basis of Accounting and Principles of Consolidation
The accompanying unaudited consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the SEC. In the opinion of management, the unaudited consolidated financial statements include the normal, recurring adjustments necessary for a fair statement of the information required to be set forth therein. The results for interim periods are not necessarily indicative of the results for the entire year. Certain information and note disclosures, normally included in financial statements prepared in accordance with 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/A for the year ended December 31, 2015.
The unaudited consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company has formed numerous special purpose entities to acquire and hold real estate encumbered by indebtedness (see Note 5). As a result, the majority of the Company’s consolidated assets are held in these wholly-owned special purpose entities. Each special purpose entity is a separate legal entity and is the sole owner of its assets and responsible for its liabilities. The assets of these special purpose entities are not available to pay, or otherwise satisfy obligations to, the creditors of any affiliate or owner of another entity unless the special purpose entities have expressly agreed and are permitted under their governing documents. At March 31, 2016 and December 31, 2015, net assets totaling $4.38 billion and $4.57 billion, respectively, were held, and net liabilities totaling $3.07 billion and $3.19 billion, respectively, were owed by these 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.
Allowance for Doubtful Accounts

The Company provided for reserves for uncollectible amounts related to its rent and other tenant receivables totaling $11.8 million and $11.5 million at March 31, 2016 and December 31, 2015, respectively, against accounts receivable balances of $26.9 million and $26.3 million, respectively. Receivables are recorded within deferred costs and other assets, net in the accompanying consolidated balance sheets.
The Company established a reserve for losses of $9.9 million and $12.2 million at March 31, 2016 and December 31, 2015, respectively, against deferred rental revenue receivables of $70.8 million and $68.0 million, respectively. Deferred rental revenue receivables are recorded within deferred costs and other assets, net in the accompanying consolidated balance sheets.

19


SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)

Restricted Cash and Escrow Deposits

Restricted cash and deposits in escrow, classified within deferred costs and other assets, net in the accompanying consolidated balance sheets consisted of the following (in thousands):
 
March 31,
2016
 
December 31,
2015
Collateral deposits (1)
$
13,903

 
$
14,475

Tenant improvements, repairs, and leasing commissions (2)
8,708

 
8,362

Master Trust Release (3)
42,670

 
12,091

1031 Exchange proceeds, net
2

 
39,869

Loan impounds (4)
1,054

 
1,025

Other (5)
1,178

 
1,823

 
$
67,515

 
$
77,645

(1) Funds held in reserve by lenders which can be applied at their discretion to the repayment of debt (any funds remaining on deposit after the debt is paid in full are released to the borrower).
(2) Deposits held as additional collateral support by lenders to fund tenant improvements, repairs and leasing commissions incurred to secure a new tenant.
(3) Proceeds from the sale of assets pledged as collateral under the Spirit Master Funding Program, which are held on deposit until a qualifying substitution is made or the funds are applied as prepayment of principal.
(4) Funds held in lender controlled accounts generally used to meet future debt service or certain property operating expenses.
(5) Funds held in lender controlled accounts released after scheduled debt service requirements are met.
Income Taxes
The Company has elected to be taxed as a REIT under the Code. As a REIT, the Company generally will not be subject to federal income tax provided it continues to satisfy certain tests concerning the Company’s sources of income, the nature of its assets, the amounts distributed to its stockholders, and the ownership of Company stock. Management believes the Company has qualified and will continue to qualify as a REIT and therefore, no provision has been made for federal income taxes in the accompanying consolidated financial statements. Even if the Company qualifies for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income tax and excise tax on its undistributed income.
Franchise taxes are included in general and administrative expenses on the accompanying consolidated statements of operations. Taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiaries are subject to federal, state, and local taxes, which are not material.
Reclassifications
Certain reclassifications have been made to prior period balances to conform to the current period presentation.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or the SEC that are adopted by the Company as of the specified effective date. Unless otherwise discussed, these new accounting pronouncements entail technical corrections to existing guidance or affect guidance related to specialized industries or entities and therefore will have minimal, if any, impact on the Company's financial position or results of operations upon adoption.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of

20


SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)

initial application, with an option to elect to use certain transition relief. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies many aspects of accounting for share-based payment transactions under ASC Topic 718, Compensation - Stock Compensation, including income tax consequences, classification of awards as either equity or liability, forfeiture rate calculations and classification on the statement of cash flows. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted for all entities. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

Note 4. Investments
Real Estate Investments

As of March 31, 2016, the Company's gross investment in real estate properties and loans totaled approximately $8.25 billion, representing investments in 2,610 properties, including 143 properties securing mortgage loans. The gross investment is comprised of land, buildings, lease intangible assets and lease intangible liabilities, as adjusted for any impairment, and the carrying amount of loans receivable, real estate assets held under direct financing leases and real estate assets held for sale. The portfolio is geographically dispersed throughout 49 states with only one state, Texas, with a real estate investment of 12.0%, accounting for more than 10.0% of the total dollar amount of the Company’s real estate investment portfolio.

The properties that the Company owns are leased to tenants under long-term operating leases that typically include one or more renewal options. The leases are generally triple-net, which provides that the lessee is responsible for the payment of all property operating expenses, including property taxes, maintenance and repairs, and insurance costs. Therefore, the Company is generally not responsible for repairs or other capital expenditures related to its properties, unless the property is not subject to a triple-net lease agreement or becomes vacant. Generally, the Company's single-tenant leases contain contractual provisions increasing the rental revenue over the term of the lease at specified dates by: (1) a fixed amount or (2) increases in CPI over a specified period (typically subject to ceilings) or (b) a fixed percentage.


21


SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)

During the three months ended March 31, 2016, the Company had the following real estate and loan activity, net of accumulated depreciation and amortization, as restated:
 
Number of Properties
 
Dollar Amount of Investments
 
Owned (4)
 
Financed
 
Total
 
Owned
 
Financed
 
Total
 
 
 
 
 
 
 
(In Thousands)
Gross balance, December 31, 2015
2,485

 
144

 
2,629

 
$
8,198,685

 
$
104,003

 
$
8,302,688

Acquisitions/improvements (1) (3)
15

 

 
15

 
76,010

 

 
76,010

Dispositions of real estate (2) (3)
(33
)
 

 
(33
)
 
(113,471
)
 

 
(113,471
)
Principal payments and payoffs

 
(1
)
 
(1
)
 

 
(2,121
)
 
(2,121
)
(Impairments)/recoveries

 

 

 
(12,939
)
 
324

 
(12,615
)
Write-off of gross lease intangibles

 

 

 
(1,771
)
 

 
(1,771
)
Loan premium amortization and other

 

 

 
(30
)
 
(604
)
 
(634
)
Gross balance, March 31, 2016
2,467

 
143

 
2,610

 
$
8,146,484

 
$
101,602

 
$
8,248,086

Accumulated depreciation and amortization
 
 
 
 
 
 
(1,116,106
)
 

 
(1,116,106
)
Other non-real estate assets held for sale
 
 
 
 
 
 
1,700

 

 
1,700

Net balance, March 31, 2016
 
 
 
 
 
 
$
7,032,078

 
$
101,602

 
$
7,133,680

(1) Includes investments of $3.1 million in revenue producing capitalized expenditures, as well as $0.4 million of non-revenue producing capitalized maintenance expenditures. Capitalized maintenance expenditures are not included in the Company's investment in real estate disclosed elsewhere.
(2) The total accumulated depreciation and amortization associated with dispositions of real estate was $17.3 million.
(3) During the three months ended March 31, 2016, pursuant to 1031 Exchanges, the Company sold 4 properties for $21.0 million. Of this amount, and including $39.9 million of 2015 proceeds, $60.9 million was used to partially fund 10 property acquisitions.
(4) At March 31, 2016 and December 31, 2015, 31 and 36, respectively, of the Company's properties were vacant and in the Company’s possession; of these vacant properties, 9 and 12, respectively, were held for sale.
Scheduled minimum future contractual rent to be received under the remaining non-cancelable term of the operating leases at March 31, 2016 (in thousands):
Remainder of 2016
$
443,714

2017
579,699

2018
565,883

2019
547,960

2020
526,685

Thereafter
3,889,569

Total future minimum rentals
$
6,553,510

Because lease renewal periods are exercisable at the option of the lessee, the preceding table presents future minimum lease payments due during the initial lease term only. In addition, the future minimum rentals do not include any contingent rentals based on a percentage of the lessees' gross sales or lease escalations based on future changes in the CPI or other stipulated reference rate.
Certain of the Company’s leases contain purchase options. Most of these options are at or above fair market value at the time the option is exercisable, and none of these purchase options represent bargain purchase options.

22


SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)

Loans Receivable
The following table details loans receivable, net of premium and allowance for loan losses (in thousands):
 
March 31,
2016
 
December 31,
2015
Mortgage loans - principal
$
88,040

 
$
90,096

Mortgage loans - premium
9,382

 
9,986

Mortgages loans, net
97,422

 
100,082

Other note receivables - principal
4,180

 
4,245

Allowance for loan losses

 
(324
)
Other note receivables, net
4,180

 
3,921

Total loans receivable, net
$
101,602

 
$
104,003

The mortgage loans are secured by single-tenant commercial properties and generally have fixed interest rates over the term of the loans. There are two other notes receivable, one $3.9 million note is secured by tenant assets and stock and the other is unsecured.
Allowance for Loan Losses

At March 31, 2016, there was no allowance for loan losses compared to an allowance for loan losses on an unsecured note receivable of $0.3 million at December 31, 2015. At March 31, 2016, there were no mortgages or notes receivable on non-accrual status compared to no mortgage loans and one note receivable with a balance of $0.3 million on non-accrual status at December 31, 2015.
Lease Intangibles, Net
The following table details lease intangible assets and liabilities, net of accumulated amortization (in thousands):
 
March 31,
2016
 
December 31,
2015
In-place leases
$
643,725

 
$
649,182

Above-market leases
96,490

 
98,056

Less: accumulated amortization
(231,126
)
 
(220,520
)
Intangible lease assets, net
$
509,089

 
$
526,718

 
 
 
 
Below-market leases
$
234,557

 
$
238,039

Less: accumulated amortization
(47,346
)
 
(44,136
)
Intangible lease liabilities, net
$
187,211

 
$
193,903

The amounts amortized as a net increase to rental revenue for capitalized above- and below-market leases were $1.5 million and $1.4 million for the three months ended March 31, 2016 and 2015, respectively. The value of in-place leases amortized and included in depreciation and amortization expense was $11.9 million and $12.8 million for the three months ended March 31, 2016 and 2015, respectively.

23


SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)

Real Estate Assets Under Direct Financing Leases
The components of real estate investments held under direct financing leases were as follows (in thousands):
 
March 31,
2016
 
December 31,
2015
Minimum lease payments receivable
$
11,517

 
$
12,702

Estimated residual value of leased assets
41,091

 
43,789

Unearned income
(11,109
)
 
(12,167
)
Real estate assets under direct financing leases, net
$
41,499

 
$
44,324

Real Estate Assets Held for Sale
The following table shows the activity in real estate assets held for sale for the three months ended March 31, 2016, as restated (dollars in thousands):
 
Number of Properties
 
Carrying
Value
Balance, December 31, 2015
36

 
$
84,259

Transfers from real estate investments
20

 
55,508

Sales
(14
)
 
(25,717
)
Balance, March 31, 2016
42

 
$
114,050

Impairments

The following table summarizes total impairment losses recognized in continuing and discontinued operations on the accompanying consolidated statements of operations, as restated (in thousands):
 
Three Months Ended 
 March 31,
 
2016
 
2015
Real estate and intangible asset impairment
$
12,630

 
$
1,619

Write-off of lease intangibles due to lease terminations, net
309

 
512

Loans receivable recovery
(324
)
 

Total impairments from real estate investment net assets
12,615

 
2,131

Other impairment
3

 
103

Total impairment loss in continuing and discontinued operations
$
12,618

 
$
2,234



24


SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)

Note 5. Debt
The Company's debt is summarized below:
 
Weighted Average Effective
Interest Rates
(1)
 
Weighted Average
Stated
Rates (2)
 
Weighted Average Maturity (3)
 
March 31,
2016
 
December 31,
2015
 
 
 
 
 
(in Years)
 
(In Thousands)
Revolving Credit Facilities
NM

 
4.20
%
(6) 
3.0
 
$
24,000

 
$

Term Loan
2.16
%
 
2.04
%
 
2.6
 
334,000

 
325,000

Master Trust Notes
5.59
%
 
5.03
%
 
7.0
 
1,687,353

 
1,692,094

CMBS - fixed-rate
5.34
%
 
5.81
%
 
2.6
 
1,255,960

 
1,360,215

CMBS - variable-rate (4)
2.95
%
 
3.84
%
 
2.7
 
61,758

 
61,758

Convertible Notes
5.32
%
 
3.28
%
 
4.0
 
747,500

 
747,500

Total debt
5.18
%
 
4.69
%
 
4.7
 
4,110,571

 
4,186,567

Debt discount, net
 
 
 
 
 
(51,707
)
 
(52,203
)
Deferred financing costs, net (5)
 
 
 
 
 
 
(39,779
)
 
(41,577
)
Total debt, net
 
 
 
 
 
 
$
4,019,085

 
$
4,092,787

(1) The effective interest rates include amortization of debt discount/premium, amortization of deferred financing costs and non-utilization fees, where applicable, calculated for the three months ended March 31, 2016 and based on the average principal balance outstanding during the period. The average outstanding principal balance of the Revolving Credit Facilities was not significant during the three months ended March 31, 2016, resulting in an effective interest rate that was not meaningful.
(2) Represents the weighted average stated interest rate based on the outstanding principal balance as of March 31, 2016.
(3) Represents the weighted average maturity based on the outstanding principal balance as of March 31, 2016.
(4) Variable-rate notes are predominantly hedged with interest rate swaps (see Note 6).
(5) The Company records deferred financing costs for its 2015 Credit Facility in deferred costs and other assets, net on its consolidated balance sheets.
(6) At the end of the first quarter 2016, the Company borrowed $24.0 million on short notice incurring interest charges at a higher base rate (prime rate) plus an applicable margin. These borrowings were repaid within 5 business days.
Revolving Credit Facilities
2015 Credit Facility
On March 31, 2015, the Operating Partnership entered into the Credit Agreement that established a new $600.0 million unsecured credit facility and terminated its secured $400.0 million 2013 Credit Facility. The 2015 Credit Facility matures on March 31, 2019 (extendable at the Operating Partnership's option to March 31, 2020, subject to satisfaction of certain requirements) and includes an accordion feature to increase the committed facility size to up to $1.0 billion, subject to satisfying certain requirements and obtaining additional lender commitments. The 2015 Credit Facility includes a $50.0 million sublimit for swingline loans and up to $60.0 million available for issuances of letters of credit. Swingline loans and letters of credit reduce availability under the 2015 Credit Facility on a dollar-for-dollar basis. On November 3, 2015, the Company entered into a first amendment to the Credit Agreement. The amendment conforms certain of the terms and covenants to those in the Term Loan Agreement, including limiting the requirement of subsidiary guaranties to material subsidiaries (as defined) meeting certain conditions. At March 31, 2016, there were no subsidiaries meeting this requirement.
Borrowings bear interest at either a specified base rate or LIBOR plus an applicable margin, at the Operating Partnership's option. As of March 31, 2016, the 2015 Credit Facility bore interest at LIBOR plus 1.70% based on the Company's leverage and incurred non-utilization fees of 0.25% per annum. Per the amendment, the Operating Partnership’s election to change the grid pricing from leverage based to credit rating based pricing will initially require at least two credit ratings of BBB- or better from S&P or Fitch or Baa3 or better from Moody’s. Upon such an event, the 2015 Credit Facility will bear interest at a rate equal to LIBOR plus 0.875% to 1.55% per annum or a specified base rate plus 0.0% to 0.55% and requires a facility fee in an amount equal to the aggregate revolving credit commitments

25


SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)

(whether or not utilized) multiplied by a rate equal to 0.125% to 0.30% per annum, in each case depending on the Corporation's credit rating.
The Operating Partnership may voluntarily prepay the 2015 Credit Facility, in whole or in part, at any time, without premium or penalty, but subject to applicable LIBOR breakage fees, if any. Payment of the 2015 Credit Facility is unconditionally guaranteed by the Corporation and material subsidiaries that meet certain conditions (as defined in the Credit Agreement). The 2015 Credit Facility is full recourse to the Operating Partnership and the aforementioned guarantors.

As a result of entering into the 2015 Credit Facility, the Company incurred origination costs of $3.9 million. These deferred financing costs are being amortized to interest expense over the remaining initial term of the 2015 Credit Facility. As of March 31, 2016 and December 31, 2015, the unamortized deferred financing costs relating to the 2015 Credit Facility were $2.9 million and $3.2 million, respectively, and recorded in deferred costs and other assets, net on the accompanying consolidated balance sheets.

As of March 31, 2016, $24.0 million of borrowings were outstanding, $8.3 million of letters of credit were issued and $567.7 million of borrowing capacity was available under the 2015 Credit Facility. The Operating Partnership's ability to borrow under the 2015 Credit Facility is subject to ongoing compliance with a number of customary financial covenants and other customary affirmative and negative covenants. As of March 31, 2016, the Corporation and the Operating Partnership were in compliance with these financial covenants.
2013 Credit Facility
On March 31, 2015, the secured 2013 Credit Facility was terminated and its outstanding borrowings were repaid with proceeds from the 2015 Credit Facility. Properties securing this facility became unencumbered upon its termination. The 2013 Credit Facility's borrowing margin was LIBOR plus 2.50% based on the Company's leverage, with an unused fee of 0.35%. Upon terminating the 2013 Credit Facility, the Company recognized debt extinguishment costs of $2.0 million, resulting from the write-off of unamortized deferred financing costs.
Line of Credit
A special purpose entity indirectly owned by the Corporation had access to a $40.0 million secured revolving line of credit, which expired on March 27, 2016.

Term Loan

On November 3, 2015, the Company entered into a Term Loan Agreement among the Operating Partnership, as borrower, the Company as guarantor and the lenders that are parties thereto. The Term Loan Agreement provides for a $325.0 million senior unsecured term facility that has an initial maturity date of November 2, 2018, which may be extended at the Company's option pursuant to two one-year extension options, subject to the satisfaction of certain conditions and payment of an extension fee. In addition, an accordion feature allows the facility to be increased to up to $600.0 million, subject to obtaining additional lender commitments. During the fourth quarter of 2015, upon obtaining additional lender commitments, the Company increased the term facility from $325.0 million to $370.0 million. Borrowings may be repaid without premium or penalty, and may be reborrowed within 30 days up to the then available loan commitment. Borrowings bear interest at either a specified base rate or LIBOR plus a margin, at the Operating Partnership’s option. As of March 31, 2016, the Term Loan bore interest at LIBOR plus 1.60%.

Initially, borrowings under the Term Loan bear interest at either LIBOR plus 1.35% to 1.80% per annum or a specified base rate plus 0.35% to 0.80% per annum. Initially, the applicable margin is determined based upon the Corporation’s leverage ratio. If the Corporation obtains at least two credit ratings on its senior unsecured long-term indebtedness of BBB- from S&P or Fitch, Inc. or Baa3 from Moody's, the Operating Partnership may make an irrevocable election to have the margin based upon the Corporation's credit ratings, in which case borrowings under the Term Loan will bear interest at either LIBOR plus 0.90% to 1.75% per annum or a specified base rate plus 0.0% to 0.75% per annum, in each case depending on the Corporation’s credit ratings.


26


SPIRIT REALTY CAPITAL, INC.
Notes to Consolidated Financial Statements - (continued)
March 31, 2016
(Unaudited)

The Operating Partnership may voluntarily prepay the Term Loan, in whole or in part, at any time, without premium or penalty, but subject to applicable LIBOR breakage fees. Payment of the Term Loan is unconditionally guaranteed by the Corporation and, under certain circumstances, by one or more material subsidiaries (as defined in the Term Loan Agreement) of the Corporation. The obligations of the Corporation and any guarantor under the Term Loan are full recourse to the Corporation and each guarantor.

As a result of entering into the Term Loan, the Company incurred origination costs of $2.3 million. These deferred financing costs are being amortized to interest expense over the remaining initial term of the Term Loan. As of March 31, 2016 and December 31, 2015, the unamortized deferred financing costs relating to the Term Loan were $2.0 million and $2.1 million, respectively, and recorded net against the principal balance of the Term Loan on the accompanying consolidated balance sheets.
As of March 31, 2016, $334.0 million of borrowings were outstanding and $36.0 million of borrowing capacity was available under the Term Loan. The Operating Partnership's ability to borrow under the Term Loan is subject to ongoing compliance with a number of customary financial covenants and other customary affirmative and negative covenants. The Corporation has unconditionally guaranteed all obligations of the Operating Partnership under the Term Loan Agreement. As of March 31, 2016, the Corporation and the Operating Partnership were in compliance with these financial covenants.
Master Trust Notes

The Company has access to an asset-backed securitization platform, the Spirit Master Funding Program, to raise capital through the issuance of non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans. The Spirit Master Funding Program consists of two separate securitization trusts, Master Trust 2013 and Master Trust 2014, each of which have one or multiple bankruptcy-remote, special purpose entities as issuers or co-issuers of the notes. Each issuer is an indirect wholly-owned special purpose entity of the Corporation.
The Master Trust Notes are summarized below:
 
Stated
Rates (1)
 
Maturity
 
March 31,
2016
 
December 31,
2015
 
 
 
(in Years)
 
(in Thousands)
Series 2014-1 Class A1
5.1
%
 
4.2
 
$
62,312

 
$
65,027

Series 2014-1 Class A2
5.4
%
 
4.3
 
253,300

 
253,300

Series 2014-2
5.8
%
 
5.0
 
228,845

 
229,674

Series 2014-3
5.7
%
 
6.0
 
312,164

 
312,276

Series 2014-4 Class A1
3.5
%
 
3.8
 
150,000

 
150,000

Series 2014-4 Class A2
4.6
%
 
13.8
 
360,000

 
360,000

Total Master Trust 2014 notes
5.1
%
 
7.2
 
1,366,621

 
1,370,277

Series 2013-1 Class A
3.9
%
 
2.7
 
125,000

 
125,000

Series 2013-2 Class A
5.3
%
 
7.7
 
195,732

 
196,817

Total Master Trust 2013 notes
4.7
%
 
5.8
 
320,732

 
321,817

Total Master Trust Notes
 
 
 
 
1,687,353

 
1,692,094

Debt discount, net
 
 
 
 
(21,890
)
 
(22,909
)
Deferred financing costs, net
 
 
 
 
(18,644
)
 
(19,345
)
Total Master Trust Notes, net
 
 
 
 
$
1,646,819