SPIRIT REALTY CAPITAL, INC. 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.
24
--------------------------------------------------------------------------------Overview
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 throughoutthe 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 ofMarch 31, 2022 , our diverse portfolio consisted of 2,039 owned properties across 49 states, which were leased to 334 tenants operating in 35 industries. As ofMarch 31, 2022 , our properties were approximately 99.8% occupied. Our operations are carried out through theOperating Partnership .OP Holdings , one of our wholly-owned subsidiaries, is the sole general partner and owns approximately 1% of theOperating Partnership . We and one of our wholly-owned subsidiaries are the only limited partners, and together own the remaining 99% of theOperating Partnership . As ofMarch 31, 2022 , our assets, liabilities, and results of operations are materially the same as those of theOperating 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 three months endedMarch 31, 2022 , we did not recognize any deferred rent or rent abatements. Additionally, for the three months endedMarch 31, 2022 , we had recoveries of previous reserves against deferred rent of$0.2 million , which were recognized in rental income. As ofMarch 31, 2022 , we had an accounts receivable balance of$13.0 million related to deferred rent, with 68% of the balance expected to be repaid by the end of 2023. Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, we can provide no assurance that such efforts or our efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic and restrictions intended to prevent its spread continue for a prolonged period.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and various other assumptions deemed reasonable under the circumstances. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of our critical accounting policies is included in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . We have not made any material changes to these policies during the periods covered by this quarterly report. 25 --------------------------------------------------------------------------------
Results of Operations
Comparison of the three months endedMarch 31, 2022 to the three months endedMarch 31, 2021 Three Months Ended March 31, Increase / (Decrease) (In Thousands) 2022 2021 Revenues: Rental income$ 167,075 $ 134,658 $ 32,417 Interest income on loans receivable 319 - 319 Earned income from direct financing leases 131 131 - Other operating income 871 352 519 Total revenues 168,396 135,141 33,255 Expenses: General and administrative 14,674 13,046 1,628 Property costs (including reimbursable) 8,255 5,452 2,803 Deal pursuit costs 365 242 123 Interest 26,023 26,624 (601 ) Depreciation and amortization 69,108 57,087 12,021 Impairments 127 6,730 (6,603 ) Total expenses 118,552 109,181 9,371 Other income (loss): Loss on debt extinguishment (172 ) (29,177 ) 29,005 Gain on disposition of assets 877 1,836 (959 ) Other income 5,679 - 5,679 Total other income (loss) 6,384 (27,341 ) 33,725 Income (loss) before income tax expense 56,228 (1,381 ) 57,609 Income tax expense (172 ) (88 ) (84 ) Net income (loss)$ 56,056 $ (1,469 ) $ 57,525
Changes related to operating properties
The components of rental income are summarized below (in thousands):
[[Image Removed]]
26
--------------------------------------------------------------------------------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 182 properties during the trailing twelve months endedMarch 31, 2022 , with a total of$100.3 million of annual in-place rent. During the same period, we disposed of 23 properties, 18 of which were vacant and the remaining 5 had annual in-place rents of$2.6 million . Our acquisition and disposition activity for the trailing twelve months endedMarch 31, 2022 is summarized below (in thousands): [[Image Removed]] In addition, the recovery in the second quarter of 2021 we observed from the impact of the COVID-19 pandemic has continued and we have had minimal new tenant credit issues sinceMarch 31, 2021 . We reserved$1.1 million of Base Cash Rent for the three months endedMarch 31, 2021 for amounts deemed not probable of collection. For the three months endedMarch 31, 2022 , we had recoveries of Base Cash Rent reserved in prior periods and had minimal new reserves unrelated to the COVID-19 pandemic, resulting in a net recovery of$0.1 million . Rent abatements executed as relief for the COVID-19 pandemic also decreased from$0.9 million for the three months endedMarch 31, 2021 to zero for the three months endedMarch 31, 2022 .
Variable cash rent; Property costs (including reimbursable)
Variable cash rent 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. For the three months endedMarch 31, 2022 and 2021, tenant reimbursement income was$6.2 million and$2.8 million , respectively, while reimbursable property expenses were$6.2 million and$2.7 million , respectively. The increase in reimbursable amounts period-over-period was primarily due to increased reimbursable property taxes from acquisitions. For the three months endedMarch 31, 2022 and 2021, non-reimbursable property costs were$2.1 million and$2.8 million , respectively, with the change driven by a decrease in vacant properties. Other variable cash income increased to$1.0 million for the three months endedMarch 31, 2022 from$0.2 million for the comparable period, 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, amortization of above- and below- market lease intangibles and bad debt expense. The increase in non-cash rental income period-over-period was driven by the reduction in tenant credit issues sinceMarch 31, 2021 . For the three months endedMarch 31, 2021 ,$2.2 million of straight-line rent was deemed not probable of collection, compared to zero for the three months endedMarch 31, 2022 . The remaining increase in non-cash rental income was primarily due to increased straight-line rent as a result of our net acquisitions and certain lease modifications.
Impairments
The decrease in impairments was driven by the continued recovery from the COVID-19 pandemic in the commercial real estate market and tenant performance. For the three months endedMarch 31, 2021 , we recorded$5.7 million of impairment on ten underperforming properties and$1.0 million of impairment on two vacant properties, compared to no impairment recorded on properties for the three months endedMarch 31, 2022 . This decrease was partially offset by an allowance for credit loss of$0.1 million recorded during the three months endedMarch 31, 2022 as a result of entering into a new loan receivable, with no allowance for credit loss in the comparative period. 27 --------------------------------------------------------------------------------
Gain on disposition of assets
During the three months endedMarch 31, 2022 , we disposed of one active property, resulting in a gain of$0.2 million , and disposed of four vacant properties, resulting in a net gain of$0.6 million . Additionally, we recorded$0.1 million in other gains. During the three months endedMarch 31, 2021 , we disposed of four active properties, resulting in a net gain of$1.9 million , and disposed of one vacant property, resulting in a loss of$0.1 million .
Changes related to debt
Interest expense; Loss on debt extinguishment
Our debt is summarized below (in thousands):
[[Image Removed]]
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
While these changes in our debt structure resulted in an overall increase in our total debt outstanding, interest expenses decreased as the issuance of new debt at lower interest rates reduced our weighted average interest rate from 3.80% atMarch 31, 2021 to 3.17% atMarch 31, 2022 . The components of interest expense are summarized below (in thousands): [[Image Removed]] 28 --------------------------------------------------------------------------------
Changes related to general and administrative expenses
General and administrative expenses increased period-over-period, primarily driven by an increase of$1.8 million in compensation expenses. The increase in compensation expenses was comprised of an increase in cash compensation of$1.2 million , primarily due to internal promotions and new hires, and an increase in non-cash compensation of$0.6 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$0.4 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 ofMarch 15, 2022 , we reversed our reserve in the first quarter of 2022. 29 --------------------------------------------------------------------------------
Property Portfolio Information
2,039 99.8% 49 334 35Properties Occupancy States Tenants Tenant Industries
Diversification By Tenant
The following is a summary of tenant concentration for our owned real estate
properties as of
Number of Total Square Feet Percent of
Tenant Concept (1) Properties (in thousands) ABR
Life Time Fitness 10 1,160 3.5 %
ClubCorp 20 962 2.7 %
BJ's Wholesale Club 10 1,130 2.3 %
Church's Chicken 161 232 2.1 %
At Home 14 1,684 1.9 %
Home Depot 8 946 1.9 %
Main Event 12 670 1.8 %
Circle K 76 230 1.8 %
Dollar Tree / Family Dollar 113 997 1.7 %
GPM 109 303 1.6 %
Other(2) 1,501 43,865 78.7 %
Vacant 5 423 -
Total 2,039 52,602 100.0 %
(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 ofMarch 31, 2022 , the weighted average remaining non-cancelable initial term of our leases (based on ABR) was 10.4 years. The following is a summary of lease expirations for our owned real estate as ofMarch 31, 2022 , assuming that tenants do not exercise any renewal options or early termination rights: Number of Total Square Feet ABR Percent of Leases Expiring In: Properties (in thousands) (in thousands) ABR Remainder of 2022 17 469 $ 5,315 0.8 % 2023 82 2,123 24,478 3.9 % 2024 48 1,571 17,669 2.8 % 2025 55 2,418 21,921 3.5 % 2026 126 4,809 44,065 7.1 % 2027 156 4,166 53,699 8.6 % 2028 121 2,327 34,001 5.5 % 2029 317 2,898 43,692 7.0 % 2030 80 2,496 24,671 4.0 % 2031 74 4,677 39,100 6.3 % Thereafter 958 24,225 314,676 50.5 % Vacant 5 423 - - Total owned properties 2,039 52,602$ 623,287 100.0 % 30
--------------------------------------------------------------------------------
Diversification By Geography
The following is a summary of geographic concentration for our owned real estate
properties as of
[[Image Removed]]
Number of Total Square Feet Percent of Location Number of Total Square Feet Percent of
Location Properties (in thousands) ABR (continued) Properties (in thousands) ABR
Texas 280 6,086 13.1 % Massachusetts 7 707 1.2 %
Florida 167 2,999 8.5 % Arkansas 42 637 1.2 %
Georgia 145 2,813 6.2 % Utah 19 421 1.1 %
Ohio 92 3,640 5.2 % Kansas 18 805 1.0 %
Michigan 93 2,386 4.2 % New Jersey 13 462 0.8 %
California 31 1,632 4.2 % Wisconsin 13 700 0.8 %
Tennessee 117 2,368 4.1 % Alaska 9 319 0.8 %
Illinois 55 1,522 3.5 % New Hampshire 17 645 0.8 %
New York 38 2,064 3.2 % Connecticut 7 910 0.8 %
North Carolina 89 1,892 3.1 % Idaho 16 273 0.8 %
South Carolina 67 1,097 2.8 % Iowa 12 1,304 0.7 %
Arizona 48 995 2.8 % Washington 8 136 0.5 %
Missouri 65 1,536 2.7 % Maine 28 103 0.4 %
Colorado 33 1,265 2.6 % West Virginia 12 191 0.3 %
Maryland 11 1,401 2.6 % Delaware 2 128 0.3 %
Alabama 100 1,145 2.5 % Nebraska 8 218 0.3 %
Virginia 45 1,339 2.1 % Montana 3 152 0.3 %
Indiana 44 2,154 2.1 % North Dakota 3 105 0.3 %
Minnesota 26 1,050 2.0 % Rhode Island 3 95 0.2 %
Mississippi 54 1,033 1.8 % Oregon 3 104 0.2 %
Oklahoma 54 1,030 1.7 % South Dakota 2 30 0.2 %
New Mexico 31 692 1.6 % Wyoming 1 35 0.1 %
Pennsylvania 32 827 1.5 % U.S. Virgin Islands 1 38 0.1 %
Kentucky 46 625 1.5 % Nevada 1 12 *
Louisiana 27 479 1.2 % Vermont 1 2 *
* Less than 0.1%
31--------------------------------------------------------------------------------
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
Number of Total Square Feet Percent of
Asset Type Tenant Industry / Underlying Use Properties (in thousands) ABR
Retail 1,771 28,434 70.7 %
Health and Fitness 48 2,865 7.5 %
Convenience Stores 328 1,046 6.3 %
Restaurants - Quick Service 355 779 5.2 %
Restaurants - Casual Dining 131 909 4.7 %
Car Washes 95 492 4.1 %
Movie Theaters 37 1,954 4.1 %
Dealerships 30 993 3.9 %
Entertainment 28 1,220 3.5 %
Drug Stores / Pharmacies 75 962 3.4 %
Automotive Service 126 1,033 3.3 %
Dollar Stores 194 1,794 2.9 %
Warehouse Club and Supercenters 16 1,761 2.8 %
Grocery 36 1,655 2.5 %
Home Improvement 15 1,692 2.5 %
Home Décor 17 2,235 2.3 %
Specialty Retail 53 1,234 2.1 %
Sporting Goods 19 1,143 2.0 %
Department Stores 17 1,535 1.8 %
Home Furnishings 20 976 1.7 %
Early Education 41 451 1.5 %
Other 11 420 0.8 %
Automotive Parts 55 388 0.8 %
Office Supplies 12 262 0.4 %
Pet Supplies and Service 4 133 0.4 %
Apparel 4 111 0.2 %
Vacant 4 391 -
Non-Retail 268 24,168 29.3 %
Distribution 140 12,195 11.5 %
Manufacturing 59 8,399 7.7 %
Office 8 1,104 2.8 %
Country Club 20 962 2.7 %
Medical 31 527 2.3 %
Data Center 4 497 1.2 %
Flex 4 330 0.6 %
Hotel 1 122 0.5 %
Vacant 1 32 -
Total 2,039 52,602 100.0 %
32--------------------------------------------------------------------------------
Liquidity and Capital Resources
ATM PROGRAM
InNovember 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 ofMarch 31, 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 three months endedMarch 31, 2022 . As ofMarch 31, 2022 , there were no open forward contracts and approximately$364.9 million of capacity remained available under the 2021 ATM Program as ofMarch 31, 2022 .
FORWARD EQUITY OFFERING
InJanuary 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 ofMarch 31, 2022 , we had settled 6.3 million of these shares for net proceeds of$286.5 million and 3.1 million shares remained open, with a final settlement date ofJuly 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 ofMarch 31, 2022 , available liquidity was comprised of$24.2 million in cash and cash equivalents,$680.5 million of borrowing capacity under the 2019 Credit Facility and$141.8 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 ourOperating 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 betweenRussia andUkraine ) 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. 33 --------------------------------------------------------------------------------
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
OnMarch 30, 2022 , we amended and restated the 2019 Revolving Credit and Term Loan Agreement. As ofMarch 31, 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 ofMarch 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 ofMarch 31, 2022 , there were no subsidiaries that met this requirement. As ofMarch 31, 2022 , the 2019 Credit Facility bore interest at a 1-Month adjusted SOFR rate plus 0.775% with a facility fee of 0.150% per annum, in each case, based on theOperating Partnership's credit rating and leverage ratio (as defined in the agreement). As ofMarch 31, 2022 ,$519.5 million in borrowings were outstanding and there were no letters of credit outstanding.
Senior Unsecured Notes
As ofMarch 31, 2022 , we had the following Senior Unsecured Notes outstanding (dollars in thousands): Stated Interest March 31, Maturity Date Interest Payment Dates Rate 2022
2026 Senior Notes
300,000
2028 Senior Notes
450,000
2029 Senior Notes
400,000
2030 Senior Notes
500,000
2031 Senior Notes
450,000
2032 Senior Notes
350,000
Total Senior Unsecured Notes
3.25%
The Senior Unsecured Notes are redeemable in whole at any time or in part from time to time, at theOperating 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
In general, the obligor of our asset level debt is a special purpose entity that holds the real estate and other collateral securing the indebtedness. Each special purpose entity is a bankruptcy remote separate legal entity and is the sole owner of its assets and solely responsible for its liabilities other than typical non-recurring covenants. As ofMarch 31, 2022 , we had two fixed-rate CMBS loans with$5.2 million of aggregate outstanding principal. One of the CMBS loans, with principal outstanding of$4.6 million , matures inAugust 2031 and has a stated interest rate of 5.80%. The other CMBS loan, with principal outstanding of$0.6 million , matures inDecember 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
Remainder of
Total 2022 2023 2024 2025 2026 Thereafter
2019 Credit Facility $ 519,500 $ - $ - $ - $ - $ 519,500 $ -
Senior Unsecured Notes 2,750,000 - - - - 300,000 2,450,000
Mortgages payable 5,221 396 556 590 626 468 2,585
$ 3,274,721 $ 396 $ 556 $ 590 $ 626 $ 819,968 $ 2,452,585
34--------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS
During the three months endedMarch 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 three months endedMarch 31, 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 endedDecember 31, 2021 , as filed with theSEC . 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 afterDecember 31, 2017 and beforeJanuary 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 three months
ended
Three Months Ended March 31,
2022 2021 Change
Net cash provided by operating activities
(499,550 ) (181,254 ) (318,296 )
Net cash provided by financing activities 430,056 295,414 134,642
Net increase in cash, cash equivalents and
restricted cash $ 8,777 $
178,591
As of
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$26.3 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$7.4 million driven by the issuance of the 2028 Senior Notes and 2032 Senior Notes during 2021, all of which pay interest semi-annually, and an increase of approximately$2.9 million in cash bonus payments. 35 --------------------------------------------------------------------------------
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 three months endedMarch 31, 2022 included$474.4 million for the acquisition of 41 properties,$23.4 million of capitalized real estate expenditures and$12.7 million for investment in one loan receivable. These outflows were partially offset by$10.9 million in net proceeds from the disposition of five properties. During the same period in 2021, net cash used in investing activities included$194.2 million for the acquisition of 25 properties and$1.6 million of capitalized real estate expenditures. These outflows were partially offset by$12.5 million in net proceeds from the disposition of five 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 three months endedMarch 31, 2022 was primarily attributable to net proceeds from the issuance of common stock of$299.8 million and net borrowings of$231.1 million under our revolving credit facilities. These amounts were partially offset by payment of dividends to equity owners of$85.8 million , deferred financing costs of$8.5 million , common stock repurchases for employee tax withholdings totaling$6.4 million and repayments of$0.1 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. This amount was partially offset by repayments of$208.5 million on mortgages payable, repayments of$178.0 million on term loans, payment of dividends to equity owners of$75.5 million , debt extinguishment costs of$26.7 million , deferred financing costs of$6.9 million and common stock repurchases for employee tax withholdings totaling$3.8 million .
Off-Balance Sheet Arrangements
As of
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.
36
--------------------------------------------------------------------------------
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 over time. We believe the ratio is a beneficial disclosure to
investors as a supplemental means of evaluating our ability to meet obligations
senior to those of our equity holders. Our computation of this ratio may differ
from the methodology used by other equity REITs, and, therefore, may not be
comparable to such other REITs.
37
--------------------------------------------------------------------------------
FFO and AFFO
Three Months Ended
March 31,
(Dollars in thousands) 2022 2021
Net income (loss) attributable to common stockholders
$ (4,057 ) Portfolio depreciation and amortization 68,965 56,942 Portfolio impairments 127 6,730 Gain on disposition of assets (877 ) (1,836 ) FFO attributable to common stockholders$ 121,683 $ 57,779 Loss on debt extinguishment 172 29,177 Deal pursuit costs 365 242 Non-cash interest expense, excluding capitalized interest 1,937
2,699
Straight-line rent, net of uncollectible reserve (8,575 ) (5,673 ) Other amortization and non-cash charges (647 ) (774 ) Non-cash compensation expense 4,025 3,378 Costs related to COVID-19 (1) 6 432 Other income (5,679 ) - AFFO attributable to common stockholders$ 113,287
Net income (loss) per share of common stock - Diluted
$ (0.04 ) FFO per share of common stock - Diluted (2)$ 0.95 $ 0.50 AFFO per share of common stock - Diluted (2)$ 0.88
Weighted average shares of common stock outstanding - Diluted
128,360,431 114,673,218
Weighted average shares of common stock outstanding for non-GAAP measures - Diluted (3)
128,360,431 115,272,802
(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 March 31,
2022 2021
FFO $0.2 million $0.1 million
AFFO $0.2 million $0.2 million (3) Weighted average shares of common stock for non-GAAP measures for the three
months ended
anti-dilutive for earnings per share but dilutive for the non-GAAP
calculations.
38--------------------------------------------------------------------------------
Adjusted Debt, Adjusted EBITDAre and Annualized Adjusted EBITDAre
March 31,
(Dollars in thousands) 2022 2021
2019 Credit Facility $ 519,500 $ -
Senior Unsecured Notes, net 2,719,597 2,715,814
Mortgages payable, net 5,412 5,956
Convertible Notes, net - 189,992
Total debt, net 3,244,509 2,911,762
Unamortized debt discount, net 10,511 12,078
Unamortized deferred financing costs 19,701 22,309
Cash and cash equivalents (24,229 ) (261,889 )
Restricted cash (2,347 ) -
Adjusted Debt $ 3,248,145 $ 2,684,260
Three Months Ended March 31,
(Dollars in thousands) 2022 2021
Net income (loss) $ 56,056 $ (1,469 )
Interest 26,023 26,624
Depreciation and amortization 69,108 57,087
Income tax expense 172 88 Gain on disposition of assets (877 ) (1,836 ) Portfolio impairments 127 6,730 EBITDAre$ 150,609 $ 87,224 Adjustments to revenue producing acquisitions and dispositions 5,314
2,479
Construction rent collected, not yet recognized in earnings (1) 509 - Deal pursuit costs 365 242 Loss on debt extinguishment 172 29,177 Costs related to COVID-19 (2) 6 432 Non-cash compensation expense 4,025 3,378 Other income (5,679 ) - Adjusted EBITDAre$ 155,321 $ 122,932 Adjustments related to straight-line rent (3) - 40 Other adjustments for Annualized EBITDAre (4) (213 ) (1,034 ) Annualized Adjusted EBITDAre$ 620,432 $
487,752
Adjusted Debt / Annualized Adjusted EBITDAre (5) 5.2 x 5.5 x
(1) Construction rent collected, not yet recognized in earnings was not included
as an adjustment to EBITDAre during the three months ended
(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
straight-line rent receivable balances recognized in prior periods deemed
not probable of collection in the current period.
(4) Adjustments for the three months ended
period recoveries related to prior period rent deemed not probable of
collection and prior period property costs. For the same period in 2021,
adjustments are comprised of previously deferred revenue recognized in the
current period, net recoveries related to prior period rent deemed not
probable of collection and property costs.
(5) Adjusted Debt / Annualized Adjusted EBITDAre would be 5.0x if the 3.1
million shares under open forward sales agreements had been settled as of
if the 5.5 million shares under open forward sales agreements had been
settled as of March 31, 2021 .
39--------------------------------------------------------------------------------
© Edgar Online, source
