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 and Section 21E of the Exchange Act. When used in this quarterly report, the words "estimate," "anticipate," "expect," "believe," "intend," "may," "will," "should," "seek," "approximately" or "plan," or the negative of these words 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;
• 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, 2020 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.
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--------------------------------------------------------------------------------Overview
Spirit Realty Capital, Inc. is aNew York Stock Exchange listed company under the ticker symbol "SRC." We are a self-administered and self-managed REIT with in-house capabilities including acquisition, credit research, asset management, portfolio management, real estate research, legal, finance and accounting functions. We primarily invest in single-tenant real estate assets throughoutthe United States , which are generally acquired through sale-leaseback transactions and subsequently leased on a long-term, triple-net basis to high quality tenants with business operations within retail, industrial, office and 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 typically responsible for all improvements and is contractually obligated to pay all property operating expenses, such as real estate taxes, insurance premiums and repair and maintenance costs. As ofMarch 31, 2021 , our owned real estate represented investments in 1,880 properties. Our properties are leased to 301 tenants across 48 states and 28 retail industries. As ofMarch 31, 2021 , our owned properties were approximately 99.5% occupied (based on the number of economically yielding properties). 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, 2021 , our assets, liabilities, and results of operations are materially the same as those of theOperating Partnership . Although theOperating Partnership is currently wholly-owned by us, in the future, we may issue partnership interests in theOperating Partnership to third parties in exchange for property owned by such third parties. In general, any partnership interests in theOperating Partnership issued to third parties would be exchangeable for cash or, at our election, shares of our common stock at specified ratios set when such partnership interests in theOperating Partnership are issued.
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.
Given the onset of the COVID-19 pandemic in 2020, many of our tenants requested rent deferrals or other forms of relief. Our discussions with tenants requesting relief substantially focused on industries that have been directly disrupted by the COVID-19 pandemic and restrictions intended to prevent its spread, particularly movie theaters, casual dining restaurants, entertainment, health and fitness and hotels. These and other industries may be further impacted in the future depending on various factors, including the duration of the COVID-19 pandemic, the reinstitution of restrictions intended to prevent its spread or the imposition of new, more restrictive measures. Even after such restrictions are lifted or reduced, the willingness of customers to visit our tenants' businesses may be reduced due to lingering concerns regarding the continued risk of COVID-19 transmission and heightened sensitivity to risks associated with the transmission of diseases. For the three months endedMarch 31, 2021 , we deferred$3.6 million of rent, of which we recognized$2.7 million in rental income (the remaining$0.9 million was deemed not probable of collection), and abated$0.9 million of rent. As ofMarch 31, 2021 , we had an accounts receivable balance of$18.5 million related to deferred rent. For rent deferrals, the deferral periods range generally from one to six months, with an average deferral period of three months and an average repayment period of 11 months. Of the tenants who we have granted rent deferrals, 22% are public companies and the weighted average remaining lease term of leases with deferrals is 9.5 years (based on Base Rent). For the remainder of 2021, we expect to continue to see reductions in the impact of COVID-19. Currently, we have granted maximum rent deferrals of$7.7 million and abatements of$0.1 million for periods afterMarch 31, 2021 . Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, as well as working with certain tenants who have requested rent deferrals, we can provide no assurance that such efforts or our efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic and restrictions intended to prevent its spread continue for a prolonged period. 26 --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and various other assumptions deemed reasonable under the circumstances. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of our critical accounting policies is included in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . We have not made any material changes to these policies during the periods covered by this quarterly report.
Results of Operations
Comparison of Three Months EndedMarch 31, 2021 to Three Months EndedMarch 31, 2020 Three Months Ended March 31, (In Thousands) 2021 2020 Change % Change Revenues: Rental income$ 134,658 $ 121,363 $ 13,295 11.0 % Interest income on loans receivable - 419 (419 ) (100.0 )% Earned income from direct financing leases 131 177 (46 ) (26.0 )% Related party fee income - 250 (250 ) (100.0 )% Other income 352 511 (159 ) (31.1 )% Total revenues 135,141 122,720 12,421 10.1 % Expenses: General and administrative 13,046 13,490 (444 ) (3.3 )% Property costs (including reimbursable) 5,452 5,936 (484 ) (8.2 )% Deal pursuit costs 242 1,019 (777 ) (76.3 )% Interest 26,624 25,359 1,265 5.0 % Depreciation and amortization 57,087 52,236 4,851 9.3 % Impairments 6,730 40,774 (34,044 ) (83.5 )% Total expenses 109,181 138,814 (29,633 ) (21.3 )% Other (loss) income: Loss on debt extinguishment (29,177 ) - (29,177 ) (100.0 )% Gain on disposition of assets 1,836 388 1,448 NM Total other (loss) income (27,341 ) 388 (27,729 ) NM Loss before income tax expense (1,381 ) (15,706 ) 14,325 (91.2 )% Income tax expense (88 ) (141 ) 53 (37.6 )% Net loss$ (1,469 ) $ (15,847 ) $ 14,378 (90.7 )%
NM - Percentages over 100% are not displayed
Changes related to operating properties
Rental income; Property costs (including reimbursable); Depreciation and amortization
The components of rental income are summarized below:
Three Months Ended March 31,
(In Thousands) 2021 2020
Base Cash Rent $ 125,197 $ 116,546
Variable cash rent (including reimbursables) 3,014 3,389
Straight-line rent, net of uncollectible reserve 5,673
1,094
Amortization of above- and below- market lease intangibles, net 774 334 Total rental income$ 134,658 $ 121,363 27
-------------------------------------------------------------------------------- The increase in Base Cash Rent, the largest component of rental income, period-over-period was driven by our net acquisitions, which also was the driver for the increase in depreciation and amortization. We acquired 144 properties during the trailing twelve months endedMarch 31, 2021 , with a total of$59.5 million of annual in-place rent (monthly fixed rent at date of transaction multiplied by 12). During the same period, we disposed of 36 properties, 18 of which were vacant and the remaining 18 had annual in-place rents of$4.9 million . Our acquisition and disposition activity for the trailing twelve months endedMarch 31, 2021 is summarized below (in thousands): [[Image Removed]] The increase in Base Cash Rent due to net acquisitions was partially offset by$0.9 million of rent abatements for the three months endedMarch 31, 2021 , which were executed as relief due to the COVID-19 pandemic. Amounts deemed not probable of collection remained relatively flat period-over-period, increasing from$0.8 million for the three months endedMarch 31, 2020 to$1.1 million for the three months endedMarch 31, 2021 . A majority of the balance deemed uncollectible in 2021 relates to the movie theater industry, which we expect to continue to face headwinds during 2021. Variable cash rent income is comprised of tenant reimbursements, where our tenants are obligated under the lease agreement to reimburse us for certain property costs we incur, less reimbursements we deem not probable of collection. As such, the change in variable cash rent is driven by the change in reimbursable property costs. For the three months endedMarch 31, 2021 , property costs included$2.7 million of reimbursable expenses, compared to$3.6 million for 2020. As such, variable cash rent and the related reimbursable property costs decreased period-over-period due to a reduction in reimbursable property taxes and certain repair and maintenance expenses. The remaining non-reimbursable property costs of$2.8 million for the three months endedMarch 31, 2021 were up from$2.3 million for the comparative period, driven by increased costs on vacant properties. Non-cash rental income consists of straight-line rental revenue, amortization of above- and below-market lease intangibles and bad debt expense. Non-cash rental income increased period-over-period primarily as a result of a$2.6 million increase in straight-line rental revenue as a result of net acquisitions and certain lease modifications. Additionally, straight-line rent deemed not probable of collection decreased by$1.8 million , primarily as a result of a lease termination due to a tenant bankruptcy in the comparative period.
Impairments
Impairments decreased year-over-year on underperforming properties, with$5.7 million of impairments recorded on ten properties for the three months endedMarch 31, 2021 , compared to$39.9 million of impairments recorded on 18 properties in the comparative period. The higher impairments in the comparative period were driven by the initial downturn in markets at the onset of the COVID-19 pandemic during the three months endedMarch 31, 2020 , while the recovery of markets resulted in lower impairments in the three months endedMarch 31, 2021 .
Impairments remained relatively low on Vacant properties due to low vacancy
rates period-over-period, with
Additionally, the decrease in impairments period-over-period was caused by the allowances for credit losses recorded of$0.3 million on our direct financing lease and$0.3 million on two loans receivables for the three months endedMarch 31, 2020 , with no comparable impairments recognized during the three months endedMarch 31, 2021 .
Gain on disposition of assets
Gain on disposition of assets increased period-over-period. During the three months endedMarch 31, 2021 , we disposed of four active properties, resulting in net gains of$1.9 million , and disposed of one vacant property, resulting in a loss of$0.1 million . During the three months endedMarch 31, 2020 , we disposed of four active properties, resulting in minimal net gains, and disposed of three vacant properties, resulting in net gains of$0.7 million . These gains were partially offset by a$0.2 million loss recorded on the sale of a note receivable and$0.2 million in other net losses. 28 --------------------------------------------------------------------------------
Changes related to debt
Interest expense; Loss on debt extinguishment
Our debt is summarized below (in thousands):
[[Image Removed]]
During the first quarter of 2020, we did not issue or extinguish any debt.
During the second quarter of 2020, we entered into the 2020 Term Loans. During
the third quarter of 2020, we issued $450.0 million of 2031 Senior Notes, which
triggered a mandatory repayment of $222.0 million of the 2020 Term Loans.
Remaining proceeds from the 2031 Senior Notes issuance were primarily utilized
to repurchase $154.6 million of Convertible 2021 Notes.
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. We expect to settle the remaining 2021 Convertible Notes in cash
during the second quarter of 2021.
These changes in our debt structure resulted in an overall increase in our total
debt outstanding, but with a reduction in our weighted average interest rate
from 3.59% at March 31, 2020 to 3.28% at March 31, 2021 . As such, we had only a
slight increase in total interest expense year-over-year:
Three Months Ended
March 31,
(In Thousands) 2021 2020
Interest expense - revolving credit facilities
24 -
Interest expense - Senior Unsecured Notes 19,057 13,988
Interest expense - mortgages payable 2,264 3,013
Interest expense - Convertible Notes 1,785 3,234
Non-cash interest expense 2,699 3,068
Total interest expense $ 26,624 $ 25,359 Changes related to general and administrative expenses
Period-over-period general and administrative expenses decreased by$0.4 million , driven by a decrease in professional expenses of$0.8 million , primarily as a result of decreased legal and audit fees period-over-period. This decrease was partially offset by$0.4 million of expenses recognized during the three months endedMarch 31, 2021 related to costs incurred due to the COVID-19 pandemic, mainly as a result of increased legal fees for executing rent deferral or abatement agreements. 29
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Property Portfolio Information
1,880 99.5% 48 301 28
Diversification By Tenant
The following table sets forth a summary of tenant concentration for our owned
real estate properties as of
Number of Total Square Feet Percent of
Tenant (1) Properties (in thousands) ABR
Life Time Fitness, Inc. 8 926 3.4 %
Cajun Global LLC 162 233 2.5 %
BJ's Wholesale Club, Inc. 9 1,028 2.5 %
The Home Depot, Inc. 7 848 2.2 %
At Home Group, Inc. 13 1,597 2.2 %
Alimentation Couche-Tard, Inc. 76 230 2.1 %
Walgreen Co. 34 487 2.0 %
GPM Investments, LLC 109 303 1.9 %
Dollar Tree, Inc. 106 927 1.9 %
CVS Caremark Corporation 33 409 1.7 %
Other 1,313 35,126 77.6 %
Vacant 10 779 -
Total 1,880 42,893 100.0 %
(1) Tenants represent legal entities ultimately responsible for obligations under the lease agreements or affiliated entities. Other tenants may operate the same or similar business concepts or brands set forth above.
Lease Expirations
The following table sets forth a summary of lease expirations for our owned real
estate as of
Number of ABR Total Square Feet Percent of
Leases Expiring In: Properties (in thousands) (1) (in thousands) ABR
Remainder of 2021 37 $ 9,760 923 1.9 %
2022 40 16,230 1,558 3.1 %
2023 115 31,779 3,084 6.1 %
2024 46 16,761 1,507 3.2 %
2025 51 18,521 1,477 3.6 %
2026 116 41,337 4,112 8.0 %
2027 133 41,077 3,045 7.9 %
2028 107 29,558 1,887 5.7 %
2029 314 39,659 2,645 7.7 %
2030 76 21,641 2,183 4.2 %
Thereafter 835 251,823 19,693 48.6 %
Vacant 10 - 779 -
Total owned properties 1,880 $ 518,146 42,893 100.0 %
(1) ABR is not adjusted for the impact of abatements provided as relief due to
the COVID-19 pandemic. As of the date of this report, SRC has agreed to a total
of $0.1 million of abatements for the period from April 1, 2021 - March 31,
2022 .
30
--------------------------------------------------------------------------------Diversification By Geography
The following table sets forth a summary of geographic concentration for our
owned real estate properties as of
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 253 4,485 11.2 % New Jersey 13 717 1.3 %
Florida 157 2,620 8.9 % Utah 18 333 1.2 %
Georgia 139 2,699 6.6 % Pennsylvania 23 512 1.1 %
Ohio 88 3,169 5.7 % Alaska 9 319 1.0 %
Tennessee 108 2,081 4.2 % New Hampshire 17 645 1.0 %
Michigan 88 1,955 4.1 % Wisconsin 12 696 0.9 %
Illinois 52 1,352 3.7 % Idaho 16 273 0.9 %
California 23 1,199 3.5 % Kansas 17 341 0.8 %
New York 34 1,933 3.4 % Connecticut 5 686 0.7 %
Arizona 47 960 3.3 % Maine 27 85 0.5 %
Missouri 66 1,570 3.2 % Washington 7 125 0.4 %
South Carolina 56 941 3.0 % West Virginia 13 202 0.4 %
Alabama 95 787 2.6 % Delaware 2 128 0.4 %
North Carolina 68 1,312 2.6 % Nebraska 8 218 0.4 %
Virginia 44 1,335 2.4 % Montana 3 152 0.4 %
Maryland 10 721 2.3 % Massachusetts 2 131 0.3 %
Minnesota 24 902 2.2 % North Dakota 3 105 0.3 %
Indiana 40 1,751 2.1 % Rhode Island 3 95 0.2 %
Colorado 27 991 2.0 % Oregon 3 105 0.2 %
Oklahoma 53 932 2.0 % Iowa 10 141 0.2 %
Mississippi 53 753 1.9 % South Dakota 2 30 0.2 %
New Mexico 29 622 1.7 % Wyoming 1 35 0.1 %
Kentucky 44 622 1.6 % U.S. Virgin Islands 1 38 0.1 %
Arkansas 42 637 1.4 % Vermont 1 2 *
Louisiana 24 450 1.4 %
* Less than 0.1%
31
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Diversification By Asset Type and Tenant Industry
The following table sets forth a summary of concentration by asset types and, for retail assets, the tenant industry of our owned properties as ofMarch 31, 2021 : Number of Total Square Feet Percent of Asset Type Tenant Industry Properties (in thousands) ABR Retail 1,669 26,607 77.1 % Health and Fitness 45 2,570 8.0 % Convenience Stores 328 1,045 7.5 % Restaurants - Quick Service 358 783 6.3 % Restaurants - Casual Dining 134 940 5.7 % Movie Theaters 34 1,800 4.4 % Dealerships 29 953 4.3 % Drug Stores / Pharmacies 77 991 4.3 % Entertainment 25 1,070 3.4 % Car Washes 65 308 3.2 % Dollar Stores 176 1,613 3.1 % Warehouse Club and Supercenters 15 1,659 3.0 % Grocery 36 1,654 3.0 % Home Improvement 14 1,595 2.9 % Home Décor 16 2,147 2.6 % Automotive Service 74 601 2.3 % Specialty Retail 53 1,142 2.3 % Sporting Goods 18 1,049 2.2 % Department Stores 16 1,423 2.0 % Home Furnishings 18 783 1.6 % Early Education 35 384 1.5 % Automotive Parts 55 388 1.0 % Office Supplies 16 351 0.7 % Other 9 294 0.7 % Medical Office 5 65 0.5 % Pet Supplies and Service 4 133 0.4 % Apparel 4 87 0.2 % Vacant 10 779 0.0 % Industrial 169 14,289 16.2 % Office and Other 42 1,997 6.7 % Total 1,880 42,893 100.0 % 32
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Liquidity and Capital Resources
ATM PROGRAM
In
The 2020 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" and, collectively, the "forward purchasers"). When we enter into a forward sale agreement with any forward purchaser, we expect that such forward purchaser will attempt to borrow from third parties and sell, through the relevant agent, acting as sales agent for such forward purchaser, shares of our common stock to hedge such forward purchaser's exposure under such 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 relevant 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. 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, 2021 , 4.9 million shares of our common stock have been sold under the 2020 ATM Program, of which 1.4 million shares were sold during the three months endedMarch 31, 2021 . All of these sales were sold by forward purchasers through agents under the ATM Program and pursuant to forward sales agreements. The forward sale price that we will 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. As ofMarch 31, 2021 , there were 5.5 million shares remaining under open forward sales agreements, consisting of 4.9 million shares under the 2020 ATM Program and 0.6 million shares under the 2016 ATM Program. Assuming the full physical settlement of those open forward sales agreements, we have remaining of$313.2 million under the 2020 ATM Program as ofMarch 31, 2021 .
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 2020 ATM program. As ofMarch 31, 2021 , available liquidity was comprised of$261.9 million in cash and cash equivalents and$800.0 million of borrowing capacity under the 2019 Credit Facility. Also, as ofMarch 31, 2021 , we had$207.3 million of expected proceeds available assuming the full physical settlement of our open forward equity contracts and remaining capacity of$313.2 million under our 2020 ATM Program. We believe that this available liquidity makes us well positioned to navigate any macroeconomic uncertainty resulting from the COVID-19 pandemic restrictions intended to prevent its spread.
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. Refer to "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 for additional information about the potential impact of the COVID-19 pandemic and restrictions intended to prevent its spread on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and make distributions to our stockholders. 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
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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
As ofMarch 31, 2021 , the aggregate gross commitment under the 2019 Credit Facility was$800.0 million , which may be increased up to$1.2 billion by exercising an accordion feature, subject to satisfying certain requirements and obtaining additional lender commitments. The 2019 Credit Facility has a maturity ofMarch 31, 2023 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, 2021 , there were no subsidiaries that met this requirement. As ofMarch 31, 2021 , the 2019 Credit Facility bore interest at 1-Month LIBOR plus 0.90%, with no borrowings outstanding, and a ratings-based facility fee in the amount of 0.20% per annum. As ofMarch 31, 2021 , there were no letters of credit outstanding. Senior Unsecured Notes As ofMarch 31, 2021 , we had the following Senior Unsecured Notes outstanding (dollars in thousands): Stated Interest March 31, Maturity Date Interest Payment Dates Rate 2021
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. 34 --------------------------------------------------------------------------------
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, 2021 , we had two fixed-rate CMBS loans with$5.7 million of aggregate outstanding principal. One of the CMBS loans, with principal outstanding of$4.9 million , matures inAugust 2031 and has a stated interest rate of 5.80%. The other CMBS loan, with principal outstanding of$0.8 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.
Convertible Notes
As ofMarch 31, 2021 , the Convertible Notes were comprised of$190.4 million aggregate principal amount of 3.75% convertible notes maturing onMay 15, 2021 . Interest on the 2021 Notes is payable semiannually in arrears onMay 15 andNovember 15 of each year. FromNovember 15, 2020 to the close of business on the second scheduled trading day immediately preceding the maturity date of the 2021 Notes, holders may convert the 2021 Notes at any time. The conversion rate is subject to adjustment for some events, including dividends paid in excess of threshold amounts stipulated in the agreement, but will not be adjusted for any accrued and unpaid interest. As ofMarch 31, 2021 , the conversion rate was 17.4458 per$1,000 principal note. We expect to settle the remaining 2021 Notes in cash upon their maturity.
DEBT MATURITIES
Future principal payments due on our various types of debt outstanding as of
Remainder
Total of 2021 2022 2023 2024 2025 Thereafter
2019 Credit Facility $ - $ - $ - $ - $ - $ - $ -
Senior Unsecured Notes 2,750,000 - - - - - 2,750,000
Mortgages payable 5,723 374 525 556 590 626 3,052
Convertible Notes 190,426 190,426 - - - - -
$ 2,946,149 $ 190,800 $ 525 $ 556 $ 590 $ 626 $ 2,753,052
CONTRACTUAL OBLIGATIONS
As discussed above, during the three months ended March 31, 2021 , we repaid the
2020 Term Loan in full. Additionally, we issued the 2028 and 2032 Senior
Unsecured Notes and used the proceeds to extinguish three of our CMBS loans.
There were no other material changes outside the ordinary course of business to
the information regarding specified contractual obligations contained in our
Annual Report on Form 10-K for the year ended December 31, 2020 , as filed with
the SEC .
We may enter into commitments to purchase goods and services in connection with
the operations of our properties. Those commitments generally have terms of
one-year or less and reflect expenditure levels comparable to our historical
expenditures.
DISTRIBUTION POLICY
Distributions from our current or accumulated earnings are generally classified
as ordinary income, whereas distributions in excess of our current and
accumulated earnings, to the extent of a stockholder's federal income tax basis
in our common stock, are generally characterized as a return of capital. Under
the 2017 Tax Legislation, U.S. stockholders that are individuals, trusts and
estates generally may deduct up to 20% of the ordinary dividends (e.g.,
dividends not designated as capital gain dividends or qualified dividend income)
received from a REIT for taxable years beginning after December 31, 2017 and
before January 1, 2026 . Distributions in excess of a stockholder's federal
income tax basis in our common stock are generally characterized as capital
gain.
We are required to distribute 90% of our taxable income (subject to certain
adjustments and excluding net capital gains) on an annual basis to maintain
qualification as a REIT for federal income tax purposes and are required to pay
federal income tax at regular corporate rates to the extent we distribute less
than 100% of our taxable income (including capital gains).
We intend to make distributions that will enable us to meet the distribution
requirements applicable to REITs and to eliminate or minimize our obligation to
pay corporate-level federal income and excise taxes.
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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. Refer to "Part I, Item 1A. Risk Factors" in our Annual Report on
Form 10-K for the year ended December 31, 2020 for additional information about
the potential impact of the COVID-19 pandemic and restrictions intended to
prevent its spread on our business, financial condition, results of operations,
cash flows, liquidity and ability to satisfy our debt service obligations and
make distributions to our stockholders.
Cash Flows
The following table presents a summary of our cash flows for the three months
ended
Three Months Ended March 31,
2021 2020 Change
Net cash provided by operating activities
(181,254 ) (195,665 ) 14,411
Net cash provided by financing activities 295,414 330,861 (35,447 )
Net increase in cash, cash equivalents and
restricted cash $ 178,591 $
202,374
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 decrease in net cash provided by operating activities was primarily attributable to the following:
• an increase in cash interest paid of
the 2027 Senior Notes, 2029 Senior Notes, 2030 Senior Notes, and 2031 Senior
Notes, all of which pay interest semi-annually,
• a decrease of interest income of
of principal on all loans receivable during 2020, and
• a decrease in related party fee income of
termination of the Interim Management Agreement effective
The decrease was partially offset by the net increase in cash rental revenue of$10.5 million driven by net acquisitions over the trailing twelve month period, partially offset by$0.9 million of rent abated during the three months endedMarch 31, 2021 as a result of the COVID-19 pandemic.
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, 2021 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. During the same period in 2020, net cash used in investing activities included$205.8 million for the acquisition of 27 properties and$7.8 million of capitalized real estate expenditures. These outflows were partially offset by$16.8 million in net proceeds from the disposition of seven properties and the sale of one loan receivable. Additionally, the outflows were further offset by the collection of$1.2 million of principal on loans receivable. 36 --------------------------------------------------------------------------------
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, 2021 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 . During the same period in 2020, net cash provided by financing activities was primarily attributable to net borrowings of$383.5 million under our revolving credit facilities and net proceeds from the issuance of common stock of$17.7 million . These amounts were partially offset by the payment of dividends to equity owners of$67.0 million , repayment of$1.0 million on mortgages payable and common stock repurchases totaling$2.3 million .
Off-Balance Sheet Arrangements
As of
New Accounting Pronouncements
See Note 2 to the consolidated financial statements herein.
Non-GAAP Financial Measures
FFO: We calculate FFO 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 use FFO as a supplemental performance measure because we
believe that FFO is beneficial to investors as a starting point in measuring our
operational performance. Specifically, in excluding real estate-related
depreciation and amortization, 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.
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 debt extinguishment gains (losses), costs associated with termination of
interest rate swaps, costs related to the COVID-19 pandemic and certain non-cash
items. These certain non-cash items include non-cash revenues (comprised of
straight-line rents net of bad debt expense and amortization of lease and loan
receivable intangibles), non-cash interest expense (comprised of amortization of
deferred financing costs and debt discounts/premiums) 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 cash
reserves on deposit with lenders as additional security. The result provides an
estimate of the contractual amount of borrowed capital to be repaid, net of cash
available to repay it. We believe this calculation constitutes a beneficial
supplemental non-GAAP financial disclosure to investors in understanding our
financial condition.
EBITDAre: EBITDAre is computed in accordance with standards established by
NAREIT. EBITDAre is computed as net income (loss) (computed in accordance with
GAAP), plus interest expense, income tax expense, depreciation and amortization,
impairments of depreciated property and losses/(gains) on the disposition of
depreciated property.
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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 and for certain
items that we believe are not indicative of our core operating performance, such
as debt extinguishment gains (losses), non-cash compensation and costs related
to the COVID-19 pandemic. We believe that excluding these items, which are not
key drivers of our investment decisions and may cause short-term fluctuations in
net income, provides a useful supplemental measure to investors and analysts in
assessing the net earnings contribution of our real estate portfolio. Because
these measures do not represent net income (loss) that is computed in accordance
with GAAP, they should 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 for the quarter, adjusted for 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 supplemental non-GAAP financial measure we use to
evaluate the level of borrowed capital being used to increase the potential
return of our real estate investments, and a proxy for a measure we believe is
used by many lenders and ratings agencies to evaluate our ability to repay and
service our debt obligations over time. We believe the ratio is a beneficial
disclosure to investors as a supplemental means of evaluating our ability to
meet obligations senior to those of our equity holders. Our computation of this
ratio may differ from the methodology used by other equity REITs, and,
therefore, may not be comparable to such other REITs.
FFO and AFFO
Three Months Ended
March 31,
(Dollars in thousands) 2021 2020
Net loss attributable to common stockholders $ (4,057 ) $ (18,435 )
Portfolio depreciation and amortization 56,942 52,091
Portfolio impairments 6,730 40,774
Gain on disposition of assets (1,836 ) (388 )
FFO attributable to common stockholders $ 57,779 $ 74,042
Loss on debt extinguishment 29,177 -
Deal pursuit costs 242 1,019
Non-cash interest expense 2,699 3,068
Straight-line rent, net of related bad debt expense (5,673 ) (1,094 )
Other amortization and non-cash charges (774 ) 37
Non-cash compensation expense 3,378 3,451
Costs related to COVID-19 (1) 432 -
AFFO attributable to common stockholders (2) $ 87,260 Net loss per share of common stock - Diluted$ (0.04 ) $ (0.18 ) FFO per share of common stock - Diluted (3)$ 0.50 $ 0.72 AFFO per share of common stock - Diluted (3)$ 0.76
Weighted average shares of common stock outstanding - Diluted
114,673,218 102,230,147
Weighted average shares of common stock outstanding for non-GAAP measures - Diluted (3)
115,272,802 102,607,596
(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) AFFO for the three months ended
deferred rental income recognized in conjunction with the FASB's relief for
deferral agreements extended as a result of the COVID-19 pandemic.
(3) Weighted average shares of common stock for non-GAAP measures includes
unvested market-based awards, which are dilutive for the non-GAAP
calculations. 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,
2021 2020
FFO $0.1 million $0.2 million
AFFO $0.2 million $0.3 million
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Adjusted Debt, Adjusted EBITDAre and Annualized Adjusted EBITDAre
March 31,
(Dollars in thousands) 2021 2020
2019 Credit Facility $ - $ 500,000
Senior Unsecured Notes, net 2,715,814 1,484,473
Mortgages payable, net 5,956 215,186
Convertible Notes, net 189,992 337,921
Total debt, net 2,911,762 2,537,580
Unamortized debt discount, net 12,078 8,047
Unamortized deferred financing costs 22,309
16,693
Cash and cash equivalents (261,889 ) (216,692 ) Restricted cash balances held for the benefit of lenders - (11,705 ) Adjusted Debt$ 2,684,260 $ 2,333,923 Three Months Ended March 31, (Dollars in thousands) 2021 2020 Net loss $ (1,469 )$ (15,847 ) Interest 26,624 25,359 Depreciation and amortization 57,087
52,236
Income tax expense 88 141 Gain on disposition of assets (1,836 ) (388 ) Portfolio impairments 6,730 40,774 EBITDAre $ 87,224$ 102,275 Adjustments to revenue producing acquisitions and dispositions 2,479 1,967 Deal pursuit costs 242 1,019 Loss on debt extinguishment 29,177 - Costs related to COVID-19 (1) 432 - Non-cash compensation expense (2) 3,378 - Adjusted EBITDAre$ 122,932 $
105,261
Adjustments related to straight-line rent (3) 40
4,006
Other adjustments for Annualized EBITDAre (4) (1,034 ) 907 Annualized Adjusted EBITDAre$ 487,752 $
440,696
Adjusted Debt / Annualized Adjusted EBITDAre (5) 5.5 x 5.3 x
(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) Non-cash compensation expense was not included as an adjustment to EBITDAre
during the three months ended
(3) Adjustment relates to net 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
annualization would not be appropriate are comprised of previously deferred
revenue recognized in the current period and net recoveries related to prior
period rent deemed not probable of collection and property costs. For the
same period in 2020, adjustments are comprised of certain other income and
expenses where annualization would not be appropriate.
(5) Adjusted Debt / Annualized Adjusted EBITDAre would be 5.1x if the 5.5
million shares under open forward sales agreements had been settled as of
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