Item 1. Financial Statements
SPIRIT MTA REIT
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Assets
|
|
|
|
Investments:
|
|
|
|
Real estate investments:
|
|
|
|
Land and improvements
|
$
|
955,446
|
|
|
$
|
973,231
|
|
Buildings and improvements
|
1,665,483
|
|
|
1,658,023
|
|
Total real estate investments
|
2,620,929
|
|
|
2,631,254
|
|
Less: accumulated depreciation
|
(574,519
|
)
|
|
(557,948
|
)
|
|
2,046,410
|
|
|
2,073,306
|
|
Loans receivable, net
|
67,752
|
|
|
32,307
|
|
Intangible lease assets, net
|
93,756
|
|
|
102,262
|
|
Real estate assets held for sale, net
|
36,060
|
|
|
28,460
|
|
Net investments
|
2,243,978
|
|
|
2,236,335
|
|
Cash and cash equivalents
|
37,356
|
|
|
6
|
|
Deferred costs and other assets, net
|
105,901
|
|
|
107,770
|
|
Goodwill
|
13,549
|
|
|
13,549
|
|
Total assets
|
$
|
2,400,784
|
|
|
$
|
2,357,660
|
|
Liabilities and equity
|
|
|
|
Liabilities:
|
|
|
|
Mortgages and notes payable, net
|
$
|
1,999,748
|
|
|
$
|
1,926,835
|
|
Intangible lease liabilities, net
|
22,850
|
|
|
23,847
|
|
Accounts payable, accrued expenses and other liabilities
|
20,861
|
|
|
16,060
|
|
Total liabilities
|
2,043,459
|
|
|
1,966,742
|
|
Commitments and contingencies (see Note 7)
|
|
|
|
|
|
Redeemable preferred equity:
|
|
|
|
|
|
SMTA Preferred Stock, $0.01 par value, $25 per share liquidation preference, 20,000,000 shares authorized: 6,000,000 and 0 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
|
150,000
|
|
|
—
|
|
SubREIT Preferred Stock, $0.01 par value, $1,000 per share liquidation preference, 50,000,000 shares authorized: 5,000 and 0 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
|
5,000
|
|
|
—
|
|
Total redeemable preferred equity
|
155,000
|
|
|
—
|
|
Stockholders' equity and parent company equity:
|
|
|
|
Net parent investment
|
—
|
|
|
390,918
|
|
Common stock, $0.01 par value, 750,000,000 shares authorized; 42,851,010 and 10,000 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
|
429
|
|
|
—
|
|
Capital in excess of common stock par value
|
199,998
|
|
|
—
|
|
Accumulated earnings
|
1,898
|
|
|
—
|
|
Total stockholders' equity and parent company equity
|
202,325
|
|
|
390,918
|
|
Total liabilities and equity
|
$
|
2,400,784
|
|
|
$
|
2,357,660
|
|
See accompanying notes.
SPIRIT MTA REIT
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues:
|
|
|
|
|
|
|
|
Rentals
|
$
|
59,240
|
|
|
$
|
56,003
|
|
|
$
|
118,271
|
|
|
$
|
112,388
|
|
Interest income on loans receivable
|
752
|
|
|
202
|
|
|
833
|
|
|
405
|
|
Tenant reimbursement income
|
404
|
|
|
372
|
|
|
981
|
|
|
1,150
|
|
Other income
|
562
|
|
|
668
|
|
|
941
|
|
|
1,150
|
|
Total revenues
|
60,958
|
|
|
57,245
|
|
|
121,026
|
|
|
115,093
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative
|
3,775
|
|
|
8,462
|
|
|
9,426
|
|
|
13,731
|
|
Related party fees
|
3,351
|
|
|
1,385
|
|
|
5,081
|
|
|
2,739
|
|
Transaction costs
|
5,525
|
|
|
367
|
|
|
8,542
|
|
|
367
|
|
Property costs (including reimbursable)
|
2,047
|
|
|
1,565
|
|
|
3,460
|
|
|
4,021
|
|
Interest
|
27,743
|
|
|
18,775
|
|
|
55,755
|
|
|
37,591
|
|
Depreciation and amortization
|
21,109
|
|
|
20,275
|
|
|
42,102
|
|
|
40,885
|
|
Impairments
|
1,247
|
|
|
5,419
|
|
|
6,072
|
|
|
11,912
|
|
Total expenses
|
64,797
|
|
|
56,248
|
|
|
130,438
|
|
|
111,246
|
|
(Loss) income before other income and income tax expense
|
(3,839
|
)
|
|
997
|
|
|
(9,412
|
)
|
|
3,847
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
(Loss) gain on debt extinguishment
|
(108
|
)
|
|
1
|
|
|
(363
|
)
|
|
1
|
|
Gain on disposition of real estate assets
|
4,948
|
|
|
8,389
|
|
|
3,254
|
|
|
19,578
|
|
Total other income
|
4,840
|
|
|
8,390
|
|
|
2,891
|
|
|
19,579
|
|
Income (loss) before income tax expense
|
1,001
|
|
|
9,387
|
|
|
(6,521
|
)
|
|
23,426
|
|
Income tax expense
|
(22
|
)
|
|
(45
|
)
|
|
(79
|
)
|
|
(90
|
)
|
Net income (loss) and total comprehensive income (loss)
|
$
|
979
|
|
|
$
|
9,342
|
|
|
$
|
(6,600
|
)
|
|
$
|
23,336
|
|
Preferred dividends
|
(1,325
|
)
|
|
—
|
|
|
(1,325
|
)
|
|
—
|
|
Net (loss) income attributable to common stockholders
|
$
|
(346
|
)
|
|
$
|
9,342
|
|
|
$
|
(7,925
|
)
|
|
$
|
23,336
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share attributable to common stockholders
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.01
|
)
|
|
$
|
0.22
|
|
|
$
|
(0.18
|
)
|
|
$
|
0.54
|
|
Diluted
|
$
|
(0.01
|
)
|
|
$
|
0.22
|
|
|
$
|
(0.18
|
)
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding:
|
|
|
|
|
|
|
|
Basic
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
Diluted
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share issued
|
$
|
—
|
|
|
N/A
|
|
$
|
—
|
|
|
N/A
|
See accompanying notes.
SPIRIT MTA REIT
Consolidated Statement of Changes in Equity
(In Thousands, Except Share and Per Share Data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Preferred Equity
|
|
Stockholders' Equity and Parent Company Equity
|
|
SMTA Preferred Stock
|
|
SubREIT Preferred Stock
|
|
|
|
Common Stock
|
|
|
|
|
|
Shares
|
|
Par Value and Capital in Excess of Par Value
|
|
Shares
|
|
Par Value and Capital in Excess of Par Value
|
|
Total Redeemable Preferred Equity
|
|
Shares
|
|
Par
Value
|
|
Capital in
Excess of
Par Value
|
|
Accumulated
Earnings
|
|
Net Parent Investment
|
|
Total Stockholders' Equity and Parent Company Equity
|
Balances,
December 31, 2017
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
390,918
|
|
|
$
|
390,918
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,223
|
|
|
(9,823
|
)
|
|
(6,600
|
)
|
Contributions from parent company
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
174,515
|
|
|
174,515
|
|
Distributions to parent company
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(200,183
|
)
|
|
(200,183
|
)
|
Issuance of shares of common stock, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,851,010
|
|
|
429
|
|
|
199,998
|
|
|
—
|
|
|
(200,427
|
)
|
|
—
|
|
Issuance of shares of preferred stock, net
|
6,000,000
|
|
|
150,000
|
|
|
5,000
|
|
|
5,000
|
|
|
155,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(155,000
|
)
|
|
(155,000
|
)
|
Dividends declared on preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,325
|
)
|
|
—
|
|
|
(1,325
|
)
|
Balances,
June 30, 2018
|
6,000,000
|
|
|
$
|
150,000
|
|
|
5,000
|
|
|
$
|
5,000
|
|
|
$
|
155,000
|
|
|
42,851,010
|
|
|
$
|
429
|
|
|
$
|
199,998
|
|
|
$
|
1,898
|
|
|
$
|
—
|
|
|
$
|
202,325
|
|
See accompanying notes.
SPIRIT MTA REIT
Consolidated Statements of Cash Flows
(In Thousands, Unaudited)
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
Operating activities
|
|
|
|
|
|
Net (loss) income
|
$
|
(6,600
|
)
|
|
$
|
23,336
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
42,102
|
|
|
40,885
|
|
Impairments
|
6,072
|
|
|
11,912
|
|
Amortization of deferred financing costs
|
1,727
|
|
|
653
|
|
Amortization of debt discounts
|
3,634
|
|
|
2,130
|
|
Stock based compensation expense
|
2,424
|
|
|
4,235
|
|
Loss (gain) on debt extinguishment, net
|
363
|
|
|
(1
|
)
|
Gain on disposition of real estate assets
|
(3,254
|
)
|
|
(19,578
|
)
|
Non-cash revenue
|
(1,437
|
)
|
|
(1,906
|
)
|
Bad debt expense and other
|
175
|
|
|
1,504
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Deferred costs and other assets, net
|
(2,539
|
)
|
|
1,327
|
|
Accounts payable, accrued expenses and other liabilities
|
4,137
|
|
|
1,655
|
|
Net cash provided by operating activities
|
46,804
|
|
|
66,152
|
|
Investing activities
|
|
|
|
|
|
Acquisitions of real estate
|
(15,328
|
)
|
|
(26,058
|
)
|
Capitalized real estate expenditures
|
(1,937
|
)
|
|
(892
|
)
|
Collections of principal on loans receivable
|
3,003
|
|
|
1,705
|
|
Proceeds from dispositions of real estate and other assets
|
39,118
|
|
|
84,935
|
|
Net cash provided by investing activities
|
24,856
|
|
|
59,690
|
|
Financing activities
|
|
|
|
|
|
Borrowings under mortgages and notes payable
|
92,216
|
|
|
—
|
|
Repayments under mortgages and notes payable
|
(23,248
|
)
|
|
(7,913
|
)
|
Debt extinguishment costs
|
(363
|
)
|
|
—
|
|
Deferred financing costs
|
(1,415
|
)
|
|
—
|
|
Preferred stock dividends paid
|
(1,325
|
)
|
|
—
|
|
Contributions from parent company
|
91,662
|
|
|
59,117
|
|
Distributions to parent company
|
(198,038
|
)
|
|
(165,864
|
)
|
Net cash used in financing activities
|
(40,511
|
)
|
|
(114,660
|
)
|
Net increase in cash, cash equivalents and restricted cash
|
31,149
|
|
|
11,182
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
66,510
|
|
|
12,688
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
97,659
|
|
|
$
|
23,870
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
|
|
|
|
Investment contribution from parent
|
$
|
80,429
|
|
|
$
|
—
|
|
Investment distribution to parent
|
2,144
|
|
|
1,183
|
|
Financing provided in connection with the disposition of assets
|
2,888
|
|
|
—
|
|
Preferred equity issuance
|
155,000
|
|
|
—
|
|
Supplemental Cash Flow Disclosures:
|
|
|
|
|
|
Interest paid
|
$
|
49,069
|
|
|
$
|
34,842
|
|
Taxes paid
|
$
|
202
|
|
|
$
|
231
|
|
See accompanying notes.
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Organization
Spirit MTA REIT ("SMTA" or the "Company") operates as an externally managed REIT that seeks to generate and deliver sustainable and attractive returns for stockholders by primarily investing in and managing a portfolio of single-tenant, operationally essential real estate throughout the U.S. that is generally leased on a long-term, triple-net basis to tenants operating within retail, office, and industrial property types. Single tenant, operationally essential real estate generally refers to free-standing, commercial real estate facilities where tenants conduct activities that are essential to the generation of their sales and profits.
The Company's portfolio includes (i) an asset-backed securitization trust which issues non-recourse asset-backed securities collateralized by commercial real estate, net-leases and mortgage loans (“Master Trust 2014”), (ii) a portfolio of properties leased to Specialty Retail Shops Holding Corp. ("Shopko") and its subsidiaries, (iii) a single distribution center property leased to a sporting goods tenant encumbered with CMBS debt, and (iv) a portfolio of unencumbered properties.
The Company began operations through predecessor legal entities which were wholly-owned subsidiaries of Spirit Realty Capital, Inc. ("Spirit"). On
May 31, 2018
, Spirit completed the Spin-Off that resulted in the Company's establishment as an independent, publicly traded company. The Spin-Off was effected by means of a pro rata distribution of SMTA common shares to Spirit stockholders of record as of the close of business on the record date. In conjunction with the Spin-Off, SMTA and Spirit Realty, L.P. (the "Manager"), a wholly-owned subsidiary of Spirit, entered into an Asset Management Agreement under which Spirit Realty, L.P. provides external management of SMTA.
Costs associated with the Spin-Off incurred in the
three months ended June 30, 2018
and
2017
totaled
$5.5 million
and
$0.4 million
, respectively, and in the
six months ended June 30, 2018
and
2017
totaled
$8.5 million
and
$0.4 million
, respectively. These are reflected as transaction costs on the accompanying consolidated statements of operations and comprehensive income (loss).
Note 2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the SEC. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the consolidated financial statements include the normal, recurring adjustments necessary for a fair presentation of the information required to be set forth therein.
The results for interim periods are not necessarily indicative of the results for the entire year. Certain information and note disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted from these statements pursuant to SEC rules and regulations and, accordingly, these financial statements should be read in conjunction with the audited combined financial statements for the year ended
December 31, 2017
included in the Company's registration statement on Form 10 filed with the SEC.
Subsequent to the Spin-Off on
May 31, 2018
, the consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The pre-spin consolidated financial statements were prepared on a carve-out basis and reflect significant assumptions and allocations.
For the periods prior to the Spin-Off, the financial position and results of operations reflect a combination of entities under common control that have been “carved out” from Spirit’s consolidated financial statements and present Spirit's historical carrying values of the assets and liabilities, consistent with accounting for spin-off transactions in accordance with GAAP. Since the Company prior to the Spin-Off did not represent one entity, a separate capital structure did not exist. As a result, the combined net assets of the predecessor legal entities have been reflected in the consolidated financial statements as net parent investment for periods prior to the Spin-Off. All transactions between Spirit and the predecessor legal entities are considered effectively settled through equity in the consolidated financial statements at the time the transaction is recorded, other than certain mortgages as discussed in Note 6. The settlement of these transactions is reflected as contributions from and distributions to parent in the consolidated statement of changes in equity and contributions from and distributions to parent in the consolidated statements of cash flows as a financing activity.
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
Through May 31, 2018, the pre-spin consolidated financial statements include expense allocations related to certain Spirit corporate general and administrative functions. These expenses have been allocated based on direct usage or benefit where specifically identifiable, with the remainder allocated pro rata based on property count. All the expense allocations were deemed to have been incurred and settled through net parent investment in the period in which the costs were incurred. Management considers the expense allocation methodology and results to be reasonable. However, the allocations may not be indicative of the actual expense that would have been incurred had the Company operated as an independent, publicly traded company for the periods presented prior to
May 31, 2018
. At time of the Spin-Off, SMTA entered into an Asset Management Agreement with Spirit to provide these corporate functions.
These consolidated financial statements include certain special purpose entities that were formed to acquire and hold real estate encumbered by indebtedness (see Note 4). Each special purpose entity is a separate legal entity and is the sole owner of its assets and responsible for its liabilities. The assets of these special purpose entities are not available to pay, or otherwise satisfy obligations to, the creditors of any affiliate or owner of another entity unless the special purpose entities have expressly agreed and are permitted under their governing documents. As of
June 30, 2018
and
December 31, 2017
, net assets totaling
$1.88 billion
and
$1.82 billion
, respectively, were held and net liabilities totaling
$2.03 billion
and
$1.96 billion
, respectively, were owed by these encumbered special purpose entities included in the accompanying consolidated balance sheets.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes its estimates are reasonable, actual results could differ from those estimates.
Segment Reporting
The Company views its operations in
two
segments—Master Trust 2014 and all other properties ("Other Properties"), see Note 11 for further discussion on these segments. The Company has no other reportable segments.
Allowance for Doubtful Accounts
The Company reviews its rent and other tenant receivables for collectability on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates, and economic conditions in the area in which the tenant operates. If the collectability of a receivable with respect to any tenant is in doubt, a provision for uncollectible amounts will be established or a direct write-off of the specific receivable will be made. The Company’s reserves for uncollectible amounts totaled
$6.3 million
and
$3.5 million
as of
June 30, 2018
and
December 31, 2017
, respectively, against accounts receivable balances of
$8.4 million
and
$5.0 million
, respectively. Receivables are recorded within deferred costs and other assets, net in the accompanying consolidated balance sheets. Receivables are written off against the reserves for uncollectible amounts when all possible means of collection have been exhausted.
For deferred rental revenues related to the straight-line method of reporting rental revenue, the collectability review includes management’s estimates of amounts that will not be realized based on an assessment of the risks inherent in the portfolio, considering historical experience. The Company established a reserve for losses of
$1.0 million
as of both
June 30, 2018
and
December 31, 2017
, against deferred rental revenue receivables of
$27.2 million
and
$24.9 million
, respectively. Deferred rental revenue receivables are recorded within deferred costs and other assets, net in the accompanying consolidated balance sheets.
Goodwill
Goodwill arises from business combinations and represents the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the identifiable assets acquired and the liabilities assumed. Spirit recorded goodwill as a result of its merger with Cole Credit Property II, Inc. (“Cole”) on July 17, 2013. Goodwill was allocated to the Company based on the fair value of the Cole assets attributable to the Company relative to the total fair value of Cole assets acquired through the merger. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Goodwill has been allocated to each reporting unit based
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
upon the relative fair value of each reporting unit, resulting in
$7.0
million allocated to Master Trust 2014 and
$6.5 million
allocated to Other Properties.
No
impairment was recorded for the periods presented.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash and highly liquid investment securities with maturities at acquisition of three months or less. The Company invests cash primarily in money market funds of major financial institutions with fund investments consisting of highly-rated money market instruments and other short-term instruments. Restricted cash is classified within deferred costs and other assets, net in the accompanying consolidated balance sheets. Cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
June 30, 2017
|
Cash and cash equivalents
|
$
|
37,356
|
|
|
$
|
6
|
|
|
$
|
6
|
|
Restricted cash:
|
|
|
|
|
|
Release Account
(1)
|
51,826
|
|
|
61,001
|
|
|
23,864
|
|
Liquidity Reserve
(2)
|
5,544
|
|
|
5,503
|
|
|
—
|
|
Other
(3)
|
2,933
|
|
|
—
|
|
|
—
|
|
Total cash, cash equivalents and restricted cash
|
$
|
97,659
|
|
|
$
|
66,510
|
|
|
$
|
23,870
|
|
(1)
Release Account cash consists of proceeds from the sales of assets pledged as collateral under Master Trust 2014 and is held on deposit until a qualifying substitution is made or the funds are applied as prepayment of principal.
|
|
(2)
|
Liquidity Reserve cash was placed on deposit in conjunction with the issuance of additional series of notes under Master Trust 2014 and is held until there is a cashflow shortfall, as defined in the Master Trust 2014 agreements, or a liquidation of Master Trust 2014 occurs.
|
|
|
(3)
|
Funds held in lender controlled accounts released after scheduled debt service requirements are met on the CMBS debt.
|
Income Taxes
For the period prior to the Spin-Off, the Company applies the provisions of FASB ASC Topic 740,
Income Taxes
, and computes the provision for income taxes on a separate return basis. The separate return method applies the accounting guidance for income taxes to the stand-alone consolidated financial statements as if the Company was a separate taxpayer and a stand-alone enterprise for the periods presented.
The Company was wholly-owned by the Manager prior to the Spin-Off and was disregarded for federal income tax purposes. The Manager is wholly-owned by Spirit through certain direct and indirect ownership interests and is taxed as a partnership for Federal income tax purposes. Spirit has elected to be taxed as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended, and as a result will not be subject to federal income tax as long as it distributes
100%
of its taxable income and satisfies certain other requirements. Therefore,
no
provision for federal income tax has been made in the accompanying consolidated financial statements for the period prior to the Spin-Off.
For the period subsequent to the Spin-Off, the Company intends to elect to be taxed as a REIT under the Code beginning with its initial tax year ending December 31, 2018. As a REIT, the Company generally will not be subject to federal income tax provided it continues to satisfy certain tests concerning the Company’s sources of income, the nature of its assets, the amounts distributed to its stockholders, and the ownership of Company stock. Management believes the Company has qualified and will continue to qualify as a REIT and therefore, no provision has been made for federal income taxes in the accompanying consolidated financial statements. Even if the Company qualifies for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income tax and excise tax on its undistributed income.
The Company is subject to certain other taxes which are reflected as income tax expense in the consolidated statements of operations and comprehensive income (loss). Franchise taxes are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers: Topic 606
. This new guidance establishes a principles-based approach for accounting for revenue from contracts with customers and is effective for annual reporting periods beginning after December 15, 2017, with early application permitted for annual reporting
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
periods beginning after December 15, 2016. The Company adopted the new revenue recognition standard effective January 1, 2018 under the modified retrospective method, and elected to apply the standard only to contracts that were not completed as of the date of adoption (i.e., January 1, 2018). In evaluating the impact of this new standard, the Company identified that lease contracts covered by
Leases
(
Topic 840
) are excluded from the scope of this new guidance. As such, this ASU had no material impact on the Company's reported revenues, results of operations, financial position, cash flows and disclosures.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which supersedes the existing guidance for lease accounting
Leases (Topic 840)
. ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. Leases pursuant to which the Company is the lessee primarily consists of ground leases. The amendments in this ASU are effective for the fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. Under the guidance as currently contemplated, the Company will record certain expenses paid directly by tenants that protect the Company's interests in its properties, such as insurance and real estate taxes; however, the FASB has announced it will re-evaluate this requirement. The Company has begun implementation of the ASU and is currently evaluating the overall impact of this ASU on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
Measurement of Credit Losses on Financial Instruments
, which requires more timely recognition of credit losses associated with financial assets. ASU 2016-13 requires financial assets (or a group of financial assets) measured at an amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
Note 3. Investments
Real Estate Investments
As of
June 30, 2018
, the Company’s gross investment in real estate properties and loans totaled approximately
$2.9 billion
, representing investments in
888
owned properties and
eight
properties securing mortgage loans. The gross investment is comprised of land, buildings, lease intangible assets and lease intangible liabilities, as adjusted for any impairment, and the carrying amount of loans receivable and real estate assets held for sale. The portfolio is geographically dispersed throughout
45
states with only
one
state, Texas, with a real estate investment of
20.9%
, accounting for more than
10.0%
of the total dollar amount of the Company’s real estate investment portfolio.
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
During the
six months ended June 30, 2018
, the Company had the following real estate and loan activity, net of accumulated depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Properties
|
|
Dollar Amount of Investments
|
|
Owned
|
|
Financed
|
|
Total
|
|
Owned
|
|
Financed
|
|
Total
|
|
|
|
|
|
|
|
(In Thousands)
|
Gross balance, December 31, 2017
|
907
|
|
|
11
|
|
|
918
|
|
|
$
|
2,838,285
|
|
|
$
|
32,307
|
|
|
$
|
2,870,592
|
|
Acquisitions/improvements
(1)
|
14
|
|
|
2
|
|
|
16
|
|
|
71,501
|
|
|
37,888
|
|
|
109,389
|
|
Dispositions of real estate
(2)(3)
|
(33
|
)
|
|
—
|
|
|
(33
|
)
|
|
(54,194
|
)
|
|
—
|
|
|
(54,194
|
)
|
Principal payments and payoffs
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
|
—
|
|
|
(3,293
|
)
|
|
(3,293
|
)
|
Impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,072
|
)
|
|
—
|
|
|
(6,072
|
)
|
Write-off of gross lease intangibles
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,139
|
)
|
|
—
|
|
|
(18,139
|
)
|
Loan premium amortization and other
|
—
|
|
|
—
|
|
|
—
|
|
|
(268
|
)
|
|
850
|
|
|
582
|
|
Gross balance, June 30, 2018
|
888
|
|
|
8
|
|
|
896
|
|
|
$
|
2,831,113
|
|
|
$
|
67,752
|
|
|
$
|
2,898,865
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
|
|
|
(678,444
|
)
|
|
—
|
|
|
(678,444
|
)
|
Other non-real estate assets held for sale
|
|
|
|
|
|
|
|
|
|
707
|
|
|
—
|
|
|
707
|
|
Net balance, June 30, 2018
|
|
|
|
|
|
|
|
|
|
$
|
2,153,376
|
|
|
$
|
67,752
|
|
|
$
|
2,221,128
|
|
(1)
Includes investments of
$1.4 million
in revenue producing capitalized expenditures, as well as
$0.4 million
of non-revenue producing capitalized expenditures as of
June 30, 2018
.
(2)
The total accumulated depreciation and amortization associated with dispositions of real estate was
$11.6 million
as of
June 30, 2018
.
(3)
For the
six months ended June 30, 2018
, the total loss on disposal of assets on held and used properties was
$1.9 million
and on held for sale properties was
$1.4 million
.
Scheduled minimum future contractual rent to be received under the remaining non-cancelable term of the operating leases (including contractual fixed rent increases occurring on or after
July 1, 2018
) are as follows (in thousands):
|
|
|
|
|
|
June 30, 2018
|
2018 Remainder
|
$
|
116,735
|
|
2019
|
228,464
|
|
2020
|
218,310
|
|
2021
|
211,126
|
|
2022
|
198,173
|
|
Thereafter
|
1,460,857
|
|
Total future minimum rentals
|
$
|
2,433,665
|
|
Because lease renewal periods are exercisable at the option of the lessee, the preceding table presents future minimum lease payments due during the initial lease term only. In addition, the future minimum rentals do not include any contingent rent based on a percentage of the lessees’ gross sales or lease escalations based on future changes in the CPI or other stipulated reference rate.
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
Loans Receivable
The following table details loans receivable, net of premium and allowance for loan losses (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Mortgage loans-principal
|
$
|
32,256
|
|
|
$
|
32,665
|
|
Mortgage loans-premium, net of amortization
|
—
|
|
|
31
|
|
Allowance for loan losses
|
—
|
|
|
(389
|
)
|
Mortgage loans, net
|
32,256
|
|
|
32,307
|
|
Other notes receivable - principal
|
35,496
|
|
|
—
|
|
Total loans receivable, net
|
$
|
67,752
|
|
|
$
|
32,307
|
|
The mortgage loans are secured by single-tenant commercial properties and generally have fixed interest rates over the term of the loans.
On April 30, 2018, Spirit contributed to the Company a
$35.0 million
B-1 Term Loan, included in the table above in other notes, as part of a syndicated loan and security agreement with Shopko as borrower and several banks as lenders. The B-1 Term Loan bears interest at a rate of
12%
per annum and matures on June 19, 2020. Principal will be repaid in quarterly installments of
$0.6 million
commencing on November 1, 2018, while interest will be paid monthly. The loan is secured by Shopko’s assets in its
$784 million
asset-backed lending facility and is subordinate to other loans made under the syndicated loan and security agreement.
Lease Intangibles, Net
The following table details lease intangible assets and liabilities, net of accumulated amortization (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
In-place leases
|
$
|
171,786
|
|
|
$
|
191,557
|
|
Above-market leases
|
23,258
|
|
|
24,691
|
|
Less: accumulated amortization
|
(101,288
|
)
|
|
(113,986
|
)
|
Intangible lease assets, net
|
$
|
93,756
|
|
|
$
|
102,262
|
|
|
|
|
|
Below-market leases
|
$
|
38,058
|
|
|
$
|
39,274
|
|
Less: accumulated amortization
|
(15,208
|
)
|
|
(15,427
|
)
|
Intangible lease liabilities, net
|
$
|
22,850
|
|
|
$
|
23,847
|
|
The amounts amortized as a net increase to rental revenue for capitalized above and below-market leases were
$172 thousand
and
$61 thousand
for the
three months ended June 30, 2018
and
2017
, respectively, and
$325 thousand
and
$192 thousand
for the
six months ended June 30, 2018
and
2017
, respectively. The value of in place leases amortized and included in depreciation and amortization expense was
$2.7 million
and
$2.6 million
for the
three months ended June 30, 2018
and
2017
, respectively, and
$5.4 million
and
$5.3 million
for the
six months ended June 30, 2018
and
2017
, respectively.
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
Real Estate Assets Held for Sale
The following table shows the activity in real estate assets held for sale for the
six months ended June 30, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
Number of
Properties
|
|
Carrying
Value
|
Balances, December 31, 2017
|
7
|
|
|
$
|
28,460
|
|
Transfers from real estate investments
|
10
|
|
|
35,582
|
|
Sales
|
(2
|
)
|
|
(2,206
|
)
|
Transfers to real estate investments held and used
|
(5
|
)
|
|
(24,880
|
)
|
Impairments
|
—
|
|
|
(896
|
)
|
Balances, June 30, 2018
|
10
|
|
|
$
|
36,060
|
|
Impairments
The following table summarizes total impairment losses recognized on the accompanying consolidated statements of operations and comprehensive income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Real estate and intangible asset impairment
|
$
|
1,312
|
|
|
$
|
5,364
|
|
|
$
|
6,130
|
|
|
$
|
12,326
|
|
Write-off of lease intangibles, net
|
(65
|
)
|
|
55
|
|
|
(42
|
)
|
|
(414
|
)
|
Recovery of loans receivable, previously reserved
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
Total impairment loss
|
$
|
1,247
|
|
|
$
|
5,419
|
|
|
$
|
6,072
|
|
|
$
|
11,912
|
|
Impairments for the
three months ended June 30, 2018
were comprised of
$0.3 million
on properties classified as held and used and
$0.9
million on properties classified as held for sale. Impairments for the
three months ended June 30, 2017
were comprised of
$4.6 million
on properties classified as held and used and
$0.8 million
on properties classified as held for sale. Impairments for the
six months ended June 30, 2018
were comprised of
$5.2 million
on properties classified as held and used and
$0.9 million
on properties classified as held for sale. Impairments for the
six months ended June 30, 2017
were comprised of
$8.7 million
on properties classified as held and used and
$3.2 million
on properties classified as held for sale.
Note 4. Debt
Master Trust 2014
The Company has access to an asset-backed securitization platform, Master Trust 2014, to raise capital through the issuance of non-recourse asset-back securities collateralized by commercial real estate, net-leases and mortgage loans. Master Trust 2014 has
five
bankruptcy-remote, special purpose entities as issuers or co-issuers of the notes.
On
January 23, 2018
, the Company re-priced a private offering of the Master Trust 2014 Series 2017-1 notes with an aggregate principal amount of
$674.4 million
. As a result, the interest rate on the Class B Notes was reduced from
6.35%
to
5.49%
, while the other terms of the Class B Notes remained unchanged. The terms of the Class A Notes were unaffected by the repricing. In connection with the repricing, the Company received
$8.2 million
in additional proceeds that reduced the debt discount. The additional proceeds were distributed to Spirit.
During the
six months ended June 30, 2018
, the Company extinguished
$6.3 million
of Master Trust 2014 debt as a result of principal pre-payments, resulting in approximately
$0.4 million
in losses on debt extinguishment attributable to the pre-payment premiums paid. During the same period, scheduled principal payments of
$16.5 million
were made on the Master Trust 2014 notes.
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
The Master Trust 2014 notes are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated
Rates
(1)
|
|
Maturity
|
|
June 30, 2018
|
|
December 31, 2017
|
|
|
|
(in Years)
|
(in Thousands)
|
Series 2014-1 Class A2
|
5.4%
|
|
2.1
|
|
$
|
246,318
|
|
|
$
|
252,437
|
|
Series 2014-2
|
5.8%
|
|
2.7
|
|
231,550
|
|
|
234,329
|
|
Series 2014-3
|
5.7%
|
|
3.7
|
|
310,014
|
|
|
311,336
|
|
Series 2014-4 Class A1
|
3.5%
|
|
1.6
|
|
149,484
|
|
|
150,000
|
|
Series 2014-4 Class A2
|
4.6%
|
|
11.6
|
|
349,328
|
|
|
358,664
|
|
Series 2017-1 Class A
|
4.4%
|
|
4.5
|
|
539,620
|
|
|
542,400
|
|
Series 2017-1 Class B
|
5.5%
|
|
4.5
|
|
132,000
|
|
|
132,000
|
|
Total Master Trust 2014 notes
|
4.9%
|
|
4.9
|
|
1,958,314
|
|
|
1,981,166
|
|
Debt discount, net
|
|
|
|
(24,491
|
)
|
(36,342
|
)
|
Deferred financing costs, net
|
|
|
|
(16,579
|
)
|
(17,989
|
)
|
Total Master Trust 2014, net
|
|
|
|
|
$
|
1,917,244
|
|
|
$
|
1,926,835
|
|
(1)
Represents the individual series stated interest rates as of
June 30, 2018
and the weighted average stated rate of the total Master Trust 2014 notes, based on the collective series outstanding principal balances as of
June 30, 2018
.
As of
June 30, 2018
, the Master Trust 2014 notes were secured by
790
owned and financed properties. The notes issued under Master Trust 2014 are cross-collateralized by the assets of all issuers within this trust.
CMBS
On
January 22, 2018
, the Company entered into a new non-recourse loan agreement with Société Générale and Barclays Bank PLC as lenders, which is collateralized by a
single
distribution center property located in Katy, Texas. The loan has a term of
ten
years to maturity with a stated interest rate of
5.14%
. As a result of the issuance, the Company received approximately
$84.0 million
in proceeds. The Company distributed all of the proceeds to Spirit. As of
June 30, 2018
, the loan had an outstanding principal balance of
$83.6 million
, after
$0.4 million
in scheduled principal payments, and had unamortized deferred financing costs of
$1.1 million
.
Debt Maturities
As of
June 30, 2018
, scheduled debt maturities of Master Trust 2014 and CMBS debt are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled
Principal
|
|
Balloon
Payment
|
|
Total
|
2018 Remainder
|
$
|
17,587
|
|
|
$
|
—
|
|
|
$
|
17,587
|
|
2019
|
36,403
|
|
|
—
|
|
|
36,403
|
|
2020
|
40,743
|
|
|
364,645
|
|
|
405,388
|
|
2021
|
23,620
|
|
|
219,964
|
|
|
243,584
|
|
2022
|
23,227
|
|
|
971,453
|
|
|
994,680
|
|
Thereafter
|
182,612
|
|
|
161,664
|
|
|
344,276
|
|
Total
|
$
|
324,192
|
|
|
$
|
1,717,726
|
|
|
$
|
2,041,918
|
|
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
Interest Expense
The following table is a summary of the components of interest expense related to the Company’s borrowings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Interest expense
|
$
|
25,257
|
|
|
$
|
17,378
|
|
|
$
|
50,394
|
|
|
$
|
34,808
|
|
Non-cash interest expense:
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
852
|
|
|
328
|
|
|
1,727
|
|
|
653
|
|
Amortization of debt discount, net
|
1,634
|
|
|
1,069
|
|
|
3,634
|
|
|
2,130
|
|
Total interest expense
|
$
|
27,743
|
|
|
$
|
18,775
|
|
|
$
|
55,755
|
|
|
$
|
37,591
|
|
Note 5. Stockholders' Equity and Redeemable Preferred Equity
The Company's declaration of trust authorizes it to issue
750,000,000
common shares of beneficial interest,
$0.01
par value per share, and
20,000,000
preferred shares of beneficial interest,
$0.01
par value per share. The Board of Trustees has the power, without shareholder approval, to increase or decrease the number of common shares the Company is authorized to issue.
Issuance of Common Stock
SMTA was originally capitalized on
November 17, 2017
with the issuance of
10,000
shares of common stock of beneficial interest (
$0.01
par value per share) for a total of
$10,000
.
On
May 31, 2018
, the distribution date, Spirit completed the Spin-Off of SMTA. On the distribution date, Spirit distributed on a pro rata basis
one
share of SMTA common stock for every
ten
shares of Spirit common stock held by each of Spirit's stockholders as of
May 18, 2018
, the record date. As a result,
42,851,010
shares of SMTA common stock were issued on
May 31, 2018
.
As of
June 30, 2018
, the Company had
42,851,010
shares of Common Stock outstanding. The Company did not declare or pay a dividend on their Common Stock during the quarter ended
June 30, 2018
.
Issuance of SMTA Preferred Stock
In conjunction with the Spin-Off, SMTA issued to the Manager and one of its affiliates, also a wholly-owned subsidiary of Spirit,
6.0 million
shares of Series A preferred stock with an aggregate liquidation preference of
$150.0 million
(the "
SMTA Preferred Stock
"). Redemption value of the SMTA Preferred Stock is equal to the liquidation preference plus any accrued and unpaid dividends and redemption is under the control of the issuer unless a change of control event occurs, as defined in the SMTA Preferred Stock agreements. Therefore, as redemption may occur outside the control of the issuer, the SMTA Preferred Stock is classified as temporary equity.
The
SMTA Preferred Stock
pays cash dividends at the rate of
10.0%
per annum on the liquidation preference of
$25.00
per share (equivalent to
$0.625
per share on a quarterly basis and
$2.50
per share on an annual basis). During the quarter ended
June 30, 2018
, the Company paid
$1.25 million
in
SMTA Preferred Stock
dividends prorated for the period from
June 1, 2018
to
June 30, 2018
. As of
June 30, 2018
, the Company had
6.0 million
shares of
10.0%
SMTA Preferred Stock
outstanding.
Issuance of SubREIT Preferred Stock
Prior to the Spin-Off, in exchange for property, SubREIT issued to the Manager
5,000
shares of Series A preferred stock with an aggregate liquidation preference of
$5.0 million
(the "
SubREIT Preferred Stock
"). Redemption value of the SubREIT Preferred Stock is equal to the liquidation preference plus any accrued and unpaid dividends and redemption is under the control of the issuer unless a change of control event occurs, as defined in the SubREIT Preferred Stock agreements. Therefore, as redemption may occur outside the control of the issuer, the SubREIT Preferred Stock is classified as temporary equity. In conjunction with the Spin-Off, the Manager sold the SubREIT Preferred Stock to a third-party.
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
The
SubREIT Preferred Stock
pays cash dividends at the rate of
18.0%
per annum on the liquidation preference of
$1,000.00
per share (equivalent to
$45.00
per share on a quarterly basis and
$180.00
per share on an annual basis). During the quarter ended
June 30, 2018
, the Company paid
$75.0 thousand
in
SubREIT Preferred Stock
dividends prorated for the period from
June 1, 2018
to
June 30, 2018
. As of
June 30, 2018
, the Company had
5,000
shares of the
SubREIT Preferred Stock
outstanding.
Dividends Declared
For the
six months ended
June 30, 2018
, the Company's Board of Trustees declared the following stock dividends for SMTA Preferred Stock and SubREIT's Board of Directors declared the following stock dividends for SubREIT Preferred Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Dividend Per Share
(1)
|
|
Record Date
|
|
Total Amount
(in thousands)
|
|
Payment Date
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
SMTA Preferred Stock
|
June 19, 2018
|
|
$
|
0.2083
|
|
|
June 19, 2018
|
|
$
|
1,250
|
|
|
June 29, 2018
|
SubREIT Preferred Stock
|
June 14, 2018
|
|
$
|
15.0000
|
|
|
June 19, 2018
|
|
$
|
75
|
|
|
June 29, 2018
|
(1)
Dividend was prorated for the period from
June 1, 2018
to
June 30, 2018
There were no unpaid dividends as of
June 30, 2018
.
Note 6. Related Party Transactions
Related Party Transfers
The financial statements include transfers of properties between the Company and Spirit and its wholly-owned subsidiaries prior to the Spin-Off. During the
six months ended June 30, 2018
, the Company transferred
three
properties to Spirit with a net book value of
$2.1 million
and for both the
three
and
six months ended June 30, 2018
Spirit contributed
ten
properties to the Company with an aggregate net book value of
$44.9 million
and a
$35.0 million
B-1 Term Loan with Shopko as borrower, all of which are reflected as non-cash activity in the consolidated statement of cash flows. For both the three and six months ended June 30, 2017, the Company purchased
one
property from Spirit for
$16.0 million
, which is reflected in the consolidated statement of cash flows as acquisitions of real estate. For these transactions, due to all entities being under common control at the time of transaction, no gain or loss was recognized by the Company and the acquired properties are accounted for by the Company at their historical cost basis to Spirit. The amount paid in excess of historical cost basis was recognized as distribution to parent company.
Related Party Loans Receivable
SMTA has
four
mortgage loans receivable where wholly-owned subsidiaries of Spirit are the borrower, and the loans are secured by
six
single-tenant commercial properties. These mortgage loans, which have a weighted average stated interest rate of
1.0%
, were entered into by entities under common control of Spirit in conjunction with the issuance of the Series 2014 notes of Master Trust 2014 because the underlying properties did not qualify to be held directly as collateral by Master Trust 2014 under its governing agreements. In total, these mortgage notes had outstanding principal of
$29.4 million
and
$30.8 million
at
June 30, 2018
and
December 31, 2017
, respectively, which is included in loans receivable, net on the consolidated balance sheets. The mortgage notes generated
$74.4 thousand
and
$81.6 thousand
of income for the
three months ended June 30, 2018
and
2017
, respectively, and
$150.3 thousand
and
$165.1 thousand
for the
six months ended June 30, 2018
and
2017
, respectively, which is included in interest income on loans receivable in the consolidated statements of operations and comprehensive income (loss). As specified in the original loan agreements dated May 20, 2014, these mortgage notes have maturity dates between June 1, 2027 and April 1, 2028, with a weighted average maturity of
9.4
years at
June 30, 2018
.
Related Party Notes Payable
In conjunction with the Series 2017-1 notes issuance completed in December 2017, the Manager, as sponsor of the issuance, retained a
5%
economic interest in the Master Trust 2014 Series 2017-1 notes as required by the risk retention rules issued under 17 CFR Part 246. The principal amount due to the Manager under the notes was
$33.6 million
and
$33.7 million
at
June 30, 2018
and
December 31, 2017
, respectively, and is included in mortgages and notes payable, net on the consolidated balance sheets. The notes have a weighted average stated interest rate of
4.6%
with a weighted
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
average term of
4.5
years to expected maturity as of
June 30, 2018
. Interest expense on the consolidated statements of operations and comprehensive income (loss) for the
three
and
six months ended June 30, 2018
includes
$0.4 million
and
$0.8 million
of interest expense, respectively, paid to the Manager in relation to these notes.
Related Party Property Management and Servicing Agreement
The Manager provides property management services and special services for Master Trust 2014. The property management fees accrue daily at
0.25%
per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets, and the special servicing fees accrue daily at
0.75%
per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement dated
May 20, 2014
. During the
three months ended June 30, 2018
and
2017
, property management fees of
$1.5 million
and
$1.1 million
, respectively, were incurred and during the
six months ended June 30, 2018
and
2017
, property management fees of
$3.1 million
and
$2.3 million
, respectively, were incurred. Special servicing fees of
$0.2 million
were incurred in both the
three months ended June 30, 2018
and
2017
and
$0.3 million
and
$0.4 million
were incurred in the
six months ended June 30, 2018
and
2017
, respectively. The property management fees and special servicing fees are included in related party fees in the consolidated statements of operations and comprehensive income (loss), with
$0.4 million
accrued at
June 30, 2018
.
Related Party Asset Management Agreement
In conjunction with the Spin-Off, SMTA and the Manager entered into the Asset Management Agreement pursuant to which the Manager will provide various services subject to the supervision of SMTA's Board of Trustees, including, but not limited to: (i) performing all of SMTA's day-to-day functions, (ii) sourcing, analyzing and executing on investments and dispositions, (iii) determining investment criteria, (iv) performing investment and liability management duties, including financing and hedging, and (v) performing financial and accounting management. As compensation for these services, SMTA will pay a
$20 million
per annum, payable monthly in arrears. Additionally, the Manager may be entitled to, under certain circumstances, a promoted interest fee based on the total shareholder return of SMTA's common shares during the relevant period, as well as a termination fee. No expense for the promoted interest fee or termination fee has been recognized as they do not meet the criteria for recognition under ASC 450-20
Loss Contingencies
as of
June 30, 2018
. During the
three and six
months ended
June 30, 2018
, asset management fees of
$1.7 million
were incurred, which are included in related party fees in the consolidated statements of operations and comprehensive income (loss), all of which was accrued at
June 30, 2018
.
Related Party Cost Sharing Arrangements and Other Accrued Balances
In conjunction with the Spin-Off, SMTA and Spirit entered into certain agreements, including the Separation and Distribution Agreement, Tax Matters Agreement, Registration Rights Agreement and Insurance Sharing Agreement, which provide a framework for the relationship between the Company and Spirit after the Spin-Off, by which Spirit may incur certain expenses on behalf of SMTA and SMTA must reimburse Spirit in a timely manner. As part of the Separation and Distribution Agreement, Spirit contributed
$3.0 million
of cash to SMTA at time of the Spin-Off. Additionally, in relation to rental payments received by SMTA subsequent to the Spin-Off that relate to rents prior to the Spin-Off, SMTA will reimburse
$2.0 million
to Spirit within
60
days of the Spin-Off. There was
$3.2 million
due to Spirit and
$1.5 million
due from Spirit in connection with these arrangements at
June 30, 2018
.
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
Expense Allocations
As described in Note 2, the accompanying consolidated financial statements present the operations of the Company as "carved out" from the financial statements of Spirit through the date of the Spin-Off. General and administrative expenses of
$0.8 million
and
$0.7 million
for the
three months ended June 30, 2018
and
2017
, respectively, and
$1.0 million
and
$1.7 million
for the
six months ended June 30, 2018
and
2017
, respectively, were specifically identified based on direct usage or benefit. In addition, transaction costs of
$2.1 million
and
$4.6 million
for the
three
and
six months ended June 30, 2018
and
$0.3 million
for both the
three
and
six months ended June 30, 2017
, were specifically identified based on direct usage or benefit. The remaining general and administrative expenses and transaction costs have been allocated to the Company based on relative property count, which the Company believes to be a reasonable methodology. These allocated expenses are centralized corporate costs borne by Spirit for management and other services, including, but not limited to, executive oversight, asset management, property management, treasury, finance, human resources, tax, accounting, financial reporting, information technology and investor relations, as well as transaction costs incurred in connection with the Spin-Off. A summary of the amounts allocated by property count is provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Allocated corporate expenses:
|
|
|
|
|
|
|
|
Cash compensation and benefits
|
$
|
1,302
|
|
|
$
|
2,750
|
|
|
$
|
3,965
|
|
|
$
|
4,678
|
|
Stock compensation
|
818
|
|
|
3,404
|
|
|
2,424
|
|
|
4,235
|
|
Professional fees
|
411
|
|
|
972
|
|
|
1,013
|
|
|
1,878
|
|
Other corporate expenses
|
418
|
|
|
664
|
|
|
1,068
|
|
|
1,230
|
|
Total corporate expenses
|
2,949
|
|
|
7,790
|
|
|
8,470
|
|
|
12,021
|
|
Transaction costs
|
3,424
|
|
|
69
|
|
|
3,957
|
|
|
69
|
|
Total allocated costs
|
$
|
6,373
|
|
|
$
|
7,859
|
|
|
$
|
12,427
|
|
|
$
|
12,090
|
|
Corporate expenses have been included within general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).
Note 7. Commitments and Contingencies
The Company is periodically subject to claims or litigation in the ordinary course of business, including claims generated from business conducted by tenants on real estate owned by the Company. In these instances, the Company is typically indemnified by the tenant against any losses that might be suffered, and the Company and/or the tenant are insured against such claims.
As of
June 30, 2018
, there were
no
outstanding claims against the Company that are expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
As of
June 30, 2018
, the Company had commitments totaling
$2.8 million
, all of which relate to funding improvements on properties the Company currently owns. Of the total commitments of
$2.8 million
,
$1.0 million
is expected to be funded during fiscal year
2018
, with the remaining
$1.8 million
expected to be funded in 2019.
The Company estimates future costs for known environmental remediation requirements when it is probable that the Company has incurred a liability and the related costs can be reasonably estimated. The Company considers various factors when estimating its environmental liabilities, and adjustments are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues. When only a wide range of estimated amounts can be reasonably established and no other amount within the range is better than another, the low end of the range is recorded in the consolidated financial statements. As of
June 30, 2018
, no accruals have been made.
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
Note 8. Fair Value Measurements
Nonrecurring Fair Value Measurements
Fair value measurement of an asset on a nonrecurring basis occurs when events or changes in circumstances related to an asset indicate that the carrying amount of the asset is no longer recoverable. Real estate and the related intangible assets are evaluated for impairment based on certain indicators including, but not limited to: the asset being held for sale, vacant, non-operating or the lease on the asset expiring in 60 days or less. The fair values of impaired real estate and intangible assets were determined by using the following information, depending on availability, in order of preference: signed purchase and sale agreements or letters of intent; recently quoted bid or ask prices, or market prices for comparable properties; estimates of cashflow, which consider, among other things, contractual and forecasted rental revenues, leasing assumptions, and expenses based upon market conditions; and expectations for the use of the real estate. Based on these inputs, the Company determined that its valuation of the impaired real estate and intangible assets falls within Level 3 of the fair value hierarchy.
The following table sets forth the Company’s assets that were accounted for at fair value on a nonrecurring basis as of
June 30, 2018
and
December 31, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level
|
Description
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
June 30, 2018
|
|
|
|
|
|
|
|
Long-lived assets held and used
|
$
|
9,499
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,499
|
|
Long-lived assets held for sale
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held and used
|
$
|
11,077
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,077
|
|
Long-lived assets held for sale
|
$
|
30,956
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,956
|
|
During the
six months ended June 30, 2018
and for the
year ended December 31, 2017
, we determined that
11
and
five
long-lived assets held and used, respectively, were impaired.
For
one
of the held and used properties impaired during the
six months ended June 30, 2018
and
four
of the held and used properties during the
year ended December 31, 2017
, the Company estimated property fair value using the price per square foot of comparable properties. The following table provides information about the price per square foot of comparable properties used as inputs (price per square foot in dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Range
|
|
Weighted
Average
|
|
Square
Footage
|
|
Range
|
|
Weighted
Average
|
|
Square
Footage
|
Long-lived assets held and used by asset type
|
Retail
|
$261.48 - $499.17
|
|
$
|
344.10
|
|
|
5,052
|
|
$18.40 - $285.98
|
|
$
|
72.04
|
|
|
68,871
|
Office
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
$81.61 - $244.86
|
|
$
|
149.49
|
|
|
19,821
|
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
For the
ten
held and used properties impaired during the
six months ended June 30, 2018
and
one
held and used property impaired during the
year ended December 31, 2017
, the Company estimated property fair value using the price per square foot based on a listing price or a broker opinion of value. The following table provides information about the price per square foot based on a listing price and a broker opinion of value used as inputs (price per square foot in dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Range
|
|
Weighted
Average
|
|
Square
Footage
|
|
Range
|
|
Weighted
Average
|
|
Square
Footage
|
Long-lived assets held and used by asset type
|
Retail
|
$
|
109.79
|
|
|
$
|
109.79
|
|
|
77,423
|
|
$
|
88.89
|
|
|
$
|
88.89
|
|
|
22,500
|
For the
six months ended June 30, 2018
and
year ended December 31, 2017
, we determined that
one
and
six
long-lived assets held for sale, respectively, were impaired. The Company estimated fair value of held for sale properties using price per square foot from signed purchase and sale agreements as follows (price per square foot in dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Range
|
|
Weighted
Average
|
|
Square
Footage
|
|
Range
|
|
Weighted
Average
|
|
Square
Footage
|
Long-lived assets held for sale by asset type
|
Retail
|
$
|
38.87
|
|
|
$
|
38.87
|
|
|
90,334
|
|
$55.30 - $346.23
|
|
$
|
299.89
|
|
|
87,248
|
Industrial
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
$
|
54.21
|
|
|
$
|
54.21
|
|
|
96,845
|
Estimated Fair Value of Financial Instruments
Financial assets and liabilities for which the carrying values approximate their fair values include cash and cash equivalents, restricted cash and escrow deposits, and accounts receivable and payable. Generally, these assets and liabilities are short-term in duration and are recorded at cost, which approximates fair value, on the accompanying consolidated balance sheets.
In addition to the disclosures for assets and liabilities required to be measured at fair value at the balance sheet date, companies are required to disclose the estimated fair values of all financial instruments, even if they are not carried at their fair values. The fair values of financial instruments are estimates based upon market conditions and perceived risks at
June 30, 2018
and
December 31, 2017
. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities.
The estimated fair values of the following financial instruments have been derived based on market quotes for comparable instruments or discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. These measurements are classified as Level 2 of the fair value hierarchy. The following table discloses fair value information for these financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
Loans receivable, net
|
$
|
67,752
|
|
|
$
|
68,522
|
|
|
$
|
32,307
|
|
|
$
|
29,076
|
|
Mortgages and notes payable, net
(1)
|
$
|
1,999,748
|
|
|
$
|
2,064,421
|
|
|
$
|
1,926,835
|
|
|
$
|
2,030,191
|
|
(1)
The carrying value of the debt instruments are net of unamortized deferred financing costs and certain debt discounts/premiums.
Note 9. Significant Credit and Revenue Concentration
As of
June 30, 2018
and
December 31, 2017
, the Company's real estate investments were operated by
205
and
201
tenants, respectively, that operate within retail, office and industrial property types across various industries throughout the U.S. Shopko operates in the general merchandise industry and is the Company's largest tenant as a percentage of rental revenue. Total rental revenues from properties leased to Shopko for the
three months ended June 30, 2018
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
and
2017
contributed
19.9%
and
22.3%
of the rental revenue presented in the accompanying consolidated statements of operations and comprehensive income (loss).
No
other tenant contributed
5%
or more of the rental revenue during any of the periods presented. As of both
June 30, 2018
and
December 31, 2017
, the Company's net investment in Shopko properties represents approximately
14.8%
and
15.8%
, respectively, of the Company's total assets presented in the accompanying consolidated balance sheets.
Note 10. Income (Loss) Per Share
Income (loss) per share has been computed using the two-class method, which is computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of shares of common stock outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both shares of common stock and any participating securities based on the weighted average shares outstanding during the period. Under the two-class method, any earnings attributable to unvested restricted shares are deducted from income (loss) from continuing operations in the computation of net income (loss) attributable to common stockholders.
The shares of common stock outstanding at the Spin-Off date are reflected as outstanding for all periods prior to the Spin-Off. The table below is a reconciliation of the numerator and denominator used in the computation of basic and diluted net income (loss) per share computed using the two-class method (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Basic and diluted (loss)
income
:
|
|
|
|
|
|
|
|
Net income (loss) and total comprehensive income (loss)
|
$
|
979
|
|
|
$
|
9,342
|
|
|
$
|
(6,600
|
)
|
|
$
|
23,336
|
|
Less: dividends paid to preferred stockholders
|
(1,325
|
)
|
|
—
|
|
|
(1,325
|
)
|
|
—
|
|
Net (loss)
income
attributable to common stockholders used in basic and diluted (loss) income per share
|
$
|
(346
|
)
|
|
$
|
9,342
|
|
|
$
|
(7,925
|
)
|
|
$
|
23,336
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares of common stock outstanding
(1)
:
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding used in basic (loss)
income
per share
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
Net (loss) income per share attributable to common stockholders
|
$
|
(0.01
|
)
|
|
$
|
0.22
|
|
|
$
|
(0.18
|
)
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average shares of common stock
(1)
:
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding used in diluted (loss)
income
per share
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
Net (loss) income per share attributable to common stockholders - diluted
|
$
|
(0.01
|
)
|
|
$
|
0.22
|
|
|
$
|
(0.18
|
)
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
Total potentially dilutive shares
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(1)
As of
June 30, 2018
and
2017
, there were no adjustments to the weighted average shares of common stock outstanding used in the basic calculation or weighted average shares of common stock outstanding used in the diluted calculation given there were no potentially dilutive shares.
Note 11. Segments
Management views the operations of the Company as two separate segments—Master Trust 2014 and Other Properties—and makes operating decisions based on these
two
reportable segments. The business strategy for the Company as a whole is (i) to grow and reinforce Master Trust 2014 and (ii) to monetize the Other Properties to distribute proceeds to stockholders or redeploy into assets that can be added to the collateral pool of Master Trust 2014.
Master Trust 2014 is an asset-backed securitization platform, see Note 4, with specific criteria for operating the collateral pool, including restrictions on use of Release Account cash, concentration thresholds which cannot be exceeded, and a minimum debt service coverage ratio which must be met. Operations for the Other Properties are focused on
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
monetization of the assets through dispositions, or could include redevelopment or outparcel development where prudent.
Segment results are comprised of revenues, property management and servicing fees, property expenses (which include property costs, depreciation and amortization, and impairments), and interest expense. General and administrative expenses, asset management fees under the Asset Management Agreement, transaction costs, and income taxes are not allocated to individual segments for purposes of assessing segment performance. The Company believes that segment results serve as a useful supplement to net income (loss) because they allow investors and management to measure the Company's progress against its stated strategy.
The performance of the reportable segments is not comparable with the Company's consolidated results and is not necessarily comparable with similar information for any other REITs. Additionally, because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.
Segment results for the three and six months ended
June 30, 2018
and
2017
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Three Months Ended June 30, 2017
|
|
|
Master Trust 2014
|
|
Other Properties
|
|
Total
|
|
Master Trust 2014
|
|
Other Properties
|
|
Total
|
Segment Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
44,790
|
|
|
$
|
16,168
|
|
|
$
|
60,958
|
|
|
$
|
41,530
|
|
|
$
|
15,715
|
|
|
$
|
57,245
|
|
Property Management and Servicing Fees
(1)
|
|
(1,684
|
)
|
|
—
|
|
|
(1,684
|
)
|
|
(1,385
|
)
|
|
—
|
|
|
(1,385
|
)
|
Property expenses
|
|
(17,086
|
)
|
|
(7,317
|
)
|
|
(24,403
|
)
|
|
(19,430
|
)
|
|
(7,829
|
)
|
|
(27,259
|
)
|
Interest expense
|
|
(26,630
|
)
|
|
(1,113
|
)
|
|
(27,743
|
)
|
|
(18,775
|
)
|
|
—
|
|
|
(18,775
|
)
|
(Loss) gain on debt extinguishment
|
|
(108
|
)
|
|
—
|
|
|
(108
|
)
|
|
—
|
|
|
1
|
|
|
1
|
|
(Loss) gain on disposition of assets
|
|
(470
|
)
|
|
5,418
|
|
|
4,948
|
|
|
1,475
|
|
|
6,914
|
|
|
8,389
|
|
Segment (loss) income
|
|
$
|
(1,188
|
)
|
|
$
|
13,156
|
|
|
$
|
11,968
|
|
|
$
|
3,415
|
|
|
$
|
14,801
|
|
|
$
|
18,216
|
|
Non-allocated expenses
|
|
|
|
|
|
(10,989
|
)
|
|
|
|
|
|
(8,874
|
)
|
Net income
|
|
|
|
|
|
$
|
979
|
|
|
|
|
|
|
$
|
9,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2017
|
|
|
Master Trust 2014
|
|
Other Properties
|
|
Total
|
|
Master Trust 2014
|
|
Other Properties
|
|
Total
|
Segment Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
89,996
|
|
|
$
|
31,030
|
|
|
$
|
121,026
|
|
|
$
|
82,786
|
|
|
$
|
32,307
|
|
|
$
|
115,093
|
|
Property Management and Servicing Fees
(1)
|
|
(3,414
|
)
|
|
—
|
|
|
(3,414
|
)
|
|
(2,739
|
)
|
|
—
|
|
|
(2,739
|
)
|
Property expenses
|
|
(38,057
|
)
|
|
(13,577
|
)
|
|
(51,634
|
)
|
|
(37,808
|
)
|
|
(19,010
|
)
|
|
(56,818
|
)
|
Interest expense
|
|
(53,797
|
)
|
|
(1,958
|
)
|
|
(55,755
|
)
|
|
(37,591
|
)
|
|
—
|
|
|
(37,591
|
)
|
(Loss) gain on debt extinguishment
|
|
(363
|
)
|
|
—
|
|
|
(363
|
)
|
|
—
|
|
|
1
|
|
|
1
|
|
(Loss) gain on disposition of assets
|
|
(2,143
|
)
|
|
5,397
|
|
|
3,254
|
|
|
5,712
|
|
|
13,866
|
|
|
19,578
|
|
Segment (loss) income
|
|
$
|
(7,778
|
)
|
|
$
|
20,892
|
|
|
$
|
13,114
|
|
|
$
|
10,360
|
|
|
$
|
27,164
|
|
|
$
|
37,524
|
|
Non-allocated expenses
|
|
|
|
|
|
(19,714
|
)
|
|
|
|
|
|
(14,188
|
)
|
Net (loss) income
|
|
|
|
|
|
$
|
(6,600
|
)
|
|
|
|
|
|
$
|
23,336
|
|
(1)
Property Management and Servicing Fees are included in related party fees in the consolidated statements of operations and comprehensive income (loss). Asset Management Fees, the other component of related party fees, are included in non-allocated expenses above.
SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)
Assets and liabilities by reportable segment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
|
Master Trust 2014
|
|
Other Properties
|
|
Total
|
|
Master Trust 2014
|
|
Other Properties
|
|
Total
|
Net investments
|
|
$
|
1,682,042
|
|
|
$
|
561,936
|
|
|
$
|
2,243,978
|
|
|
$
|
1,721,583
|
|
|
$
|
514,752
|
|
|
$
|
2,236,335
|
|
Restricted cash
|
|
59,973
|
|
|
330
|
|
|
60,303
|
|
|
66,504
|
|
|
—
|
|
|
66,504
|
|
Segment assets
|
|
$
|
1,742,015
|
|
|
$
|
562,266
|
|
|
$
|
2,304,281
|
|
|
$
|
1,788,087
|
|
|
$
|
514,752
|
|
|
$
|
2,302,839
|
|
Other assets
|
|
|
|
|
|
96,503
|
|
|
|
|
|
|
54,821
|
|
Total assets
|
|
|
|
|
|
$
|
2,400,784
|
|
|
|
|
|
|
$
|
2,357,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages and notes payable, net
|
|
$
|
1,917,244
|
|
|
$
|
82,504
|
|
|
$
|
1,999,748
|
|
|
$
|
1,926,835
|
|
|
$
|
—
|
|
|
$
|
1,926,835
|
|
Intangible lease liabilities, net
|
|
18,095
|
|
|
4,755
|
|
|
22,850
|
|
|
19,725
|
|
|
4,122
|
|
|
23,847
|
|
Segment liabilities
|
|
$
|
1,935,339
|
|
|
$
|
87,259
|
|
|
$
|
2,022,598
|
|
|
$
|
1,946,560
|
|
|
$
|
4,122
|
|
|
$
|
1,950,682
|
|
Other liabilities
|
|
|
|
|
|
20,861
|
|
|
|
|
|
|
16,060
|
|
Total liabilities
|
|
|
|
|
|
$
|
2,043,459
|
|
|
|
|
|
|
$
|
1,966,742
|
|
Dispositions by reportable segment are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2017
|
|
|
Properties
(1)
|
|
Gross Proceeds
(1)
|
|
Properties
|
|
Gross Proceeds
|
Master Trust 2014
|
|
25
|
|
|
$
|
23,282
|
|
|
21
|
|
|
$
|
40,619
|
|
Other Properties
|
|
5
|
|
|
20,938
|
|
|
10
|
|
|
47,087
|
|
Total
|
|
30
|
|
|
$
|
44,220
|
|
|
31
|
|
|
$
|
87,706
|
|
(1)
Excludes three properties transfered to Spirit prior to the Spin-Off, see Note 6.
Note 12. Subsequent Events
Equity Compensation
Subsequent to
June 30, 2018
, the Company issued
$1.5 million
in restricted shares to the independent members of the Board of Trustees in accordance with the Trustee Compensation Program. The shares were issued at a price of
$10.01
per share, resulting in the issuance of
149,852
shares.
Dividends Announced
On August 9, 2018, the Board of Trustees declared a cash dividend of
$0.33
per share of common stock, comprising
$0.08
for the month ended June 30, 2018 and
$0.25
for the quarter ended September 30, 2018, to be paid on October 15, 2018 to holders of record as of September 28, 2018, and a cash dividend of
$0.625
per share of SMTA Preferred Stock to be paid on September 28, 2018 to holders of record as of September 14, 2018.
The Board of Directors of SubREIT declared a quarterly cash dividend of
$45.00
per share of SubREIT Preferred Stock to be paid on September 28, 2018 to holders of record as of September 14, 2018.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the meaning of the 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;
|
|
|
◦
|
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, particularly with respect to challenges being experienced by general merchandise retailers;
|
|
|
◦
|
our ability to diversify our tenant base and reduce the concentration of our significant tenant;
|
|
|
◦
|
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;
|
|
|
◦
|
our relationship with our Manager and its ability to retain qualified personnel;
|
|
|
◦
|
potential conflicts of interest with our Manager or Spirit;
|
|
|
◦
|
our ability to achieve the intended benefits from our Spin-Off from Spirit; 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. For a discussion of additional risk factors, see the factors included under the caption “Risk Factors” in our Information Statement filed as Exhibit 99.1 to our Form 10 filed on May 4, 2018. All forward-looking statements are based on information that was available, and speak only, as of 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.
OVERVIEW AND BASIS OF PRESENTATION
SMTA was formed for the purpose of receiving, via contribution from Spirit, the legal entities which held (i) Master Trust 2014, an asset-backed securitization trust which issues non-recourse asset-back securities collateralized by commercial real estate, net-leases and mortgage loans, (ii) all of Spirit's properties leased to Shopko, (iii) a single distribution center property leased to a sporting goods tenant encumbered with CMBS debt, and (iv) a portfolio of unencumbered properties, as well as newly formed legal entities that hold ten additional properties contributed to SMTA with an aggregate net book value of $44.9 million, a $35.0 million B-1 Term Loan with Shopko as borrower, and a cash contribution of $3.0 million. The activities of the newly formed legal entities are not reflected in the accompanying financial statements balances or results of operations prior to May 31, 2018, but the ten additional properties, the B-1 Term Loan and cash are reflected as contributions within the three and six months ended June 30, 2018 as of their respective legal dates of transfer.
On May 31, 2018, the distribution date, Spirit completed the Spin-Off of SMTA. On the distribution date, Spirit distributed on a pro rata basis one share of SMTA common stock for every ten shares of Spirit common stock held by each of Spirit's stockholders as of May 18, 2018, the record date. As a result, 42,851,010 shares of SMTA common were issued on May 31, 2018.
In connection with the Spin-Off, SMTA entered into an Asset Management Agreement with Spirit Realty, L.P. (our "Manager"), a wholly-owned subsidiary of Spirit, under which Spirit Realty, L.P. provides various services including, but not limited to: active portfolio management (including underwriting and risk management), financial reporting, and SEC compliance. The fees for these services are a flat rate of $20 million per annum. Additionally, Spirit Realty, L.P. continues as the property manager and special servicer of Master Trust 2014, under which Spirit Realty, L.P. receives property management fees which accrue daily at 0.25% per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets, and special servicing fees which accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement. SMTA and Spirit also entered into a Separation and Distribution Agreement, an Insurance-Sharing Agreement, a Tax Matters Agreement, and a Registration Rights Agreement in connection with the Spin-Off.
SMTA expects to operate in a manner intended to enable it to qualify as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended. To maintain REIT status, SMTA must meet a number of organizational and operational requirements, including a requirement to distribute annually to shareholders at least 90% of SMTA’s REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. Management believes the Company has qualified and will continue to qualify as a REIT and therefore, no provision has been made for federal income taxes for the period presented subsequent to the Spin-Off. For the period presented prior to the Spin-Off, the Company was disregarded for federal income tax purposes, so no provision for federal income tax was made. SMTA is subject to certain other taxes, including state taxes, which have been reflected as income tax expense in the consolidated statements of operations and comprehensive income (loss).
The accompanying financial statements include the consolidated accounts of the Company and its wholly-owned subsidiaries for the period subsequent to the Spin-Off on
May 31, 2018
. The pre-spin financial statements were prepared on a carve-out basis and reflect the combined net assets and operations of the predecessor legal entities which formed the Company at the time of the Spin-Off. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenues and expenses during the reporting periods. Actual results could differ from these estimates. The historical financial results prior to the Spin-Off include allocated expenses for certain corporate costs which we believe are reasonable. These expenses were based on either actual costs incurred or a proportion of costs estimated to be allocable to SMTA based on the relative property count of the Company to those owned by Spirit as a whole. Such costs do not necessarily reflect what the actual costs would have been if SMTA had been operating as a separate standalone public company. These expenses are discussed further in Note 6 of the accompanying financial statements.
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 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our
Information Statement filed as Exhibit 99.1 to our Registration Statement on Form 10 filed on May 4, 2018. We have not made any material changes to these policies during the periods covered by this quarterly report.
HIGHLIGHTS
For the
three months ended June 30, 2018
:
|
|
•
|
On May 31, 2018, the Spin-Off from Spirit was completed with the distribution of one share of SMTA common stock for every ten shares of Spirit common stock, held by each of Spirit's stockholders as of May 18, 2018.
|
|
|
•
|
42,851,010
shares of SMTA common stock were issued on
May 31, 2018
in conjunction with the Spin-Off.
|
|
|
•
|
Sold
three
properties leased to Shopko for gross proceeds of
$15.6 million
, at a weighted average capitalization rate of
7.92%
.
|
RESULTS OF OPERATIONS
Comparison of the
Three Months Ended
June 30, 2018
to the
Three Months Ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
(In Thousands)
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Rentals
|
$
|
59,240
|
|
|
$
|
56,003
|
|
|
$
|
3,237
|
|
|
5.8
|
%
|
Interest income on loans receivable
|
752
|
|
|
202
|
|
|
550
|
|
|
NM
|
|
Tenant reimbursement income
|
404
|
|
|
372
|
|
|
32
|
|
|
8.6
|
%
|
Other income
|
562
|
|
|
668
|
|
|
(106
|
)
|
|
(15.9
|
)%
|
Total revenues
|
60,958
|
|
|
57,245
|
|
|
3,713
|
|
|
6.5
|
%
|
Expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative
|
3,775
|
|
|
8,462
|
|
|
(4,687
|
)
|
|
(55.4
|
)%
|
Related party fees
|
3,351
|
|
|
1,385
|
|
|
1,966
|
|
|
NM
|
|
Transaction costs
|
5,525
|
|
|
367
|
|
|
5,158
|
|
|
NM
|
|
Property costs (including reimbursable)
|
2,047
|
|
|
1,565
|
|
|
482
|
|
|
30.8
|
%
|
Interest
|
27,743
|
|
|
18,775
|
|
|
8,968
|
|
|
47.8
|
%
|
Depreciation and amortization
|
21,109
|
|
|
20,275
|
|
|
834
|
|
|
4.1
|
%
|
Impairments
|
1,247
|
|
|
5,419
|
|
|
(4,172
|
)
|
|
(77.0
|
)%
|
Total expenses
|
64,797
|
|
|
56,248
|
|
|
8,549
|
|
|
15.2
|
%
|
(Loss) income before other income and income tax expense
|
(3,839
|
)
|
|
997
|
|
|
(4,836
|
)
|
|
NM
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain on debt extinguishment
|
(108
|
)
|
|
1
|
|
|
(109
|
)
|
|
NM
|
|
Gain on disposition of real estate assets
|
4,948
|
|
|
8,389
|
|
|
(3,441
|
)
|
|
(41.0
|
)%
|
Total other income
|
4,840
|
|
|
8,390
|
|
|
(3,550
|
)
|
|
NM
|
|
Income (loss) before income tax expense
|
1,001
|
|
|
9,387
|
|
|
(8,386
|
)
|
|
NM
|
|
Income tax expense
|
(22
|
)
|
|
(45
|
)
|
|
23
|
|
|
(51.1
|
)%
|
Net income
|
$
|
979
|
|
|
$
|
9,342
|
|
|
$
|
(8,363
|
)
|
|
(89.5
|
)%
|
NM-Percentages over 100% are not displayed.
Revenues
Rentals
Rental revenue for the comparative period increased primarily as a result of increases in contractual rents, slightly offset by increases in tenant credit issues, period-over-period. Contractual cash rents, excluding percentage rents,
increased 7.3% as SMTA was a net acquirer over the trailing twelve-month period (based on Real Estate Investment Value). We received
ten
properties from Spirit as a contribution in conjunction with the Master Trust 2014 issuance with a Real Estate Investment Value of
$238.1 million
and acquired
four
properties for
$15.3 million
. During the same period, we disposed of
78
properties with a Real Estate Investment Value of
$126.7 million
. As of
June 30, 2018
and
December 31, 2017
,
11
and 32 of our properties, respectively, were vacant, representing approximately
1.2%
and 3.3%, respectively, of our owned properties.
During the
three months ended
June 30, 2018
and
2017
, non-cash rental revenues were $0.7 million and $0.8 million, respectively, representing approximately 1.2% and 1.4%, respectively, of total rental revenue.
Interest income on loans receivable
The increase in interest income on loans receivable is a result of the contribution from Spirit of the $35.0 million B-1 term loan with Shopko as borrower prior to the completion of the Spin-Off. Interest income on mortgage loans remained relatively flat period-over-period.
Tenant reimbursement income
We have a number of leases that require our tenants to reimburse us for certain property costs we incur, which we record on a gross basis. As such, tenant reimbursement income is driven by the tenant reimbursable property costs described below, less an allowance for reimbursable expenses determined to be uncollectible from our tenants.
Other income
Period-over-period other income decreased primarily due to a decrease in lease termination fees received. For the
three months ended
June 30, 2018
, we received $0.1 million in lease termination fees received from five properties with tenants in the restaurant - casual dining industry, compared to $0.4 million in lease termination fees received from seven properties with tenants in the restaurant - casual dining industry during the
three months ended
June 30, 2017
.
Expenses
General and administrative and Transaction costs
General and administrative expenses of $0.8 million and $0.7 million during the
three months ended
June 30, 2018
and
2017
, respectively, were specifically identified based on direct usage or benefit and were flat period-over-period. Transaction costs are the expenses associated with the Spin-Off and, for the
three months ended
June 30, 2018
, $2.1 million were specifically identified based on direct usage or benefit. For the
three months ended
June 30, 2017
, $0.3 million of transaction costs were specifically identified.
The remaining general and administrative expenses and transaction costs have been allocated from Spirit’s financial statements for the periods prior to the completion of the Spin-Off, based on SMTA's property count relative to Spirit’s property count. SMTA's property count decreased from 953 properties at
June 30, 2017
to 893 properties at May 31, 2018. Spirit’s property count also decreased from 2,563 properties to 2,432 for the same period. As such, the allocation percentage year over year remained relatively flat. Therefore, the decrease in allocated general and administrative expenses is a direct result of Spirit’s decreased expenses period-over-period and the increase in allocated transaction costs is a direct result of Spirit's increased expenses period-over-period.
Related party fees
Property management fees for Master Trust 2014 accrue daily at 0.25% per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets and special servicing fees which accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement. Collateral value of Master Trust 2014 was $2.0 billion at
June 30, 2017
and, as a result of the issuance completed in December 2017 and acquisitions in 2018, collateral value increased to $2.6 billion at
June 30, 2018
. The increase in collateral value resulted in an increase of property management and special servicing fees paid to our Manager of $0.3 million period-over-period.
Additionally, in conjunction with the Spin-Off, SMTA entered into the Asset Management Agreement with Spirit Realty, L.P. for a $20 million flat fee per annum. Therefore, asset management fees of $1.7 million were incurred subsequent to the Spin-Off, also resulting in an increase in related party fees period-over-period.
Property costs (including reimbursable)
For the
three months ended
June 30, 2018
, property costs were
$2.0 million
(including $0.7 million of tenant reimbursable expenses) compared to
$1.6 million
(including $0.4 million of tenant reimbursable expenses) for the same period in
2017
. The increase in non-reimbursable costs of $0.2 million was driven primarily by an increase in non-reimbursable property taxes on operating properties as a result of tenant credit issues, as well as an increase period-over-period in certain non-reimbursable property maintenance.
Interest
The increase in interest expense is primarily related to the new issuance of Master Trust 2014 notes in December 2017 and a new CMBS loan entered into in January 2018. See Note 4 to the financial statements herein.
The following table summarizes our interest expense:
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
(In Thousands)
|
2018
|
|
2017
|
|
|
Interest expense-Master Trust 2014
|
$
|
24,169
|
|
|
$
|
17,378
|
|
Interest expense-CMBS
|
1,088
|
|
|
—
|
|
Non-cash interest expense:
|
|
|
|
|
|
Amortization of deferred financing costs
|
852
|
|
|
328
|
|
Amortization of debt discount, net
|
1,634
|
|
|
1,069
|
|
Total interest expense
|
$
|
27,743
|
|
|
$
|
18,775
|
|
Depreciation and amo
rtization
During the twelve months ended
June 30, 2018
, we acquired
14
properties, representing a Real Estate Investment Value of
$253.4 million
, and we disposed of
78
properties with a Real Estate Investment Value of
$126.7 million
. Therefore, as a net acquirer during the period based on Real Estate Investment Value, depreciation and amortization increased period-over-period.
The following table summarizes our depreciation and amortization expenses:
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
(In Thousands)
|
2018
|
|
2017
|
|
|
Depreciation of real estate assets
|
$
|
18,406
|
|
|
$
|
17,651
|
|
Amortization of lease intangibles
|
2,703
|
|
|
2,624
|
|
Total depreciation and amortization
|
$
|
21,109
|
|
|
$
|
20,275
|
|
Impairment
During the
three months ended
June 30, 2018
, we recorded impairment losses of
$1.2 million
. $0.9 million of the impairment was recorded on one held for sale property with a tenant in the general merchandise industry. The remaining $0.3 million of impairment was recorded on two vacant properties held for use.
During the
three months ended
June 30, 2017
, we recorded impairment losses of
$5.4 million
. $4.6 million of the impairment was recorded on properties held for use, primarily recorded on six vacant properties. The remaining $0.8 million of impairment was recorded on properties classified as held for sale, primarily recorded on two vacant properties.
(Loss) gain on debt extinguishment
During the
three months ended
June 30, 2018
, we extinguished $1.7 million of Master Trust 2014 debt, resulting in approximately $0.1 million in losses on debt extinguishment related to pre-payment premiums paid.. During the same period in
2017
, there was de minimus gain.
Gain on disposition of assets
During the
three months ended
June 30, 2018
, we disposed of 10 properties and recorded gains totaling
$4.9 million
. These gains were primarily driven by $5.6 million in gains on the sale of three properties operated by Shopko. These gains were partially offset by $0.7 million in losses on the sale of seven vacant properties.
For the same period in
2017
, we disposed of 19 properties and recorded gains totaling
$8.4 million
. These gains were primarily driven by $7.1 million in gains on the sale of five properties operated by Shopko and $1.7 million in gains on the sale of four properties operated by tenants in the restaurants-casual dining industry. These gains were partially offset by $0.6 million in losses on the sale of six vacant properties.
RESULTS OF OPERATIONS
Comparison of the
Six Months Ended
June 30, 2018
to the
Six Months Ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(In Thousands)
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Rentals
|
$
|
118,271
|
|
|
$
|
112,388
|
|
|
$
|
5,883
|
|
|
5.2
|
%
|
Interest income on loans receivable
|
833
|
|
|
405
|
|
|
428
|
|
|
NM
|
|
Tenant reimbursement income
|
981
|
|
|
1,150
|
|
|
(169
|
)
|
|
(14.7
|
)%
|
Other income
|
941
|
|
|
1,150
|
|
|
(209
|
)
|
|
(18.2
|
)%
|
Total revenues
|
121,026
|
|
|
115,093
|
|
|
5,933
|
|
|
5.2
|
%
|
Expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative
|
9,426
|
|
|
13,731
|
|
|
(4,305
|
)
|
|
(31.4
|
)%
|
Related party fees
|
5,081
|
|
|
2,739
|
|
|
2,342
|
|
|
85.5
|
%
|
Transaction costs
|
8,542
|
|
|
367
|
|
|
8,175
|
|
|
NM
|
|
Property costs (including reimbursable)
|
3,460
|
|
|
4,021
|
|
|
(561
|
)
|
|
(14.0
|
)%
|
Interest
|
55,755
|
|
|
37,591
|
|
|
18,164
|
|
|
48.3
|
%
|
Depreciation and amortization
|
42,102
|
|
|
40,885
|
|
|
1,217
|
|
|
3.0
|
%
|
Impairments
|
6,072
|
|
|
11,912
|
|
|
(5,840
|
)
|
|
(49.0
|
)%
|
Total expenses
|
130,438
|
|
|
111,246
|
|
|
19,192
|
|
|
17.3
|
%
|
(Loss) income before other income and income tax expense
|
(9,412
|
)
|
|
3,847
|
|
|
(13,259
|
)
|
|
NM
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
(Loss) gain on debt extinguishment
|
(363
|
)
|
|
1
|
|
|
(364
|
)
|
|
NM
|
|
Gain on disposition of real estate assets
|
3,254
|
|
|
19,578
|
|
|
(16,324
|
)
|
|
(83.4
|
)%
|
Total other income
|
2,891
|
|
|
19,579
|
|
|
(16,688
|
)
|
|
NM
|
|
Income (loss) before income tax expense
|
(6,521
|
)
|
|
23,426
|
|
|
(29,947
|
)
|
|
NM
|
|
Income tax expense
|
(79
|
)
|
|
(90
|
)
|
|
11
|
|
|
(12.2
|
)%
|
Net (loss) income
|
$
|
(6,600
|
)
|
|
$
|
23,336
|
|
|
$
|
(29,936
|
)
|
|
NM
|
|
NM-Percentages over 100% are not displayed.
Revenues
Rentals
Rental revenue for the comparative period increased primarily as a result of increases in contractual rents period-over-period. Contractual cash rents, excluding percentage rents, increased 5.3% as SMTA was a net acquirer over the trailing twelve-month period (based on Real Estate Investment Value). We received
ten
properties from Spirit as a contribution in conjunction with the Master Trust 2014 issuance with a Real Estate Investment Value of
$238.1 million
and acquired
four
properties for
$15.3 million
. During the same period, we disposed of
78
properties with a Real Estate Investment Value of
$126.7 million
. As of
June 30, 2018
and
December 31, 2017
,
11
and 32 of our properties, respectively, were Vacant, representing approximately
1.2%
and 3.3%, respectively, of our owned properties.
During the
six months ended
June 30, 2018
and
2017
, non-cash rental revenues were $1.5 million and $1.9 million, respectively, representing approximately 1.2% and 1.7%, respectively, of total rental revenue.
Interest income on loans receivable
The increase in interest income on loans receivable is a result of the contribution from Spirit of the $35.0 million B-1 term loan with Shopko as borrower prior to the completion of the Spin-Off. Interest income on mortgage loans remained relatively flat period-over-period.
Tenant reimbursement income
We have a number of leases that require our tenants to reimburse us for certain property costs we incur, which we record on a gross basis. As such, tenant reimbursement income is driven by the tenant reimbursable property costs described below, less an allowance for reimbursable expenses determined to be uncollectible from our tenants.
Other income
Period-over-period other income decreased primarily due to a decrease in lease termination fees received. For the
six months ended
June 30, 2018
, we received $0.2 million in lease termination fees received from five properties with tenants in the restaurant - casual dining industry, compared to $0.7 million in lease termination fees received from twelve properties with tenants in the restaurant - casual dining industry during the six months ended
June 30, 2017
.
Expenses
General and administrative and Transaction costs
General and administrative expenses of $1.0 million and $1.7 million during the
six months ended
June 30, 2018
and
2017
, respectively, were specifically identified based on direct usage or benefit. The change in specifically identified expenses is primarily a result of a decrease in bad debt expense as a result of certain tenants in the sporting goods and restaurant - casual dining industries for which the straight-line rent was determined to be uncollectible for the
six months ended
June 30, 2017
, whereas there were minimal bad debt expenses recorded for the
six months ended
June 30, 2018
. Transaction costs are the expenses associated with the Spin-Off and, for the
six months ended
June 30, 2018
, $4.6 million were specifically identified based on direct usage or benefit. For
six months ended
June 30, 2017
, $0.3 million of transaction costs were specifically identified.
The remaining general and administrative expenses and transaction costs have been allocated from Spirit’s financial statements for the periods prior to the completion of the Spin-Off, based on SMTA's property count relative to Spirit’s property count. SMTA’s property count decreased from 953 properties at
June 30, 2017
to 893 properties at May 31, 2018. Spirit’s property count also decreased from 2,563 properties to 2,432 for the same period. As such, the allocation percentage year over year remained relatively flat. Therefore, the decrease in allocated general and administrative expenses is a direct result of Spirit’s decreased expenses period-over-period and the increase in allocated transaction costs is a direct result of Spirit's increased expenses period-over-period.
Related party fees
Property management fees for Master Trust 2014 accrue daily at 0.25% per annum of the collateral value of the Master Trust 2014 collateral pool less any specially serviced assets and special servicing fees which accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement. Collateral value of Master Trust 2014 was $2.0 billion at
June 30, 2017
and, as a result of the issuance completed in December 2017 and acquisitions in 2018, collateral value increased to $2.6
billion at
June 30, 2018
. The increase in collateral value resulted in an increase of property management and special servicing fees paid to our Manager of $0.7 million period-over-period.
Additionally, in conjunction with the Spin-Off, SMTA entered into the Asset Management Agreement with Spirit Realty, L.P. for a $20 million flat fee per annum. Therefore, asset management fees of $1.7 million were incurred subsequent to the Spin-Off, also resulting in an increase in related party fees period-over-period.
Property costs (including reimbursable)
For the
six months ended
June 30, 2018
, property costs were
$3.5 million
(including $1.2 million of tenant reimbursable expenses) compared to
$4.0 million
(including $1.1 million of tenant reimbursable expenses) for the same period in 2017. The decrease in non-reimbursable costs of $0.6 million was driven primarily by an decrease in non-reimbursable property taxes on vacant properties, partially offset by an increase in non-reimbursable property taxes on operating properties as a result of tenant credit issues. As of
June 30, 2018
and
December 31, 2017
, 11 and 32 of our properties, respectively, were Vacant, representing approximately
1.2%
and 3.3%, respectively, of our owned properties.
Interest
The increase in interest expense is primarily related to the new issuance of Master Trust 2014 notes in December 2017 and a new CMBS loan entered into in January 2018. See Note 4 to the financial statements herein.
The following table summarizes our interest expense:
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(In Thousands)
|
2018
|
|
2017
|
|
|
Interest expense-Master Trust 2014
|
$
|
48,479
|
|
|
$
|
34,808
|
|
Interest expense-CMBS
|
1,915
|
|
|
—
|
|
Non-cash interest expense:
|
|
|
|
|
|
Amortization of deferred financing costs
|
1,727
|
|
|
653
|
|
Amortization of debt discount, net
|
3,634
|
|
|
2,130
|
|
Total interest expense
|
$
|
55,755
|
|
|
$
|
37,591
|
|
Depreciation and amo
rtization
During the twelve months ended
June 30, 2018
, we acquired
14
properties, representing a Real Estate Investment Value of
$253.4 million
, and we disposed of
78
properties with a Real Estate Investment Value of
$126.7 million
. Therefore, as a net acquirer during the period based on Real Estate Investment Value, depreciation and amortization increased period-over-period.
The following table summarizes our depreciation and amortization expenses:
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(In Thousands)
|
2018
|
|
2017
|
|
|
Depreciation of real estate assets
|
$
|
36,710
|
|
|
$
|
35,562
|
|
Amortization of lease intangibles
|
5,392
|
|
|
5,323
|
|
Total depreciation and amortization
|
$
|
42,102
|
|
|
$
|
40,885
|
|
Impairment
During the
six months ended
June 30, 2018
, we recorded impairment losses of
$6.1 million
. $5.2 million of the impairment was recorded on properties held for use, made up of six vacant properties and 11 underperforming properties with tenants in the restaurants-casual dining and restaurants-quick service industries. The remaining $0.9 million of the impairment was recorded on one held for sale property with a tenant in the general merchandise industry.
During the
six months ended
June 30, 2017
, we recorded impairment losses of
$11.9 million
. $8.7 million of the impairment was recorded on properties held for use, primarily recorded on 13 vacant properties. The remaining $3.2
million of impairment was recorded on properties classified as held for sale, primarily recorded on seven vacant properties.
(Loss) gain on debt extinguishment
During the
six months ended
June 30, 2018
, we extinguished $6.3 million of Master Trust 2014 debt, resulting in approximately $0.4 million in losses on debt extinguishment related to pre-payment premiums paid. During the same period in
2017
, there was de minimus gain.
Gain on disposition of assets
During the
six months ended
June 30, 2018
, we disposed of 30 properties and recorded gains totaling
$3.3 million
. These gains were primarily driven by $5.6 million in gains on the sale of three properties operated by Shopko. These gains were partially offset by a $1.6 million loss on the sale of 20 properties operated by a tenant in the restaurant-casual dining industry and $0.7 million in losses on the sale of seven vacant properties.
For the same period in
2017
, we disposed of 31 properties and recorded gains totaling
$19.6 million
. These gains were primarily driven by $14.1 million in gains on the sale of eight properties operated by Shopko, a $2.4 million gain on the sale of a property operated by a tenant in the manufacturing industry, $1.7 million in gains on the sale of four properties operated by tenants in the restaurants-casual dining industry, and a $1.3 million gain on the sale of a property operated by a tenant in the education industry. These gains were partially offset by $0.6 million in losses on the sale of eight vacant properties.
PROPERTY PORTFOLIO INFORMATION
|
|
|
|
|
|
888
|
$233.8M
|
45
|
205
|
23
|
Properties
|
Annualized Contractual Rent
|
States
|
Tenants
|
Industries
|
Our diverse real estate portfolio at
June 30, 2018
had:
|
|
◦
|
an Occupancy of
98.8%
;
|
|
|
◦
|
56.4%
of Contractual Rent from master leases;
|
|
|
◦
|
95.8%
of leases containing contractual rent escalators (based on Contractual Rent); and
|
|
|
◦
|
a weighted average remaining lease term of
10.1
years.
|
Diversification By Tenant
Tenant concentration represents the tenant’s contribution to Contractual Rent of our owned real estate properties at
June 30, 2018
(total square feet in thousands):
|
|
|
|
|
|
|
|
|
|
|
Tenant
(1)
|
|
Number of
Properties
|
|
Total Square
Feet
|
|
Percent of
Contractual Rent
|
|
|
|
|
|
|
|
Shopko
|
|
95
|
|
|
6,506
|
|
|
19.5
|
%
|
AMC Entertainment, Inc.
|
|
14
|
|
|
696
|
|
|
4.7
|
%
|
Academy, LTD.
|
|
2
|
|
|
1,564
|
|
|
4.2
|
%
|
Universal Pool Co., Inc.
|
|
14
|
|
|
543
|
|
|
3.1
|
%
|
Crème De La Crème (Lessee), Inc.
|
|
9
|
|
|
190
|
|
|
2.3
|
%
|
Goodrich Quality Theaters
|
|
4
|
|
|
245
|
|
|
2.3
|
%
|
Casual Male Retail Group Inc.
|
|
1
|
|
|
756
|
|
|
2.2
|
%
|
Buehler Food Markets Inc.
|
|
5
|
|
|
503
|
|
|
2.2
|
%
|
Carmax, Inc.
|
|
4
|
|
|
201
|
|
|
2.1
|
%
|
Heartland Dental Holdings, Inc.
|
|
59
|
|
|
234
|
|
|
1.9
|
%
|
Other
|
|
670
|
|
|
8,270
|
|
|
55.5
|
%
|
Vacant
|
|
11
|
|
|
263
|
|
|
—
|
%
|
Total
|
|
888
|
|
|
19,971
|
|
|
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 as those set forth above.
Diversification By Asset Type
Asset type concentration represents the type of asset's contribution to Contractual Rent within our owned real estate properties as of
June 30, 2018
(total square feet in thousands):
|
|
|
|
|
|
|
|
|
|
Asset Type
|
|
Number of
Properties
|
|
Total Square
Feet
|
|
Percent of
Contractual Rent
|
|
|
|
|
|
|
|
Retail
|
|
766
|
|
|
15,415
|
|
|
82.9%
|
Industrial
|
|
41
|
|
|
3,713
|
|
|
9.3%
|
Office
|
|
81
|
|
|
843
|
|
|
7.8%
|
Total
|
|
888
|
|
|
19,971
|
|
|
100.0%
|
Diversification By Industry
Industry concentration represents the type of asset's contribution to Contractual Rent within our owned real estate properties as of
June 30, 2018
(total square feet in thousands):
|
|
|
|
|
|
|
|
|
|
Industry
|
|
Number of
Properties
|
|
Total Square
Feet
|
|
Percent of
Contractual Rent
|
|
|
|
|
|
|
|
General Merchandise
|
|
98
|
|
|
6,606
|
|
|
19.7%
|
Restaurants-Quick Service
|
|
311
|
|
|
852
|
|
|
11.1%
|
Movie Theaters
|
|
29
|
|
|
1,519
|
|
|
10.2%
|
Restaurants-Casual Dining
|
|
106
|
|
|
754
|
|
|
9.4%
|
Medical / Other Office
|
|
80
|
|
|
652
|
|
|
6.4%
|
Sporting Goods
|
|
4
|
|
|
1,832
|
|
|
5.4%
|
Specialty Retail
|
|
23
|
|
|
954
|
|
|
4.4%
|
Education
|
|
18
|
|
|
431
|
|
|
4.4%
|
Home Furnishings
|
|
17
|
|
|
907
|
|
|
3.8%
|
Grocery
|
|
19
|
|
|
1,011
|
|
|
3.7%
|
Automotive Parts and Services
|
|
79
|
|
|
362
|
|
|
3.7%
|
Automotive Dealers
|
|
12
|
|
|
323
|
|
|
3.5%
|
Health and Fitness
|
|
14
|
|
|
562
|
|
|
3.3%
|
Apparel
|
|
3
|
|
|
1,019
|
|
|
2.7%
|
Other
|
|
3
|
|
|
183
|
|
|
2.1%
|
Entertainment
|
|
4
|
|
|
200
|
|
|
1.7%
|
Manufacturing
|
|
7
|
|
|
763
|
|
|
1.0%
|
Car Washes
|
|
6
|
|
|
48
|
|
|
1.0%
|
Building Materials
|
|
28
|
|
|
458
|
|
|
*
|
Drug Stores / Pharmacies
|
|
8
|
|
|
82
|
|
|
*
|
Distribution
|
|
1
|
|
|
94
|
|
|
*
|
Multi-Tenant
|
|
2
|
|
|
41
|
|
|
*
|
Dollar Stores
|
|
5
|
|
|
55
|
|
|
*
|
Vacant
|
|
11
|
|
|
263
|
|
|
—%
|
Total
|
|
888
|
|
|
19,971
|
|
|
100.0%
|
* Less than 1%
Diversification By Geography
Geographic concentration represents the type of asset's contribution to Contractual Rent within our owned real estate properties as of
June 30, 2018
(total square feet in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Number of Properties
|
|
Total Square Feet (in thousands)
|
|
Percent of Contractual Rent
|
|
Location
(
continued)
|
|
Number of Properties
|
|
Total Square Feet (in thousands)
|
|
Percent of Contractual Rent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
|
|
64
|
|
|
2,698
|
|
|
11.8
|
%
|
|
Arkansas
|
|
20
|
|
|
316
|
|
|
1.3
|
Wisconsin
|
|
35
|
|
|
2,770
|
|
|
9.3
|
|
|
New Mexico
|
|
10
|
|
|
76
|
|
|
1.2
|
Illinois
|
|
70
|
|
|
1,461
|
|
|
8.3
|
|
|
Colorado
|
|
7
|
|
|
198
|
|
|
1.2
|
Minnesota
|
|
25
|
|
|
1,398
|
|
|
5.6
|
|
|
Washington
|
|
5
|
|
|
348
|
|
|
1.2
|
Ohio
|
|
40
|
|
|
1,162
|
|
|
5.3
|
|
|
New York
|
|
10
|
|
|
104
|
|
|
1.1
|
Georgia
|
|
72
|
|
|
476
|
|
|
5.1
|
|
|
South Dakota
|
|
5
|
|
|
268
|
|
|
1.0
|
Michigan
|
|
64
|
|
|
1,184
|
|
|
4.4
|
|
|
Virginia
|
|
17
|
|
|
208
|
|
|
*
|
Indiana
|
|
41
|
|
|
637
|
|
|
4.3
|
|
|
Montana
|
|
3
|
|
|
254
|
|
|
*
|
Missouri
|
|
37
|
|
|
520
|
|
|
3.0
|
|
|
West Virginia
|
|
8
|
|
|
233
|
|
|
*
|
South Carolina
|
|
16
|
|
|
415
|
|
|
2.7
|
|
|
Nebraska
|
|
7
|
|
|
227
|
|
|
*
|
Pennsylvania
|
|
23
|
|
|
405
|
|
|
2.6
|
|
|
Kentucky
|
|
15
|
|
|
95
|
|
|
*
|
Florida
|
|
46
|
|
|
380
|
|
|
2.6
|
|
|
Idaho
|
|
4
|
|
|
233
|
|
|
*
|
Arizona
|
|
21
|
|
|
301
|
|
|
2.5
|
|
|
Mississippi
|
|
11
|
|
|
60
|
|
|
*
|
North Carolina
|
|
20
|
|
|
386
|
|
|
2.3
|
|
|
Wyoming
|
|
6
|
|
|
113
|
|
|
*
|
Massachusetts
|
|
1
|
|
|
756
|
|
|
2.2
|
|
|
Maryland
|
|
12
|
|
|
41
|
|
|
*
|
Oregon
|
|
6
|
|
|
300
|
|
|
1.9
|
|
|
New Jersey
|
|
3
|
|
|
292
|
|
|
*
|
Nevada
|
|
3
|
|
|
166
|
|
|
1.9
|
|
|
Louisiana
|
|
7
|
|
|
19
|
|
|
*
|
Tennessee
|
|
48
|
|
|
232
|
|
|
1.8
|
|
|
Utah
|
|
2
|
|
|
97
|
|
|
*
|
California
|
|
13
|
|
|
122
|
|
|
1.8
|
|
|
Rhode Island
|
|
1
|
|
|
22
|
|
|
*
|
Alabama
|
|
31
|
|
|
110
|
|
|
1.8
|
|
|
Alaska
|
|
1
|
|
|
50
|
|
|
*
|
Kansas
|
|
19
|
|
|
252
|
|
|
1.6
|
|
|
North Dakota
|
|
1
|
|
|
8
|
|
|
*
|
Oklahoma
|
|
17
|
|
|
201
|
|
|
1.5
|
|
|
Maine
|
|
1
|
|
|
6
|
|
|
*
|
Iowa
|
|
20
|
|
|
371
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
* Less than 1%
Lease Expirations
The following table sets forth a summary schedule of expiration dates for leases in place as of
June 30, 2018
. The weighted average remaining non-cancelable initial term of our leases (based on Contractual Rent) was
10.1
years. The information set forth in the table assumes that tenants do not exercise renewal options and/or any early termination rights (total square feet and Annualized Contractual Rent in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases Expiring In:
|
|
Number of
Properties
|
|
Annualized Contractual Rent
|
|
Total Square
Feet
|
|
Percent of Expiring
Contractual Rent
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
13
|
|
$
|
1,783
|
|
|
121
|
|
|
0.8
|
%
|
|
2019
|
|
72
|
|
11,282
|
|
|
998
|
|
|
4.8
|
|
|
2020
|
|
37
|
|
6,510
|
|
|
452
|
|
|
2.8
|
|
|
2021
|
|
61
|
|
11,809
|
|
|
1,180
|
|
|
5.1
|
|
|
2022
|
|
77
|
|
13,216
|
|
|
1,119
|
|
|
5.7
|
|
|
2023
|
|
24
|
|
4,035
|
|
|
361
|
|
|
1.7
|
|
|
2024
|
|
31
|
|
7,091
|
|
|
322
|
|
|
3.0
|
|
|
2025
|
|
38
|
|
15,947
|
|
|
783
|
|
|
6.8
|
|
|
2026
|
|
110
|
|
19,937
|
|
|
1,931
|
|
|
8.5
|
|
|
2027
|
|
62
|
|
38,242
|
|
|
3,397
|
|
|
16.4
|
|
|
Thereafter
|
|
352
|
|
103,922
|
|
|
9,044
|
|
|
44.4
|
|
|
Vacant
|
|
11
|
|
—
|
|
|
263
|
|
|
—
|
|
|
Total owned properties
|
|
888
|
|
$
|
233,774
|
|
|
19,971
|
|
|
100.0
|
%
|
|
LIQUIDITY AND CAPITAL RESOURCES
Short-term Liquidity and Capital Resources
On a short-term basis, our principal demands for funds will be for operating expenses, including financing of acquisitions, distributions to shareholders and interest and principal on current and any future debt financings. We expect to fund our operating expenses and other short-term liquidity requirements, capital expenditures, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common and preferred stockholders, primarily through cash provided by operating activities, continued dispositions of our Other Properties and potential future bank borrowings.
Long-term Liquidity and Capital Resources
We plan to meet our long-term capital needs, including long-term financing of property acquisitions, by issuing bonds using the Master Trust 2014 program discussed below, obtaining asset level financing and occasionally by issuing fixed rate secured or unsecured notes and debt or equity securities. We may issue common shares when we believe that our share price is at a level that allows for the proceeds of any offering to be accretively invested into additional properties.
We will continually evaluate alternative financing and believe that we can obtain financing on reasonable terms. However, we cannot assure you that we will have access to the capital markets at times and on terms that are acceptable to us. We expect that our primary uses of capital will be for property and other asset acquisitions and the payment of tenant improvements, operating expenses, including debt service payments on any outstanding indebtedness, and distributions to our shareholders.
Description of Certain Debt
The following descriptions of debt should be read in conjunction with Note 4 to the consolidated financial statements herein.
Master Trust 2014
Master Trust 2014 is an asset-backed securitization platform through which we raise capital by issuing non-recourse asset-backed securities collateralized by commercial real estate, net leases and mortgage loans. This collateral pool is managed by Spirit Realty, L.P., a related party, in capacity as property manager and special servicer. In general, monthly rental and mortgage receipts are deposited with the indenture trustee, who first utilizes these funds to satisfy the debt service requirements on the notes and any fees and costs associated with the administration of Master Trust 2014. Any remaining funds are remitted to the issuers monthly on the note payment date.
Upon satisfaction of certain conditions, we may, from time to time, sell or exchange real estate properties or mortgage loans from the collateral pool. Proceeds from these transactions are held on deposit by the indenture trustee in the Release Account until a qualifying substitution is made or the amounts are distributed as an early repayment of principal. At
June 30, 2018
,
$51.8 million
and
$5.5 million
was held on deposit in the Release Account and Liquidity Reserve Account, respectively, and classified as restricted cash within deferred costs and other assets, net in the consolidated balance sheet.
As of
June 30, 2018
, the Master Trust 2014 notes were secured by
790
owned and financed properties. The notes issued under Master Trust 2014 are cross-collateralized by the assets of all issuers within this trust. All outstanding series of Master Trust 2014 were rated investment grade as of
June 30, 2018
.
The Master Trust 2014 notes are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated
Rates
(1)
|
|
Maturity
|
|
June 30, 2018
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
(in Years)
|
(in Thousands)
|
Series 2014-1 Class A2
|
5.4%
|
|
2.1
|
|
$
|
246,318
|
|
|
$
|
252,437
|
|
Series 2014-2
|
5.8%
|
|
2.7
|
|
231,550
|
|
|
234,329
|
|
Series 2014-3
|
5.7%
|
|
3.7
|
|
310,014
|
|
|
311,336
|
|
Series 2014-4 Class A1
|
3.5%
|
|
1.6
|
|
149,484
|
|
|
150,000
|
|
Series 2014-4 Class A2
|
4.6%
|
|
11.6
|
|
349,328
|
|
|
358,664
|
|
Series 2017-1 Class A
|
4.4%
|
|
4.5
|
|
539,620
|
|
|
542,400
|
|
Series 2017-1 Class B
|
5.5%
|
|
4.5
|
|
132,000
|
|
|
132,000
|
|
Total Master Trust 2014 notes
|
4.9%
|
|
4.9
|
|
1,958,314
|
|
|
1,981,166
|
|
Debt discount, net
|
|
|
|
|
(24,491
|
)
|
|
(36,342
|
)
|
Deferred financing costs, net
|
|
|
|
|
(16,579
|
)
|
|
(17,989
|
)
|
Total Master Trust 2014, net
|
|
|
|
|
$
|
1,917,244
|
|
|
$
|
1,926,835
|
|
(1)
Represents the individual series stated interest rates as of
June 30, 2018
and the weighted average stated rate of the total Master Trust 2014 notes, based on the collective series outstanding principal balances as of
June 30, 2018
.
CMBS
On
January 22, 2018
, we entered into a new non-recourse loan agreement, which is collateralized by a single distribution center property located in Katy, Texas. The loan has an initial term of
10
years to maturity with a stated interest rate of
5.14%
. As a result of the issuance, we received approximately
$84 million
in proceeds, all of which was distributed to Spirit.
Debt Maturities
Future principal payments due on our various types of debt outstanding as of
June 30, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Trust 2014
|
$
|
1,958,314
|
|
|
$
|
16,926
|
|
|
$
|
35,199
|
|
|
$
|
404,132
|
|
|
$
|
242,248
|
|
|
$
|
993,273
|
|
|
$
|
266,536
|
|
CMBS
|
83,604
|
|
|
661
|
|
|
1,204
|
|
|
1,256
|
|
|
1,336
|
|
|
1,407
|
|
|
77,740
|
|
Total
|
$
|
2,041,918
|
|
|
$
|
17,587
|
|
|
$
|
36,403
|
|
|
$
|
405,388
|
|
|
$
|
243,584
|
|
|
$
|
994,680
|
|
|
$
|
344,276
|
|
Contractual Obligations
There were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Information Statement filed as Exhibit 99.1 to our Form 10 filed on May 4, 2018 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.
CASH FLOWS
The following table presents a summary of our cash flows for the
six months ended June 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(In Thousands)
|
|
2018
|
|
2017
|
|
Change
|
|
|
|
Net cash provided by operating activities
|
|
$
|
46,804
|
|
|
$
|
66,152
|
|
|
$
|
(19,348
|
)
|
Net cash provided by investing activities
|
|
24,856
|
|
|
59,690
|
|
|
(34,834
|
)
|
Net cash used in financing activities
|
|
(40,511
|
)
|
|
(114,660
|
)
|
|
74,149
|
|
Net increase in cash and cash equivalents
|
|
$
|
31,149
|
|
|
$
|
11,182
|
|
|
$
|
19,967
|
|
As of
June 30, 2018
, we had
$97.7 million
in cash, cash equivalents and restricted cash as compared to
$66.5 million
as of
December 31, 2017
and
$23.9 million
as of
June 30, 2017
.
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 net decrease in cash provided by operating activities was primarily attributable to an increase in cash interest expense of $15.6 million and a net decrease in operating assets and liabilities of $1.9 million, partially offset by an increase in cash revenue of $6.4 million and decreases in property costs of $0.6 million.
Investing Activities
Cash used in investing activities is generally used to fund property acquisitions, for investments in loans receivable and, to a limited extent, for capital expenditures. Cash provided by investing activities generally relates to the disposition of real estate and other assets.
Net cash provided by investing activities during the
six months ended
June 30, 2018
included
$39.1 million
in proceeds from the disposition of 30 properties and collections of principal on loans receivable totaling
$3.0 million
, partially offset by
$15.3 million
to fund the acquisition of four properties and capitalized real estate expenditures of
$1.9 million
.
During the same period in
2017
, net cash provided by investing activities included proceeds of
$84.9 million
from the disposition of 31 properties, partially offset by
$26.1 million
to fund the acquisition of two properties and capitalized real estate expenditures of
$0.9 million
. Net cash provided by investing activities also included collection of principal on loans receivable of
$1.7 million
.
Financing Activities
Generally, our net cash used in financing activities is impacted by our contributions/distributions to Spirit for the period prior to the Spin-Off and our net borrowings under Master Trust 2014 and CMBS.
Net cash used in financing activities during the
six months ended
June 30, 2018
was primarily attributable to net distributions to Spirit of
$106.4 million
, offset by net borrowings under our mortgages and notes payable of
$69.0 million
.
During the same period in
2017
, net cash used in financing activities was primarily attributable to net distributions to Spirit of
$106.7 million
and payments of
$7.9 million
on our mortgages and notes payable.
OFF-BALANCE SHEET ARRANGEMENTS
As of
June 30, 2018
, we did not have any material off-balance sheet arrangements.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 to the consolidated financial statements herein.
NON-GAAP FINANCIAL MEASURES
FFO AND AFFO
We calculate FFO in accordance with the standards established by NAREIT. FFO represents net income (loss) attributable to common shareholders (computed in accordance with GAAP), excluding real estate-related depreciation and amortization, impairment charges and net (gains) losses from property dispositions. FFO is a supplemental non-GAAP financial measure. We use FFO as a supplemental performance measure because we believe that FFO is beneficial to investors as a starting point in measuring our operational performance. Specifically, in excluding real estate-related depreciation and amortization, gains and losses from property dispositions and impairment charges, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year-over-year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of equity REITs, FFO will be used by investors as a basis to compare our operating performance with that of other equity REITs. However, because FFO excludes depreciation and amortization and does not capture the changes in the value of our properties that result from use or market conditions, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. In addition, other equity REITs may not calculate FFO as we do, and, accordingly, our FFO may not be comparable to such other equity REITs’ FFO. Accordingly, FFO should be considered only as a supplement to net income (loss) attributable to common shareholders as a measure of our performance.
AFFO is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. Accordingly, AFFO should be considered only as a supplement to net income (loss) attributable to common shareholders as a measure of our performance. We adjust FFO to eliminate the impact of certain items that we believe are not indicative of our core operating performance, including restructuring costs, other general and administrative costs associated with relocation of our headquarters, transaction costs associated with our spin-off, default interest on non-recourse mortgage indebtedness, debt extinguishment gains (losses), transaction costs incurred in connection with the acquisition of real estate investments subject to existing leases and certain non-cash items. These certain non-cash items include non-cash revenues (comprised of straight-line rents, amortization of above and below market rent on our leases, amortization of lease incentives, amortization of net premium (discount) on loans receivable and amortization of capitalized lease transaction costs), non-cash interest expense (comprised of amortization of deferred financing costs and amortization of net debt discount/premium) and non-cash compensation expense (share-based compensation expense). In addition, other equity REITs may not calculate AFFO as we do, and, accordingly, our AFFO may not be comparable to such other REITs’ AFFO. AFFO does not represent cash generated from operating activities determined in accordance with GAAP, is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income (loss) determined in accordance with GAAP as a performance measure. A reconciliation of our FFO and AFFO to net income (loss) attributable to common shareholders (computed in accordance with GAAP) is included below.
EBITDAre
EBITDAre is a non-GAAP financial measure and is computed in accordance with standards established by NAREIT. EBITDAre is defined as net income (loss) (computed in accordance with GAAP), plus interest expense, plus income tax expense (if any), plus depreciation and amortization, plus (minus) losses and gains on the disposition of depreciated property, plus impairment write-downs of depreciated property and investments in unconsolidated real estate ventures, plus adjustments to reflect the Company's share of EBITDAre of unconsolidated real estate ventures.
Adjusted EBITDAre and Annualized Adjusted EBITDAre
Adjusted EBITDAre represents EBITDAre modified to include other adjustments to GAAP net income (loss) attributable to common shareholders for restructuring charges, transaction costs associated with the spin-off, real estate acquisition
costs, impairment losses, gains/losses from the sale of real estate and debt transactions and other items that we do not consider to be indicative of our on-going operating performance. We focus our business plans to enable us to sustain increasing shareholder value. Accordingly, 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 not be considered alternatives to net income (loss) or as an indicator of financial performance. A reconciliation of net income (loss) attributable to common shareholders (computed in accordance with GAAP) to EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre is included below.
Adjusted Debt
Adjusted Debt represents interest bearing debt (reported in accordance with GAAP) adjusted to exclude unamortized debt discount/premium and deferred financing costs, as further reduced by cash and cash equivalents and cash reserves on deposit with lenders as additional security. By excluding unamortized debt discount/premium and deferred financing costs, 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.
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. A reconciliation of interest bearing debt (reported in accordance with GAAP) to Adjusted Debt is included below.
Fixed Charge Coverage Ratio (FCCR)
Fixed Charge Coverage Ratio is the ratio of Annualized Adjusted EBITDAre to Fixed Charges, a ratio derived from non-GAAP measures that we use to evaluate our liquidity and ability to obtain financing. Fixed Charges consist of interest expense, reported in accordance with GAAP, less non-cash interest expense.
FFO and AFFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(Unaudited, In Thousands)
|
|
2018
(1)
|
|
2017
(2)
|
|
2018
(3)
|
|
2017
(2)
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(346
|
)
|
|
$
|
9,342
|
|
|
$
|
(7,925
|
)
|
|
$
|
23,336
|
|
Add/(less):
|
|
|
|
|
|
|
|
|
|
|
Portfolio depreciation and amortization
|
|
21,109
|
|
|
20,275
|
|
|
42,102
|
|
|
40,885
|
|
Portfolio impairments
|
|
1,247
|
|
|
5,419
|
|
|
6,072
|
|
|
11,912
|
|
Gain on disposition of real estate assets
|
|
(4,948
|
)
|
|
(8,389
|
)
|
|
(3,254
|
)
|
|
(19,578
|
)
|
Total adjustments to net income
|
|
17,408
|
|
|
17,305
|
|
|
44,920
|
|
|
33,219
|
|
|
|
|
|
|
|
|
|
|
FFO
|
|
$
|
17,062
|
|
|
$
|
26,647
|
|
|
$
|
36,995
|
|
|
$
|
56,555
|
|
Add/(less):
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on debt extinguishment
|
|
108
|
|
|
(1
|
)
|
|
363
|
|
|
(1
|
)
|
Transaction costs
|
|
5,525
|
|
|
367
|
|
|
8,542
|
|
|
367
|
|
Real Estate Acquisition Costs
|
|
218
|
|
|
10
|
|
|
219
|
|
|
10
|
|
Non-cash interest expense
|
|
2,486
|
|
|
1,397
|
|
|
5,361
|
|
|
2,783
|
|
Straight-line rent, net of related bad debt expense
|
|
(587
|
)
|
|
(466
|
)
|
|
(1,434
|
)
|
|
(859
|
)
|
Other amortization and non-cash charges
|
|
133
|
|
|
192
|
|
|
223
|
|
|
324
|
|
Non-cash compensation expense
|
|
818
|
|
|
3,404
|
|
|
2,424
|
|
|
4,235
|
|
Total adjustments to FFO
|
|
8,701
|
|
|
4,903
|
|
|
15,698
|
|
|
6,859
|
|
|
|
|
|
|
|
|
|
|
AFFO
|
|
$
|
25,763
|
|
|
$
|
31,550
|
|
|
$
|
52,693
|
|
|
$
|
63,414
|
|
|
|
|
|
|
|
|
|
|
Dividends declared to common stockholders
|
|
$
|
—
|
|
|
N/A
|
|
|
$
|
—
|
|
|
N/A
|
|
Net (loss) income per share of common stock
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.22
|
|
|
$
|
(0.18
|
)
|
|
$
|
0.54
|
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.22
|
|
|
$
|
(0.18
|
)
|
|
$
|
0.54
|
|
FFO per share of common stock
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.40
|
|
|
$
|
0.62
|
|
|
$
|
0.86
|
|
|
$
|
1.32
|
|
AFFO per share of common stock
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.60
|
|
|
$
|
0.74
|
|
|
$
|
1.23
|
|
|
$
|
1.48
|
|
Weighted average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
Diluted
|
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
|
42,851,010
|
|
(1)
Amounts for the
three months ended June 30, 2018
include two months of income and expense items based on the legal predecessor entities and one month of actual results from SMTA operations as a stand-alone company.
(2)
Amounts for the
three
and
six
months ended
June 30, 2017
are based entirely on results of the legal predecessor entities.
(3)
Amounts for the
six months ended June 30, 2018
include five months of income and expense items based on the legal predecessor entities and one month of actual results from SMTA operations as a stand alone company.
Adjusted Debt, Adjusted EBITDA
re
and Annualized Adjusted EBITDA
re
-Leverage
The following provides a calculation of adjusted debt and a reconciliation of EBITDA
re
and adjusted EBITDA
re
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
(Unaudited, In Thousands)
|
|
2018
|
|
2017
|
|
|
|
Master Trust 2014, net
|
|
$
|
1,917,244
|
|
|
$
|
1,334,485
|
|
CMBS, net
|
|
82,504
|
|
|
—
|
|
|
|
$
|
1,999,748
|
|
|
$
|
1,334,485
|
|
Add/(less):
|
|
|
|
|
|
|
Unamortized debt discount
|
|
24,491
|
|
|
16,855
|
|
Unamortized deferred financing costs
|
|
17,678
|
|
|
7,904
|
|
Cash and cash equivalents
|
|
(37,356
|
)
|
|
(6
|
)
|
Cash reserves on deposit with lenders as additional security classified as other assets
|
|
(60,303
|
)
|
|
(23,864
|
)
|
Total adjustments
|
|
(55,490
|
)
|
|
889
|
|
Adjusted Debt
|
|
$
|
1,944,258
|
|
|
$
|
1,335,374
|
|
|
|
|
|
|
Three Months Ended June 30,
|
(Unaudited, In Thousands)
|
|
2018
|
|
2017
(1)
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(346
|
)
|
|
$
|
9,342
|
|
Add/(less):
|
|
|
|
|
|
Interest
|
|
27,743
|
|
|
18,775
|
|
Depreciation and amortization
|
|
21,109
|
|
|
20,275
|
|
Income tax expense
|
|
22
|
|
|
45
|
|
Gain on disposition of real estate assets
|
|
(4,948
|
)
|
|
(8,389
|
)
|
Impairments on real estate assets
|
|
1,247
|
|
|
5,419
|
|
Total adjustments
|
|
45,173
|
|
|
36,125
|
|
EBITDA
re
|
|
$
|
44,827
|
|
|
$
|
45,467
|
|
Add/(less):
|
|
|
|
|
|
Transaction costs
|
|
5,525
|
|
|
367
|
|
Real estate acquisition costs
|
|
218
|
|
|
10
|
|
Loss (gain) on debt extinguishment
|
|
108
|
|
|
(1
|
)
|
Total adjustments
|
|
5,851
|
|
|
376
|
|
Adjusted EBITDA
re
|
|
$
|
50,678
|
|
|
$
|
45,843
|
|
Annualized Adjusted EBITDA
re
(2)
|
|
$
|
202,712
|
|
|
$
|
183,372
|
|
|
|
|
|
|
Interest Expense
|
|
$
|
27,743
|
|
|
$
|
18,775
|
|
Less: Non-cash interest
|
|
(2,486
|
)
|
|
(1,397
|
)
|
Preferred Stock Dividends
|
|
1,325
|
|
|
—
|
|
Fixed Charges
|
|
$
|
26,582
|
|
|
$
|
17,378
|
|
|
|
|
|
|
Adjusted Debt / Annualized Adjusted EBITDA
re
|
|
9.3x
|
|
7.3x
|
Fixed Charge Coverage Ratio (Adjusted EBITDA
re
/ Fixed Charges)
|
|
2.0x
|
|
2.6x
|
|
|
(1)
|
Amounts for historical years are based on the SMTA's allocated portion of Spirit’s expense. For further detail on the allocation, see related party transactions as described in Note 6 to the consolidated financial statements herein.
|
|
|
(2)
|
Current quarter Adjusted EBITDA
re
multiplied by four.
|