Spirit Realty Capital, Inc. Announces Fourth Quarter and Full Year 2012 Operating Results

SCOTTSDALE, Ariz.--()--Spirit Realty Capital, Inc. (NYSE: SRC), a real estate investment trust that invests in single-tenant, operationally essential real estate, today announced results for the fourth quarter and year ended December 31, 2012.

Highlights for the fourth quarter ended December 31, 2012:

  • Generated total revenues of $72.6 million, a 5.4% increase over fourth quarter 2011
  • Produced FFO of $0.37 per share and AFFO of $0.42 per share
  • Declared a $0.3125 per share fourth quarter cash dividend
  • Invested $77.3 million in 33 properties with tenants in place
  • Increased portfolio occupancy rate to 98.8%; up from 98.4% at both September 30, 2012 and December 31, 2011

Highlights for the year ended December 31, 2012:

  • Raised net proceeds of $455.3 million from our initial public offering (IPO)
  • Reduced the principal balance outstanding on debt by $735.2 million
  • Invested in excess of $163.6 million across 91 properties
  • Disposed of 41 properties generating approximately $46 million in net proceeds to re-invest in opportunities with higher risk-adjusted returns

On January 22, 2013, Spirit Realty and Cole Credit Property Trust II (CCPT II) announced that their respective Boards of Directors had unanimously approved a definitive agreement to merge the companies to create the second largest publicly traded triple-net lease REIT in the United States. The pro-forma enterprise value of the combined company is estimated at $7.1 billion.

The transaction is expected to close in the third quarter of 2013 and assumes the receipt of approval of the majority of shares outstanding of each of Spirit Realty and CCPT II and other customary regulatory approvals, and the satisfaction of other contractual closing conditions.

CEO Comments

Mr. Thomas H. Nolan, Jr., Chairman and Chief Executive Officer of Spirit Realty, stated, “We are pleased with our results in our first full quarter as a public company, and we are even more excited about the potential to significantly advance the Company’s strategic objectives and continue to deliver sustainable returns to our shareholders through our proposed merger with CCPT II. The combination of the companies will provide strategic diversification, enhance the credit quality of our tenancy, and provide us increased size and scale. The outlook for the triple-net industry is promising and we are well-positioned to capitalize on the market opportunities. We look forward to the coming year as we continue to build on our core strengths and complete our merger with CCPT II.”

Financial Results

Total Revenues

Fourth quarter 2012 total revenues increased 5.4% to $72.6 million, compared to $68.8 million in the fourth quarter of 2011. Total revenues for the year ended December 31, 2012 improved 3.7% to $282.7 million, compared to $272.7 million for the same period in 2011.

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders for the fourth quarter of 2012 was $(5.2) million, or $(0.06) per share (based on 83.7 million weighted average shares of common stock outstanding), compared to the net loss attributable to common stockholders for the fourth quarter of 2011 of $(18.3) million, or $(0.71) per share (based on 25.9 million weighted average shares of common stock outstanding).

Net loss attributable to common stockholders for the year ended December 31, 2012 was $(76.3) million, or $(1.85) per share, compared to $(63.9) million, or $(2.47) per share, for the same period in 2011. The results for the year ended December 31, 2012 included the following items associated with the IPO and the extinguishment in full of Spirit Realty’s $729 million variable Term Note:

i.   $32.5 million loss on the extinguishment of the Term Note;
ii. $8.7 million non-cash charge related to derivative instruments on the Company’s Term Note, of which $8.1 million was charged to general and administrative expense, and $0.6 million was charged to interest expense;
iii. $4.9 million charge to general and administrative expense for IPO incentive awards, including $4.1 million non-cash vesting of restricted stock; and
iv. $4.8 million in third-party expenses incurred to secure lenders’ consents to the IPO.
 

Absent these charges the net loss attributable to common stockholders for the year ended December 31, 2012 was $(25.4) million, or $(0.62) per share.

FFO and AFFO Attributable to Common Stockholders

Funds from operations (FFO) for the fourth quarter of 2012 were $31.3 million, or $0.37 per share, compared to $17.7 million, or $0.68 per share, for the fourth quarter of 2011. For the year ended December 31, 2012, FFO was $52.8 million, or $1.09 per share, compared to $69.8 million, or $2.70 per share, for year ended December 31, 2011.

Adjusted funds from operations (AFFO) for the fourth quarter of 2012 totaled $35.2 million, or $0.42 per share, compared to $24.8 million, or $0.96 per share, for the fourth quarter of 2011. For the year ended December 31, 2012, AFFO was $118.2 million, or $2.15 per share, compared to $99.0 million, or $3.83 per share, for the year ended December 31, 2011.

The definitions of FFO and AFFO are included on page 5 and a reconciliation of these measures to GAAP is provided on page 8.

Portfolio Highlights

Property Acquisitions

Spirit Realty invested $77.3 million in 33 real estate properties during the fourth quarter of 2012, compared to $30.5 million in the fourth quarter of 2011. New investments in the year ended December 31, 2012 totaled $163.6 million, representing 91 new properties. New investments in the year ended 2011 totaled $37.3 million.

Portfolio

As of December 31, 2012, the Company’s gross investment in real estate and mortgage and equipment loans totaled $3.65 billion, substantially all of which was invested in 1,207 properties that were 98.8% occupied. The Company’s properties are generally leased under long-term, triple net leases, with a weighted average remaining maturity of approximately 11.1 years. Approximately 64% of the Company’s annual rent (defined as annualized fourth quarter 2012 rent) is contributed from properties under master leases and 96% of all leases provide for rental increases.

The Company’s real estate portfolio is diversified geographically throughout 47 states and among various property types. Only one state accounted for more than 10% of the annual rent contribution of the real estate portfolio. The Company’s three largest property types (based on annual rent) at December 31, 2012 were general and discount retail (29%), restaurants (18%), and specialty retail (9%).

Other Activities

The Company redeemed all of the 125 shares of its 12.5% Series A Cumulative Non-Voting Preferred Stock outstanding during the fourth quarter.

2013 Estimates

Previously, the Company had estimated that 2013 FFO should range from $1.35 to $1.40 and AFFO should range from $1.60 to $1.65 per share. The operational performance of the Company and its portfolio continues to be consistent with those estimates. However, because of the significant impact of the potential merger and related costs, management is withdrawing its estimates at this time.

Conference Call

Spirit Realty will hold a conference call and webcast to discuss the Company’s fourth quarter and 2012 results on February 27, 2012, at 5:00 p.m. (Eastern Time). The call can be accessed live over the phone by dialing 866-770-7146 (toll-free domestic) or 617-213-8068 (international); passcode: 33509513. A live webcast of the conference call will be available on the Investor Relations section of Spirit Realty’s website at www.spiritrealty.com. A replay of the call will be available for one week via telephone starting approximately one hour after the call ends. The replay can be accessed at 888-286-8010 (toll-free domestic) or 617-801-6888 (international); passcode: 82639175. The webcast will be archived on Spirit Realty’s website for 30 days after the call.

About Spirit Realty Capital

Spirit Realty Capital was formed in 2003 to acquire single-tenant operationally essential real estate, which refers to properties that are generally free-standing, commercial real estate facilities where tenants conduct retail, service or distribution activities that are essential to the generation of their sales and profits. More information about Spirit Realty can be found at www.spiritrealty.com.

Forward-Looking and Cautionary Statements

Statements contained in this press release that are not historical facts are forward-looking statements. These forward-looking statements can be identified by the use of words such as “expects,” “plans,” “estimates,” “projects,” “intends,” “believes,” “guidance,” and similar expressions that do not relate to historical matters. These forward-looking statements are subject to risks and uncertainties that can cause actual results to differ materially from those currently anticipated, due to a number of factors which include, but are not limited to, continued ability to source new investments, changes in interest rates and/or credit spreads, changes in the real estate markets, and other risk factors discussed in Spirit Realty Capital’s final prospectus dated September 19, 2012 and other documents as filed by the Company with the Securities and Exchange Commission from time to time. All forward-looking statements in this press release are made as of today, based upon information known to management as of the date hereof, and the Company assumes no obligations to update or revise any of its forward-looking statements that may be made to reflect events or circumstances after the date these statements were made, except as required by law.

We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with GAAP), excluding real estate-related depreciation and amortization, impairment charges and net losses (gains) on the disposition of assets. 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) as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions or service indebtedness. FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP. A reconciliation of net loss (computed in accordance with GAAP) to FFO is included in the financial information accompanying this release.

Adjusted FFO (“AFFO”) is a non-GAAP financial measure of operating performance used by many companies in the REIT industry. It adjusts FFO to eliminate the impact of non-recurring items that are not reflective of ongoing operations and certain non-cash items that reduce or increase net income in accordance with GAAP. Our computation of AFFO may differ from the methodology for calculating AFFO used by other equity REITs, and, therefore, may not be comparable to such other REITs. A reconciliation of net loss (computed in accordance with GAAP) to AFFO is included in the financial information accompanying this release.

 

SPIRIT REALTY CAPITAL, INC.

 

Consolidated Statements of Operations

Unaudited

(In Thousands, Except Share and Per Share Data)

   
Quarter Ended December 31, Year Ended December 31,
2012   2011 2012   2011
Revenues:
Rentals $ 71,218 $ 67,068 $ 276,145 $ 265,107
Interest income on loans receivable 1,200 1,652 5,696 6,772
Interest income and other   151     116     860     817  
Total revenues 72,569 68,836 282,701 272,696
 
Expenses:
General and administrative 5,939 5,638 37,329 28,278
Litigation 151
Property costs 2,062 814 5,279 4,787
Interest 33,518 43,370 156,864 169,888
Depreciation and amortization 28,156 27,307 110,603 109,001
Impairments   963     7,585     9,887     9,578  
Total expenses   70,638     84,714     319,962     321,683  
 

Income (loss) from continuing operations before other expense and income tax expense (benefit)

1,931 (15,878 ) (37,261 ) (48,987 )
 
Other expense:
Loss on debt extinguishment           (32,522 )  

 

Total other expense

 

   

   

(32,522

)

 

 
 
Income (loss) from continuing operations before income tax expense (benefit) 1,931 (15,878 ) (69,783 ) (48,987 )
Income tax expense (benefit)   110     (24 )   504     (60 )
Income (loss) from continuing operations 1,821 (15,854 ) (70,287 ) (48,927 )
 
Discontinued operations:
Loss from discontinued operations (1,272 ) (1,900 ) (2,597 ) (12,200 )
Loss on dispositions of assets   (5,739 )   (554 )   (3,349 )   (2,736 )
Loss from discontinued operations   (7,011 )   (2,454 )   (5,946 )   (14,936 )
 
Net loss (5,190 ) (18,308 ) (76,233 ) (63,863 )
Less: preferred dividends   (55 )   (8 )   (63 )   (16 )
Net loss attributable to common stockholders $ (5,245 ) $ (18,316 ) $ (76,296 ) $ (63,879 )
 
Net loss per share of common stock—basic and diluted

 

Continuing operations $ 0.02 $ (0.61 ) $ (1.70 ) $ (1.89 )
Discontinued operations   (0.08 )   (0.10 )   (0.15 )   (0.58 )
Net loss $ (0.06 ) $ (0.71 ) $ (1.85 ) $ (2.47 )
 
Weighted average shares of common stock outstanding:
Basic and diluted   83,694,549     25,863,976     41,277,353     25,863,976  
 
   

SPIRIT REALTY CAPITAL, INC.

 

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Data)

 
December 31,
2012

(unaudited)

December 31,
2011
Assets
Investments:
Real estate investments:
Land and improvements $ 1,328,437 $ 1,297,020
Buildings and improvements   2,036,987     1,975,708  
Total real estate investments 3,365,424 3,272,728
Less: accumulated depreciation   (490,938 )   (405,426 )
2,874,486 2,867,302
Loans receivable, net 51,862 65,477
Intangible lease assets, net 187,362 204,696
Real estate assets held for sale, net   5,898     9,634  
Net investments 3,119,608 3,147,109
Cash and cash equivalents 73,568 49,536
Deferred costs and other assets, net   54,501     34,916  
 

Total assets

$ 3,247,677   $ 3,231,561  
 

Liabilities and stockholders’ equity

Liabilities:
Term note payable, net $ $ 725,735
Mortgages and notes payable, net 1,894,878 1,901,411
Intangible lease liabilities, net 45,603 46,221
Accounts payable, accrued expenses and other liabilities   53,753     31,834  
Total liabilities 1,994,234 2,705,201
 
Stockholders’ equity:
Series A Cumulative Preferred Stock, $0.01 par value per share, 20 million shares authorized, 0 and 125 shares issued and outstanding, respectively 84
Common stock, $0.01 par value per share, 100 million shares authorized, 84,851,515 and 25,863,976 shares issued and outstanding, respectively 849 259
Capital in excess of par value 1,828,399 1,004,065
Accumulated deficit (575,034 ) (470,496 )
Accumulated other comprehensive loss   (771 )   (7,552 )
Total stockholders’ equity   1,253,443     526,360  
 

Total liabilities and stockholders’ equity

$ 3,247,677   $ 3,231,561  
 
 

SPIRIT REALTY CAPITAL, INC.

 

Reconciliation of Non-GAAP Financial Measures

Unaudited

(In Thousands, Except Share and Per Share Data)

   
Quarter Ended December 31, Year Ended December 31,
2012   2011 2012   2011
Net loss attributable to common stockholders $ (5,245 ) $ (18,316 ) $ (76,296 ) $ (63,879 )
Add/(less):
Portfolio depreciation and amortization
Continuing operations 28,137 27,298 110,548 108,908
Discontinued operations 219 524 1,497 2,869
Portfolio impairments
Continuing operations 963 5,515 10,067 6,478
Discontinued operations 1,442 2,109 3,665 12,654
 
Realized (gains)/losses on sales of real estate   5,739     554     3,349     2,736  
 
Total adjustments   36,500     36,000     129,126     133,645  
 
Funds from operations (FFO) attributable to common stockholders $ 31,255 $ 17,684 $ 52,830 $ 69,766
Add/(less):
Loss on Term Note extinguishment - - 32,522 -
Expenses incurred to amend Term Note - - - 7,226
Loss on derivative instruments related to Term Note extinguishment - 485 8,688 1,025
Expenses incurred to secure lenders’ consents (a) (26 ) 374 4,743 374
Litigation - - - 151
Non-cash interest expense 3,444 6,830 16,495 22,704
Non-cash revenues (1,332 ) (564 ) (3,015 ) (2,225 )
Non-cash compensation expense   1,811     -     5,931     -  
 
Total adjustments to FFO   3,897     7,125     65,364     29,255  
Adjusted funds from operations (AFFO) attributable to common stockholders $ 35,152   $ 24,809   $ 118,194   $ 99,021  
 
Net loss per share of common stock
Basic and Diluted (b) $ (0.06 ) $ (0.71 ) $ (1.85 ) $ (2.47 )
 
FFO per share of common stock
Diluted (b) $ 0.37 $ 0.68 $ 1.09 $ 2.70
 
AFFO per share of common stock
Diluted (b) $ 0.42 $ 0.96 $ 2.15 $ 3.83
 
Weighted average shares of common stock outstanding:
Basic 83,694,549 25,863,976 41,277,353 25,863,976
Diluted (b) 83,835,555 25,863,976 59,066,192 25,863,976
 

(a)

 

These third-party expenses were incurred to secure lenders’ consents to the IPO.

(b)

Assumes the issuance of potentially issuable shares unless the result would be anti-dilutive.

 
 

SPIRIT REALTY CAPITAL, INC.

 

Real Estate Portfolio

Unaudited

 

Industry Diversification

 
The following table sets forth information regarding the diversification of our owned real estate properties among different industries (based on annual rent) as of December 31, 2012:
 
Industry   Number of
Properties
  Percent of Total

Annual
Rent(1)

 
General and discount retail properties 181

29.4

%

Restaurants—quick service 392 10.1
Specialty retail properties 48 9.0
Restaurants—casual dining 124 7.8
Movie theatres 23 7.7
Building material suppliers 110 6.6
Industrial properties 26 5.4
Automotive dealers, parts and service properties 70 5.3
Educational properties 22 4.7
Recreational properties 8 3.7
Medical/other office properties 11 2.2
Supermarkets 20 1.9
Convenience stores / car washes 32 1.8
Distribution properties 37 1.4
Health clubs/gyms 5 1.1
Interstate travel plazas 3 1.0
Drugstores 9 *
Call centers 1 *  
 
Total 1,122

100

%

 
*     Less than 1%
 
(1) We define annual rent as rental revenue for the quarter ended December 31, 2012 multiplied by four.
 

Tenant Diversification

The following table lists the top 10 tenants of our owned real estate properties (based on annual rent) as of December 31, 2012:

 
  Tenant   Number
of
Properties
  Annual Rent
(in thousands)(1)
  Percent of Total
Annual Rent
1. Shopko Stores/Pamida Operating Co., LLC 181 $ 83,445

29.4

%

2. 84 Properties, LLC 109 18,437 6.5
3. Carmike Cinemas, Inc. 12 8,024 2.8
4. Universal Pool Co., Inc. 14 6,680 2.4
5. CBH20, LP (Camelback Ski Resort) 1 5,779 2.0
6. Casual Male Retail Group Inc 1 4,814 1.7
7. Carmax, Inc. 5 4,726 1.7
8. United Supermarkets, LLC 14 4,575 1.6
9. Main Event Entertainment, LP 6 4,477 1.6
10. NE Opco, Inc. 6 4,378 1.6
Other 773   138,193 48.7  
Total 1,122 $ 283,528

100

%

 
(1)     We define annual rent as rental revenue for the quarter ended December 31, 2012 multiplied by four.
 
 

SPIRIT REALTY CAPITAL, INC.

 

Real Estate Portfolio (continued)

Unaudited

 

Geographic Diversification

 
The following table sets forth information regarding the geographic diversification of our owned real estate properties as of December 31, 2012:
 
Location   Number of
Properties
  Percent of Total
Annual Rent(1)
Wisconsin 57

11.1

%

Texas 82 8.5
Illinois 91 6.7
Pennsylvania 50 5.2
Florida 61 4.6
Minnesota 36 4.5
Arizona 26 4.4
Georgia 66 3.9
Indiana 40 3.3
Michigan 34 3.2
Nebraska 17 3.1
Ohio 49 3.0
Massachusetts 6 2.8
California 9 2.6
Utah 14 2.2
North Carolina 25 2.1
Iowa 34 2.1
Idaho 9 2.0
Tennessee 60 1.9
Kentucky 37 1.9
Alabama 43 1.7
Washington 9 1.6
Missouri 30 1.5
Montana 7 1.4
South Dakota 9 1.4
New York 28 1.4
Oregon 6 1.2
Oklahoma 11 1.2
Virginia 29 1.2
West Virginia 26 1.1
Colorado 9 *
Kansas 6 *
South Carolina 12 *
Maryland 18 *
Louisiana 13 *
Maine 20 *
New Jersey 3 *
Arkansas 7 *
Wyoming 8 *
New Mexico 4 *
Nevada 1 *
Delaware 2 *
Vermont 2 *
Mississippi 7 *
North Dakota 2 *
New Hampshire 6 *
Rhode Island 1 *  
Total properties owned 1,122

100

%

*     Less than 1%
 
(1) We define annual rent as rental revenue for the quarter ended December 31, 2012 multiplied by four.
 
 

SPIRIT REALTY CAPITAL, INC.

 

Real Estate Portfolio (continued)

Unaudited

 

Lease Expirations

 
The following table sets forth a summary schedule of lease expirations for leases in place as of December 31, 2012. As of December 31, 2012, the weighted average non-cancelable remaining initial term of our leases (based on annual rent) was 11.1 years. The information set forth in the table assumes that tenants exercise no renewal options and all early termination rights:
 
Leases expiring in   Number
of
Properties
  Expiring Annual
Rent
(in thousands)(1)
  Percent of
Total
Annual
Rent
2013 11 $ 2,250 0.8 %
2014 53 7,687 2.7
2015 19 4,591 1.6
2016 21 2,546 0.9
2017 35 6,291 2.2
2018 38 11,781 4.2
2019 59 12,221 4.3
2020 84 27,856 9.9
2021 125 21,605 7.7
2022 61 5,860 2.1
2023 and thereafter 602 178,952 63.6
Vacant 14    
 
Total owned properties 1,122 $ 281,640

100

%

(1)   We define annual rent as rental revenue for the quarter ended December 31, 2012 multiplied by four.

Contacts

Spirit Realty Capital, Inc.
Michael A. Bender, 480-315-6634
SVP, Chief Financial Officer
InvestorRelations@spiritrealty.com

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Contacts

Spirit Realty Capital, Inc.
Michael A. Bender, 480-315-6634
SVP, Chief Financial Officer
InvestorRelations@spiritrealty.com