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



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

Business Wire

SCOTTSDALE, Ariz. -- February 27, 2013

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;
       $8.7 million non-cash charge related to derivative instruments on the
ii.    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;
       $4.9 million charge to general and administrative expense for IPO
iii.   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          1,200            1,652            5,696            6,772
loans
receivable
Interest
income and         151              116              860              817         
other
Total revenues     72,569           68,836           282,701          272,696
                                                                     
Expenses:
General and        5,939            5,638            37,329           28,278
administrative
Litigation         —                —                —                151
Property costs     2,062            814              5,279            4,787
Interest           33,518           43,370           156,864          169,888
Depreciation
and                28,156           27,307           110,603          109,001
amortization
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       1,931            (15,878    )     (37,261    )     (48,987    )
expense and
income tax
expense
(benefit)
                                                                     
Other expense:
Loss on debt       —                —                (32,522    )     —           
extinguishment
Total other        —                —                (32,522    )     —           
expense
                                                                                  
Income (loss)
from
continuing
operations         1,931            (15,878    )     (69,783    )     (48,987    )
before income
tax expense
(benefit)
Income tax
expense            110              (24        )     504              (60        )
(benefit)
Income (loss)
from               1,821            (15,854    )     (70,287    )     (48,927    )
continuing
operations
                                                                     
Discontinued
operations:
Loss from
discontinued       (1,272     )     (1,900     )     (2,597     )     (12,200    )
operations
Loss on
dispositions       (5,739     )     (554       )     (3,349     )     (2,736     )
of assets
Loss from
discontinued       (7,011     )     (2,454     )     (5,946     )     (14,936    )
operations
                                                                     
Net loss           (5,190     )     (18,308    )     (76,233    )     (63,863    )
Less:
preferred          (55        )     (8         )     (63        )     (16        )
dividends
Net loss
attributable     $ (5,245     )   $ (18,316    )   $ (76,296    )   $ (63,879    )
to common
stockholders
                                                                     
Net loss per
share of
common            
stock—basic
and diluted
Continuing       $ 0.02           $ (0.61      )   $ (1.70      )   $ (1.89      )
operations
Discontinued       (0.08      )     (0.10      )     (0.15      )     (0.58      )
operations
Net loss         $ (0.06      )   $ (0.71      )   $ (1.85      )   $ (2.47      )
                                                                     
Weighted
average shares
of common
stock
outstanding:
Basic and          83,694,549       25,863,976       41,277,353       25,863,976  
diluted
 

                                                                
SPIRIT REALTY CAPITAL, INC.

 

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Data)
                                                                  
                                                 December 31,
                                                 2012            December 31,
                                                                 2011
                                                 (unaudited)
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       53,753          31,834     
liabilities
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,     —               84
0 and 125 shares issued and outstanding,
respectively
Common stock, $0.01 par value per share, 100
million shares authorized, 84,851,515 and          849             259
25,863,976 shares issued and outstanding,
respectively
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     $ (5,245     )   $ (18,316    )   $ (76,296    )   $ (63,879    )
to common
stockholders
Add/(less):
Portfolio
depreciation
and
amortization
Continuing         28,137           27,298           110,548          108,908
operations
Discontinued       219              524              1,497            2,869
operations
Portfolio
impairments
Continuing         963              5,515            10,067           6,478
operations
Discontinued       1,442            2,109            3,665            12,654
operations
                                                                                  
Realized
(gains)/losses     5,739            554              3,349            2,736       
on sales of
real estate
                                                                                  
Total              36,500           36,000           129,126          133,645     
adjustments
                                                                                  
Funds from
operations
(FFO)            $ 31,255         $ 17,684         $ 52,830         $ 69,766
attributable
to common
stockholders
Add/(less):
Loss on Term
Note               -                -                32,522           -
extinguishment
Expenses
incurred to        -                -                -                7,226
amend Term
Note
Loss on
derivative
instruments        -                485              8,688            1,025
related to
Term Note
extinguishment
Expenses
incurred to
secure             (26        )     374              4,743            374
lenders’
consents (a)
Litigation         -                -                -                151
Non-cash
interest           3,444            6,830            16,495           22,704
expense
Non-cash           (1,332     )     (564       )     (3,015     )     (2,225     )
revenues
Non-cash
compensation       1,811            -                5,931            -           
expense
                                                                                  
Total
adjustments to     3,897            7,125            65,364           29,255      
FFO
Adjusted funds
from
operations
(AFFO)           $ 35,152         $ 24,809         $ 118,194        $ 99,021      
attributable
to common
stockholders
                                                                     
Net loss per
share of
common stock
Basic and        $ (0.06      )   $ (0.71      )   $ (1.85      )   $ (2.47      )
Diluted (b)
                                                                     
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:

                                                                              
                                                            Percent of Total
Industry                                       Number of                      
                                               Properties   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          70           5.3
properties
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:

 
                                Number       Annual Rent          Percent of
      Tenant                    of           (in thousands)^(1)   Total
                                Properties                        Annual Rent
1.    Shopko Stores/Pamida      181          $      83,445        29.4    %
      Operating Co., LLC
2.    84 Properties, LLC        109                 18,437        6.5
3.    Carmike Cinemas, Inc.     12                  8,024         2.8
4.    Universal Pool Co.,       14                  6,680         2.4
      Inc.
5.    CBH20, LP (Camelback      1                   5,779         2.0
      Ski Resort)
6.    Casual Male Retail        1                   4,814         1.7
      Group Inc
7.    Carmax, Inc.              5                   4,726         1.7
8.    United Supermarkets,      14                  4,575         1.6
      LLC
9.    Main Event                6                   4,477         1.6
      Entertainment, LP
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    Percent of Total
                         Properties   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:

 
                         Number       Expiring Annual      Percent of
Leases expiring in       of           Rent                 Total
                         Properties   (in thousands)^(1)   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.

Contact:

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