SPIRIT REALTY CAPITAL, INC. - Annual Report: 2020 (Form 10-K)

                        Spirit Realty Capital, Inc.         Yes          No                          Spirit Realty, L.P.         Yes          No        

                        Spirit Realty Capital, Inc.         Yes          No                          Spirit Realty, L.P.         Yes          No        

                        Spirit Realty Capital, Inc.         Yes          No                          Spirit Realty, L.P.         Yes          No        

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    

                        Spirit Realty Capital, Inc.         Yes          No                          Spirit Realty, L.P.         Yes          No        

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule of the Exchange Act.

                        Spirit Realty Capital, Inc.                        Spirit Realty, L.P.           

                        Spirit Realty Capital, Inc.         Yes         No                    Spirit Realty, L.P.       Yes         No      

Indicate by check mark whether the registrant is a shell company (as defined in of the Exchange Act).

                        Spirit Realty Capital, Inc.         Yes         No                   Spirit Realty, L.P.       Yes         No      

As of June 30, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of Spirit Realty Capital, Inc.’s shares of common stock, $0.05 par value, held by of the Registrant, was $3.6 billion based on the last reported sale price of $34.86 per share on the New York Stock Exchange on June 30, 2020.

There is no public trading market for the common units of limited partnership interest of Spirit Realty, L.P. As a result, the aggregate market value of the common units of limited partnership interest held by of Spirit Realty, L.P. cannot be determined.

Certain specific portions of the definitive Proxy Statement for Spirit Realty Capital, Inc.’s 2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form Only those portions of the Proxy Statement which are specifically incorporated by reference herein shall constitute a part of this Annual Report on Form

This Annual Report on Form contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. When used in this Annual 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.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. 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.

We are a self-administered and self-managed REIT with capabilities including acquisition, credit research, asset management, portfolio management, real estate research, legal, finance and accounting functions. We primarily invest in single-tenant, operationally essential real estate assets throughout the United States, which are subsequently leased on a long-term, basis to high quality tenants with operations in retail, industrial, office and certain other industries.

As of December 31, 2020, Spirit owned a diversified portfolio of 1,860 properties with gross investment in real estate totaling approximately $6.8 billion and with Annualized Base Rent of $509.6 million. See Item 2. “Properties - Our Real Estate Investment Portfolio” for further information on our portfolio diversification.

primarily by leasing these properties to tenants we believe possess attractive credit characteristics and operate in stable or growing industries. Our leases are typically structured as leases, whereby the tenant is responsible for all improvements and is contractually obligated to pay all property operating expenses, such as real estate taxes, insurance premiums and repair and maintenance costs.

Since our inception, our occupancy has never fallen below 96.1%, despite the economic downturns of 2008 through 2010 and the pandemic. While the onset in the U.S. of the pandemic resulted in requests for relief from a number of our tenants, the majority of these requests came in the form of rent deferrals, and we believe the diversity and strength of our portfolio helped to limit the impact of the pandemic on our 2020 operating results. Our discussions with tenants requesting relief substantially focused on industries that have been directly disrupted by the pandemic and restrictions intended to prevent its spread, particularly movie theaters, casual dining restaurants, entertainment, health and fitness, and hotels. For the year ended December 31, 2020, we deferred $31.9 million of rent and abated $6.3 million of rent. For the year ended December 31, 2021, we expect to

FORTRESS BALANCE SHEET

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Issuance of common stock. We may issue common stock when we believe that our share price is at a level that allows the offering proceeds to be accretively invested into additional properties, to permanently finance properties that were financed by our credit facilities, or to repay outstanding debt at or before maturity.

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Issuance of debt securities. We have issued senior unsecured debt securities and have obtained other senior unsecured debt at the Operating Partnership level. In addition, our debt historically has also consisted of some long-term borrowings secured by specific real estate assets or, more typically, pools of real estate assets. To the extent practicable, we expect to maintain a well-balanced debt profile with manageable and staggered maturities.

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Cash provided by operations. In addition to cash provided by the issuance of common stock and debt securities, we expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions, 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 and borrowings under our available credit facilities.

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inability to collect rent from tenants due to financial hardship, including bankruptcy;

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changes in local real estate markets resulting in the lack of availability or demand for single-tenant retail space;

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changes in consumer trends and preferences that reduce the demand for products/services of our tenants;

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inability to lease or sell properties upon expiration or termination of existing leases;

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environmental risks related to the presence of hazardous or toxic substances or materials on our properties;

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subjectivity of real estate valuations and changes in such valuations over time;

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illiquid nature of real estate compared to most other financial assets;

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changes in laws and regulations, including those governing real estate usage and zoning;

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changes in interest rates and the availability of financing; and

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changes in the general economic and business climate.

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the financial condition and viability of our tenants – many of which are in retail industries – and their ability or willingness to pay rent in full on a timely basis;

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state, local, federal and industry-initiated efforts that may adversely affect landlords, including us, and their ability to collect rent and/or enforce remedies for the failure to pay rent;

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our need to restructure leases with our tenants and our ability to do so on favorable terms or at all;

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our ability to renew leases or re-lease available space in our properties on favorable terms or at all in the event of nonrenewal or in the event we exercise our right to replace an existing tenant, and obligations we may incur in connection with the replacement of an existing tenant;

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a severe and prolonged disruption and instability in the global financial markets may affect our or our tenants’ ability to access capital necessary to fund our respective business operations or retire, replace or renew maturing liabilities on a timely basis, on attractive terms or at all and may adversely affect the valuation of financial assets and liabilities;

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a refusal or failure of one or more lenders under the 2019 Revolving Credit and Term Loan Agreement to fund their respective financing commitment to us;

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the broader impact of the severe economic contraction due to the COVID-19 pandemic and restrictions intended to prevent its spread, the resulting increase in unemployment that has occurred and its effect on consumer behavior, and negative consequences that will occur if these trends are not timely reversed;

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disruptions in our tenants’ supply chains or delays in the delivery of products, services or other materials necessary for their operations, which could force our tenants’ to reduce, delay or eliminate offerings of their products and services, reduce or eliminate their revenues and liquidity and/or result in their bankruptcy or insolvency;

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the further utilization of e-commerce in certain industries as a result of the temporary closure of many retail properties, which may lead to the closure of underperforming properties by retailers;

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our and our tenants’ ability to manage our respective businesses to the extent our and their management or personnel (including on-site employees) are impacted in significant numbers by the COVID-19 pandemic and are otherwise not willing, available or allowed to conduct work; and

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our and our tenants’ ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during the COVID-19 pandemic.

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competition from other real estate investors, including REITs and institutional investment funds, which may be able to accept more risk, including higher acquisition prices, than we can prudently manage;

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competition from other real estate investors across our acquisition sourcing channels (including brokers, existing tenant relationships, prospective tenant relationships, etc.) that may significantly reduce our acquisition volume or increase the purchase price for a property we acquire;

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financing for an acquisition may not be available on favorable terms or at all for potential acquisitions;

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significant costs and management attention diverted to evaluate and negotiate potential acquisitions, including ones that we may not subsequently complete;

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acquisition of properties that are not and may not become accretive to our results;

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cash flow from an acquired property may be insufficient to meet our required principal and interest payments with respect to debt used to finance the acquisition of such property;

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necessary improvements or renovations to acquired properties may exceed budgeted amounts;

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market conditions may result in higher than expected vacancy rates and lower than expected rental rates; or

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properties acquired may be subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as clean-up of undisclosed environmental contamination or claims by tenants, vendors or other persons dealing with the former owners of the properties.

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broad market fluctuations unrelated to our or our competitors’ operating performances;

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actual or anticipated variations in our or our competitors’ quarterly operating results or distributions;

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publication of research reports about us, our competitors or the real estate industry;

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market reaction to any additional indebtedness we incur or debt or equity securities we issue in the future;

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additions or departures of key management personnel;

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changes in our credit ratings;

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the financial condition, performance and prospects of our tenants;

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changes in market interest rates in comparison to the distribution yield on shares of our common stock; and

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the realization of any of the other risk factors presented in this Annual Report on Form 10-K.

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•  our knowledge of the contamination; •  the timing of the contamination;		•  the cause of the contamination; or •  the party responsible for the contamination of the property.

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our cash flow may be insufficient to meet our required principal and interest payments;

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cash interest expense and financial covenants relating to our indebtedness may limit or eliminate our ability to make distributions to our common stockholders;

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we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to capitalize upon acquisition opportunities or meet operational needs;

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we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;

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increases in interest rates could increase our interest expense for our variable interest rate debt;

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we may be unable to hedge floating rate debt, counterparties may fail to honor their obligations under any hedge agreements we enter into, such agreements may not effectively hedge interest rate fluctuation risk, and, upon the expiration of any hedge agreements we enter into, we would be exposed to then-existing market rates of interest and future interest rate volatility;

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we may be forced to dispose of properties, possibly on unfavorable terms or in violation of certain covenants to which we may be subject;

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we may default on our obligations and the lenders may foreclose on our properties or our interests in the entities that own the properties that secure their loans and receive an assignment of rents and leases;

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we may be restricted from accessing some of our excess cash flow after debt service if certain of our tenants fail to meet certain financial performance metric thresholds;

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we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations; and

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our default under any loan with cross-default provisions could result in a default on other indebtedness.

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discourage a tender offer or other transactions or a change in management or of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interests; or

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result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.

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“business combination” provisions that, subject to certain limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or

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more of the voting power of our shares or of an affiliate of ours or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting stock at any time within a two-year period immediately prior to the date in question) or any affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose fair price and/or super-majority and stockholder voting requirements on these combinations; and

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“control share” provisions that provide that a holder of “control shares” of our Company (defined as shares that, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of outstanding “control shares”) has no voting rights with respect to those shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

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actual receipt of an improper benefit or profit in money, property or services; or

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active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.

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we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to regular U.S. federal corporate income tax;

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we could be subject to the federal alternative minimum tax for tax years prior to 2018 and increased state and local taxes; and

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unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.

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We own securities in TRSs and may acquire securities in additional TRSs in the future. If a TRS owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a TRS. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or services to tenants of its parent REIT. A TRS is subject to federal income tax as a regular C corporation. In addition, a 100% excise tax will be imposed on certain transactions between a TRS and its parent REIT that are not conducted on an basis.

A REIT’s ownership of securities of a TRS is not subject to the 5% or 10% asset tests applicable to REITs. Not more than 25% of the value of our total assets may be represented by securities (including securities of TRSs), other than those securities includable in the 75% asset test, and not more than 20% of the value of our total assets may be represented by securities of TRSs. We anticipate that the aggregate value of the stock and securities of any TRS and other nonqualifying assets that we own will be less than 25% (or 20%, as applicable) of the value of our total assets, and we will monitor the value of these investments to ensure compliance with applicable ownership limitations. In addition, we intend to structure our transactions with any TRSs that we own to ensure that they are entered into on terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the above limitations or to avoid application of the 100% excise tax.

The IRS may take the position that specific sale-leaseback transactions that we treat as leases are not true leases for federal income tax purposes but are, instead, financing arrangements or loans. If a sale-leaseback transaction were so we might fail to satisfy the REIT asset tests, the income tests or distribution requirements and consequently lose our REIT status effective with the year of unless we elect to make an additional distribution to maintain our REIT status. The primary risk relates to our loss of previously incurred depreciation expenses, which could affect the calculation of our REIT taxable income and could cause us to fail the REIT distribution test that requires a REIT to distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In this circumstance, we may elect to distribute an additional dividend of the increased taxable income so as not to fail the REIT distribution test. This distribution would be paid to all stockholders at the time of declaration rather than the stockholders existing in the taxable year affected by the

To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our REIT taxable income each year, determined without regard to the dividends paid deduction and excluding any net capital gains, and we will be subject to regular corporate income taxes on our undistributed taxable income to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. In order to maintain our REIT status and avoid the payment of income and excise taxes, we may need to borrow funds to meet the REIT distribution requirements even if the then prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from, among other things, differences in timing between the actual receipt of cash and recognition of income for federal income tax purposes, or the effect of capital expenditures, the creation of reserves or required debt or amortization payments. These sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential, our current debt levels, the market price of our common stock, and our current and potential future earnings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and could materially and adversely affect our financial condition, results of operations, cash flow, cash available for distributions to our stockholders, and per share trading price of our common stock.

Dividends treated as “qualified dividend income” payable to U.S. stockholders that are individuals, trusts and estates are generally subject to tax at preferential rates, currently at a maximum federal rate of 20%. Dividends payable by REITs, however, generally are not eligible for the preferential tax rates applicable to qualified dividend income. Under the 2017 Tax Legislation, however, U.S. stockholders that are individuals, trusts and estates generally may deduct up to 20% of the ordinary dividends (e.g., dividends not designated as capital gain dividends or qualified dividend income) received from a REIT for taxable years beginning after December 31, 2017 and before January 1, 2026. Although this deduction reduces the effective tax rate applicable to certain dividends paid by REITs (generally to 29.6% assuming the shareholder is subject to the 37% maximum rate), such tax rate is still higher than the tax rate applicable to corporate dividends that constitute qualified dividend income. Accordingly, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of corporations that pay dividends, which could materially and adversely affect the value of the shares of REITs, including the per share trading price of our common stock.

If we acquire any asset from a corporation that is or has been a C corporation in a carry-over basis transaction, and we subsequently recognize gain on the disposition of the asset during the five-year period beginning on the date on which we acquired the asset, then we will be required to pay tax at the regular corporate tax rate on this gain to the extent of the excess of (1) the fair market value of the asset over (2) our adjusted basis in the asset, in each case determined as of the date on which we acquired the asset. Any taxes we pay as a result of such gain would reduce the amount available for distribution to our stockholders. The imposition of such tax may require us to forgo an otherwise attractive disposition of any assets we acquire from a C corporation in a carry-over basis transaction, and as a result may reduce the liquidity of our portfolio of investments. In addition, in such a carry-over basis transaction, we will succeed to any tax liabilities and earnings and profits of the acquired C corporation. To qualify as a REIT, we must distribute any earnings and profits by the close of the taxable year in which such transaction occurs. Any adjustments to the acquired

corporation’s income for taxable years ending on or before the date of the transaction, including as a result of an examination of the corporation’s tax returns by the IRS, could affect the calculation of the corporation’s earnings and profits. If the IRS were to determine that we acquired earnings and profits from a corporation that we failed to distribute prior to the end of the taxable year in which the carry-over basis transaction occurred, we could avoid disqualification as a REIT by paying a “deficiency dividend.” Under these procedures, we generally would be required to distribute any such earnings and profits to our stockholders within 90 days of the determination and pay a statutory interest charge at a specified rate to the IRS. Such a distribution would be in addition to the distribution of REIT taxable income necessary to satisfy the REIT distribution requirement and may require that we borrow funds to make the distribution even if the then-prevailing market conditions are not favorable for borrowings. In addition, payment of the statutory interest charge could materially and adversely affect us.

The following table sets forth a summary of lease expirations for our owned real estate as of December 31, 2020. As of December 31, 2020, the weighted average remaining initial term of our leases (based on ABR) was 10.1 years. The information set forth in the table assumes that tenants do not exercise renewal options or any early termination rights:

From we may be subject to certain claims and lawsuits in the ordinary course of business, the outcome of which cannot be determined at this time. In the opinion of management, any liability we might incur upon the resolution of these claims and lawsuits will not, in the aggregate, have a material adverse effect on our consolidated financial position or results of operations.

The information below shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, other than as provided in Item 201 of Regulation or to the liabilities of Section 18 of the Exchange Act, except to the extent we specifically request that such information be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act or the Exchange Act.

The following graph shows our cumulative total stockholder return for the five most recent fiscal years, with stock prices retroactively adjusted for the of SMTA. The graph assumes a $100 investment in each of the indices on December 31, 2015 and the reinvestment of all cash dividends. Our stock price performance shown in the following graph is not indicative of future stock price performance.