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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 19, 2018

SPIRIT REALTY CAPITAL, INC.
SPIRIT REALTY, L.P.
(Exact name of registrant as specified in its charter)

Maryland
(Spirit Realty Capital, Inc.)
 
001-36004
 
20-1676382
(Spirit Realty Capital, Inc.)
Delaware
(Spirit Realty, L.P.)
 
333-216815-01
 
20-1127940
(Spirit Realty, L.P.)
(State or other jurisdiction
of incorporation)
 
(Commission File Number)
 
(I.R.S. Employer
Identification No.)
 2727 North Harwood Drive, Suite 300
Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (972) 476-1900
Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934
Spirit Realty Capital, Inc.        Emerging growth company o        
Spirit Realty, L.P.            Emerging growth company o    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.         Spirit Realty Capital, Inc.    o        Spirit Realty, L.P.    o




ITEM 8.01
OTHER EVENTS
Spirit Realty Capital, Inc. ("Spirit" or the "Company") and Spirit Realty, L.P. (the "Operating Partnership") are filing this Current Report on Form 8-K to update Part II, Item 6. Selected Financial Data, Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 8. Financial Statements and Supplementary Data (the "Part II Items") included in the Company’s and the Operating Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “2017 Form 10-K”) to present the assets and liabilities and results of operations of SMTA (defined below) as discontinued operations as a result of our completed Spin-Off (defined below) on May 31, 2018, as well as other accounting policy changes. Specifically, the Company and the Operating Partnership have made the following updates:
As previously disclosed, on May 31, 2018, Spirit completed the spin-off (the "Spin-Off") of the assets that collateralize Master Trust 2014, properties leased to Shopko, and certain other assets into an independent, publicly traded REIT, Spirit MTA REIT ("SMTA"). As a result of the Spin-Off, Spirit will present the assets and liabilities and results of operations of SMTA as discontinued operations. Under ASC 205-20, Presentation of Financial Statements — Discontinued Operations, in the period in which the discontinued-operations criteria are met, an entity must report the disposal in discontinued operations retrospectively in all periods presented. As a result, the assets and liabilities related to discontinued operations are separately classified on the consolidated balance sheets and the operations have been classified as income from discontinued operations on the consolidated statements of operations and comprehensive income.
In August 2016, the Financial Accounting Standards Board (the "FASB") issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addresses specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 requires retrospective adoption unless it is impracticable to apply, in which case it is to be applied prospectively as of the earliest date practicable. The Company and the Operating Partnership adopted ASU 2016-15 effective January 1, 2018 and have applied it retrospectively. As a result of adoption, debt prepayment and debt extinguishment costs, previously presented in operating activities, are now presented in financing activities in the consolidated statements of cash flows.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This guidance requires entities to include restricted cash and restricted cash equivalents within the cash and cash equivalents balances presented in the statement of cash flows. The new guidance is to be applied retrospectively. The Company and the Operating Partnership adopted ASU 2016-18 effective January 1, 2018 and have applied it retrospectively. As a result, restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows.
The updated Part II Items are attached as Exhibit 99.1 hereto, supersede and replace, in their entirety, the Part II Items of the 2017 Form 10-K and are incorporated herein by reference. All other information in the 2017 Form 10-K remains unchanged. References to the exhibits attached hereto to the 2017 Form 10-K or parts thereof refer to the 2017 Form 10-K, except to the extent portions of such 2017 Form 10-K have been updated or recast in Exhibit 99.1 to this Current Report on Form 8-K, in which case they refer to the applicable revised portion in Exhibit 99.1 to this Current Report on Form 8-K. The information in this Current Report on Form 8-K, including exhibits, should be read in conjunction with the 2017 Form 10-K and subsequent SEC filings.
ITEM 9.01
FINANCIAL STATEMENTS AND EXHIBITS
(a) Exhibits.
23.1

23.2

99.1






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: September 19, 2018
 
 
 
 
SPIRIT REALTY CAPITAL, INC.
 
 
By:
 
/s/ Prakash J. Parag
 
 
Prakash J. Parag
Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)
 
 
 
SPIRIT REALTY, L.P.
By: Spirit General OP Holdings, LLC, as general partner of Spirit Realty, L.P.
By:
 
/s/ Prakash J. Parag
 
 
Prakash J. Parag
Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)



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Section 2: EX-23.1 (EXHIBIT 23.1)

Exhibit


Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

(1)
Registration Statement (Form S-3 No. 333-220618) of Spirit Realty Capital, Inc. and the related Prospectus, and
(2)
Registration Statements (Form S-8 No. 333-190001 and No. 333-215098) pertaining to the Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan and Cole Credit Property Trust II, Inc. 2004 Independent Directors’ Stock Option Plan;

of our report dated February 22, 2018 (except for Notes 1, 2, 11, and 14 as to which the date is September 19, 2018), with respect to the consolidated financial statements and schedules of Spirit Realty Capital, Inc. and our report dated February 22, 2018, with respect to the effectiveness of internal control over financial reporting of Spirit Realty Capital, Inc., included in this Current Report on Form 8-K.

/s/ Ernst & Young LLP

Dallas, Texas
September 19, 2018



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Section 3: EX-23.2 (EXHIBIT 23.2)

Exhibit


Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-220618-01) of Spirit Realty, L.P. and in the related Prospectus of our report dated February 22, 2018 (except for Notes 1, 2, 11, and 14, as to which the date is September 19, 2018), with respect to the consolidated financial statements and schedules of Spirit Realty, L.P. included in this Current Report on Form 8-K.

/s/ Ernst & Young LLP

Dallas, Texas
September 19, 2018



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Section 4: EX-99.1 (EXHIBIT 99.1)

Exhibit
PART II
Item 6. Selected Financial Data
The following tables set forth, on a historical basis, selected financial and operating data for the Company. The following data should be read in conjunction with our financial statements and notes thereto and Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K.

 
Years Ended December 31,

 
2017 (1)
 
2016 (1)
 
2015 (1)
 
2014 (1)
 
2013 (1)
 
 
(Dollars in thousands, except share and per share data)
Operating Data:
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
Rentals
 
$
409,349

 
$
408,116

 
$
381,238

 
$
333,839

 
$
188,117

Interest income on loans receivable
 
3,346

 
3,399

 
3,647

 
3,955

 
2,530

Earned income from direct financing leases
 
2,078

 
2,742

 
3,024

 
3,343

 
1,572

Tenant reimbursement income
 
14,911

 
11,887

 
13,931

 
12,347

 
5,526

Other income
 
1,574

 
9,196

 
866

 
1,787

 
488

Total revenues
 
431,258

 
435,340

 
402,706

 
355,271

 
198,233

Expenses:
 
 
 
 
 
 
 
 
 
 
General and administrative
 
57,512

 
50,607

 
45,663

 
40,883

 
33,734

Restructuring charges
 

 
6,341

 
7,056

 

 

Finance restructuring costs
 

 

 

 
214

 
717

Merger costs
 

 

 

 

 
56,311

Property costs (including reimbursable)
 
25,973

 
24,089

 
21,379

 
20,180

 
9,100

Real estate acquisition costs
 
1,434

 
2,904

 
2,352

 
2,565

 
989

Interest
 
113,394

 
118,690

 
139,183

 
139,333

 
76,826

Depreciation and amortization
 
173,686

 
173,036

 
166,478

 
155,137

 
78,528

Impairments
 
61,597

 
61,395

 
50,381

 
30,651

 
2,179

Total expenses
 
433,596

 
437,062

 
432,492

 
388,963

 
258,384

Loss from continuing operations before other income (expense) and income tax expense
 
(2,338
)
 
(1,722
)
 
(29,786
)
 
(33,692
)
 
(60,151
)
Other income (expense):
 
 
 
 
 
 
 
 
 
 
Gain (loss) on debt extinguishment
 
579

 
1,605

 
(2,375
)
 
(457
)
 
(1,890
)
Gain (loss) on disposition of assets
 
42,698

 
29,623

 
(61
)
 
48

 
(456
)
Total other income (expense)
 
43,277

 
31,228

 
(2,436
)
 
(409
)
 
(2,346
)
Income (loss) from continuing operations before income tax expense
 
40,939

 
29,506

 
(32,222
)
 
(34,101
)
 
(62,497
)
Income tax expense
 
(511
)
 
(868
)
 
(479
)
 
(673
)
 
(693
)
Income (loss) from continuing operations
 
40,428

 
28,638

 
(32,701
)
 
(34,774
)
 
(63,190
)
Income (loss) from discontinued operations (2)
 
36,720

 
68,808

 
125,913

 
(2,171
)
 
61,574

Net income (loss)
 
77,148

 
97,446

 
93,212

 
(36,945
)
 
(1,616
)
Less: preferred dividends
 
(2,530
)
 

 

 

 

Net income (loss) attributable to common stockholders
 
$
74,618

 
$
97,446

 
$
93,212

 
$
(36,945
)
 
$
(1,616
)
Net income (loss) per share of common stock—basic:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.08

 
$
0.06

 
$
(0.08
)
 
$
(0.09
)
 
$
(0.25
)
Discontinued operations
 
0.08

 
0.15

 
0.29

 
(0.01
)
 
0.24

Net income (loss) per share attributable to common stockholders—basic
 
$
0.16

 
$
0.21

 
$
0.21

 
$
(0.10
)
 
$
(0.01
)
 
 
 
 
 
 
 
 
 
 
 

1


Net income (loss) per share of common stock—diluted:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.08

 
$
0.06

 
$
(0.08
)
 
$
(0.09
)
 
$
(0.10
)
Discontinued operations
 
0.08

 
0.15

 
0.29

 
(0.01
)
 
0.09

Net income (loss) per share attributable to common stockholders—diluted
 
$
0.16

 
$
0.21

 
$
0.21

 
$
(0.10
)
 
$
(0.01
)
Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
 
 
 
Basic common shares (3)
 
467,934,945

 
469,217,776

 
432,222,953

 
386,809,746

 
255,020,565

Diluted common shares (3)
 
467,942,788

 
469,246,265

 
432,222,953

 
386,809,746

 
255,020,565

 
 
 
 
 
 
 
 
 
 
 
Dividends declared per common share issued (4)
 
$
0.72000

 
$
0.70500

 
$
0.68500

 
$
0.66875

 
$
0.65843

 
 
 
 
 
 
 
 
 
 
 
(1) As a result of the Merger completed on July 17, 2013, Operating Data includes the results of operations from the acquired properties for a full year in 2017, 2016, 2015 and 2014 and for less than half a year in 2013.
(2) Includes gains, losses and results of operations from all property dispositions and from properties classified as held for sale at the end of the period for all periods prior to 2014. During 2015 and 2014, only those properties classified as held for sale as of December 31, 2013 were reported as discontinued operations. Additionally, includes gains, losses and results of operations of SMTA, applied retrospectively to all periods presented, as a result of the Spin-Off completed on May 31, 2018.
(3) Historical weighted average number of shares of common stock outstanding (basic and diluted) have been adjusted for the Merger Exchange Ratio. No potentially dilutive securities were included as their effect would be anti-dilutive on results from continuing operations.
(4) Dividends declared per common share issued for the year ended December 31, 2013 have been adjusted for the Merger.


2


 
Years Ended December 31,
 
2017 (1)
 
2016 (1)
 
2015 (1)
 
2014 (1)
 
2013 (1)
 
(Dollars in thousands)
Balance Sheet Data (end of period):
 
 
 
 
 
 
 
 
 
Gross investments, including related lease intangibles
$
7,903,025

 
$
8,247,654

 
$
8,302,688

 
$
8,043,497

 
$
7,235,732

Net investments, including related lease intangibles
6,614,025

 
7,090,335

 
7,231,816

 
7,110,726

 
6,523,325

Cash and cash equivalents
8,798

 
10,059

 
21,790

 
176,181

 
66,588

Total assets (2)
7,263,511

 
7,677,971

 
7,891,039

 
7,964,230

 
7,207,775

Total debt, net (2)
3,639,680

 
3,664,628

 
4,092,787

 
4,323,302

 
3,758,241

Total liabilities (2)
3,943,902

 
3,995,863

 
4,429,165

 
4,652,568

 
4,093,034

Total stockholders' equity
3,319,609

 
3,682,108

 
3,461,874

 
3,311,662

 
3,114,741

 
 
 
 
 
 
 
 
 
 
Other Data:
 
 
 
 
 
 
 
 
 
FFO (3)
$
367,296

 
$
394,952

 
$
354,686

 
$
238,105

 
$
139,487

AFFO (3)
$
398,148

 
$
412,999

 
$
378,050

 
$
322,400

 
$
208,853

Number of properties in investment portfolio
2,480

 
2,615

 
2,629

 
2,509

 
2,186

Owned properties occupancy at period end (based on number of properties)
99
%
 
98
%
 
99
%
 
98
%
 
99
%
(1) Balances include assets and liabilities of both continuing operations and discontinued operations. Reference Note 11 to the accompanying consolidated financial statements for additional information.
(2) During 2015, we elected to early adopt ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, in which capitalized deferred financing costs, previously recorded in deferred costs and other assets on the consolidated balance sheets, are presented as a direct deduction from the carrying amount of the debt liability to which these costs relate, and this presentation is retrospectively applied to prior periods. Capitalized deferred financing costs incurred in connection with the Revolving Credit Facility continue to be presented in deferred costs and other assets, net on the consolidated balance sheets as amounts can be drawn and repaid periodically, which is in accordance with ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.
(3) We calculate FFO in accordance with the standards established by NAREIT. FFO represents net income (loss) attributable to common stockholders (computed in accordance with GAAP), excluding real estate-related depreciation and amortization, impairment charges and net (gains) losses from property dispositions. 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. Therefore, FFO should be considered only as a supplement to net income (loss) attributable to common stockholders 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 stockholders 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 (stock-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 equity 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 determined in accordance with GAAP as a performance measure. A reconciliation of our FFO and AFFO to net income (loss) attributable to common stockholders (computed in accordance with GAAP) is included in the financial information accompanying this report.

3


 
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
(Dollars in thousands)
Net income (loss) attributable to common stockholders (1)
$
74,618

 
$
97,446

 
$
93,212

 
$
(36,945
)
 
$
(1,616
)
Add/(less):
 
 
 
 
 
 
 
 
 
Portfolio depreciation and amortization
 
 
 
 
 
 
 
 
 
Continuing operations
173,121

 
172,559

 
166,102

 
154,758

 
78,348

Discontinued operations
82,333

 
89,240

 
94,155

 
92,829

 
89,071

Portfolio impairments
 
 
 
 
 
 
 
 
 
Continuing operations
61,597

 
61,215

 
49,917

 
30,645

 
2,453

Discontinued operations
40,733

 
26,857

 
20,314

 
7,364

 
7,317

Realized gain on sales of real estate (2)
(65,106
)
 
(52,365
)
 
(69,014
)
 
(10,546
)
 
(36,086
)
Total adjustments
292,678

 
297,506

 
261,474

 
275,050

 
141,103

 
 
 
 
 
 
 
 
 
 
FFO attributable to common stockholders
$
367,296

 
$
394,952

 
$
354,686

 
$
238,105

 
$
139,487

Add/(less):
 
 
 
 
 
 
 
 
 
Loss (gain) on debt extinguishment
 
 
 
 
 
 
 
 
 
Continuing operations
(579
)
 
(1,605
)
 
2,375

 
457

 
1,890

Discontinued operations
2,224

 
1,372

 
787

 
64,293

 
(513
)
Restructuring charges

 
6,341

 
7,056

 

 

Other costs in G&A associated with headquarter relocation

 
3,629

 

 

 

Transaction costs
6,361

 

 

 

 

Merger costs (3)

 

 

 

 
66,700

Master Trust Exchange Costs

 

 

 
13,022

 
717

Real estate acquisition costs
1,356

 
3,229

 
2,739

 
3,631

 
1,718

Non-cash interest expense
23,469

 
15,380

 
10,367

 
5,175

 
8,840

Straight-line rent, net of related bad debt expense
(19,474
)
 
(23,496
)
 
(19,291
)
 
(12,191
)
 
(6,162
)
Other amortization and non-cash charges
(3,266
)
 
(2,837
)
 
(1,639
)
 
(4,541
)
 
(12,593
)
Accrued interest and fees on defaulted loans
4,201

 
4,740

 
7,649

 
3,103

 

Swap termination costs (4)

 
1,724

 

 

 

Non-cash compensation expense
16,560

 
9,570

 
13,321

 
11,346

 
8,769

Total adjustments to FFO
30,852

 
18,047

 
23,364

 
84,295

 
69,366

 
 
 
 
 
 
 
 
 
 
AFFO attributable to common stockholders(6)
$
398,148

 
$
412,999

 
$
378,050

 
$
322,400

 
$
208,853

 
 
 
 
 
 
 
 
 
 
FFO per share of common stock
 
 
 
 
 
 
 
 
 
Diluted (5)
$
0.78

 
$
0.84

 
$
0.82

 
$
0.61

 
$
0.54

AFFO per share of common stock
 
 
 
 
 
 
 
 
 
Diluted (5)
$
0.85

 
$
0.88

 
$
0.87

 
$
0.83

 
$
0.81

Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
 
 
Basic
467,934,945

 
469,217,776

 
432,222,953

 
386,809,746

 
255,020,565

Diluted
467,942,788

 
469,246,265

 
432,545,625

 
387,585,580

 
255,210,757

(1) Amount is net of distributions paid to preferred stockholders for the year ended December 31, 2017.
(2) Includes amounts related to discontinued operations.
(3) Includes $10.1 million of interest expense charges related to the Merger.
(4) Included in general and administrative expenses.
(5) Assumes the issuance of potentially issuable shares unless the result would be anti-dilutive.
(6) For the year ended December 31, 2016, net income attributable to common stockholders includes compensation for lost rent received from the Haggen Holdings, LLC settlement for 6 rejected stores as follows (in millions):
Contractual rent from date of rejection through either sale or December 31, 2016
 
$
1.3

Three months of prepaid rent for the three stores subsequently sold
 
0.5

Total included in AFFO
 
$
1.8


4



Adjusted Debt, Adjusted EBITDA and Annualized Adjusted EBITDA
 
December 31,
 
2017
 
2016
 
(Dollars in thousands)
Revolving credit facility
$
112,000

 
$
86,000

Term loan, net

 
418,471

Senior unsecured notes, net
295,321

 
295,112

Mortgages and notes payable, net
2,516,478

 
2,162,403

Convertible notes, net
715,881

 
702,642

 
3,639,680

 
3,664,628

Add/(less):
 
 
 
Unamortized debt discount, net
61,399

 
52,894

Unamortized deferred financing costs
39,572

 
37,111

Cash and cash equivalents
(8,798
)
 
(10,059
)
Restricted cash balances held for the benefit of lenders
(105,909
)
 
(26,839
)
Total adjustments
(13,736
)
 
53,107

Adjusted Debt (1)
$
3,625,944

 
$
3,717,735

 
 
 
 
 
Three Months 
 Ended December 31,
 
2017
 
2016
 
(Dollars in thousands)
Net income attributable to common stockholders
$
35,791

 
$
988

Add/(less): (2)
 
 
 
Interest
47,998

 
46,744

Depreciation and amortization
63,132

 
68,049

Income tax (benefit) expense
(25
)
 
33

Total adjustments
111,105

 
114,826

EBITDA
$
146,896

 
$
115,814

Restructuring charges

 
615

Other costs in G&A associated with headquarter relocation

 
187

Transaction costs
3,216

 

Real estate acquisition costs
583

 
1,137

Impairments on real estate assets
14,221

 
46,379

Realized gain on sales of real estate
(24,909
)
 
(13,144
)
Loss on debt extinguishment
3,415

 
93

Total adjustments to EBITDA
(3,474
)
 
35,267

Adjusted EBITDA (3)
$
143,422

 
$
151,081

Annualized Adjusted EBITDA (4)
$
573,688

 
$
604,324

Adjusted Debt / Annualized Adjusted EBITDA (5)
6.3

 
6.2

(1) 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 restricted cash balances held for the benefit of lenders. By excluding unamortized debt discount/premium and deferred financing costs, cash and cash equivalents, and restricted cash balances held for the benefit of lenders, 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.
(2) Adjustments include all amounts charged to continuing and discontinued operations.

5


(3) Adjusted EBITDA represents EBITDA modified to include other adjustments to GAAP net income (loss) attributable to common stockholders for restructuring charges, transaction costs, 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.
(4) Adjusted EBITDA of the current quarter multiplied by four.
(5) Adjusted Debt to Annualized Adjusted EBITDA 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.

6


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Spirit Realty Capital, Inc. is a New York Stock Exchange listed company under the ticker symbol "SRC." We are a self-administered and self-managed REIT with in-house capabilities including acquisition, portfolio management, asset management, credit research, real estate research, legal, finance and accounting and capital markets. We primarily invest in single-tenant, operationally essential real estate assets throughout the U.S., which are generally acquired through strategic sale-leaseback transactions and subsequently leased on long-term, triple-net basis to high quality tenants with business operations within predominantly retail, but also office and industrial property types. Single tenant, operationally essential real estate consists of properties that are generally free-standing, commercial real estate facilities where our tenants conduct activities that are essential to the generation of their sales and profits. In support of our primary business of owning and leasing real estate, we have also strategically originated or acquired long-term, commercial mortgage and other loans to provide a range of financing solutions to our tenants.
As of December 31, 2017, our owned real estate represented investments in 2,392 properties. Our properties are leased to 419 tenants across 49 states and 30 industries. As of December 31, 2017, our owned properties were approximately 99.2% occupied (based on number of economically yielding properties). In addition, our investment in real estate includes commercial mortgage and other loans secured by an additional 88 real estate properties or other related assets.
Our operations are carried out through the Operating Partnership. OP Holdings, one of our wholly-owned subsidiaries, is the sole general partner and owns approximately 1% of the Operating Partnership. We and one of our wholly-owned subsidiaries are the only limited partners, and together own the remaining 99% of the Operating Partnership. Although the Operating Partnership is wholly-owned by us, in the future, we may issue partnership interests in the Operating Partnership to third parties in exchange for property owned by such third parties. In general, any partnership interests in the Operating Partnership issued to third parties would be exchangeable for cash or, at our election, shares of our common stock at specified ratios set when such partnership interests in the Operating Partnership are issued.
We have elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2005. We believe that we have been organized and have operated in a manner that has allowed us to qualify as a REIT for federal income tax purposes commencing with such taxable year, and we intend to continue operating in such a manner.
On May 31, 2018, we completed a Spin-Off of all of our interests in the assets that collateralize Master Trust 2014, our properties leased to Shopko, and certain other assets into an independent, publicly traded REIT, SMTA. Upon completion of the Spin-Off, our stockholders received a distribution of common shares of beneficial interest in SMTA, which are treated as a taxable distribution to them. Beginning in the second quarter of 2018, the historical financial results of SMTA are reflected in our consolidated financial statements as discontinued operations for all periods presented. See Note 11 to the accompanying consolidated financial statements for further discussion.
2017 Highlights
For the year ended December 31, 2017:
Generated net income of $0.16 per share, FFO of $0.78 per share and AFFO of $0.85 per share.
Strengthened our balance sheet:
Completed an underwritten public offering of 6.0% Series A Cumulative Redeemable Preferred Stock for aggregate net proceeds of $166.2 million.
Issued $674.4 million aggregate principal amount of net-lease mortgage notes under Master Trust 2014.
Repurchased 35.8 million shares of the Company's outstanding common stock at a weighted average purchase price of $7.88 per share.
Extinguished $238.5 million of secured debt that had a 5.5% weighted average interest rate.

7


Actively managed our portfolio:
Raised real estate portfolio occupancy to 99.2% as of December 31, 2017 from 98.2% as of December 31, 2016.
Closed 25 real estate transactions totaling $323.0 million, including revenue producing capital expenditures, adding 39 properties to our portfolio, earning an initial weighted average cash yield of 7.66% under leases with an average term of 12.0 years.
Sold 192 properties for $551.2 million in gross proceeds, including 105 vacant properties for gross proceeds of $153.7 million.
Reduced Shopko concentration to 7.7% of Contractual Rent at December 31, 2017 from 8.2% at December 31, 2016.
Factors that May Influence Our Operating Results
ACQUISITIONS AND LEASE STRUCTURE
Our principal business is acquiring commercial real estate properties, generally leased to tenants under triple-net leases. Our ability to grow revenue and produce superior risk adjusted returns depends on our ability to acquire additional properties at a yield sufficiently in excess of our cost of capital. We focus on opportunities to acquire attractive commercial real estate by providing capital to small and middle-market companies that we conclude have stable and proven operating histories and attractive credit characteristics. Small and middle-market companies are often willing to enter into leases with structures and terms that we consider appealing and that we believe increase the security of rental payments.
Portfolio Diversification
Our strategy emphasizes a portfolio that (1) derives no more than 10% of its Contractual Rent from any single tenant and no more than 2.0% of its Contractual Rent from any single property, (2) is leased to tenants operating in various industries and (3) is located across the U.S. without significant geographic concentration.
A core component of our business is investing in and managing a portfolio of single-tenant, operationally essential retail real estate throughout the U.S. Accordingly, our performance is substantially dependent on the performance of our retail tenants. The market for traditional retail space has previously been, and could continue to be, adversely affected by weakness in the national, regional and local economies, the adverse financial condition of some traditional retail companies, the ongoing consolidation in the retail industry, the excess amount of retail space in a number of markets and increasing consumer purchases through catalogs or over the internet.
In particular, we have experienced and expect to continue to experience challenges with some of our retailers through increased credit losses. These credit losses resulted in lower revenues from non-performing leases and certain charges for the write-off of unrecoverable receivables. We expect the non-performance for certain of these leases to continue.
As of December 31, 2017, Shopko represents our most significant tenant. Currently we lease 99 properties to Shopko, pursuant to three master leases and two single site leases, under which we receive approximately $3.9 million in Contractual Rent per month. We reduced our Shopko tenant concentration to 7.7% of Contractual Rent at December 31, 2017, compared to 8.2% at December 31, 2016. During the year ended December 31, 2017, we sold 12 Shopko properties for $71.4 million in gross proceeds as we continue our objective to reduce our exposure to Shopko.
As a result of the significant number of properties leased to Shopko, our results of operations and financial condition are significantly impacted by Shopko's performance under its leases. Shopko operates as a multi-department general merchandise retailer and retail health services provider primarily in mid-size and large communities in the Midwest, Pacific Northwest, North Central and Western Mountain states.
Based on our monitoring of Shopko's financial information and other challenges impacting the retail industry relative to recent years, we continue to evaluate Shopko's ongoing ability to meet its obligations to us under its leases. Although Shopko is current on all of its obligations to us under its lease arrangements with us as of December 31, 2017, we can give you no assurance that this will continue to be the case, particularly if Shopko (not just the stores subject to leases with us) experiences a further decline in its business, financial condition and results of operations or loses access to liquidity. If such events were to occur, Shopko may request discounts or deferrals on the rents it pays to us,

8


seek to terminate its master leases with us or close certain of its stores, or file for bankruptcy, all of which could significantly decrease the amount of revenue we receive from it.
Operationally Essential Real Estate with Long-Term Leases
We seek to own properties that are operationally essential to our tenants, thereby reducing the risk that our tenant would choose not to renew an expiring lease or reject a lease in bankruptcy. We also seek to enter into leases with relatively long initial terms, typically 15 to 20 years, and renewal options with attractive rent escalation provisions. As of December 31, 2017, our leases have a weighted average remaining lease term of approximately 10.0 years (based on Contractual Rent), compared to 10.8 years as of December 31, 2016. Approximately 22.0% of our leases (based on Contractual Rent) as of December 31, 2017 will expire prior to January 1, 2023.
Rent Escalators
Our leases generally contain provisions contractually increasing the rental revenue over the term of the lease at specified dates by (1) a fixed amount or (2) the lesser of (a) 1 to 2 times CPI over a specified period, (b) a fixed percentage or (c) a fixed schedule. The percentage of our single-tenant properties containing rent escalators remained consistent at 89.2% as of both December 31, 2017 and December 31, 2016, respectively (based on Contractual Rent).
Master Lease Structure
Where appropriate, we seek to enter into master leases, whereby we lease multiple properties to a single tenant on an “all or none” basis. The master lease structure prevents a tenant from unilaterally giving up under-performing properties while retaining well-performing properties. We have 131 active master leases with property counts ranging from 2 to 172 and a weighted average non-cancelable remaining lease term (based on Contractual Rent) of 12.7 years as of December 31, 2017 compared to 129 active master leases with property counts ranging from 2 to 182 and a weighted average non-cancelable remaining lease term (based on Contractual Rent) of 13.9 years as of December 31, 2016.
Master lease revenue contributed approximately 44.7% of our Contractual Rent during the year ended December 31, 2017, compared to approximately 46.2% for the same period in 2016. The largest revenue producing master leases at December 31, 2017 and 2016, respectively, consisted of 59 and 72 properties and contributed 6.8% and 7.2% of our Contractual Rent. Our smallest revenue producing master leases, consisting of two properties, contributed less than 0.1% to our Contractual Rent in each of the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, the majority of our master leases include between 2 and 10 properties.
Triple-Net Leases
Our leases are predominantly triple-net, whereby the tenant pays all property operating expenses, including but not limited to real estate taxes, insurance premiums and repair and maintenance costs. We occasionally enter into leases, or acquire properties with existing leases, pursuant to which we retain responsibility for the costs of structural repair, maintenance and certain other property costs. Although such leases have not historically resulted in significant costs to us, an increase in costs related to these responsibilities could negatively impact our operating results. Similarly, an increase in the vacancy rate of our portfolio would increase our costs, as we would be responsible for expenses that our tenants are currently required to pay. As of December 31, 2017, approximately 82.8% of our properties (based on Contractual Rent) are subject to triple-net leases, compared to approximately 83.7% as of December 31, 2016.
Impact of Inflation
Our leases typically contain provisions designed to mitigate the adverse impact of inflation on our results of operations. Since tenants are typically required to pay all property operating expenses, increases in property-level expenses at our leased properties generally do not adversely affect us. However, increased operating expenses at vacant properties and the limited number of properties that are not subject to full triple-net leases could cause us to incur additional operating expenses, which could increase our exposure to inflation. Additionally, our leases generally provide for rent escalators designed to mitigate the effects of inflation over a lease’s term. However, since some of our leases do not contain rent escalators and many that do limit the amount by which rent may increase, any increase in our rental revenue may not keep up with the rate of inflation.

9


ASSET MANAGEMENT
The stability of the rental revenue generated by our properties depends principally on our tenants’ ability to pay rent and our ability to:
collect rent due,
renew expiring leases or re-lease space upon expiration or other termination,
lease or dispose of currently vacant properties, and
maintain or increase rental rates.
Each of these could be negatively impacted by adverse economic conditions, particularly those that affect the markets in which our properties are located, downturns in our tenants’ industries, increased competition for our tenants at our property locations, or the bankruptcy of one or more of our tenants. We seek to manage these risks by using our developed underwriting and risk management processes to structure and manage our portfolio.
Active Management and Monitoring of Risks Related to Our Investments
We seek to measure tenant financial distress risk and lease renewal risk through various processes. Many of our tenants are required to provide corporate-level and/or unit-level financial information, which includes balance sheet, income statement and cash flow statement data on a quarterly and/or annual basis, and approximately 50.6% of our leases as of December 31, 2017 require the tenant to provide property-level performance information, which includes income statement data on a quarterly and/or annual basis.Our underwriting and risk management processes are designed to structure new investments and manage existing investments to mitigate tenant credit quality risks and preserve the long-term return on our invested capital. Since our inception, our occupancy based on economically yielding properties has never been below 96.1%, despite the economic downturn of 2008 through 2010. The percentage of our properties that were economically yielding increased to approximately 99.2% as of December 31, 2017 from approximately 98.2% as of December 31, 2016.
On September 8, 2015, Haggen Holdings, LLC and a number of its affiliates, including Haggen Operations Holdings, LLC, filed petitions for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. At the time of the filing, Haggen Operations Holdings, LLC leased 20 properties on a triple net basis from a subsidiary of ours under a master lease. For discussion of the related settlement and current status of these properties, see Note 8 to the consolidated financial statements herein.
CAPITAL RECYCLING
We continuously evaluate opportunities for the disposition of properties in our portfolio when we believe such disposition is appropriate in view of our business objectives, considering criteria including, but not limited to, tenant concentration, tenant credit quality, local market conditions and lease rates, associated indebtedness, asset location and tenant operation type (e.g., industry, sector, or concept/brand), as well as potential uses of proceeds and tax considerations. As part of this strategy, we may enter into 1031 Exchanges to defer some or all of the taxable gains on the dispositions, if any, for federal and state income tax purposes. We can provide no assurance that we will dispose of any additional properties or that future acquisitions and/or dispositions, if any, will qualify as 1031 Exchanges. Furthermore, we can provide no assurance that we will deploy the proceeds from future dispositions in a manner that produces comparable or better yields.
CAPITAL FUNDING
Our principal demands for funds are for property acquisitions, payment of principal and interest on our outstanding indebtedness, operating and property maintenance expenses and distributions to our stockholders. Generally, property acquisitions are temporarily funded through our Revolving Credit Facility, followed by permanent financing through asset level financing or issuance of debt or equity securities. Our remaining cash needs are typically met by cash flows from operations, which are primarily driven by the rental income received from our leased properties, interest income earned on loans receivable and interest income on our cash balances.
Debt Capital Structure
As of December 31, 2017, we had an approximately $3.7 billion principal balance outstanding consisting of $2.6 billion of non-recourse mortgage indebtedness, $747.5 million of unsecured Convertible Notes, $300.0 million of Senior Unsecured Notes, and $112.0 million under our unsecured Revolving Credit Facility. We have additional borrowing capacity of $688.0 million under the Revolving Credit Facility and $420.0 million under our Term Loan. The Revolving Credit Facility and Term Loan provide for financial flexibility to help fund future acquisitions and for general corporate

10


purposes. Our non-recourse mortgage indebtedness is comprised of $332.6 million of fixed-rate CMBS and $2.2 billion in securitized net-lease mortgage notes under our Spirit Master Funding Program. Approximately $2.1 billion of our outstanding principal indebtedness is fully or partially amortizing, providing for an ongoing reduction in principal prior to maturity. Prior to January 1, 2021, contractual amortization payments are scheduled to reduce our outstanding principal amount of indebtedness by $134.9 million and balloon payments of $1.1 billion are due at maturity under a number of different loans. Included in these balloon payments is $64.3 million for the acceleration of principal payable, including $13.2 million of capitalized interest, following an event of default under 6 separate CMBS loans.
Interest Costs
As of December 31, 2017, the weighted average stated interest rate on our fixed rate debt under our CMBS and Master Trust Notes, excluding the amortization of deferred financing costs and debt discounts, was approximately 5.1%. The weighted average stated rate as of December 31, 2017 of our unsecured Convertible Notes and Unsecured Senior Notes were 3.28% and 4.45%, respectively. Our fixed-rate debt structure provides us with a stable and predictable cash requirement related to our debt service. The stated rate of our unsecured variable-rate Term Loan as of December 31, 2017 was 2.44%. We amortize on a non-cash basis the deferred financing costs and debt discounts/premiums associated with our fixed-rate debt to interest expense using the effective interest rate method over the terms of the related notes. For the year ended December 31, 2017, non-cash interest expense recognized on our debt totaled $23.5 million. Any changes to our debt structure, including borrowings under our Revolving Credit Facility, Term Loan or debt financing associated with property acquisitions, could materially influence our operating results depending on the terms of any such indebtedness. A significant amount of our debt provides for scheduled principal payments. As principal is repaid, our interest expense decreases. Changing interest rates will increase or decrease the interest expense we incur on unhedged variable interest rate debt and may impact our ability to refinance maturing debt.
Critical Accounting Policies and Estimates
Our accounting policies are determined in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that are subjective in nature and, as a result, our actual results could differ materially from our estimates. Estimates and assumptions include, among other things, subjective judgments regarding the fair values and useful lives of our properties for depreciation and lease classification purposes, the collectability of receivables and asset impairment analysis. Set forth below are the more critical accounting policies that require management judgment and estimates in the preparation of our consolidated financial statements. See Notes 2 and 9 to the consolidated financial statements for further details.
REAL ESTATE INVESTMENTS
Purchase Accounting and Acquisition of Real Estate; Lease Intangibles
We use a number of sources to estimate fair value of real estate acquisitions, including building age, building location, building condition, rent comparables from similar properties, and terms of in-place leases, if any. Lease intangibles, if any, acquired in conjunction with the purchase of real estate represent the value of in-place leases and above or below-market leases. In-place lease intangibles are valued based on our estimates of costs related to tenant acquisition and the carrying costs that would be incurred during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases at the time of the acquisition. We then allocate the purchase price (including acquisition and closing costs) to land, building, improvements and equipment based on their relative fair values. For properties acquired with in-place leases, we allocate the purchase price of real estate to the tangible and intangible assets and liabilities acquired based on their estimated fair values. Above and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition of the real estate and our estimate of current market lease rates for the property, measured over a period equal to the remaining initial term of the lease.
Impairment
We review our real estate investments and related lease intangibles quarterly for indicators of impairment, which include the asset being held for sale, tenant bankruptcy, leases expiring in less than 12 months and property vacancy. For assets with indicators of impairment, we then evaluate if its carrying value exceeds its estimated undiscounted cash flows, in which case the asset is considered impaired. Estimating future cash flows and fair values are highly subjective and such estimates could differ materially from actual results. Key assumptions used in estimating future cash flows and fair values include, but are not limited to, revenue growth rates, interest rates, discount rates, capitalization rates, lease renewal probabilities, tenant vacancy rates and other factors.

11


Impairment is then calculated as the amount by which the carrying value exceeds the estimated fair value. The fair values are estimated 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 cash flow, 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.
Allowance for Doubtful Accounts
We review our rent receivables for collectability on a regular basis, taking into consideration 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 property is located. If the collectability of a receivable with respect to any tenant is in doubt, a provision for uncollectible amounts will be established or a write-off of the specific receivable will be made. Uncollected accounts receivable are written off against the allowance when all possible means of collection have been exhausted. For deferred rental revenues related to the straight-line method of reporting rental revenue, we establish a provision for losses based on our estimate of uncollectible receivables and our assessment of the risks inherent in our portfolio, giving consideration to historical experience and industry default rates for long-term receivables.
INCOME TAXES
REIT Status
We elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2005. We believe that we have been organized and have operated in a manner that has allowed us to qualify as a REIT commencing with such taxable year, and we intend to continue operating in such a manner. To maintain our REIT status, we are required to annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided that we qualify for taxation as a REIT, we are generally not subject to corporate level federal income tax on the earnings distributed to our stockholders that we derive from our REIT qualifying activities. We are still subject to state and local income and franchise taxes and to federal income and excise tax on our undistributed income. If we fail to qualify as a REIT in any taxable year and are unable to avail ourselves of certain savings provisions set forth in the Code, all of our taxable income would be subject to federal income tax at regular corporate rates, including any applicable alternative minimum tax. Unless entitled to relief under specific statutory provisions, we would be ineligible to elect to be treated as a REIT for the four taxable years following the year for which we lose our qualification. It is not possible to state whether in all circumstances we would be entitled to this statutory relief.
TRS
We have elected, together with certain of our subsidiaries, to treat such subsidiaries as our TRS for federal income tax purposes. A taxable REIT subsidiary generally may provide both customary and non-customary services to tenants of its parent REIT and engage in other activities that the parent REIT may not engage in directly without adversely affecting its qualification as a REIT. Currently, our TRS do not provide any services to our tenants or conduct other material activities. However, one or more TRS of ours may in the future provide services to certain of our tenants. We may form additional taxable REIT subsidiaries in the future and we may contribute some or all of our interests in certain wholly-owned subsidiaries or their assets to a TRS of ours. Any income earned by our TRS will not be included in our taxable income for purposes of the 75% or 95% gross income tests, except to the extent such income is distributed to us as a dividend, in which case such dividend income will qualify under the 95%, but not the 75%, gross income test. Because a taxable REIT subsidiary is subject to federal income tax and state and local income tax (where applicable), as a regular C corporation, the income earned by our TRS generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries. Historically, we have not actively pursued or engaged in material activities that would require the use of our TRS.
SHARE-BASED COMPENSATION
Awards granted under our Amended Incentive Award Plan may require service-based vesting over a period of years subsequent to the grant date and resulting equity-based compensation expense, measured at the fair value of the award on the date of grant, will be recognized as an expense in our consolidated financial statements over the vesting period. Grant date fair value is estimated using the Monte Carlo simulation model, which incorporates stock price correlation, projected dividend yields and other variables over the time horizons matching the performance periods.

12


Results of Operations
Comparison of the Years Ended December 31, 2017 and 2016
The following discussion includes the results of our operations as summarized in the table below:
 
Years Ended December 31,
(In Thousands)
2017
 
2016
 
 Change
 
 % Change
Revenues:
 
 
 
 
 
 
 
Rentals
$
409,349

 
$
408,116

 
$
1,233

 
0.3
 %
Interest income on loans receivable
3,346

 
3,399

 
(53
)
 
(1.6
)%
Earned income from direct financing leases
2,078

 
2,742

 
(664
)
 
(24.2
)%
Tenant reimbursement income
14,911

 
11,887

 
3,024

 
25.4
 %
Other income
1,574

 
9,196

 
(7,622
)
 
(82.9
)%
Total revenues
431,258

 
435,340

 
(4,082
)
 
(0.9
)%
Expenses:
 
 
 
 
 
 
 
General and administrative
57,512

 
50,607

 
6,905

 
13.6
 %
Restructuring charges

 
6,341

 
(6,341
)
 
NM

Property costs (including reimbursable)
25,973

 
24,089

 
1,884

 
7.8
 %
Real estate acquisition costs
1,434

 
2,904

 
(1,470
)
 
(50.6
)%
Interest
113,394

 
118,690

 
(5,296
)
 
(4.5
)%
Depreciation and amortization
173,686

 
173,036

 
650

 
0.4
 %
Impairment
61,597

 
61,395

 
202

 
0.3
 %
Total expenses
433,596

 
437,062

 
(3,466
)
 
(0.8
)%
Loss from continuing operations before other income and income tax expense
(2,338
)
 
(1,722
)
 
(616
)
 
(35.8
)%
Other income:
 
 
 
 
 
 
 
Gain on debt extinguishment
579

 
1,605

 
(1,026
)
 
(63.9
)%
Gain on disposition of assets
42,698

 
29,623

 
13,075

 
44.1
 %
Total other income
43,277

 
31,228

 
12,049

 
38.6
 %
Income from continuing operations before income tax expense
40,939

 
29,506

 
11,433

 
38.7
 %
Income tax expense
(511
)
 
(868
)
 
357

 
41.1
 %
Income from continuing operations
$
40,428

 
$
28,638

 
$
11,790

 
41.2
 %
 
 
 
 
 
 
 
 
Income from discontinued operations
$
36,720

 
$
68,808

 
$
(32,088
)
 
(46.6
)%
NM - Percentages over 100% are not displayed.
REVENUES
Rentals
For the year ended December 31, 2017, approximately 94.9% of our total revenues from continuing operations were generated from long-term leases of our owned properties. Our contractual rental revenues between periods increased by 0.9% as we were a moderate acquirer of income producing real estate during the year ended December 31, 2017. We acquired 38 properties with a real estate investment value of $270.4 million, included in continuing operations, during the year ended December 31, 2017. This increase was offset by the sale of 116 properties during the same period with a real estate investment value of $381.3 million, of which 58 were income producing properties with a real estate investment value of $254.3 million. This increase in contractual rental revenues was partially offset by tenant credit losses in the first quarter of 2017, where the majority of the nonperforming properties were in the convenience store and movie theater industries. As of December 31, 2017 and 2016, respectively, 11 and 28 of our properties in continuing operations were vacant and not generating rent, representing approximately 0.7% and 1.8% of our owned properties.

13


During the years ended December 31, 2017 and 2016, non-cash rentals were $25.0 million and $26.4 million, respectively, representing approximately 6.1% and 6.5%, respectively, of total rental revenue from continuing operations.
Interest income on loans receivable
While financed properties increased from 69 at December 31, 2016 to 83 at December 31, 2017, resulting in an increase of 28.9% in the related mortgage loans receivable balances for the comparative period, interest income on loans receivable remained flat as all the newly financed mortgage loans in 2017 were originated in the last four months of the year.
Tenant reimbursement income
We have a number of leases that require our tenants to reimburse us for certain property costs we incur. Tenant reimbursement income is driven by the tenant reimbursable property costs described below.
Other income
The year-over-year decrease in other income is primarily due to $5.5 million in fee income associated with the prepayment of certain mortgage loans during the year ended December 31, 2016, and no comparable transaction for the year ended December 31, 2017. Additionally, lease termination fees collected for the year ended December 31, 2017 were $0.1 million, compared to $1.9 million for the year ended December 31, 2016.
EXPENSES
General and administrative
The year-over-year increase in general and administrative expenses is primarily due to $11.1 million in severance related costs, comprised of $4.2 million of cash compensation and $6.9 million of non-cash compensation, recorded in the year ended December 31, 2017 following the departure of our chief executive officer. The period-over-period increase was partially offset by a $1.8 million decrease in compensation expenses excluding the severance charges, the $1.7 million loss recognized in the comparable prior period related to termination fees on an interest rate swap, and a $1.0 million decrease in professional and other outside services expenses.
Property costs (including reimbursable)
For the year ended December 31, 2017, property costs were $26.0 million (including $16.8 million of tenant reimbursable expenses) compared to $24.1 million (including $14.7 million of tenant reimbursable expenses) for the year ended December 31, 2016. The non-reimbursable costs remained relatively flat year-over-year, while reimbursable property costs increased by $2.1 million, driven by an increase in reimbursable property taxes.
Interest
The decrease in interest expense is primarily due to the extinguishment of $195.4 million of mortgage debt with a weighted average interest rate of 5.5% during the year ended December 31, 2017. This was partially offset by an increase in interest due to increased average borrowings year-over-year under our Revolving Credit Facility and Term Loan, as well as interest on our Senior Unsecured Notes, which were issued in August 2016.

14


The following table summarizes our interest expense on related borrowings:
 
Years Ended December 31,
(In Thousands)
2017
 
2016
Interest expense – Revolving Credit Facilities (1)
$
7,957

 
$
3,314

Interest expense – Term Loan
9,793

 
5,218

Interest expense – mortgages and notes payable
40,385

 
70,176

Interest expense – Convertible Notes
24,509

 
24,509

Interest expense – Unsecured Senior Notes
13,351

 
4,932

Non-cash interest expense:
 
 
 
Amortization of deferred financing costs
8,416

 
7,785

Amortization of net losses related to interest rate swaps

 
93

Amortization of debt discount, net
8,983

 
2,663

Total interest expense
$
113,394

 
$
118,690

(1) Includes non-utilization fees of approximately $2.1 million and $2.0 million for the years ended December 31, 2017 and 2016, respectively.
Depreciation and amortization
Depreciation and amortization expense relates primarily to depreciation on the commercial buildings and improvements we own and to amortization of the related lease intangibles. During the year ended December 31, 2017, we acquired 38 properties with a real estate investment value of $270.4 million, while we sold 116 properties with a real estate investment value of $381.3 million. However, of the properties sold during the year ended December 31, 2017, we sold 44 properties with a real estate investment value of $130.2 million that were classified as held for sale. As properties held for sale are no longer depreciated, we were a net acquirer of depreciable property. Further, fewer properties were classified as held for sale this year than last year. The increase in depreciation and amortization was partially offset by impairment charges recorded in 2017 on properties that remain in our portfolio. The following table summarizes our depreciation and amortization expense:
 
Years Ended December 31,
(In Thousands)
2017
 
2016
Depreciation of real estate assets
$
140,557

 
$
138,387

Other depreciation
563

 
475

Amortization of lease intangibles
32,566

 
34,174

Total depreciation and amortization
$
173,686

 
$
173,036

Impairment
Impairment charges for the year ended December 31, 2017 were $61.6 million. These charges included $12.6 million on properties held for sale, recorded primarily on 11 vacant held for sale properties. The remaining $49.0 million of impairment was recorded on properties held and used, including $34.5 million on 16 vacant properties held and used, $9.5 million on seven underperforming properties within the drug store/pharmacy and consumer electronics industries, and $4.2 million on an underperforming property within the general merchandise industry.
During the year ended December 31, 2016, we recorded impairment losses of $61.4 million. These charges included $13.9 million on properties held for sale, recorded primarily on five vacant held for sale properties. The remaining $47.5 million of impairment was recorded on properties held and used, including $24.1 million on 15 vacant properties held and used, $11.1 million on 11 underperforming properties within the restaurant-casual dining industry, and $5.9 million on two underperforming properties within the distribution industry.
Gain on debt extinguishment
During the year ended December 31, 2017, we extinguished $195.4 million of mortgage debt and recognized a gain on debt extinguishment of $0.6 million. The gain was primarily attributable to the partial extinguishment of one defaulted mortgage loan upon sale of one of the properties collateralizing the loan to a third party, offset by net losses from the prepayment and defeasance fees on mortgage debt related to 25 properties. During the same period in 2016, we extinguished $763.7 million of mortgage debt and recognized a gain on debt extinguishment of $1.6 million. The gain

15


was primarily attributable to the extinguishment of three defaulted mortgage loans and the partial extinguishment of one defaulted mortgage loan upon sale of the properties collateralizing these loans to third parties, offset by net losses from the prepayment and defeasance fees on mortgage debt related to 343 properties.
Gain on disposition of assets
During the year ended December 31, 2017, we disposed of 116 properties and recorded gains totaling $42.7 million. Included in these amounts are an $8.7 million gain on the sales of two grocery properties, a $7.9 million gain on the sale of a distribution property, a $7.7 million gain on the sales of 11 drug store/pharmacy properties, a $7.6 million gain on the sale of five building materials properties, a $5.1 million gain on the sales of 17 restaurant - casual dining and quick service properties, and a $4.5 million gain on the sale of an apparel property. These gains and the net gains on the other 21 occupied properties sold were partially offset by a $6.7 million loss on the sales of 61 vacant properties during the year ended December 31, 2017.
During the year ended December 31, 2016, we disposed of 165 properties and recorded gains totaling $29.6 million from continuing operations. Included in these amounts are a $13.2 million gain for the sale of five grocery properties, a $5.9 million gain on the sale of 109 properties within the building materials industry, a $5.2 million gain on the sale of 19 properties within the restaurant-quick service industry and a $2.2 million gain on the sale of 15 drug store/pharmacy properties.
INCOME FROM DISCONTINUED OPERATIONS
The decrease in income from discontinued operations is a result of a decrease in revenues year-over-year of $12.9 million, an increase in expenses of $18.2 million, and a decrease in other income of $1.2 million.
The primary driver of the decrease in revenues was a 4.0% decrease in contractual rental revenues. During the year ended December 31, 2017, only one property was acquired in discontinued operations with a real estate investment value of $10.1 million, while 76 properties with a real estate investment value of $154.3 million were disposed. Of the disposals, 32 were income producing with a real estate investment value of $113.1 million. This net disposition activity resulted in the decrease in contractual rental revenue. Additionally, the mortgage loans secured by 66 properties were paid off in mid-2016, also reducing revenue year-over-year.
The increase in expenses was driven by an increase in recognized impairments of $13.9 million. Additionally, all $6.4 million of transaction costs associated with the Spin-Off incurred in 2017 were classified as discontinued operations in accordance with GAAP. The decrease in other income was the result of a $0.9 million increase in losses on debt extinguishment, primarily related to the $1.6 million pre-payment premium paid in conjunction with our voluntary pre-payment of the full outstanding balance of Master Trust 2014 Series 2014-1 Class A1 note of $43.1 million in November 2017.
 

16


Results of Operations
Comparison of the Years Ended December 31, 2016 and 2015
The following discussion includes the results of our operations as summarized in the table below:
 
Years Ended December 31,
(In Thousands)
2016
 
2015
 
 Change
 
 % Change
Revenues:
 
 
 
 
 
 
 
Rentals
$
408,116

 
$
381,238

 
$
26,878

 
7.1
 %
Interest income on loans receivable
3,399

 
3,647

 
(248
)
 
(6.8
)%
Earned income from direct financing leases
2,742

 
3,024

 
(282
)
 
(9.3
)%
Tenant reimbursement income
11,887

 
13,931

 
(2,044
)
 
(14.7
)%
Other income
9,196

 
866

 
8,330

 
NM

Total revenues
435,340

 
402,706

 
32,634

 
8.1
 %
Expenses:
 
 
 
 
 
 
 
General and administrative
50,607

 
45,663

 
4,944

 
10.8
 %
Restructuring charges
6,341

 
7,056

 
(715
)
 
(10.1
)%
Property costs (including reimbursable)
24,089

 
21,379

 
2,710

 
12.7
 %
Real estate acquisition costs
2,904

 
2,352

 
552

 
23.5
 %
Interest
118,690

 
139,183

 
(20,493
)
 
(14.7
)%
Depreciation and amortization
173,036

 
166,478

 
6,558

 
3.9
 %
Impairment
61,395

 
50,381

 
11,014

 
21.9
 %
Total expenses
437,062

 
432,492

 
4,570

 
1.1
 %
Loss from continuing operations before other income (expense) and income tax expense
(1,722
)
 
(29,786
)
 
28,064

 
94.2
 %
Other income (expense):
 
 
 
 
 
 
 
Gain (loss) on debt extinguishment
1,605

 
(2,375
)
 
3,980

 
NM

Gain (loss) on disposition of assets
29,623

 
(61
)
 
29,684

 
NM

Total other income (expense)
31,228

 
(2,436
)
 
33,664

 
NM

Income (loss) from continuing operations before income tax expense
29,506

 
(32,222
)
 
61,728

 
NM

Income tax expense
(868
)
 
(479
)
 
(389
)
 
(81.2
)%
Income (loss) from continuing operations
$
28,638

 
$
(32,701
)
 
$
61,339

 
NM

 
 
 
 
 
 
 
 
Income from discontinued operations
$
68,808

 
$
125,913

 
$
(57,105
)
 
(45.4
)%
NM - Percentages over 100% are not displayed.
REVENUES
Rentals
For the year ended December 31, 2016, approximately 93.7% of our total revenues from continuing operations were generated from long-term leases of our owned properties. Our contractual rental revenues between periods increased by 6.1% as we were a net acquirer of income producing real estate during the year ended December 31, 2016. We acquired 259 properties with a real estate investment value of $643.0 million, included in continuing operations, during the year ended December 31, 2016. This increase was partially offset by the sale of 165 properties during the same period with a real estate investment value of $448.5 million, of which 158 were income producing properties with a real estate investment value of $423.7 million. As of December 31, 2016 and 2015, respectively, 28 and 20 of our properties in continuing operations were vacant and not generating rent, representing approximately 1.8% and 1.4% of our owned properties.

17


During the year ended December 31, 2016 and 2015, non-cash rentals were $26.4 million and $18.9 million, respectively, representing approximately 6.5% and 5.0%, respectively, of total rental revenue from continuing operations.
Tenant reimbursement income
We have a number of leases that require our tenants to reimburse us for certain property costs we incur. Tenant reimbursement income is driven by the tenant reimbursable property costs described below.
Other income
The year-over-year increase in other income is primarily due to $5.5 million in fee income associated with the prepayment of certain mortgage loans during the year ended December 31, 2016, and no comparable transaction for the year ended December 31, 2015. Additionally, there were $1.9 million in lease termination fees received from Haggen and one other property for the year ended December 31, 2016, compared to no lease termination fees for the year ended December 31, 2015.
EXPENSES
General and administrative
The year-over-year increase in general and administrative expenses is primarily due to a $4.0 million increase in professional fees and office expenses, $2.0 million of bad debt expense recorded in relation to 34 convenience store properties for which the rent has been determined to be uncollectible and a $1.7 million charge for the termination of our interest rate swaps. Higher professional fees and office expenses include legal, consulting and temporary services attributable to our relocation to Dallas, Texas. The increase was partially offset by a decrease in compensation and related benefits of $2.8 million primarily related to the forfeiture of previously recognized non-cash compensation following the departure of an executive officer in the current period.
Restructuring charges
During the quarter ended December 31, 2015, we made the strategic decision to relocate the Company's headquarters from Scottsdale, Arizona to Dallas, Texas. As a result, during the year ended December 31, 2015, the Company incurred $7.1 million of restructuring charges. Comprising the majority of this amount were estimated employee separation costs, which were based on the anticipated separation date of June 30, 2016 and recognized on the date the employee elected to separate in December 2015. Employee separation costs primarily consist of severance payments, retention bonuses and pro-rated 2016 annual bonuses. Costs associated with employees electing to relocate to Dallas were recognized as the liability was incurred. These costs include a transition bonus and reimbursements for certain relocation costs, including home sale costs, lease breakage penalties, moving costs and a miscellaneous allowance. Other restructuring charges, including placement fees and third-party consulting fees, were also recognized when incurred. As such, during the year ended December 31, 2016, we incurred $6.3 million in restructuring charges related to our relocation. Of this amount, $4.9 million related to professional fees, consulting services, employee severance costs, lease termination expense of our prior headquarters, while the balance was for employee relocation costs and other restructuring charges.
Property costs
For the year ended December 31, 2016, property costs were $24.1 million (including $14.7 million of tenant reimbursable expenses) compared to $21.4 million (including $16.1 million of tenant reimbursable expenses) for the year ended December 31, 2015. The non-reimbursable costs increased primarily as a result of a $3.3 million increase in non-reimbursable property taxes as a result of increased vacancies.
Interest
Year-over-year decrease in interest expense is primarily due to the extinguishment of $763.7 million of mortgage debt with a weighted average interest rate of 6.01% during the year ended December 31, 2016. This decrease was partially offset by an increase in interest from our Term Loan, which was entered into during November 2015, and the issuance of our Senior Unsecured Notes in August 2016.

18


The following table summarizes our interest expense on related borrowings from continuing operations:
 
Years Ended December 31,
(In Thousands)
2016
 
2015
Interest expense – Revolving Credit Facilities (1)
$
3,314

 
$
2,528

Interest expense – Term Loan
5,218

 
888

Interest expense – mortgages and notes payable
70,176

 
105,148

Interest expense – Convertible Notes
24,509

 
24,509

Interest expense – Unsecured Senior Notes
4,932

 

Non-cash interest expense:
 
 
 
Amortization of deferred financing costs
7,785

 
6,671

Amortization of net losses related to interest rate swaps
93

 
108

Amortization of debt discount/(premium), net
2,663

 
(669
)
Total interest expense
$
118,690

 
$
139,183

(1) Includes non-utilization fees of approximately $2.0 million and $1.6 million for the years ended December 31, 2016 and 2015, respectively.
Depreciation and amortization
Depreciation and amortization expense relates primarily to depreciation on the commercial buildings and improvements we own and to amortization of the related lease intangibles. During the year ended December 31, 2016, we acquired 259 properties with a real estate investment value of $643.0 million, while we sold 165 properties during the same period with a real estate investment value of $448.5 million. Included in the properties sold were 26 properties with a real estate investment value of $70.6 million that were classified as held for sale. While properties held for sale are no longer depreciated, we were still a net acquirer of depreciable property. The increase in depreciation and amortization was partially offset by impairment charges recorded in 2016 on properties that remain in our portfolio and a small increase in properties classified as held for sale held at year-end.
The following table summarizes our depreciation and amortization expense from continuing operations:
 
Years Ended December 31,
(In Thousands)
2016
 
2015
Depreciation of real estate assets
$
138,387

 
$
129,854

Other depreciation
475

 
375

Amortization of lease intangibles
34,174

 
36,249

Total depreciation and amortization
$
173,036

 
$
166,478

Impairments
During the year ended December 31, 2016, we recorded impairment losses of $61.4 million. These charges included $13.9 million on properties held for sale, recorded primarily on five vacant held for sale properties. The remaining $47.5 million of impairment was recorded on properties held and used, including $24.1 million on 15 vacant properties held and used, $11.1 million on 11 underperforming properties within the restaurant-casual dining industry, and $5.9 million on two underperforming properties within the distribution industry.
During the year ended December 31, 2015, we recorded impairment losses of $50.4 million. These charges included $4.4 million on five properties held for sale. The remaining $46.0 million was recorded on properties held and used, including 13 vacant properties and 4 properties with underperforming tenants.
Gain (loss) on debt extinguishment
During the year ended December 31, 2016, we extinguished $763.7 million of mortgage debt and recognized a gain on debt extinguishment of $1.6 million. The gain was primarily attributable to the extinguishment of three defaulted mortgage loans and the partial extinguishment of one defaulted mortgage loan upon sale of the properties collateralizing these loans to third parties, offset by net losses from the prepayment and defeasance fees on mortgage debt related to 343 properties. During the same period in 2015, we extinguished $502.5 million in high interest rate CMBS debt

19


related to 293 properties with a weighted average interest rate of 5.76%, incurring a loss on extinguishment due to prepayment penalties.
Gain (loss) on disposition of assets
During the year ended December 31, 2016, we disposed of 165 properties and recorded gains totaling $29.6 million from continuing operations. Included in these amounts are a $13.2 million gain for the sale of five grocery properties, a $5.9 million gain on the sale of 109 properties within the building materials industry, a $5.2 million gain on the sale of 19 properties within the restaurant-quick service industry and a $2.2 million gain on the sale of 15 drug store/pharmacy properties. During 2015, we disposed of 46 properties and recorded a de minimus loss.
INCOME FROM DISCONTINUED OPERATIONS
The decrease in income from discontinued operations is a result of a decrease in revenues year-over-year of $14.5 million and a decrease in other income of $46.9 million, partially offset by a decrease in expenses of $4.2 million.
The primary driver of the decrease in revenues was a 6.1% decrease in contractual rental revenues. During the year ended December 31, 2016, only ten properties were acquired in discontinued operations with a real estate investment value of $41.5 million, while 48 properties with a real estate investment value of $152.3 million were disposed. Of the disposals, 36 were income producing with a real estate investment value of $131.4 million. This net disposer activity resulted in the decrease in contractual rental revenue.
The decrease in expenses was driven by a decrease in interest recognized of $5.8 million as the result of the extinguishment of $119.3 million of CMBS debt with a weighted average interest rate of 6.0% and a decrease in depreciation and amortization expense of $4.9 million as a result of being a net disposer year-over-year. This was partially offset by an increase in impairments recognized of $6.5 million. The decrease in other income was the result of a $46.3 million decrease in gains on dispositions of assets year-over-year.
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 stockholders 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 and borrowings under the Revolving Credit Facility and Term Loan. Our Revolving Credit Facility and Term Loan increase our capacity to fund acquisitions, while continuing to meet our short-term working capital requirements. As of December 31, 2017, $688.0 million of borrowing capacity was available under the Revolving Credit Facility and $420.0 million was available under the Term Loan.
In November, 2016, the Board of Directors approved a new $500.0 million ATM Program and the Company terminated its existing program. As of December 31, 2017, no shares had been sold under the new ATM Program.
In February 2016, the Company's Board of Directors approved a stock repurchase program, which authorizes the Company to repurchase up to $200.0 million of its common stock. During the year ended December 31, 2017, 26,337,295 shares of the Company's outstanding common stock were repurchased in open market transactions under this stock repurchase program, at a weighted average price of $7.59 per share, equivalent to the full $200.0 million authorized. Fees associated with the share repurchase of $0.5 million are included in retained earnings.
In August, 2017, our Board of Directors approved a new stock repurchase program, which authorizes us to purchase up to $250.0 million of our common stock in the open market or through private transactions from time to time over the next 18 months. Purchase activity will be dependent on various factors, including our capital position, operating results, funds generated by asset sales, dividends that may be required by those sales, and investment options that may be available, including acquiring new properties or retiring debt. The stock repurchase program does not obligate us to repurchase any specific number of shares and may be suspended at any time at our discretion. We intend to fund any repurchases with the net proceeds from asset sales, cash flows from operations, existing cash on the balance sheet and other sources. As of December 31, 2017, the Company had repurchased 9,502,670 shares of its outstanding common stock under this new stock repurchase program.

20


In October, 2017, the Company completed an underwritten public offering of 6,900,000 shares of 6.00% Series A Cumulative Redeemable Preferred Stock, including 900,000 shares sold pursuant to the underwriter's option to purchase additional shares. Gross proceeds raised were approximately $172.5 million; net proceeds were approximately $166.2 million after deducting underwriter discounts and offering costs paid by the Company. The net proceeds from the offering were initially used to reduce outstanding debt and for general operating purposes of the Company.
Long-term Liquidity and Capital Resources
We plan to meet our long-term capital needs, including long-term financing of property acquisitions, by issuing registered debt or equity securities, obtaining asset level financing and occasionally by issuing fixed rate secured or unsecured notes and bonds. We may continue to issue common stock 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. In addition, we may issue common stock to permanently finance properties that were financed by our Revolving Credit Facility, Term Loan or other indebtedness. In the future, some of our property acquisitions could be made by issuing partnership interests of our Operating Partnership in exchange for property owned by third parties. These partnership interests would be exchangeable for cash or, at our election, shares of our common stock.
We continually evaluate 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 stockholders.
Description of Certain Debt
Spirit Master Funding Program
The Spirit Master Funding Program is an asset-backed securitization platform in which we raise capital through the issuance of non-recourse net lease mortgage notes collateralized by commercial real estate, net leases and mortgage loans. The Spirit Master Funding Program allows us to issue notes that are secured by the assets of the special purpose entity note issuers that are pledged to the indenture trustee for the benefit of the noteholders and managed by the Operating Partnership as property manager. These Collateral Pools consist primarily of commercial real estate properties, the issuers’ rights in the leases of such properties and commercial mortgage loans secured by commercial real estate properties. In general, monthly rental and mortgage receipts with respect to the leases and mortgage loans are deposited with the indenture trustee who will first utilize these funds to satisfy the debt service requirements on the notes and any fees and costs associated with the administration of the Spirit Master Funding Program including property and asset management fees payable to the Company. The remaining funds are remitted to the issuers monthly on the note payment date.
In addition, upon satisfaction of certain conditions, the issuers may, from time to time, sell or exchange real estate properties or mortgage loans from the Collateral Pools. Proceeds from the sale of assets within the Collateral Pools are held on deposit by the indenture trustee until a qualifying substitution is made or the amounts are distributed as an early repayment of principal. At December 31, 2017, $85.7 million was held on deposit and classified as restricted cash within deferred costs and other assets, net in our consolidated balance sheet.
The Spirit Master Funding Program consists of two separate securitization trusts that have one or multiple bankruptcy-remote, special purpose entities as issuers of the Master Trust 2013 and Master Trust 2014 notes. Each issuer is an indirect wholly-owned subsidiary of ours. All outstanding series of Master Trust Notes were rated A+ by S&P as of December 31, 2017.
Master Trust 2013
In December 2013, an indirect wholly-owned subsidiary of ours issued $330.0 million aggregate principal amount of net-lease mortgage notes comprised of $125.0 million of 3.89% interest-only notes expected to be repaid in December 2018 and $205.0 million of 5.27% amortizing notes expected to be repaid in December 2023.
Master Trust 2014
In May 2014, we completed our Exchange Offer to exchange the outstanding principal balance of three series of existing net-lease mortgage notes for three series of newly issued Master Trust 2014 notes. The terms of the new notes remain generally similar to the old notes including the interest rate and anticipated final repayment dates; however,

21


the new notes generally amortize more slowly than the old notes and have a legal final payment date that is 17 years later than the old notes (although the anticipated repayment date remains the same). The revisions to Master Trust 2014, in connection with the issuance of the new notes, generally provide the Operating Partnership more administrative flexibility as property manager and special servicer.
In November 2014, the existing issuers under Master Trust 2014 and two additional indirect wholly-owned subsidiaries of ours, collectively as co-issuers, completed the issuance of $510.0 million aggregate principal amount of net-lease mortgage notes comprised of $150.0 million of 3.50% interest-only notes expected to be repaid in January 2020 and $360.0 million of 4.63% amortizing notes (interest-only through November 2017) expected to be repaid in January 2030.
At the time of issuance, the Class A notes represented approximately 70% of the collateral appraised value and are currently rated A+ by S&P. The Class B notes are subordinate to the Class A notes as to principal repayment, represent approximately 5% of the collateral value, and are currently rated BBB by S&P.
In December 2017, the existing issuers under Master Trust 2014, collectively as co-issuers, completed the issuance of $674.4 million aggregate principal amount of net-lease mortgage notes comprised of $542.4 million of 4.36%, Class A, amortizing notes and $132.0 million of 6.35%, Class B, interest-only notes, each class of Notes have an anticipated repayment date in December 2022 and a legal final payment date in December 2047. (Refer to Note 17. Subsequent Events, regarding repricing of the Class B Notes). The Operating Partnership retained $27.1 million in aggregate principal amount of Class A Notes and $6.6 million in aggregate principal amount of Class B Notes to satisfy its regulatory risk retention obligations. In conjunction with the issuance, the Company pre-paid Series 2014-1 Class A1 of the 2014 notes.
Master Trust 2014 (including the properties collateralizing the notes) was included in the assets and liabilities transferred to SMTA in conjunction with the Spin-Off completed in May 2018. As such, Master Trust 2014 has been included in assets related to SMTA Spin-Off and liabilities related to SMTA Spin-Off on the accompanying balance sheets as of December 31, 2017 and 2016 as required by the retrospective application of discontinued operations.
The Master Trust Notes are summarized below:
 
Stated
Rates
(1)
 
Remaining Term
 
December 31,
2017
 
December 31,
2016
 
 
 
(in Years)
 
(in Thousands)
Series 2014-1 Class A1
%
 
0.0
 
$

 
$
53,919

Series 2014-1 Class A2
5.4
%
 
2.5
 
252,437

 
253,300

Series 2014-2
5.8
%
 
3.2
 
222,683

 
226,283

Series 2014-3
5.7
%
 
4.2
 
311,336

 
311,820

Series 2014-4 Class A1
3.5
%
 
2.1
 
150,000

 
150,000

Series 2017-1 Class A (2)
4.4
%
 
5.0
 
515,280

 

Series 2017-1 Class B (2)
6.4
%
 
5.0
 
125,400

 

Series 2014-4 Class A2
4.6
%
 
12.1
 
358,664

 
360,000

Total Master Trust 2014 notes (3)
5.0
%
 
5.4
 
1,935,800

 
1,355,322

Series 2013-1 Class A
3.9
%
 
1.0
 
125,000

 
125,000

Series 2013-2 Class A
5.3
%
 
6.0
 
187,704

 
192,384

Total Master Trust 2013 notes
4.7
%
 
4.0
 
312,704

 
317,384

Total Master Trust Notes (3)
 
 
 
 
2,248,504

 
1,672,706

Debt discount, net (3)
 
 
 
 
(36,188
)
 
(18,787
)
Deferred financing costs, net (3)
 
 
 
 
(24,010
)
 
(16,376
)
Total Master Trust Notes, net (3)
 
 
 
 
$
2,188,306

 
$
1,637,543

(1) Represents the individual series stated interest rate as of December 31, 2017 and the weighted average stated rate of the total Master Trust Notes, based on the collective series outstanding principal balances as of December 31, 2017.
(2) The Operating Partnership acquired $27.1 million in aggregate principal amount of Class A Notes and $6.6 million in aggregate principal amount of Class B Notes, which eliminate in consolidation, to satisfy its regulatory risk retention obligations.
(3) Master Trust 2014 notes and their associated debt discount, net and deferred financing costs, net are included within liabilities related to SMTA Spin-Off in the accompanying balance sheets as of December 31, 2017 and 2016 as they are accounted for as discontinued operations.

22


As of December 31, 2017, the Master Trust 2014 notes were secured by 815 owned and financed properties issued by 5 indirect wholly-owned subsidiaries of the Corporation. The notes issued under Master Trust 2014 are cross-collateralized by the assets of all issuers within this trust. As of December 31, 2017, the Master Trust 2013 notes were secured by 296 owned and financed properties issued by a single indirect wholly-owned subsidiary of the Corporation.
Convertible Notes
The Convertible Notes are comprised of two series of notes with an aggregate principal amount of $747.5 million at both December 31, 2017 and December 31, 2016. Interest on the Convertible Notes is payable semiannually in arrears on May 15 and November 15 of each year. The 2019 Notes, aggregate principal amount $402.5 million, accrue interest at 2.875% and are scheduled to mature on May 15, 2019. The 2021 Notes, aggregate principal amount $345.0 million, accrue interest at 3.75% and are scheduled to mature on May 15, 2021. As of December 31, 2017, the carrying amount of the Convertible Notes was $715.9 million, which is net of discounts (for the value of the embedded conversion feature) and unamortized deferred financing costs.
Holders may convert notes of either series prior to November 15, 2018, in the case of the 2019 Notes, or November 15, 2020, in the case of the 2021 Notes, only under the following circumstances: (1) if the closing price of our common stock for each of at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days in the quarter is greater than or equal to 130% of the conversion price for the Convertible Notes; (2) during the five business day period after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last closing price of our common stock and the conversion rate for the Convertible Notes; (3) if we call any or all of the Convertible Notes for redemption prior to the redemption date; or (4) upon the occurrence of specified corporate events as described in the Convertible Notes prospectus supplement. On or after November 15, 2018, in the case of the 2019 Notes, or November 15, 2020, in the case of the 2021 Notes, until the close of business on the second scheduled trading day immediately preceding the maturity date of the Convertible Notes, holders may convert the Convertible Notes of the applicable series at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver cash, shares of common stock or a combination of cash and shares of common stock, at our election.
The initial conversion rate for the Convertible Notes is 76.3636 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $13.10 per share of common stock). The conversion rate for each series of the Convertible Notes is subject to adjustment for some events, including dividends paid in excess of threshold amounts stipulated in the agreement, but will not be adjusted for any accrued and unpaid interest. As of December 31, 2017, the conversion rate was 77.3144 per $1,000 principal note. If we undergo a fundamental change (as defined in the Convertible Notes supplemental indentures), holders may require us to repurchase all or any portion of their notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest.
Revolving Credit Facility
On March 31, 2015, the Company entered into the Credit Agreement, among the Operating Partnership as borrower and the Company as guarantor, that established a new $600.0 million unsecured credit facility and terminated its secured $400.0 million 2013 Credit Facility. The Revolving Credit Facility matures on March 31, 2019 (extendible at the Operating Partnership's option to March 31, 2020, subject to satisfaction of certain requirements) and includes an accordion feature to increase the committed facility size up to $1.0 billion, subject to satisfying certain requirements and obtaining additional lender commitments. On April 27, 2016, the Company expanded the borrowing capacity under the Revolving Credit Facility from $600.0 million to $800.0 million by partially exercising the accordion feature under the terms of the Credit Agreement. The Revolving Credit Facility also includes a 50.0 million sub-limit for swing-line loans and up to $60.0 million available for issuance of letters of credit. Swing-line loans and letters of credit reduce availability under the Revolving Credit Facility on a dollar-for-dollar basis. On November 3, 2015, the Company entered into a first amendment to the Credit Agreement. The amendment conforms certain of the terms and covenants to those in the Term Loan Agreement, including limiting the requirement of subsidiary guaranties to material subsidiaries (as defined in the Credit Agreement) meeting certain conditions. At December 31, 2017, there were no subsidiaries meeting this requirement.
The Revolving Credit Facility bears interest at a rate equal to LIBOR plus 0.875% to 1.55% per annum or a specified base rate plus 0.0% to 0.55% and requires a facility fee in an amount equal to the aggregate revolving credit commitments (whether or not utilized) multiplied by a rate equal to 0.125% to 0.30% per annum, in each case depending on the Corporation's credit rating. As of December 31, 2017, the Revolving Credit Facility bore interest at LIBOR plus 1.25% based on the Company's credit rating and incurred a facility fee of 0.25% per annum.

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The Operating Partnership may voluntarily prepay the Revolving Credit Facility, in whole or in part, at any time, without premium or penalty, but subject to applicable LIBOR breakage fees, if any. Payment of the Revolving Credit Facility is unconditionally guaranteed by the Corporation and material subsidiaries that meet certain conditions (as defined in the Credit Agreement). As of December 31, 2017, there were no subsidiaries that met this requirement.
As of December 31, 2017, $112.0 million in borrowings were outstanding and $688.0 million of borrowing capacity was available under the Revolving Credit Facility. Amounts available for borrowing under the Revolving Credit Facility remain subject to compliance with certain customary restrictive covenants including:
Maximum leverage ratio (defined as consolidated total indebtedness plus the Corporation’s pro rata share of indebtedness of unconsolidated affiliates, net of certain cash and cash equivalents, to total asset value) of 0.60:1.00, which may be increased to 0.65:1.00 for four consecutive quarters after certain material acquisitions;
Minimum fixed charge coverage ratio (defined as EBITDA plus the Corporation’s pro rata share of EBITDA of unconsolidated affiliates, to fixed charges) of 1.50:1.00;
Maximum secured indebtedness leverage ratio (defined as consolidated secured indebtedness plus the Corporation’s pro rata share of secured indebtedness of unconsolidated affiliates, net of certain cash and cash equivalents, to total asset value) of 0.50:1:00;
Minimum unsecured interest coverage ratio (defined as consolidated net operating income from unencumbered properties, to unsecured interest expense) of 1.75:1.00;
Maximum unencumbered leverage ratio (defined as consolidated unsecured indebtedness plus the Corporation’s pro rata share of unsecured indebtedness of unconsolidated affiliates, net of certain cash and cash equivalents, to total unencumbered asset value) of 0.60:1:00, which may be increased to 0.65:1.00 for four consecutive quarters after certain material acquisitions; and
Minimum tangible net worth of at least $3.01 billion plus 75% of the net proceeds of equity issuances by the Corporation or the Operating Partnership after December 31, 2014.
In addition to these covenants, the Credit Agreement also includes other customary affirmative and negative covenants, such as (i) limitation on liens and negative pledges; (ii) transactions with affiliates; (iii) limitation on mergers, consolidations and sales of all or substantially all assets; (iv) maintenance of status as a REIT and listing on any national securities exchange; and (v) material modifications to organizational documents.
As of December 31, 2017, the Corporation and the Operating Partnership were in compliance with these covenants.
Term Loan
On November 3, 2015, we entered into a Term Loan Agreement among the Operating Partnership as borrower, the Corporation as guarantor and the lenders that are parties thereto. The Term Loan Agreement provides for a $325.0 million senior unsecured term facility that has an initial maturity date of November 2, 2018, which may be extended at our option pursuant to two one-year extension options, subject to the satisfaction of certain conditions and payment of an extension fee. In addition, an accordion feature allows the facility to be increased to up to $600.0 million, subject to obtaining additional lender commitments. In December 2015, upon obtaining additional lender commitments, we increased the term facility from $325.0 million to $370.0 million. On December 19, 2016, we increased the term facility from $370.0 million to $420.0 million.
The Term Loan Agreement provides that borrowings bear interest at either LIBOR plus 1.35% to 1.80% per annum or a specified base rate plus 0.35% to 0.80% per annum, at the Operating Partnership's election. In each case, the applicable margin is determined based upon the Corporation’s leverage ratio. If the Corporation obtains at least two credit ratings on its senior unsecured long-term indebtedness of BBB- from S&P or Fitch, Inc. or Baa3 from Moody's, the Operating Partnership may make an irrevocable election to have the margin based upon the Corporation's credit ratings. In April 2016, the Corporation received a first time rating of BBB- from Fitch and was upgraded to a BBB- corporate issuer rating by S&P. As a result, the Operating Partnership elected to change the interest rate grid from leverage based pricing to credit rating based pricing in the second quarter of 2016. Under credit rating based pricing, borrowings will bear interest at either LIBOR plus 0.90% to 1.75% per annum or a specified base rate plus 0.0% to 0.75% per annum, in each case depending on the Corporation’s credit ratings. As of December 31, 2017, the Term Loan bore interest at LIBOR plus 1.35% based on our credit rating.
The Operating Partnership may voluntarily prepay the Term Loan, in whole or in part, at any time, without premium or penalty, but subject to applicable LIBOR breakage fees. Amounts prepaid may be subsequently re-borrowed within 30 days. Payment of the Term Loan is unconditionally guaranteed by the Corporation and, under certain circumstances, by one or more material subsidiaries (as defined in the Term Loan Agreement) of the Corporation. The obligations of

24


the Operating Partnership and any guarantor under the Term Loan are full recourse to the Corporation and each guarantor.
As of December 31, 2017, the Term Loan provided $420.0 million of borrowing capacity. Amounts available for borrowing under the Term Loan remain subject to compliance with certain customary restrictive covenants including:
Maximum leverage ratio (defined as consolidated total indebtedness plus the Corporation’s pro rata share of indebtedness of unconsolidated affiliates, net of certain cash and cash equivalents, to total asset value) of 0.60:1.00, which may be increased to 0.65:1.00 for four consecutive quarters after certain material acquisitions;
Minimum fixed charge coverage ratio (defined as consolidated EBITDA plus the Corporation’s pro rata share of EBITDA of unconsolidated affiliates to fixed charges) of 1.50:1.00;
Maximum secured indebtedness leverage ratio (defined as consolidated secured indebtedness plus the Corporation’s pro rata share of secured indebtedness of unconsolidated affiliates, net of certain cash and cash equivalents to total asset value) of 0.50:1:00;
Minimum unsecured interest coverage ratio (defined as consolidated net operating income from unencumbered properties to unsecured interest expense) of 1.75:1.00;
Maximum unencumbered leverage ratio (defined as consolidated unsecured indebtedness plus the Corporation’s pro rata share of unsecured indebtedness of unconsolidated affiliates, net of certain cash and cash equivalents, to total unencumbered asset value) of 0.60:1:00, which may be increased to 0.65:1.00 for four consecutive quarters after certain material acquisitions; and
Minimum tangible net worth of at least $3.01 billion plus 75% of the net proceeds of equity issuances by the Corporation or the Operating Partnership after December 31, 2014.
In addition, the Term Loan Agreement includes other customary affirmative and negative covenants, including (i) limitation on liens and negative pledges; (ii) transactions with affiliates; (iii) limitation on mergers, consolidations and sales of all or substantially all assets; (iv) maintenance of status as a REIT and listing on a national securities exchange; and (v) material modifications to organizational documents. The ability to borrow under the Term Loan Agreement is subject to continued compliance with all of the covenants described above.
As of December 31, 2017, the Corporation and the Operating Partnership were in compliance with these financial covenants.
Senior Unsecured Notes
On August 18, 2016, the Operating Partnership completed a private placement of $300.0 million aggregate principal amount senior notes through a Rule 144A offering with registration rights, which are guaranteed by the Corporation. The Senior Unsecured Notes were issued at 99.378% of their principal amount, resulting in net proceeds of $296.2 million after deducting transaction fees and expenses. The Senior Unsecured Notes accrue interest at a rate of 4.450% per year, payable on March 15 and September 15 of each year, until the maturity date of September 15, 2026. The Company filed a registration statement with the SEC to exchange the private Senior Unsecured Notes for registered Senior Unsecured Notes with substantially identical terms, which became effective April 14, 2017. All $300.0 million aggregate principal amount of private Senior Unsecured Notes were tendered in the exchange for registered Senior Unsecured Notes.
The Senior Unsecured Notes are redeemable in whole at any time or in part from time to time, at the Operating Partnership’s option, at a redemption price equal to the sum of: an amount equal to 100% of the principal amount of the Senior Unsecured Notes to be redeemed plus accrued and unpaid interest and liquidated damages, if any, up to, but not including, the redemption date; and a make-whole premium calculated in accordance with the indenture. Notwithstanding the foregoing, if any of the Senior Unsecured Notes are redeemed on or after June 15, 2026 (three months prior to the maturity date of the Senior Unsecured Notes), the redemption price will not include a make-whole premium.  
In connection with the issuance of the Senior Unsecured Notes, the Corporation and Operating Partnership remain subject to compliance with certain customary restrictive covenants including:
Maximum leverage ratio (defined as consolidated total indebtedness, to total consolidated undepreciated real estate assets plus the Company’s other assets, excluding accounts receivable and non-real estate intangibles) of 0.60:1.00;

25


Minimum unencumbered asset coverage ratio (defined as total consolidated undepreciated real estate assets plus the Company’s other assets, excluding accounts receivable and non-real estate intangibles, to consolidated total unsecured indebtedness) of 1.50:1:00;
Maximum secured indebtedness leverage ratio (defined as consolidated total secured indebtedness, to total consolidated undepreciated real estate assets plus the Company’s other assets, excluding accounts receivable and non-real estate intangibles) of 0.40:1.00; and
Minimum fixed charge coverage ratio (defined as consolidated income available for debt service, to the annual service charge) of 1.50:1.0.
In addition, the Senior Unsecured Notes Agreement includes other customary affirmative and negative covenants, including (i) maintenance of status as a REIT; (ii) payment of all taxes, assessments and governmental charges levied on the REIT; (iii) reporting on financial information; and (iv) maintenance of properties and property insurance.
As of December 31, 2017, the Corporation and the Operating Partnership were in compliance with these financial covenants.
CMBS
We may use long-term, fixed-rate debt to finance our properties. In such events, we generally seek to use asset level financing that bears annual interest less than the annual rent on the related lease(s) and that matures prior to the expiration of such lease(s). In general, the obligor of our asset level debt is a special purpose entity that holds the real estate and other collateral securing the indebtedness. Each special purpose entity is a bankruptcy remote separate legal entity, and is the sole owner of its assets and solely responsible for its liabilities other than typical non-recurring covenants.
As of December 31, 2017, we had 12 loans with approximately $332.6 million of outstanding principal balances under our fixed rate CMBS loans, with a weighted average contractual interest rate of 5.81% and a weighted average maturity of 4.6 years. Approximately one-third of this debt is partially amortizing and requires a balloon payment at maturity. These balances include six separate fixed-rate CMBS loans that are in default due to the underperformance of the eight properties that secure them. As of December 31, 2017, the aggregate principal balance under the defaulted CMBS loans was $64.3 million, including $13.2 million of default interest added to principal, and is discussed further below. Excluding these six loans, the outstanding principal obligations under our CMBS fixed-rate loans as of December 31, 2017 was $268.3 million.
The table below shows the outstanding principal obligations, including amortization, of these CMBS fixed rate loans as of December 31, 2017 and the year in which the loans mature (dollars in thousands). The information displayed in the table excludes amounts and interest rates related to the defaulted loans and the eight properties securing them.
Year of Maturity
Number of Loans
 
Number of Properties
 
Stated Interest Rate Range
 
Weighted Average Stated Rate
 
Scheduled Principal
 
Balloon
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018

 

 
 
%
 
$
3,692

 
$

 
$
3,692

2019

 

 
 

 
3,905

 

 
3,905

2020

 

 
 

 
4,100

 

 
4,100

2021

 

 
 

 
4,365

 

 
4,365

2022
1

 
12

 
4.67%
 
4.67

 
4,617

 
42,400

 
47,017

Thereafter
5

 
88

 
5.23%-6.00%
 
5.48

 
7,276

 
197,980

 
205,256

Total
6

 
100

 
 
 
5.35
%
 
$
27,955

 
$
240,380

 
$
268,335

CMBS Liquidity Matters
As of December 31, 2017, we are in default on six separate CMBS loans due to the underperformance of the properties securing these loans. The wholly-owned special purpose entities subject to these mortgage loans are separate legal entities and the sole owner of their assets and responsible for their liabilities. The aggregate outstanding principal balance of these loans, including capitalized interest, totaled $64.3 million. We believe the value of these properties is less than the related debt. As a result, we have notified the lenders of each special purpose entity that we anticipate

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either surrendering these properties to the lenders or selling them in certain instances in exchange for relieving the indebtedness, including any accrued interest and accrued or unpaid property expenses, encumbering them.
The following table provides key elements of the defaulted mortgage loans (dollars in thousands):
Industry
Properties
 
Net Book Value
 
Monthly Base Rent
 
Pre-Default Outstanding Principal
 
Capitalized Interest (1)
 
Total Debt Outstanding
 
Restricted Cash (2)
 
Stated Rate
 
Default Rate
 
Accrued Interest (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing
2
 
$
3,618

 
$
16

 
$
5,460

 
$
11,354

 
$
16,814

 
$

 
5.85
%
 
9.85
%
 
$
143

Sporting Goods
1
 
3,070

 

 
6,321

 
429

 
6,750

 
453

 
5.62

 
10.62

 
80

Consumer Electronics
1
 
3,021

 

 
8,592

 
592

 
9,184

 
286

 
5.87

 
9.87

 
62

Multi-Tenant Retail
1
 
12,580

 
95

 
17,250

 
398

 
17,648

 
575

 
5.53

 
7.53

 
78

Sporting Goods
2
 
3,457

 

 
9,625

 
310

 
9,935

 

 
4.39

 
9.39

 
78

Sporting Goods
1
 
2,010

 

 
3,853

 
128

 
3,981

 
169

 
4.65

 
9.65

 
33


8
 
$
27,756

 
$
111

 
$
51,101

 
$
13,211

 
$
64,312

 
$
1,483

 
5.44
%
 
9.21
%
 
$
474

(1) Interest capitalized to principal that remains unpaid.
(2) Represents restricted cash controlled by the lender that may be applied to reduce the outstanding principal balance.
Debt Maturities
Future principal payments due on our various types of debt outstanding as of December 31, 2017 (in thousands):
 
Total
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facility
112,000

 

 
112,000

 

 

 

 

Master Trust Notes
2,248,504

 
163,185

 
40,230

 
410,713

 
237,790

 
969,020

 
427,566

CMBS - fixed-rate (1)
332,647

 
68,004

 
3,905

 
4,100

 
4,365

 
47,017

 
205,256

Convertible Notes
747,500

 

 
402,500

 

 
345,000

 

 

Unsecured Senior Notes
300,000

 

 

 

 

 

 
300,000

 
$
3,740,651

 
$
231,189

 
$
558,635

 
$
414,813

 
$
587,155

 
$
1,016,037

 
$
932,822

(1) The CMBS - fixed-rate payment balance in 2018 includes $64.3 million, including $13.2 million of capitalized interest, for the acceleration of principal payable following an event of default under 6 separate CMBS loans with stated maturities in 2018.

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Contractual Obligations
The following table provides information with respect to our commitments as well as potential acquisitions under contract as of December 31, 2017, the table does not reflect available debt extensions (in thousands):
 
 
Payment due by period
 
 
 
 
 
 
 
 
 
 
More than
 
 
 
 
Less than 1
 
1-3 years
 
3-5 years
 
5 years
Contractual Obligations
 
Total
 
Year (2018)
 
(2019-2020)
 
(2021-2022)
 
(after 2022)