Edgar Filing: SPIRIT REALTY CAPITAL, INC.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-36004

_______________________________________________

SPIRIT REALTY CAPITAL, INC.

(Exact name of registrant as specified in its charter)

_______________________________________________



Maryland		20-1676382
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2727 North Harwood Street, Suite 300, Dallas, Texas 75201		(972) 746-1900
(Address of principal executive offices; zip code)		(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

______________________________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x		Accelerated filer	o
Non-accelerated filer	o	(Do not check if smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of August 3, 2015, there were 441,520,851 shares of common stock, par value $0.01, of Spirit Realty Capital, Inc. outstanding.

SPIRIT REALTY CAPITAL, INC.

INDEX



Explanatory Note	3
Glossary	4
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements, As Restated
Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014	6
Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (Unaudited)	7
Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014 (Unaudited)	8
Consolidated Statement of Stockholders' Equity for the six months ended June 30, 2015 (Unaudited)	9
Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (Unaudited)	10
Notes to Consolidated Financial Statements (Unaudited)	11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, As Restated	41
Item 3. Quantitative and Qualitative Disclosures About Market Risk	70
Item 4. Controls and Procedures, As Restated	71
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	72
Item 1A. Risk Factors	72
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3. Defaults Upon Senior Securities	72
Item 4. Mine Safety Disclosures	72
Item 5. Other Information	72
Item 6. Exhibits	74
Signatures	78

EXPLANATORY NOTE

The Company is restating its interim unaudited consolidated financial statements for the quarter ended June 30, 2015. See the Company's Current Report on Form 8-K filed with the SEC on October 19, 2016 for additional details.

When the Company disposes of real estate assets, if the real estate assets constitute a business, a portion of the Company’s goodwill should be allocated to the carrying value of the business disposed of to determine the gain/loss on disposal. Further, when the Company classifies real estate assets that constitute a business as held for sale, the carrying amount used to determine an impairment loss, if any, should include an allocation of goodwill, in accordance with ASC 350 “Intangibles - Goodwill and Other." Historically, the Company did not allocate goodwill resulting from the Cole II Merger to real estate assets disposed of or consider the amount of goodwill attributable to real estate assets held for sale in assessing impairment in the Company’s consolidated financial statements as of and for the three and six months ended June 30, 2015.

As explained in Note 2 to the consolidated financial statements included within this Form 10-Q/A (as defined below), the restatement is a correction of an error in the application of the accounting treatment under ASC 350. For each real estate asset that constitutes a business that was disposed of or classified as held for sale, the restatement reflects an allocation of goodwill that has been derived based upon the proportionate fair value of the real estate asset to the fair value of the Company’s reporting unit (i.e. the Company's equity).

The allocation of goodwill to real estate assets disposed of resulted in a decrease in gain on disposition of assets of $11.5 million and $13.7 million for the three and six months ended June 30, 2015, respectively, and a decrease of $19.5 million to goodwill as of June 30, 2015. The allocation of goodwill to real estate assets held for sale resulted in an increase of $0.01 million and $0.6 million to impairments for the three and six months ended June 30, 2015, respectively, and a decrease of $1.2 million to real estate assets held for sale, net as of June 30, 2015. Additionally, the correction of these errors resulted in an increase of $20.7 million to accumulated deficit as of June 30, 2015.

This Amendment No. 1 on Form 10-Q/A (“Form 10-Q/A”) to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, initially filed with the SEC on August 7, 2015 (the “Original Filing”), is being filed to reflect the restatement of (i) the Company’s consolidated balance sheet at June 30, 2015, (ii) the Company’s consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2015 and (iii) the Company's consolidated statements of stockholders’ equity and cash flows for the six months ended June 30, 2015, and the notes related thereto. Additionally, although the effects were determined to be immaterial, the Company’s consolidated balance sheet as of December 31, 2014, the Company’s consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2014 and the Company's consolidated statement of cash flows for the six months ended June 30, 2014 included in this Form 10-Q/A are being restated to reflect the correction of these errors. For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing in its entirety and only amends and restates Items 1, 2, and 4 of Part I of the Original Filing to reflect the adjustments described above and in Note 2, and the related impact on disclosures. No other information in the Original Filing is amended. For a more detailed description of these matters, see Note 2 to the accompanying consolidated financial statements in this Form 10-Q/A.

Notably, these adjustments did not negatively impact the following metrics of the Company:


•	Revenues;


•	Cash position or its total cash flows from operating, investing or financing activities;


•	Liquidity;


•	Funds from operations (“FFO”);


•	Adjusted funds from operations (“AFFO”);


•	Reported capitalization rates on the sale of assets; and


•	Any metric utilized in the determination of executive compensation.

Additionally, the Company remains in compliance with all of its debt agreements and financial covenants.

Pursuant to the rules of the SEC, Item 6 of Part II of the Original Filing has been amended to contain the currently-dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of our Chief Executive Officer and Chief Financial Officer are attached to this Form 10-Q/A as Exhibits 31.1, 31.2 and 32.1, respectively.

GLOSSARY



Definitions:
1031 Exchange	Tax-deferred like-kind exchange of properties held for business or investment purposes, pursuant to Section 1031 of the Code
2013 Credit Facility	$400.0 million secured credit facility pursuant to the credit agreement between the Operating Partnership and certain lenders dated July 17, 2013
2015 Credit Facility	$600.0 million unsecured credit facility pursuant to the Credit Agreement
2019 Notes	$402.5 million convertible notes of the Corporation due in 2019
2021 Notes	$345.0 million convertible notes of the Corporation due in 2021
Additional Collateral Deposit	A cash reserve deposit or letter of credit in the amount of $8.0 million required pursuant to an amendment of a certain CMBS loan agreement
AFFO	Adjusted Funds From Operations
AOCL	Accumulated Other Comprehensive Loss
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
ATM Program	At the Market equity distribution program, pursuant to which the Corporation may offer and sell registered shares of common stock from time to time
CMBS	Commercial Mortgage Backed Securities
Code	Internal Revenue Code of 1986, as amended
Cole II	Cole Credit Property Trust II, Inc.
Cole II Merger	Acquisition on July 17, 2013 of Cole II by the Company, in which the Company merged with and into the Cole II legal entity
Collateral Pools	Pools of collateral assets that are pledged to the indenture trustee for the benefit of the noteholders and secure obligations of issuers under the Spirit Master Funding Program
Company	The Corporation and its consolidated subsidiaries
Convertible Notes	The 2019 Notes and 2021 Notes, together
Corporation	Spirit Realty Capital, Inc., a Maryland corporation
CPI	Consumer Price Index
Credit Agreement	2015 credit facility agreement between the Operating Partnership and certain lenders dated March 31, 2015
EBITDA	Earnings Before Interest, Taxes, Depreciation and Amortization
EBITDAR	Earnings Before Interest, Taxes, Depreciation, Amortization and Rent
Excess Cash	Rent received in excess of debt service obligations
Exchange Act	Securities Exchange Act of 1934, as amended
Exchange Offer	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 in May 2014
FASB	Financial Accounting Standards Board
FFO	Funds From Operations
GAAP	Generally Accepted Accounting Principles
Incentive Award Plan	Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan
IPO	Initial Public Offering
LIBOR	London Interbank Offered Rate
Line of Credit	$40.0 million secured revolving credit facility pursuant to the loan agreement between an indirect wholly-owned subsidiary of the Corporation and a certain lender dated March 27, 2013, as amended
Master Trust 2013	The net-lease mortgage securitization trust established in December 2013 under the Spirit Master Funding Program
Master Trust 2014	The net-lease mortgage securitization trust established in 2005 and amended and restated in 2014 under the Spirit Master Funding Program



Definitions:
Master Trust Exchange Costs	Legal, accounting and financial advisory services costs incurred in connection with the Exchange Offer
Master Trust Notes	The Master Trust 2013 and Master Trust 2014 notes, together
Master Trust Release	Proceeds from the sale of assets securing the Master Trust Notes held in restricted accounts until a qualifying substitution is made
Moody's	Moody's Investor Services
NAREIT	National Association of Real Estate Investment Trusts
Normalized Rental Revenue	Total rental revenue normalized to exclude rental revenues contributed by properties sold during a given period
Normalized Revenue	Total revenue normalized to exclude revenues contributed by properties sold during a given period
OP Holdings	Spirit General OP Holdings, LLC
Operating Partnership	Spirit Realty, L.P., a Delaware limited partnership
REIT	Real Estate Investment Trust
Revolving Credit Facilities	The 2013 Credit Facility, the 2015 Credit Facility and Line of Credit, together
S&P	Standard & Poor's Rating Services
SEC	Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
Shopko	Specialty Retail Shops Holding Corp. and certain of its affiliates
Spirit Master Funding Program	The Company's asset-backed securitization program that comprises Master Trust 2013 and Master Trust 2014
Total Debt	Principal debt outstanding before discounts or premiums
TSR	Total Shareholder Return
Walgreens	Walgreen Company

Unless otherwise indicated or unless the context requires otherwise, all references to "we," "us" or "our" refer to the Corporation and its consolidated subsidiaries including the Operating Partnership.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SPIRIT REALTY CAPITAL, INC.

Consolidated Balance Sheets (As Restated, see Note 2)

(In Thousands, Except Share and Per Share Data)

(Unaudited)



	June 30, 2015			December 31, 2014
	(Restated)			(Restated)
Assets
Investments:
Real estate investments:
Land and improvements	$	2,679,387		$	2,614,630
Buildings and improvements	4,714,561			4,579,166
Total real estate investments	7,393,948			7,193,796
Less: accumulated depreciation	(785,360		)	(752,210		)
	6,608,588			6,441,586
Loans receivable, net	109,377			109,425
Intangible lease assets, net	557,214			590,073
Real estate assets under direct financing leases, net	44,382			56,564
Real estate assets held for sale, net	107,100			119,046
Net investments	7,426,661			7,316,694
Cash and cash equivalents	39,674			176,181
Deferred costs and other assets, net	170,244			185,507
Goodwill	271,914			285,848
Total assets	$	7,908,493		$	7,964,230
Liabilities and stockholders’ equity
Liabilities:
Revolving Credit Facilities	$	20,000		$	15,114
Mortgages and notes payable, net	3,291,679			3,629,998
Convertible Notes, net	684,066			678,190
Total debt, net	3,995,745			4,323,302
Intangible lease liabilities, net	202,021			205,968
Accounts payable, accrued expenses and other liabilities	120,134			123,298
Total liabilities	4,317,900			4,652,568
Commitments and contingencies (see Note 8)
Stockholders’ equity:
Common stock, $0.01 par value, 750,000,000 shares authorized: 441,512,923 shares and 411,350,440 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively	4,415			4,113
Capital in excess of par value	4,715,340			4,361,320
Accumulated deficit	(1,127,965		)	(1,052,688		)
Accumulated other comprehensive loss	(1,197		)	(1,083		)
Total stockholders’ equity	3,590,593			3,311,662
Total liabilities and stockholders’ equity	$	7,908,493		$	7,964,230

See accompanying notes.

SPIRIT REALTY CAPITAL, INC.

Consolidated Statements of Operations (As Restated, see Note 2)

(In Thousands, Except Share and Per Share Data)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenues:	(Restated)			(Restated)			(Restated)			(Restated)
Rentals	$	159,607		$	143,142		$	314,125		$	280,621
Interest income on loans receivable	1,730			1,821			3,452			3,658
Earned income from direct financing leases	779			838			1,574			1,684
Tenant reimbursement income	3,492			2,921			8,123			6,240
Other income and interest from real estate transactions	2,326			3,067			2,947			3,558
Total revenues	167,934			151,789			330,221			295,761
Expenses:
General and administrative	11,972			10,451			24,572			21,501
Finance restructuring costs	—			13,016			—			13,033
Property costs	6,414			6,576			13,821			11,858
Real estate acquisition costs	453			226			1,546			1,507
Interest	56,167			55,992			114,081			110,391
Depreciation and amortization	64,671			61,968			130,967			122,517
Impairments	33,771			28,152			35,971			30,063
Total expenses	173,448			176,381			320,958			310,870
(Loss) income from continuing operations before other income (expense) and income tax expense	(5,514		)	(24,592		)	9,263			(15,109		)
Other income (expense):
Gain (loss) on debt extinguishment	3,377			(64,708		)	2,147			(64,708		)
Total other income (expense)	3,377			(64,708		)	2,147			(64,708		)
(Loss) income from continuing operations before income tax expense	(2,137		)	(89,300		)	11,410			(79,817		)
Income tax expense	(161		)	(127		)	(523		)	(344		)
(Loss) income from continuing operations	(2,298		)	(89,427		)	10,887			(80,161		)
Discontinued operations:
(Loss) income from discontinued operations	(96		)	279			131			3,333
Gain on disposition of assets	590			92			590			85
Income from discontinued operations	494			371			721			3,418
(Loss) income before gain (loss) on disposition of assets	(1,804		)	(89,056		)	11,608			(76,743		)
Gain (loss) on disposition of assets	51,149			(1,290		)	60,300			245
Net income (loss) attributable to common stockholders	$	49,345		$	(90,346	)	$	71,908		$	(76,498	)
Net income (loss) per share of common stock—basic:
Continuing operations	$	0.11		$	(0.24	)	$	0.17		$	(0.21	)
Discontinued operations	—			—			—			0.01
Net income (loss) per share attributable to common stockholders—basic	$	0.11		$	(0.24	)	$	0.17		$	(0.20	)
Net income (loss) per share of common stock—diluted:
Continuing operations	$	0.11		$	(0.24	)	$	0.17		$	(0.21	)
Discontinued operations	—			—			—			0.01
Net income (loss) per share attributable to common stockholders—diluted	$	0.11		$	(0.24	)	$	0.17		$	(0.20	)
Weighted average shares of common stock outstanding:
Basic	436,619,138			381,775,203			423,889,238			375,266,233
Diluted	436,923,755			381,775,203			424,343,232			375,266,233
Dividends declared per common share issued	$	0.17000		$	0.16625		$	0.34000		$	0.33250

See accompanying notes.

SPIRIT REALTY CAPITAL, INC.

Consolidated Statements of Comprehensive Income (Loss) (As Restated, see Note 2)

(In Thousands)

(Unaudited)



	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015			2014
	(Restated)		(Restated)			(Restated)			(Restated)
Net income (loss) attributable to common stockholders	$	49,345	$	(90,346	)	$	71,908		$	(76,498	)
Other comprehensive income (loss):
Change in net unrealized gains (losses) on cash flow hedges	40		(875		)	(811		)	(1,277		)
Net cash flow hedge losses reclassified to operations	381		331			697			654
Total comprehensive income (loss)	$	49,766	$	(90,890	)	$	71,794		$	(77,121	)

See accompanying notes.

SPIRIT REALTY CAPITAL, INC.

Consolidated Statement of Stockholders’ Equity (As Restated, see Note 2)

(In Thousands, Except Share Data)

(Unaudited)



	Common Stock												Total Stockholders’ Equity
	Shares		Par Value		Capital in Excess of Par Value		Accumulated Deficit			AOCL			Total Stockholders’ Equity
Balances, December 31, 2014 (Restated)	411,350,440		$	4,113	$	4,361,320	$	(1,052,688	)	$	(1,083	)	$	3,311,662
Net income (Restated)	—		—		—		71,908			—			71,908
Other comprehensive loss	—		—		—		—			(114		)	(114		)
Dividends declared on common stock	—		—		—		(146,177		)	—			(146,177		)
Repurchase of shares of common stock	(60,603	)	—		—		(720		)	—			(720		)
Issuance of shares of common stock, net	29,610,100		296		346,959		—			—			347,255
Exercise of stock options	5,000		—		46		—			—			46
Stock-based compensation, net	607,986		6		7,015		(288		)	—			6,733
Balances, June 30, 2015 (Restated)	441,512,923		$	4,415	$	4,715,340	$	(1,127,965	)	$	(1,197	)	$	3,590,593

See accompanying notes.

SPIRIT REALTY CAPITAL, INC.

Consolidated Statements of Cash Flows (As Restated, see Note 2)

(In Thousands)

(Unaudited)



	Six Months Ended June 30,
	2015			2014
Operating activities	(Restated)			(Restated)
Net income (loss) attributable to common stockholders	$	71,908		$	(76,498	)
Adjustments to reconcile net income (loss) attributable to common stockholders to net cash provided by operating activities:
Depreciation and amortization	130,967			122,517
Impairments	36,005			30,063
Amortization of deferred financing costs	3,973			2,297
Derivative net settlements, amortization and other interest rate hedge losses	(85		)	(50		)
Amortization of debt discounts (premiums)	1,139			(1,043		)
Stock-based compensation expense	7,288			5,484
(Gain) loss on debt extinguishment	(2,147		)	64,708
Debt extinguishment costs	(3,623		)	(59,069		)
Gains on dispositions of real estate and other assets, net	(60,890		)	(330		)
Non-cash revenue	(10,551		)	(8,344		)
Other	(27		)	242
Changes in operating assets and liabilities:
Deferred costs and other assets, net	(1,641		)	(2,352		)
Accounts payable, accrued expenses and other liabilities	(4,677		)	(9,062		)
Net cash provided by operating activities	167,639			68,563
Investing activities
Acquisitions of real estate	(547,487		)	(363,643		)
Capitalized real estate expenditures	(3,175		)	(2,250		)
Investments in loans receivable	(4,000		)	—
Collections of principal on loans receivable and real estate assets under direct financing leases	2,924			3,286
Proceeds from dispositions of real estate and other assets	340,971			14,218
Transfers of net sales proceeds (to) from restricted accounts pursuant to 1031 Exchanges	(40,034		)	20,784
Transfers of net sales proceeds from (to) Master Trust Release	43,442			(13,054		)
Net cash used in investing activities	(207,359		)	(340,659		)
Financing activities
Borrowings under Revolving Credit Facilities	405,000			405,535
Repayments under Revolving Credit Facilities	(400,181		)	(425,127		)
Borrowings under mortgages and notes payable	—			757,500
Repayments under mortgages and notes payable	(321,884		)	(553,882		)
Deferred financing costs	(3,782		)	(20,000		)
Proceeds from issuance of common stock, net of offering costs	347,255			287,704
Proceeds from exercise of stock options	46			183
Offering costs paid on equity component of Convertible Notes	—			(1,609		)
Purchase of shares of common stock	(720		)	(110		)
Dividends paid/distributions to equity owners	(141,174		)	(123,207		)
Transfers from (to) reserve/escrow deposits with lenders	18,653			(503		)
Net cash (used in) provided by financing activities	(96,787		)	326,484
Net (decrease) increase in cash and cash equivalents	(136,507		)	54,388
Cash and cash equivalents, beginning of period	176,181			66,588
Cash and cash equivalents, end of period	$	39,674		$	120,976

See accompanying notes.

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements

June 30, 2015

(Unaudited)

Note 1. Organization

Company Organization and Operations

The Company operates as a self-administered and self-managed REIT that seeks to generate and deliver sustainable and attractive returns for stockholders by investing primarily in and managing a portfolio of single-tenant, operationally essential real estate throughout the United States that is generally leased on a long-term, triple-net basis to tenants operating within predominantly retail, but also office and industrial property types. Single tenant, operationally essential real estate generally refers to free-standing, commercial real estate facilities where tenants conduct activities that are essential to the generation of their sales and profits.

The Company’s operations are generally carried out through the Operating Partnership. OP Holdings, one of the Corporation's wholly-owned subsidiaries, is the sole general partner and owns 1.0% of the Operating Partnership. The Corporation and a wholly-owned subsidiary are the only limited partners and together own the remaining 99.0% of the Operating Partnership.

As of June 30, 2015, our undepreciated investment in real estate and loans totaled approximately $8.21 billion, representing investments in 2,600 properties, including properties securing mortgage loans made by the Company. Of this amount, 98.7% consisted of our $8.10 billion investment in real estate, representing ownership of 2,455 properties, and the remaining 1.3% consisted of $109.4 million in commercial mortgage and other loans receivable, primarily secured by the remaining 145 properties or other related assets.

Note 2. Restatement

The restatement of the Company's consolidated financial statements results from the Company's subsequent accounting for goodwill resulting from the Cole II Merger. Previously, the Company did not allocate goodwill to the disposal of real estate assets or held for sale real estate assets that met the definition of a business under GAAP, as required by ASC 350 “Intangibles - Goodwill and Other” in order to determine gain on disposition of assets or impairments, if any, respectively.

For the disposal of real estate assets that constituted a business, goodwill and gain on disposition of assets both should have been reduced by the proportionate amount of goodwill allocated to each disposed of real estate asset. The amount of goodwill allocated is derived as the proportionate fair value of the real estate considered to be a business under GAAP at the time of sale to the fair value of the Company’s reporting unit. As a result, the restated consolidated balance sheet includes a reduction to goodwill of $19.5 million at June 30, 2015 and the restated consolidated statement of operations includes a reduction to gain on disposition of assets of $11.5 million and $13.7 million for the three and six months ended June 30, 2015, respectively. The restated consolidated balance sheet includes a reduction to goodwill of $5.6 million at December 31, 2014. There was no reduction and a $0.2 million reduction to (loss) gain on disposition of assets for the three and six months ended June 30, 2014, respectively.

Further, in evaluating the impairment on held for sale real estate assets considered to be a business under GAAP, the proportionate amount of goodwill attributable to the real estate asset held for sale should be considered in determining the amount of impairment, if any. The amount of goodwill attributed is derived as the proportionate fair value of the real estate asset considered to be a business under GAAP held for sale at measurement date to the fair value of the Company’s reporting unit. As a result, the restated consolidated balance sheet includes a reduction to real estate assets held for sale, net of $1.2 million at June 30, 2015 and the restated consolidated statement of operations includes an increase to impairments of $0.01 million and $0.6 million for the three and six months ended June 30, 2015, respectively. The restated consolidated balance sheet includes a reduction to real estate assets held for sale, net of $0.9 million at December 31, 2014 and the restated consolidated statement of operations includes an increase to impairments of $0.5 million and $0.7 million for the three and six month ended June 30, 2014, respectively.

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

June 30, 2015

(Unaudited)

The Company has historically presented share repurchases as treasury stock (thereby reducing stockholders’ equity) in the consolidated balance sheets and consolidated statements of stockholders’ equity. However, the Company is incorporated in Maryland and under Maryland law, there is no concept of treasury stock. Therefore, shares repurchased should be considered retired and constitute authorized but unissued shares rather than treasury stock as previously presented. As a result, during the six months ended June 31, 2015, the Company has corrected the classification error and the amount previously reported as treasury stock of $4.9 million at December 31, 2014 is presented as a reduction to common stock and an increase in accumulated deficit in the restated consolidated balance sheet and consolidated statement of stockholders' equity. In addition, the number of shares previously disclosed as issued have been reduced by the number of shares repurchased of 473,599 December 31, 2014. This change does not affect previously disclosed shares outstanding, total stockholders’ equity or earnings per share computations.

The consolidated financial statements included in this Form 10-Q/A have been restated as of June 30, 2015 and for the three and six months then ended to reflect the adjustments described above. The consolidated financial statements included in this Form 10-Q/A have been restated as of December 31, 2014 and for the three and six months ended June 30, 2014 to reflect the adjustments described above. The following statements present the effect of the restatement on (i) the Company's consolidated balance sheets at June 30, 2015 and December 31, 2014, (ii) the Company's consolidated statements of operations for the three and six months ended June 30, 2015 and 2014 and (iii) the Company's consolidated statements of cash flows for the six months ended June 30, 2015 and 2014. The Company did not present a summary of the effect of the restatement on the consolidated statement of stockholders' equity for any of the above referenced periods because the impact to stockholders' equity is reflected below in the restated consolidated balance sheets. The Company did not present a summary of the effect of the restatement on the consolidated statements of comprehensive income (loss) for any of the above referenced periods because the impact to net income (loss) is reflected below in the restated consolidated statements of operations and the restatement adjustments did not affect any other component of comprehensive income (loss).

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

June 30, 2015

(Unaudited)

The following table presents the consolidated balance sheet as previously reported, restatement adjustments and the consolidated balance sheet as restated at June 30, 2015 (in thousands, except per share data):



	As Previously Reported			Restatement Adjustments			As Restated
Assets
Investments:
Real estate investments:
Land and improvements	$	2,679,387		$	—		$	2,679,387
Buildings and improvements	4,714,561			—			4,714,561
Total real estate investments	7,393,948			—			7,393,948
Less: accumulated depreciation	(785,360		)	—			(785,360		)
	6,608,588			—			6,608,588
Loans receivable, net	109,377			—			109,377
Intangible lease assets, net	557,214			—			557,214
Real estate assets under direct financing leases, net	44,382			—			44,382
Real estate assets held for sale, net	108,339			(1,239		)	107,100
Net investments	7,427,900			(1,239		)	7,426,661
Cash and cash equivalents	39,674			—			39,674
Deferred costs and other assets, net	170,244			—			170,244
Goodwill	291,421			(19,507		)	271,914
Total assets	$	7,929,239		$	(20,746	)	$	7,908,493
Liabilities and stockholders’ equity
Liabilities:
Revolving credit facilities	$	20,000		$	—		$	20,000
Mortgages and notes payable, net	3,291,679			—			3,291,679
Convertible Notes, net	684,066			—			684,066
Total debt, net	3,995,745			—			3,995,745
Intangible lease liabilities, net	202,021			—			202,021
Accounts payable, accrued expenses and other liabilities	120,134			—			120,134
Total liabilities	4,317,900			—			4,317,900
Commitments and contingencies (see Note 8)
Stockholders’ equity:
Common stock, $0.01 par value	4,420			(5		)	4,415
Capital in excess of par value	4,715,340			—			4,715,340
Accumulated deficit	(1,101,642		)	(26,323		)	(1,127,965		)
Accumulated other comprehensive loss	(1,197		)	—			(1,197		)
Treasury stock, at cost	(5,582		)	5,582			—
Total stockholders’ equity	3,611,339			(20,746		)	3,590,593
Total liabilities and stockholders’ equity	$	7,929,239		$	(20,746	)	$	7,908,493

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

June 30, 2015

(Unaudited)

The following table presents the consolidated balance sheet as previously reported, restatement adjustments and the consolidated balance sheet as restated at December 31, 2014 (in thousands, except per share data):



	As Previously Reported			Restatement Adjustments			As Restated
Assets
Investments:
Real estate investments:
Land and improvements	$	2,614,630		$	—		$	2,614,630
Buildings and improvements	4,579,166			—			4,579,166
Total real estate investments	7,193,796			—			7,193,796
Less: accumulated depreciation	(752,210		)	—			(752,210		)
	6,441,586			—			6,441,586
Loans receivable, net	109,425			—			109,425
Intangible lease assets, net	590,073			—			590,073
Real estate assets under direct financing leases, net	56,564			—			56,564
Real estate assets held for sale, net	119,912			(866		)	119,046
Net investments	7,317,560			(866		)	7,316,694
Cash and cash equivalents	176,181			—			176,181
Deferred costs and other assets, net	185,507			—			185,507
Goodwill	291,421			(5,573		)	285,848
Total assets	$	7,970,669		$	(6,439	)	$	7,964,230
Liabilities and stockholders’ equity
Liabilities:
Revolving credit facilities	$	15,114		$	—		$	15,114
Mortgages and notes payable, net	3,629,998			—			3,629,998
Convertible Notes, net	678,190			—			678,190
Total debt, net	4,323,302			—			4,323,302
Intangible lease liabilities, net	205,968			—			205,968
Accounts payable, accrued expenses and other liabilities	123,298			—			123,298
Total liabilities	4,652,568			—			4,652,568
Commitments and contingencies (see Note 8)
Stockholders’ equity:
Common stock, $0.01 par value	4,118			(5		)	4,113
Capital in excess of par value	4,361,320			—			4,361,320
Accumulated deficit	(1,041,392		)	(11,296		)	(1,052,688		)
Accumulated other comprehensive loss	(1,083		)	—			(1,083		)
Treasury stock, at cost	(4,862		)	4,862			—
Total stockholders’ equity	3,318,101			(6,439		)	3,311,662
Total liabilities and stockholders’ equity	$	7,970,669		$	(6,439	)	$	7,964,230

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

June 30, 2015

(Unaudited)

The following table presents the consolidated statement of operations as previously reported, restatement adjustments and the consolidated statement of operations as restated for the three months ended June 30, 2015 (in thousands, except share and per share data):



	As Previously Reported			Restatement Adjustments			As Restated
Revenues:
Rentals	$	159,607		$	—		$	159,607
Interest income on loans receivable	1,730			—			1,730
Earned income from direct financing leases	779			—			779
Tenant reimbursement income	3,492			—			3,492
Other income and interest from real estate transactions	2,326			—			2,326
Total revenues	167,934			—			167,934
Expenses:
General and administrative	11,972			—			11,972
Property costs	6,414			—			6,414
Real estate acquisition costs	453			—			453
Interest	56,167			—			56,167
Depreciation and amortization	64,671			—			64,671
Impairments	33,766			5			33,771
Total expenses	173,443			5			173,448
Loss from continuing operations before other income and income tax expense	(5,509		)	(5		)	(5,514		)
Other income:
Gain on debt extinguishment	3,377			—			3,377
Total other income	3,377			—			3,377
Loss from continuing operations before income tax expense	(2,132		)	(5		)	(2,137		)
Income tax expense	(161		)	—			(161		)
Loss from continuing operations	(2,293		)	(5		)	(2,298		)
Discontinued operations:
Loss from discontinued operations	(96		)	—			(96		)
Gain on disposition of assets	590			—			590
Income from discontinued operations	494			—			494
Loss before gain on disposition of assets	(1,799		)	(5		)	(1,804		)
Gain on disposition of assets	62,690			(11,541		)	51,149
Net income attributable to common stockholders	$	60,891		$	(11,546	)	$	49,345
Net income per share of common stock—basic:
Continuing operations	$	0.14		$	(0.03	)	$	0.11
Discontinued operations	—			—			—
Net income per share attributable to common stockholders—basic	$	0.14		$	(0.03	)	$	0.11
Net income per share of common stock—diluted:
Continuing operations	$	0.14		$	(0.03	)	$	0.11
Discontinued operations	—			—			—
Net income per share attributable to common stockholders—diluted	$	0.14		$	(0.03	)	$	0.11
Weighted average shares of common stock outstanding:
Basic	436,619,138			—			436,619,138
Diluted	436,923,755			—			436,923,755

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

June 30, 2015

(Unaudited)



	As Previously Reported			Restatement Adjustments			As Restated
Revenues:
Rentals	$	143,142		$	—		$	143,142
Interest income on loans receivable	1,821			—			1,821
Earned income from direct financing leases	838			—			838
Tenant reimbursement income	2,921			—			2,921
Other income and interest from real estate transactions	3,067			—			3,067
Total revenues	151,789			—			151,789
Expenses:
General and administrative	10,451			—			10,451
Finance restructuring costs	13,016			—			13,016
Property costs	6,576			—			6,576
Real estate acquisition costs	226			—			226
Interest	55,992			—			55,992
Depreciation and amortization	61,968			—			61,968
Impairments	27,627			525			28,152
Total expenses	175,856			525			176,381
Loss from continuing operations before other expense and income tax expense	(24,067		)	(525		)	(24,592		)
Other expense:
Loss on debt extinguishment	(64,708		)	—			(64,708		)
Total other expense	(64,708		)	—			(64,708		)
Loss from continuing operations before income tax expense	(88,775		)	(525		)	(89,300		)
Income tax expense	(127		)	—			(127		)
Loss from continuing operations	(88,902		)	(525		)	(89,427		)
Discontinued operations:
Income from discontinued operations	279			—			279
Gain on disposition of assets	92			—			92
Income from discontinued operations	371			—			371
Loss before loss on disposition of assets	(88,531		)	(525		)	(89,056		)
Loss on disposition of assets	(1,290		)	—			(1,290		)
Net loss attributable to common stockholders	$	(89,821	)	$	(525	)	$	(90,346	)
Net loss per share of common stock—basic:
Continuing operations	$	(0.24	)	$	—		$	(0.24	)
Discontinued operations	—			—			—
Net loss per share attributable to common stockholders—basic	$	(0.24	)	$	—		$	(0.24	)
Net loss per share of common stock—diluted:
Continuing operations	$	(0.24	)	$	—		$	(0.24	)
Discontinued operations	—			—			—
Net loss per share attributable to common stockholders—diluted	$	(0.24	)	$	—		$	(0.24	)
Weighted average shares of common stock outstanding:
Basic	381,775,203			—			381,775,203
Diluted	381,775,203			—			381,775,203

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

June 30, 2015

(Unaudited)

The following table presents the consolidated statement of operations as previously reported, restatement adjustments and the consolidated statement of operations as restated for the six months ended June 30, 2015 (in thousands, except share and per share data):



	As Previously Reported			Restatement Adjustments			As Restated
Revenues:
Rentals	$	314,125		$	—		$	314,125
Interest income on loans receivable	3,452			—			3,452
Earned income from direct financing leases	1,574			—			1,574
Tenant reimbursement income	8,123			—			8,123
Other income and interest from real estate transactions	2,947			—			2,947
Total revenues	330,221			—			330,221
Expenses:
General and administrative	24,572			—			24,572
Property costs	13,821			—			13,821
Real estate acquisition costs	1,546			—			1,546
Interest	114,081			—			114,081
Depreciation and amortization	130,967			—			130,967
Impairments	35,390			581			35,971
Total expenses	320,377			581			320,958
Income from continuing operations before other income and income tax expense	9,844			(581		)	9,263
Other income:
Gain on debt extinguishment	2,147			—			2,147
Total other income	2,147			—			2,147
Income from continuing operations before income tax expense	11,991			(581		)	11,410
Income tax expense	(523		)	—			(523		)
Income from continuing operations	11,468			(581		)	10,887
Discontinued operations:
Income from discontinued operations	131			—			131
Gain on disposition of assets	590			—			590
Income from discontinued operations	721			—			721
Income before gain on disposition of assets	12,189			(581		)	11,608
Gain on disposition of assets	74,026			(13,726		)	60,300
Net income attributable to common stockholders	$	86,215		$	(14,307	)	$	71,908
Net income per share of common stock—basic:
Continuing operations	$	0.20		$	(0.03	)	$	0.17
Discontinued operations	—			—			—
Net income per share attributable to common stockholders—basic	$	0.20		$	(0.03	)	$	0.17
Net income per share of common stock—diluted:
Continuing operations	$	0.20		$	(0.03	)	$	0.17
Discontinued operations	—			—			—
Net income per share attributable to common stockholders—diluted	$	0.20		$	(0.03	)	$	0.17
Weighted average shares of common stock outstanding:
Basic	423,889,238			—			423,889,238
Diluted	424,343,232			—			424,343,232

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

June 30, 2015

(Unaudited)

The following table presents the consolidated statement of operations as previously reported, restatement adjustments and the consolidated statement of operations as restated for the six months ended June 30, 2014 (in thousands, except share and per share data):



	As Previously Reported			Restatement Adjustments			As Restated
Revenues:
Rentals	$	280,621		$	—		$	280,621
Interest income on loans receivable	3,658			—			3,658
Earned income from direct financing leases	1,684			—			1,684
Tenant reimbursement income	6,240			—			6,240
Other income and interest from real estate transactions	3,558			—			3,558
Total revenues	295,761			—			295,761
Expenses:
General and administrative	21,501			—			21,501
Finance restructuring costs	13,033			—			13,033
Property costs	11,858			—			11,858
Real estate acquisition costs	1,507			—			1,507
Interest	110,391			—			110,391
Depreciation and amortization	122,517			—			122,517
Impairments	29,334			729			30,063
Total expenses	310,141			729			310,870
Loss from continuing operations before other expense and income tax expense	(14,380		)	(729		)	(15,109		)
Other expense:
Loss on debt extinguishment	(64,708		)	—			(64,708		)
Total other expense	(64,708		)	—			(64,708		)
Loss from continuing operations before income tax expense	(79,088		)	(729		)	(79,817		)
Income tax expense	(344		)	—			(344		)
Loss from continuing operations	(79,432		)	(729		)	(80,161		)
Discontinued operations:
Income from discontinued operations	3,333			—			3,333
Gain on disposition of assets	85			—			85
Income from discontinued operations	3,418			—			3,418
Loss before gain on disposition of assets	(76,014		)	(729		)	(76,743		)
Gain on disposition of assets	432			(187		)	245
Net loss attributable to common stockholders	$	(75,582	)	$	(916	)	$	(76,498	)
Net (loss) income per share of common stock—basic:
Continuing operations	$	(0.21	)	$	—		$	(0.21	)
Discontinued operations	0.01			—			0.01
Net loss per share attributable to common stockholders—basic	$	(0.20	)	$	—		$	(0.20	)
Net (loss) income per share of common stock—diluted:
Continuing operations	$	(0.21	)	$	—		$	(0.21	)
Discontinued operations	0.01			—			0.01
Net loss per share attributable to common stockholders—diluted	$	(0.20	)	$	—		$	(0.20	)
Weighted average shares of common stock outstanding:
Basic	375,266,233			—			375,266,233
Diluted	375,266,233			—			375,266,233

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

June 30, 2015

(Unaudited)

The following table presents the consolidated statement of cash flows as previously reported, restatement adjustments and the consolidated statement of cash flows as restated for the six months ended June 30, 2015 (in thousands):



	As Previously Reported			Restatement Adjustments			As Restated
Operating activities
Net income attributable to common stockholders	$	86,215		$	(14,307	)	$	71,908
Adjustments to reconcile net income attributable to common stockholders to net cash provided by operating activities:
Depreciation and amortization	130,967			—			130,967
Impairments	35,424			581			36,005
Amortization of deferred financing costs	3,973			—			3,973
Derivative net settlements, amortization and other interest rate hedge losses	(85		)	—			(85		)
Amortization of debt discounts	1,139			—			1,139
Stock-based compensation expense	7,288			—			7,288
Gain on debt extinguishment	(2,147		)	—			(2,147		)
Debt extinguishment costs	(3,623		)	—			(3,623		)
Gains on dispositions of real estate and other assets, net	(74,616		)	13,726			(60,890		)
Non-cash revenue	(10,551		)	—			(10,551		)
Other	(27		)	—			(27		)
Changes in operating assets and liabilities:				—
Deferred costs and other assets, net	(1,641		)	—			(1,641		)
Accounts payable, accrued expenses and other liabilities	(4,677		)	—			(4,677		)
Net cash provided by operating activities	167,639			—			167,639
Investing activities
Acquisitions of real estate	(547,487		)	—			(547,487		)
Capitalized real estate expenditures	(3,175		)	—			(3,175		)
Investments in loans receivable	(4,000		)	—			(4,000		)
Collections of principal on loans receivable and real estate assets under direct financing leases	2,924			—			2,924
Proceeds from dispositions of real estate and other assets	340,971			—			340,971
Transfers of net sales proceeds to restricted accounts pursuant to 1031 Exchanges	(40,034		)	—			(40,034		)
Transfers of net sales proceeds from Master Trust Release	43,442			—			43,442
Net cash used in investing activities	(207,359		)	—			(207,359		)
Financing activities
Borrowings under Revolving Credit Facilities	405,000			—			405,000
Repayments under Revolving Credit Facilities	(400,181		)	—			(400,181		)
Repayments under mortgages and notes payable	(321,884		)	—			(321,884		)
Deferred financing costs	(3,782		)	—			(3,782		)
Proceeds from issuance of common stock, net of offering costs	347,255			—			347,255
Proceeds from exercise of stock options	46			—			46
Purchase of shares of common stock	(720		)	—			(720		)
Dividends paid/distributions to equity owners	(141,174		)	—			(141,174		)
Transfers from reserve/escrow deposits with lenders	18,653			—			18,653
Net cash used in financing activities	(96,787		)	—			(96,787		)
Net decrease in cash and cash equivalents	(136,507		)	—			(136,507		)
Cash and cash equivalents, beginning of period	176,181			—			176,181
Cash and cash equivalents, end of period	$	39,674		$	—		$	39,674

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

June 30, 2015

(Unaudited)



	As Previously Reported			Restatement Adjustments			As Restated
Operating activities
Net loss attributable to common stockholders	$	(75,582	)	$	(916	)	$	(76,498	)
Adjustments to reconcile net loss attributable to common stockholders to net cash provided by operating activities:
Depreciation and amortization	122,517						122,517
Impairments	29,334			729			30,063
Amortization of deferred financing costs	2,297						2,297
Derivative net settlements, amortization and other interest rate hedge losses	(50		)				(50		)
Amortization of debt premiums	(1,043		)				(1,043		)
Stock-based compensation expense	5,484						5,484
Loss on debt extinguishment	64,708						64,708
Debt extinguishment costs	(59,069		)				(59,069		)
Gains on dispositions of real estate and other assets, net	(517		)	187			(330		)
Non-cash revenue	(8,344		)				(8,344		)
Other	242						242
Changes in operating assets and liabilities:	—						—
Deferred costs and other assets, net	(2,352		)				(2,352		)
Accounts payable, accrued expenses and other liabilities	(9,062		)				(9,062		)
Net cash provided by operating activities	68,563			—			68,563
Investing activities
Acquisitions of real estate	(363,643		)				(363,643		)
Capitalized real estate expenditures	(2,250		)				(2,250		)
Investments in loans receivable	—						—
Collections of principal on loans receivable and real estate assets under direct financing leases	3,286						3,286
Proceeds from dispositions of real estate and other assets	14,218						14,218
Transfers of net sales proceeds from restricted accounts pursuant to 1031 Exchanges	20,784						20,784
Transfers of net sales proceeds to Master Trust Release	(13,054		)				(13,054		)
Net cash used in investing activities	(340,659		)	—			(340,659		)
Financing activities
Borrowings under Revolving Credit Facilities	405,535						405,535
Repayments under Revolving Credit Facilities	(425,127		)				(425,127		)
Borrowings under mortgages and notes payable	757,500						757,500
Repayments under mortgages and notes payable	(553,882		)				(553,882		)
Deferred financing costs	(20,000		)				(20,000		)
Proceeds from issuance of common stock, net of offering costs	287,704						287,704
Proceeds from exercise of stock options	183						183
Offering costs paid on equity component of Convertible Notes	(1,609		)				(1,609		)
Purchase of shares of common stock	(110		)				(110		)
Dividends paid/distributions to equity owners	(123,207		)				(123,207		)
Transfers to reserve/escrow deposits with lenders	(503		)				(503		)
Net cash provided by financing activities	326,484			—			326,484
Net increase in cash and cash equivalents	54,388			—