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 September 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) 476-1900
(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 November 2, 2015, there were 441,394,341 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 September 30, 2015 (Unaudited) and December 31, 2014	6
Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014 (Unaudited)	7
Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and 2014 (Unaudited)	8
Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 2015 (Unaudited)	9
Consolidated Statements of Cash Flows for the nine months ended September 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	42
Item 3. Quantitative and Qualitative Disclosures About Market Risk	69
Item 4. Controls and Procedures, As Restated	70
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	71
Item 1A. Risk Factors	71
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 3. Defaults Upon Senior Securities	71
Item 4. Mine Safety Disclosures	71
Item 5. Other Information	71
Item 6. Exhibits	72
Signatures	76

Explanatory Note

The Company is restating its interim unaudited consolidated financial statements for the quarter ended September 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 nine months ended September 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 $2.0 million and $15.7 million for the three and nine months ended September 30, 2015, respectively, and a decrease of $22.2 million to goodwill as of September 30, 2015. The allocation of goodwill to real estate assets held for sale resulted in an increase of $0.2 million and $0.8 million to impairments for the three and nine months ended September 30, 2015, respectively, and a decrease of $0.7 million to real estate assets held for sale, net as of September 30, 2015. Additionally, the correction of these errors resulted in an increase of $22.9 million to accumulated deficit as of September 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 September 30, 2015, initially filed with the SEC on November 6, 2015 (the “Original Filing”), is being filed to reflect the restatement of (i) the Company’s consolidated balance sheet at September 30, 2015, (ii) the Company’s consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2015 and (iii) the Company's consolidated statements of stockholders’ equity and cash flows for the nine months ended September 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 income (loss) for the three and nine months ended September 30, 2014 and the Company's consolidated statement of cash flows for the nine months ended September 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
CAM	Tenant Common Area Maintenance costs
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, as amended on November 3, 2015
EBITDA	Earnings Before Interest, Taxes, Depreciation and Amortization
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
Term Loan	$325.0 million senior unsecured term facility pursuant to the Term Loan Agreement
Term Loan Agreement	Term loan agreement between the Operating Partnership and certain lenders dated November 3, 2015
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)



	September 30, 2015			December 31, 2014
	(Restated)			(Restated)
Assets
Investments:
Real estate investments:
Land and improvements	$	2,702,922		$	2,614,630
Buildings and improvements	4,779,228			4,579,166
Total real estate investments	7,482,150			7,193,796
Less: accumulated depreciation	(826,280		)	(752,210		)
	6,655,870			6,441,586
Loans receivable, net	106,944			109,425
Intangible lease assets, net	543,620			590,073
Real estate assets under direct financing leases, net	44,353			56,564
Real estate assets held for sale, net	77,306			119,046
Net investments	7,428,093			7,316,694
Cash and cash equivalents	28,210			176,181
Deferred costs and other assets, net	143,808			185,507
Goodwill	269,212			285,848
Total assets	$	7,869,323		$	7,964,230
Liabilities and stockholders’ equity
Liabilities:
Revolving Credit Facilities	$	75,000		$	15,114
Mortgages and notes payable, net	3,242,922			3,629,998
Convertible Notes, net	687,062			678,190
Total debt, net	4,004,984			4,323,302
Intangible lease liabilities, net	200,601			205,968
Accounts payable, accrued expenses and other liabilities	131,426			123,298
Total liabilities	4,337,011			4,652,568
Commitments and contingencies (see Note 8)
Stockholders’ equity:
Common stock, $0.01 par value, 750,000,000 shares authorized: 441,411,091 shares and 411,350,440 shares issued and outstanding at September 30, 2015 December 31, 2014, respectively	4,414			4,113
Capital in excess of par value	4,718,765			4,361,320
Accumulated deficit	(1,189,150		)	(1,052,688		)
Accumulated other comprehensive loss	(1,717		)	(1,083		)
Total stockholders’ equity	3,532,312			3,311,662
Total liabilities and stockholders’ equity	$	7,869,323		$	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 September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Restated)			(Restated)			(Restated)			(Restated)
Revenues:
Rentals	$	159,183		$	145,591		$	473,308		$	426,212
Interest income on loans receivable	1,764			1,805			5,216			5,463
Earned income from direct financing leases	725			837			2,299			2,521
Tenant reimbursement income	3,780			3,308			11,903			9,548
Other income and interest from real estate transactions	2,973			754			5,920			4,312
Total revenues	168,425			152,295			498,646			448,056
Expenses:
General and administrative	12,265			10,380			36,837			31,881
Finance restructuring costs	—			(11		)	—			13,022
Property costs	6,496			5,357			20,317			17,215
Real estate acquisition costs	576			865			2,122			2,372
Interest	54,673			53,535			168,754			163,926
Depreciation and amortization	64,493			62,069			195,460			184,586
Impairments	21,027			13,214			56,998			43,277
Total expenses	159,530			145,409			480,488			456,279
Income (loss) from continuing operations before other income (expense) and income tax expense	8,895			6,886			18,158			(8,223		)
Other income (expense):
Gain (loss) on debt extinguishment	342			212			2,489			(64,496		)
Total other income (expense)	342			212			2,489			(64,496		)
Income (loss) from continuing operations before income tax expense	9,237			7,098			20,647			(72,719		)
Income tax expense	(184		)	(242		)	(707		)	(586		)
Income (loss) from continuing operations	9,053			6,856			19,940			(73,305		)
Discontinued operations:
(Loss) income from discontinued operations	(41		)	288			90			3,621
Gain on disposition of assets	—			240			590			325
(Loss) income from discontinued operations	(41		)	528			680			3,946
Income (loss) before gain on disposition of assets	9,012			7,384			20,620			(69,359		)
Gain on disposition of assets	5,991			841			66,291			1,086
Net income (loss) attributable to common stockholders	$	15,003		$	8,225		$	86,911		$	(68,273	)
Net income (loss) per share of common stock—basic:
Continuing operations	$	0.03		$	0.02		$	0.20		$	(0.19	)
Discontinued operations	—			—			—			0.01
Net income (loss) per share attributable to common stockholders—basic	$	0.03		$	0.02		$	0.20		$	(0.18	)
Net income (loss) per share of common stock—diluted:
Continuing operations	$	0.03		$	0.02		$	0.20		$	(0.19	)
Discontinued operations	—			—			—			0.01
Net income (loss) per share attributable to common stockholders—diluted	$	0.03		$	0.02		$	0.20		$	(0.18	)
Weighted average shares of common stock outstanding:
Basic	440,205,348			396,807,656			429,387,707			382,525,614
Diluted	440,353,965			397,613,583			429,738,776			382,525,614
Dividends declared per common share issued	$	0.17000		$	0.16625		$	0.51000		$	0.49875

See accompanying notes.

SPIRIT REALTY CAPITAL, INC.

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

(In Thousands)

(Unaudited)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015			2014
	(Restated)			(Restated)		(Restated)			(Restated)
Net income (loss) attributable to common stockholders	$	15,003		$	8,225	$	86,911		$	(68,273	)
Other comprehensive income (loss):
Change in net unrealized (losses) gains on cash flow hedges	(797		)	237		(1,608		)	(1,040		)
Net cash flow hedge losses reclassified to operations	277			333		974			987
Total comprehensive income (loss)	$	14,483		$	8,795	$	86,277		$	(68,326	)

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)	—		—			—		86,911			—			86,911
Other comprehensive loss	—		—			—		—			(634		)	(634		)
Dividends declared on common stock	—		—			—		(221,216		)	—			(221,216		)
Repurchase of shares of common stock	(169,515	)	(2		)	—		(1,698		)	—			(1,700		)
Issuance of shares of common stock, net	29,610,100		296			346,915		—			—			347,211
Exercise of stock options	5,000		—			46		—			—			46
Stock-based compensation, net	615,066		7			10,484		(459		)	—			10,032
Balances, September 30, 2015 (Restated)	441,411,091		$	4,414		$	4,718,765	$	(1,189,150	)	$	(1,717	)	$	3,532,312

See accompanying notes.

SPIRIT REALTY CAPITAL, INC.

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

(In Thousands)

(Unaudited)



	Nine Months Ended September 30,
	2015			2014
	(Restated)			(Restated)
Operating activities
Net income (loss) attributable to common stockholders	$	86,911		$	(68,273	)
Adjustments to reconcile net income (loss) attributable to common stockholders to net cash provided by operating activities:
Depreciation and amortization	195,460			184,586
Impairments	57,032			43,277
Amortization of deferred financing costs	5,893			4,084
Derivative net settlements, amortization and other interest rate hedge losses	(95		)	(83		)
Amortization of debt discounts (premiums)	1,670			(821		)
Stock-based compensation expense	10,757			8,503
(Gain) loss on debt extinguishment	(2,489		)	64,496
Debt extinguishment costs	(3,760		)	(59,069		)
Gains on dispositions of real estate and other assets, net	(66,881		)	(1,411		)
Non-cash revenue	(15,947		)	(12,877		)
Other	165			(1,341		)
Changes in operating assets and liabilities:
Deferred costs and other assets, net	(4,935		)	(3,111		)
Accounts payable, accrued expenses and other liabilities	7,433			(3,248		)
Net cash provided by operating activities	271,214			154,712
Investing activities
Acquisitions of real estate	(703,106		)	(569,806		)
Capitalized real estate expenditures	(7,449		)	(3,244		)
Investments in loans receivable	(4,020		)	—
Collections of principal on loans receivable and real estate assets under direct financing leases	4,450			4,641
Proceeds from dispositions of real estate and other assets	397,325			37,886
Transfers of net sales proceeds (to) from restricted accounts pursuant to 1031 Exchanges	(2,489		)	20,784
Transfers of net sales proceeds from (to) Master Trust Release	40,126			(20,240		)
Net cash used in investing activities	(275,163		)	(529,979		)
Financing activities
Borrowings under Revolving Credit Facilities	535,000			515,535
Repayments under Revolving Credit Facilities	(475,181		)	(425,219		)
Borrowings under Convertible Notes	—			757,500
Repayments under mortgages and notes payable	(347,242		)	(562,104		)
Deferred financing costs	(3,782		)	(20,011		)
Proceeds from issuance of common stock, net of offering costs	347,211			287,454
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	(1,700		)	(2,920		)
Dividends paid/distributions to equity owners	(216,231		)	(189,510		)
Transfers from (to) reserve/escrow deposits with lenders	17,857			(490		)
Net cash (used in) provided by financing activities	(144,022		)	358,809
Net decrease in cash and cash equivalents	(147,971		)	(16,458		)
Cash and cash equivalents, beginning of period	176,181			66,588
Cash and cash equivalents, end of period	$	28,210		$	50,130

See accompanying notes.

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements

September 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 September 30, 2015, our undepreciated investment in real estate and loans totaled approximately $8.26 billion, representing investments in 2,634 properties, including properties securing mortgage loans made by the Company. Of this amount, 98.7% consisted of our $8.15 billion investment in real estate, representing ownership of 2,489 properties, and the remaining 1.3% consisted of $106.9 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 $22.2 million at September 30, 2015 and the restated consolidated statement of operations includes a reduction to gain on disposition of assets of $2.0 million and $15.7 million for the three and nine months ended September 30, 2015, respectively. The restated consolidated balance sheet includes a reduction to goodwill of $5.6 million at December 31, 2014 and the restated consolidated statement of operations includes a reduction to gain on disposition of assets of $0.6 million and $0.8 million for the three and nine months ended September 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 $0.7 million at September 30, 2015 and the restated consolidated statement of operations includes an increase to impairments of $0.2 million and $0.8 million for the three and nine months ended September 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 $1.2 million for the three and nine months ended September 30, 2014, respectively.

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

September 30, 2015

(Unaudited)

As part of its restatement, the Company also identified one other immaterial error affecting the consolidated financial statements as of and for the three and nine months ended September 30, 2014. The Company recorded an increase to goodwill of $1.6 million in the restated consolidated balance sheet as of September 30, 2014 and recorded a decrease of $1.6 million to general and administrative expense in the restated consolidated statements of operations for the three and nine months ended September 30, 2014 to correct the presentation of account receivable balances acquired in the Cole II Merger as an increase to goodwill from the merger instead of a bad debt expense included in general and administrative expense based on facts that existed at the acquisition date.

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 nine months ended September 30, 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 common stock par value 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 at 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 September 30, 2015 and for the three and nine 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 nine ended September 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 September 30, 2015 and December 31, 2014, (ii) the Company's consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014 and (iii) the Company's consolidated statements of cash flows for the nine months ended September 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)

September 30, 2015

(Unaudited)

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



	As Previously Reported			Restatement Adjustments			As Restated
Assets
Investments:
Real estate investments:
Land and improvements	$	2,702,922		$	—		$	2,702,922
Buildings and improvements	4,779,228			—			4,779,228
Total real estate investments	7,482,150			—			7,482,150
Less: accumulated depreciation	(826,280		)	—			(826,280		)
	6,655,870			—			6,655,870
Loans receivable, net	106,944			—			106,944
Intangible lease assets, net	543,620			—			543,620
Real estate assets under direct financing leases, net	44,353			—			44,353
Real estate assets held for sale, net	78,007			(701		)	77,306
Net investments	7,428,794			(701		)	7,428,093
Cash and cash equivalents	28,210			—			28,210
Deferred costs and other assets, net	143,808			—			143,808
Goodwill	291,421			(22,209		)	269,212
Total assets	$	7,892,233		$	(22,910	)	$	7,869,323
Liabilities and stockholders’ equity
Liabilities:
Revolving credit facilities	$	75,000		$	—		$	75,000
Mortgages and notes payable, net	3,242,922			—			3,242,922
Convertible Notes, net	687,062			—			687,062
Total debt, net	4,004,984			—			4,004,984
Intangible lease liabilities, net	200,601			—			200,601
Accounts payable, accrued expenses and other liabilities	131,426			—			131,426
Total liabilities	4,337,011			—			4,337,011
Commitments and contingencies (see Note 8)
Stockholders’ equity:
Common stock, $0.01 par value	4,421			(7		)	4,414
Capital in excess of par value	4,718,765			—			4,718,765
Accumulated deficit	(1,159,685		)	(29,465		)	(1,189,150		)
Accumulated other comprehensive loss	(1,717		)	—			(1,717		)
Treasury stock, at cost	(6,562		)	6,562			—
Total stockholders’ equity	3,555,222			(22,910		)	3,532,312
Total liabilities and stockholders’ equity	$	7,892,233		$	(22,910	)	$	7,869,323

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

September 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)

September 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 September 30, 2015 (in thousands, except share and per share data):



	As Previously Reported			Restatement Adjustments			As Restated
Revenues:
Rentals	$	159,183		$	—		$	159,183
Interest income on loans receivable	1,764			—			1,764
Earned income from direct financing leases	725			—			725
Tenant reimbursement income	3,780			—			3,780
Other income and interest from real estate transactions	2,973			—			2,973
Total revenues	168,425			—			168,425
Expenses:
General and administrative	12,265			—			12,265
Property costs	6,496			—			6,496
Real estate acquisition costs	576			—			576
Interest	54,673			—			54,673
Depreciation and amortization	64,493			—			64,493
Impairments	20,832			195			21,027
Total expenses	159,335			195			159,530
Income from continuing operations before other income and income tax expense	9,090			(195		)	8,895
Other income:
Gain on debt extinguishment	342			—			342
Total other income	342			—			342
Income from continuing operations before income tax expense	9,432			(195		)	9,237
Income tax expense	(184		)	—			(184		)
Income from continuing operations	9,248			(195		)	9,053
Discontinued operations:
Loss from discontinued operations	(41		)	—			(41		)
Income before gain on disposition of assets	9,207			(195		)	9,012
Gain on disposition of assets	7,960			(1,969		)	5,991
Net income attributable to common stockholders	$	17,167		$	(2,164	)	$	15,003
Net income per share of common stock—basic:
Continuing operations	$	0.04		$	(0.01	)	$	0.03
Net income per share attributable to common stockholders—basic	$	0.04		$	(0.01	)	$	0.03
Net income per share of common stock—diluted:
Continuing operations	$	0.04		$	(0.01	)	$	0.03
Net income per share attributable to common stockholders—diluted	$	0.04		$	(0.01	)	$	0.03
Weighted average shares of common stock outstanding:
Basic	440,205,348			—			440,205,348
Diluted	440,353,965			—			440,353,965

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

September 30, 2015

(Unaudited)



	As Previously Reported			Restatement Adjustments			As Restated
Revenues:
Rentals	$	145,591		$	—		$	145,591
Interest income on loans receivable	1,805			—			1,805
Earned income from direct financing leases	837			—			837
Tenant reimbursement income	3,308			—			3,308
Other income and interest from real estate transactions	754			—			754
Total revenues	152,295			—			152,295
Expenses:
General and administrative	11,995			(1,615		)	10,380
Finance restructuring costs	(11		)	—			(11		)
Property costs	5,357			—			5,357
Real estate acquisition costs	865			—			865
Interest	53,535			—			53,535
Depreciation and amortization	62,069			—			62,069
Impairments	12,727			487			13,214
Total expenses	146,537			(1,128		)	145,409
Income from continuing operations before other income and income tax expense	5,758			1,128			6,886
Other income:
Gain on debt extinguishment	212			—			212
Total other income	212			—			212
Income from continuing operations before income tax expense	5,970			1,128			7,098
Income tax expense	(242		)	—			(242		)
Income from continuing operations	5,728			1,128			6,856
Discontinued operations:
Income from discontinued operations	288			—			288
Gain on disposition of assets	403			(163		)	240
Income from discontinued operations	691			(163		)	528
Income before gain on disposition of assets	6,419			965			7,384
Gain on disposition of assets	1,251			(410		)	841
Net income attributable to common stockholders	$	7,670		$	555		$	8,225
Net income per share of common stock—basic:
Continuing operations	$	0.02		$	—		$	0.02
Net income per share attributable to common stockholders—basic	$	0.02		$	—		$	0.02
Net income per share of common stock—diluted:
Continuing operations	$	0.02		$	—		$	0.02
Net income per share attributable to common stockholders—diluted	$	0.02		$	—		$	0.02
Weighted average shares of common stock outstanding:
Basic	396,807,656			—			396,807,656
Diluted	397,613,583			—			397,613,583

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

September 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 nine months ended September 30, 2015 (in thousands, except share and per share data):



	As Previously Reported			Restatement Adjustments			As Restated
Revenues:
Rentals	$	473,308		$	—		$	473,308
Interest income on loans receivable	5,216			—			5,216
Earned income from direct financing leases	2,299			—			2,299
Tenant reimbursement income	11,903			—			11,903
Other income and interest from real estate transactions	5,920			—			5,920
Total revenues	498,646			—			498,646
Expenses:
General and administrative	36,837			—			36,837
Property costs	20,317			—			20,317
Real estate acquisition costs	2,122			—			2,122
Interest	168,754			—			168,754
Depreciation and amortization	195,460			—			195,460
Impairments	56,222			776			56,998
Total expenses	479,712			776			480,488
Income from continuing operations before other income and income tax expense	18,934			(776		)	18,158
Other income:
Gain on debt extinguishment	2,489			—			2,489
Total other income	2,489			—			2,489
Income from continuing operations before income tax expense	21,423			(776		)	20,647
Income tax expense	(707		)	—			(707		)
Income from continuing operations	20,716			(776		)	19,940
Discontinued operations:
Income from discontinued operations	90			—			90
Gain on disposition of assets	590			—			590
Income from discontinued operations	680			—			680
Income before gain on disposition of assets	21,396			(776		)	20,620
Gain on disposition of assets	81,986			(15,695		)	66,291
Net income attributable to common stockholders	$	103,382		$	(16,471	)	$	86,911
Net income per share of common stock—basic:
Continuing operations	$	0.24		$	(0.04	)	$	0.20
Discontinued operations	—			—			—
Net income per share attributable to common stockholders—basic	$	0.24		$	(0.04	)	$	0.20
Net income per share of common stock—diluted:
Continuing operations	$	0.24		$	(0.04	)	$	0.20
Discontinued operations	—			—			—
Net income per share attributable to common stockholders—diluted	$	0.24		$	(0.04	)	$	0.20
Weighted average shares of common stock outstanding:
Basic	429,387,707			—			429,387,707
Diluted	429,738,776			—			429,738,776

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

September 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 nine months ended September 30, 2014 (in thousands, except share and per share data):



	As Previously Reported			Restatement Adjustments			As Restated
Revenues:
Rentals	$	426,212		$	—		$	426,212
Interest income on loans receivable	5,463			—			5,463
Earned income from direct financing leases	2,521			—			2,521
Tenant reimbursement income	9,548			—			9,548
Other income and interest from real estate transactions	4,312			—			4,312
Total revenues	448,056			—			448,056
Expenses:
General and administrative	33,496			(1,615		)	31,881
Finance restructuring costs	13,022			—			13,022
Property costs	17,215			—			17,215
Real estate acquisition costs	2,372			—			2,372
Interest	163,926			—			163,926
Depreciation and amortization	184,586			—			184,586
Impairments	42,061			1,216			43,277
Total expenses	456,678			(399		)	456,279
Loss from continuing operations before other expense and income tax expense	(8,622		)	399			(8,223		)
Other expense:
Loss on debt extinguishment	(64,496		)	—			(64,496		)
Total other expense	(64,496		)	—			(64,496		)
Loss from continuing operations before income tax expense	(73,118		)	399			(72,719		)
Income tax expense	(586		)	—			(586		)
Loss from continuing operations	(73,704		)	399			(73,305		)
Discontinued operations:
Income from discontinued operations	3,621			—			3,621
Gain on disposition of assets	488			(163		)	325
Income from discontinued operations	4,109			(163		)	3,946
Loss before gain on disposition of assets	(69,595		)	236			(69,359		)
Gain on disposition of assets	1,683			(597		)	1,086
Net loss attributable to common stockholders	$	(67,912	)	$	(361	)	$	(68,273	)
Net (loss) income per share of common stock—basic:
Continuing operations	$	(0.19	)	$	—		$	(0.19	)
Discontinued operations	0.01			—			0.01
Net loss per share attributable to common stockholders—basic	$	(0.18	)	$	—		$	(0.18	)
Net (loss) income per share of common stock—diluted:
Continuing operations	$	(0.19	)	$	—		$	(0.19	)
Discontinued operations	0.01			—			0.01
Net loss per share attributable to common stockholders—diluted	$	(0.18	)	$	—		$	(0.18	)
Weighted average shares of common stock outstanding:
Basic	382,525,614			—			382,525,614
Diluted	382,525,614			—			382,525,614

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

September 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 nine months ended September 30, 2015 (in thousands):



	As Previously Reported			Restatement Adjustments			As Restated
Operating activities
Net income attributable to common stockholders	$	103,382		$	(16,471	)	$	86,911
Adjustments to reconcile net income attributable to common stockholders to net cash provided by operating activities:
Depreciation and amortization	195,460			—			195,460
Impairments	56,256			776			57,032
Amortization of deferred financing costs	5,893			—			5,893
Derivative net settlements, amortization and other interest rate hedge losses	(95		)	—			(95		)
Amortization of debt discounts	1,670			—			1,670
Stock-based compensation expense	10,757			—			10,757
Gain on debt extinguishment	(2,489		)	—			(2,489		)
Debt extinguishment costs	(3,760		)	—			(3,760		)
Gains on dispositions of real estate and other assets, net	(82,576		)	15,695			(66,881		)
Non-cash revenue	(15,947		)	—			(15,947		)
Other	165			—			165
Changes in operating assets and liabilities:
Deferred costs and other assets, net	(4,935		)	—			(4,935		)
Accounts payable, accrued expenses and other liabilities	7,433			—			7,433
Net cash provided by operating activities	271,214			—			271,214
Investing activities
Acquisitions of real estate	(703,106		)	—			(703,106		)
Capitalized real estate expenditures	(7,449		)	—			(7,449		)
Investments in loans receivable	(4,020		)	—			(4,020		)
Collections of principal on loans receivable and real estate assets under direct financing leases	4,450			—			4,450
Proceeds from dispositions of real estate and other assets	397,325			—			397,325
Transfers of net sales proceeds to restricted accounts pursuant to 1031 Exchanges	(2,489		)	—			(2,489		)
Transfers of net sales proceeds from Master Trust Release	40,126			—			40,126
Net cash used in investing activities	(275,163		)	—			(275,163		)
Financing activities
Borrowings under Revolving Credit Facilities	535,000			—			535,000
Repayments under Revolving Credit Facilities	(475,181		)	—			(475,181		)
Repayments under mortgages and notes payable	(347,242		)	—			(347,242		)
Deferred financing costs	(3,782		)	—			(3,782		)
Proceeds from issuance of common stock, net of offering costs	347,211			—			347,211
Proceeds from exercise of stock options	46			—			46
Purchase of shares of common stock	(1,700		)	—			(1,700		)
Dividends paid/distributions to equity owners	(216,231		)	—			(216,231		)
Transfers from reserve/escrow deposits with lenders	17,857			—			17,857
Net cash used in financing activities	(144,022		)	—			(144,022		)
Net decrease in cash and cash equivalents	(147,971		)	—			(147,971		)
Cash and cash equivalents, beginning of period	176,181			—			176,181
Cash and cash equivalents, end of period	$	28,210		$	—		$	28,210

SPIRIT REALTY CAPITAL, INC.

Notes to Consolidated Financial Statements - (continued)

September 30, 2015

(Unaudited)



	As Previously Reported			Restatement Adjustments			As Restated
Operating activities
Net loss attributable to common stockholders	$	(67,912	)	$	(361	)	$	(68,273	)
Adjustments to reconcile net loss attributable to common stockholders to net cash provided by operating activities:
Depreciation and amortization	184,586			—			184,586
Impairments	42,061			1,216			43,277
Amortization of deferred financing costs	4,084			—			4,084
Derivative net settlements, amortization and other interest rate hedge losses	(83		)	—			(83		)
Amortization of debt premiums	(821		)	—			(821		)
Stock-based compensation expense	8,503			—			8,503
Loss on debt extinguishment	64,496			—			64,496
Debt extinguishment costs	(59,069		)	—			(59,069		)
Gains on dispositions of real estate and other assets, net	(2,171		)	760			(1,411		)
Non-cash revenue	(12,877		)	—			(12,877		)
Other	274			(1,615		)	(1,341		)
Changes in operating assets and liabilities:
Deferred costs and other assets, net	(3,111		)	—			(3,111		)
Accounts payable, accrued expenses and other liabilities	(3,248		)	—			(3,248		)
Net cash provided by operating activities	154,712			—			154,712
Investing activities
Acquisitions of real estate	(569,806		)	—			(569,806		)
Capitalized real estate expenditures	(3,244		)	—			(3,244		)
Collections of principal on loans receivable and real estate assets under direct financing leases	4,641			—			4,641
Proceeds from dispositions of real estate and other assets	37,886			—			37,886
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	(20,240		)	—			(20,240		)
Net cash used in investing activities	(529,979		)	—			(529,979		)
Financing activities
Borrowings under Revolving Credit Facilities	515,535			—			515,535
Repayments under Revolving Credit Facilities	(425,219		)	—			(425,219		)
Borrowings under Convertible Notes	757,500			—			757,500
Repayments under mortgages and notes payable	(562,104		)	—			(562,104		)
Deferred financing costs	(20,011		)	—			(20,011		)
Proceeds from issuance of common stock, net of offering costs	287,454			—			287,454
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	(2,920		)	—			(2,920		)
Consent fees paid to lenders	—			—			—
Dividends paid/distributions to equity owners	(189,510		)	—			(189,510		)
Transfers to reserve/escrow deposits with lenders	(490		)	—			(490		)
Net cash provided by financing activities	358,809			—			358,809
Net decrease in cash and cash equivalents	(16,458		)	—			(16,458		)
Cash and cash equivalents, beginning of period	66,588			—			66,588
Cash and cash equivalents, end of period	$