Spirit Realty Capital, Inc. Announces Second Quarter 2013 Operating Results

Spirit Realty Capital, Inc. Announces Second Quarter 2013 Operating Results

And Reports Pro Forma Financial Information for the Post-Merger Combined Company

SCOTTSDALE, Ariz.--(BUSINESS WIRE)-- Spirit Realty Capital, Inc. (NYS: SRC) , a real estate investment trust that invests in single-tenant, operationally essential real estate, today announced operating results for the second quarter ended June 30, 2013 and reported pro forma highlights of its merger with Cole Credit Property Trust II ("Cole II"), which was completed on July 17, 2013.

Highlights:

Pre-merger activity for the second quarter ended June 30, 2013:

• Received stockholder approval for the merger agreement with Cole II and the transactions contemplated therein (the "Merger") on June 12, 2013

• Generated revenues of $72.8 million, a 7.2% increase over second quarter 2012

• Produced FFO of $0.25 per share, AFFO of $0.45 per share, and a net loss of $(0.14) per share

• Declared a $0.3125 per share second quarter cash dividend (equates to $0.16406 per share on a post-merger basis)

• Invested $38.2 million in nine properties with tenants in place

• Maintained portfolio occupancy above 98%

Pre-merger activity for the six months ended June 30, 2013:

• Generated revenues of $144.2 million, a 6.0% increase over the first six months of 2012

• Invested $94.7 million in 40 properties, with a weighted average initial yield of 8.25%

• Produced FFO of $0.51 per share, AFFO of $0.89 per share and a net loss of $(0.24) per share

Subsequent to June 30, Spirit Realty Capital:

• Completed the Merger with Cole II, which diversified the company's tenant base, enhanced its credit quality, improved its operating efficiency, reduced its leverage and provides additional financial strength and flexibility, in part by almost doubling the size of the company

• Completed the sale of two non-core multi-tenant properties acquired in the Cole II Merger on July 19, 2013 in a transaction valued at approximately $259 million, including the assumption by the purchaser of approximately $139 million of debt

CEO Comments

Mr. Thomas H. Nolan, Jr., Chairman and Chief Executive Officer of Spirit Realty Capital, stated "Our second quarter results were consistent with our expectations and affirm the stable earnings quality of our seasoned, cycle-tested pre-merger portfolio. In regards to the Merger, this transaction has allowed us to achieve significant progress toward the broad strategic objectives established at the time of our IPO less than one year ago, which were to diversify our tenant base, reduce our leverage, increase our financial flexibility and scale our operations. The new combined company has an enterprise value in excess of $7.1 billion and an equity market capitalization of approximately $3.5 billion and is now well-positioned within an exciting and dynamic industry."

"We will maintain a disciplined and consistent investment strategy focused on delivering stable and growing dividends to our shareholders." Mr. Nolan concluded, "The recent sale of the non-core, multi-tenant properties acquired in the Cole II Merger is consistent with our strategy of maintaining a portfolio of operationally essential single-tenant, triple-net real estate that enables us to deliver a steady and attractive total return to our shareholders."

Pre-Merger Financial Results

Revenues

Second quarter 2013 pre-merger total revenues increased 7.2% to $72.8 million, compared to $68.0 million in the second quarter of 2012. The growth in total revenues was primarily driven by rental income, which was higher by $4.2 million, or 6.3%. New investments and contractual rent growth, which is embedded in approximately 96% of our leases, accounted for the growth in rental income. Also, interest income and other was $1.1 million higher than the second quarter of 2012 due to lease termination fees recognized during the second quarter of 2013. Lease termination fees periodically result from negotiations with tenants, which results in higher revenue in the period in which the fee is received but may lower revenues in future periods.

Total revenues for the first six months in 2013 were $144.2 million, 6.0% or $8.2 million higher than total revenues for the first six months in 2012. The growth in total revenues was principally the result of an increase in rental income. The favorable impact of lease termination fees earned in the first six months ended 2013 were offset by reductions in interest income on loans receivable due to scheduled and early pay-offs.

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders for the second quarter of 2013 was $(11.7) million, or $(0.14) per share based on 83.7 million weighted average shares of common stock outstanding, compared to the net loss attributable to common stockholders for the second quarter of 2012 of $(8.8) million, or $(0.34) per share based on 25.9 million weighted average shares of common stock outstanding.

Net loss attributable to common stockholders for the first six months in 2013 was $(20.0) million, or $(0.24) per share based on 83.7 million weighted average shares of common stock outstanding, compared to the net loss attributable to common stockholders for the first six months in 2012 of $(21.2) million, or $(0.82) per share based on 25.9 million weighted average shares of common stock outstanding.

The results for the second quarter 2013 and the first six months in 2013 included $11.5 million and $21.6 million, respectively, of Merger-related costs described below:

The results for the second quarter 2012 and the first six months ended June 30, 2012 included charges associated with the IPO and the associated Term Loan extinguishment of $2.8 million and $4.5 million, respectively.

Absent these (a) Merger and (b) IPO and associated Term Loan extinguishment charges, results from operations would have provided the following net income (loss) attributable to common stockholders for each of the respective periods noted below:

FFO and AFFO Attributable to Common Stockholders

Funds from operations (FFO) for the second quarter of 2013 were $21.4 million, or $0.25 per share. FFO for the second quarter of 2012 were $19.4 million, or $0.49 per share. For the first six months of 2013, FFO were $43.3 million, or $0.51 per share. For the first six months of 2012, FFO were $43.4 million or $1.01 per share.

Adjusted funds from operations (AFFO) for the second quarter of 2013 totaled $37.9 million, or $0.45 per share, compared to $27.0 million, or $0.60 per share, for the second quarter of 2012. For the first six months of 2013, AFFO were $74.5 million or $0.89 per share. AFFO in the first six months of 2012 were $54.6 million, or $1.21 per share.

The definitions of FFO and AFFO are included on page 8, and a reconciliation of these measures to net loss attributable to common stockholders is provided on page 12.

Pre-Merger Portfolio Highlights

Real Estate Transactions

Spirit Realty Capital invested $38.2 million and added nine real estate properties during the second quarter of 2013. These investments had a weighted average initial yield of 8.14% and were with one existing and two new tenants. This compared to $24.3 million and 25 real estate properties in the second quarter of 2012. During the second quarter of 2013, Spirit Realty Capital sold three properties generating gross sales proceeds of $2.0 million.

Investments in real estate during the first six months of 2013 were $94.7 million and comprised 40 new properties with a weighted average initial yield of 8.25%. This compares to the $57.3 million invested in 50 real estate properties during the first six months of 2012.

Portfolio

As of June 30, 2013, Spirit Realty Capital's gross investment in real estate and mortgage and equipment loans totaled $3.7 billion, substantially all of which was invested in 1,234 single tenant properties that were 98.4% occupied. Spirit Realty Capital's properties are generally leased under long-term, triple net leases, with a weighted average remaining maturity of approximately 10.9 years. Approximately 65.9% of Spirit Realty Capital's annual rent (defined as annualized second quarter 2013 rent) is contributed from properties under master leases and approximately 96% of all leases provide for rental increases.

Spirit Realty Capital's real estate portfolio as of June 30, 2013, was diversified geographically across 47 states and among various property types. One state accounted for 11% of the annual rent contribution of the real estate portfolio, and no other state contributed more than 10%. Spirit Realty Capital's three largest property types (based on annual rent) as of June 30, 2013, were general and discount retail (29%), restaurants (19%) and specialty retail (9%).

Cole II Merger

Summary

Subsequent to the end of the second quarter, on July 17, 2013, Spirit Realty Capital completed the Merger that was approved by the stockholders at a special meeting held on June 12, 2013. The combined company ("Combined Company") has an enterprise value in excess of $7.1 billion and an equity market capitalization of approximately $3.5 billion as of July 18, 2013.

Under the terms of the Merger agreement, the Combined Company is managed by the Spirit Realty Capital ("Spirit") management team and retains the name Spirit Realty Capital, Inc. The Combined Company listed its shares on the New York Stock Exchange (NYSE) under Spirit's existing ticker symbol, "SRC," and began trading on July 18, 2013. Spirit stockholders received 1.9048 shares of newly issued shares of the Combined Company in exchange for each share of Spirit common stock they owned immediately before the effective date of the Merger (the "Exchange Ratio"). Each share of Cole II common stock issued and outstanding remains outstanding as common stock of the Combined Company. This transaction has resulted in the Combined Company having approximately 370.4 million shares of common stock outstanding as of the effective date of the Merger.

The Merger is being accounted for as a reverse acquisition with Spirit treated as the acquiring entity. Beginning with the third quarter 2013, publicly filed financial statements of the Combined Company will include the historical results of Spirit as the predecessor company through July 16, 2013 and the consolidated results of the Combined Company prospectively. Cole II was externally managed; accordingly, no Cole II employees were part of the merger transaction.

The accounting consideration for the net assets acquired through the Merger ("Merger Consideration") is estimated at $2.0 billion, based on the number of shares of Cole II common stock outstanding immediately prior to the Merger and the closing price of Spirit's common stock on July 17, 2013.

Concurrent with the Merger, financing commitments obtained at the time the Merger agreement was executed were replaced with a new three-year $400 million revolving credit facility and $203 million in 10 year, fixed rate commercial mortgage-backed securities ("CMBS") financing. Cole II's outstanding borrowings under its existing line of credit (approximately $324 million) were repaid concurrently with the closing of the Merger. In connection with the Merger, the Combined Company assumed approximately $1.5 billion of Cole II's outstanding mortgage indebtedness.

Merger Costs and Expenses

In connection with the Merger, transaction costs and expenses of approximately $86 million were incurred through July 17, 2013 and include the following items and approximate amounts (dollars in millions):

Net Assets Acquired in the Merger

The Merger Consideration will be allocated to all of Cole II's assets acquired and liabilities assumed that existed on July 17, 2013 at their respective fair values. The following is a preliminary estimate of the allocation of the Merger Consideration to the net assets acquired (dollars in millions):

Post-Merger Pro Forma Portfolio Highlights

Unaudited Pro Forma Condensed Consolidated Financial Statements for the Combined Company are included as an exhibit that begins after page 15.

Multi-Tenant Properties Sale

On July 19, 2013, Spirit completed the sale of two non-core multi-tenant properties acquired in the Cole II Merger in a transaction valued at approximately $259 million, including the assumption by the purchaser of approximately $139 million of debt. The properties are a 760,414-square-foot power center in Winter Garden, FL, and a 311,396-square-foot power center in Cummings Town Center in Atlanta, GA. The sale of these non-core assets acquired in the Merger is consistent with Spirit's focus on operationally essential single-tenant investment opportunities.

2013 and 2014 Guidance

On January 22, 2013, Spirit Realty Capital withdrew its forward-looking financial guidance in conjunction with the Cole II Merger announcement. The three months ended September 30, 2013 will be the first quarter reported by the new combined company. Management intends to reinstate guidance by that time.

Conference Call

Spirit Realty Capital will hold a conference call and webcast to discuss its second quarter 2013 results on August 8, 2013 at 5:00 p.m. (Eastern Time). The call can be accessed live over the phone by dialing 800-299-9086 (toll-free domestic) or 617-786-2903 (international); passcode: 82292083. A live webcast of the conference call will be available on the Investor Relations section of Spirit Realty Capital's website at www.spiritrealty.com. A replay of the call will be available for one week via telephone starting approximately one hour after the call ends. The replay can be accessed at 888-286-8010 (toll-free domestic) or 617-801-6888 (international); passcode: 62573982. The webcast will be archived on Spirit Realty Capital's website for 30 days after the call.

About Spirit Realty Capital

Spirit Realty Capital was formed in 2003 to invest in single-tenant operationally essential real estate, which refers to generally free-standing, commercial real estate facilities where tenants conduct retail, service or distribution activities that are essential to the generation of their sales and profits. Spirit Realty Capital completed its merger with Cole Credit Property Trust II (Cole II) on July 17, 2013. As a result, Spirit Realty Capital has an estimated enterprise value of $7.1 billion comprising a diverse portfolio of approximately 1,900 properties across 48 states. Spirit Realty Capital completed its initial public offering in September 2012 and trades under the symbol "SRC" on the New York Stock Exchange. The CUSIP number for shares of the post-merger Spirit Realty Capital common stock is 84860W102. There are approximately 370.4 million shares of Spirit Realty Capital common stock outstanding as of July 18, 2013. More information about Spirit Realty Capital can be found at www.spiritrealty.com.

Forward-Looking and Cautionary Statements

Statements contained in this press release that are not strictly historical are forward-looking statements, which should be regarded solely as reflections of our current operating plans and estimates.These forward-looking statements can be identified by the use of words such as "expects," "plans," "estimates," "projects," "intends," "believes," "guidance," and similar expressions that do not relate to historical matters.These forward-looking statements are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated, due to a number of factors which include, but are not limited to, continued ability to source new investments, risks associated with using debt to fund the company's business activities, including refinancing and interest rate risks, changes in interest rates and/or credit spreads, changes in the real estate markets, risks related to the merger and our ability to integrate the portfolios, disruption from the merger making it more difficult to maintain business and operational relationships, unknown liabilities acquired in connection with the acquired properties, portfolios of properties, or interests in real-estate related entities, effects of liquidity for CCPTII shareholders and Spirit shareholders previously holding unregistered shares, and other risk factors discussed in Spirit Realty Capital's Annual Report on Form 10-K for the year ended December 31, 2012 and other documents as filed by Spirit Realty Capital with the SEC from time to time.All forward-looking statements in this press release are made as of today, based upon information known to management as of the date hereof, and Spirit Realty Capital assumes no obligations to update or revise any of its forward-looking statements that may be made to reflect events or circumstances after the date these statements were made, except as required by law.

Non-GAAP Financial Measures

We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with GAAP), excluding real estate-related depreciation and amortization, impairment charges and net losses (gains) on the disposition of assets. FFO is a supplemental non-GAAP financial measure. We use FFO as a supplemental performance measure because we believe that FFO is beneficial to investors as a starting point in measuring our operational performance. Specifically, in excluding real estate-related depreciation and amortization, gains and losses from property dispositions and impairment charges, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of equity REITs, FFO will be used by investors as a basis to compare our operating performance with that of other equity REITs. However, because FFO excludes depreciation and amortization and does not capture the changes in the value of our properties that result from use or market conditions, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. In addition, other equity REITs may not calculate FFO as we do, and, accordingly, our FFO may not be comparable to such other equity REITs' FFO. Accordingly, FFO should be considered only as a supplement to net income (loss) as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions or service indebtedness. FFO also should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP. A reconciliation of net loss (computed in accordance with GAAP) to FFO is included in the financial information accompanying this release.

Adjusted FFO ("AFFO") is a non-GAAP financial measure of operating performance used by many companies in the REIT industry.It adjusts FFO to eliminate the impact of non-recurring items that are not reflective of ongoing operations and certain non-cash items that reduce or increase net income in accordance with GAAP. Our computation of AFFO may differ from the methodology for calculating AFFO used by other equity REITs, and, therefore, may not be comparable to such other REITs. A reconciliation of net loss (computed in accordance with GAAP) to AFFO is included in the financial information accompanying this release.