The Corporate Restructuring Report-Spirit Realty Capital Inc. (SRC) & Spirit MTA REIT (SMTA)
On May 31, 2018, Spirit Realty Capital Inc. (NYSE:SRC) is expected to complete the spin-off of Spirit MTA REIT (SMTA). The spin-off will comprise the assets that collateralize Master Trust 2014 (part of Spirit's asset-backed securitization program), properties leased to Shopko Retail Shops Holding Corp (Shopko) and other assets. The parent will retain the remaining 1,470 properties. The spin-off is anticipated to be taxable and was announced on August 3, 2017. The spin-off aligns the portfolio to more closely target SRC's heat map and investment strategy. It will also reduce SRC's overall leverage.
SRC will be a triple-net lease REIT focusing on middle-market unrated tenants with an emphasis on non-cyclical industries. The portfolio is well-diversified, comprising 1,470 properties with high occupancy rate (~99.1%) and long-dated lease maturities (~9.6 years). The spin-off of Master Trust 2014, Shopko and other assets will result in a superior and more diversified investment grade real estate portfolio, better operating statistics and significant balance sheet capacity for growth.
Master Trust 2014 will be the cornerstone for MTA's growth plans. SMTA benefits from the ability to raise secured debt at attractive rates. We expect the monetization of Shopko and other assets to provide fuel for Master Trust 2014 issuances. Master Trust 2014 portfolio is highly diversified, comprising ~790 properties across 23 industries, which in our view will be hard for competitors to replicate. Additionally, high occupancy rate (~98%), triple-net lease structures, contractual rent increases and long-dated lease expirations ensure cash flow visibility.
Of the two, we prefer SMTA owing to more upside potential. In our view, both SRC (ex SMTA) and SMTA are undervalued.
Spirit Realty Capital is a self-administered and self-managed real estate investment trust with in-house capabilities, including acquisition, portfolio management, asset management, credit research, real estate research, legal, finance and accounting and capital markets. The company primarily invests in single-tenant, operationally essential real estate throughout the U.S., with business operations within mainly retail, but also office and industrial property types. The company's operations are carried out through an operating partnership, Spirit Realty, L.P. As of Dec 31 2017, the company's real estate portfolio consisted of 2,392 owned properties located in 49 states as well as in the U.S. Virgin Islands.
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