Source of photo: SRC Website
Originally issued in 2017, the adopted shares of Spirit Realty Capital, Inc. (SRC), namely the Spirit Realty Basic Inc 6 % Cum Conv Perp Red Pfd Registered Shs Alternation A (SRC.PA), action acceptable amount at $22 or below. At $22, the crop on SRC.PA shares is aloft 6.8%, and with able clamminess and an advance brand rating, the allotment should be able-bodied protected. If shares are anytime alleged by SRC in the future, basic acknowledgment (assuming accepted appraisement levels) will beat 13%.
SRC is amid the better net charter REITs with a bazaar assets of almost $3.6 billion. Competitors in this amplitude accommodate Realty Assets (NYSE:O), National Retail Backdrop (NYSE:NNN) and W.P. Carey (NYSE:WPC).
SRC afresh spun off its lower affection assets into Spirit MTA REIT (SMTA). Above-mentioned to the spin-off, Spirit was advised a lower-quality net charter firm, with aerial acknowledgment to abstract tenants, including Shopko and 84 Lumber, and animated abstraction risk.
Today, SRC has afflicted materially. The aftereffect of its lower affection and botheration backdrop larboard the aggregation with a high-quality portfolio that is added in band with the affection of its competitors.
An absorbing snapshot of SRC from its contempo Investor Presentation is set alternating below.
At the time of its IPO, SRC’s top 5 tenants represented over 43% of the anniversary abject rent, while today the top 5 tenants are about 15%. Moreover, abounding of the top tenants, pre-spin off, were not decidedly strong.
The tables below, from the September Investor Presentation, advice acquaint the story.
SRC’s accepted portfolio consists of about 1,500 properties, which includes about 250 tenants. By industry, SRC’s tenants are additionally analytic diversified, as is apparent in the table below.
Following Q2 2018, SRC’s President and CEO, Jackson Hsieh, commented on the division in the accompanying annual columnist release:
We are actual admiring with our added division after-effects and activity, accepting auspiciously completed our Spin-Off transaction, which we accept has created allusive amount for investors and decidedly bigger Spirit’s operating and antithesis area metrics. Spirit now has a portfolio that is 99.6% occupied, with a top 10 ascendancy that comprises aloof 25.5% of acknowledged hire and an unencumbered asset abject that represents about 80% of absolute absolute acreage investments. We are additionally aflame about the acquisitions activity we are architecture for Spirit as we seek to carefully arrange our well-funded antithesis area against targeted acquisitions that fit aural our calefaction map strategy. In fact, we accept $285 actor of acquisitions either beneath arrangement or letter of intent. As we attending ahead, we accept Spirit offers an adorable aggregate of abiding assets and abeyant balance growth.”
With account to SRC’s liquidity, as of August 6, 2018 and as acclaimed in the contempo qaurterly columnist release, SRC had about $25.6 actor in cash/cash equivalents and accessible borrowing accommodation beneath its apart band of acclaim of $800 million.
Moreover, during Q2 2018, SRC retired its $123.1 actor of Master Trust 2013 Alternation 2013-1 Class A addendum on May 21, 2018, afterwards any make-whole payments actuality required. SRC additionally purchased $8.1 actor of its accepted shares during Q2 2018.
Further, accustomed SRC’s able clamminess position, its Lath of Directors of SRC accustomed a new accepted allotment repurchase program, beneath which the aggregation may repurchase an added $250.0 actor of its outstanding accepted stock.
SRC’s able banking position has been adored by the appraisement agencies with advance brand ratings: S&P (BBB-/Positive Outlook); Fitch (BBB-/Positive Outlook); and Moody’s (Baa3/Stable).
The table below, in added diminutive fashion, highlights the banking achievement improvements fabricated by SRC over the advance of the company’s history.
Clearly, SRC today is a abundant stronger commodity from a banking and operating perspsective afresh it was in the past. This bodes able-bodied for the company’s adeptness to pay dividends, and it may additionally accomplish SRC a added adorable accretion target.
The key capacity of SRC.PA shares are as follows: at SRC’s option, SRC.PA shares are callable on or afterwards 10/3/2022 at $25 per allotment additional accrued and contributed dividend. SRC.PA shares accept no declared ability date. Cumulative distributions of $1.50 per annum or $0.375 per division are paid annual on 3/31, 6/30, 9/30 & 12/31 to holders of almanac on the almanac date anchored by the SRC board, not added than 35 canicule or beneath than 10 canicule above-mentioned to the acquittal date.
Upon the accident of a change of control, SRC will accept the advantage to redeem SRC.PA shares at $25 per allotment additional accrued and contributed dividends. If the SRC does NOT exercise this accretion appropriate aloft the occurence of a change of control, holders of SRC.PA will accept the appropriate to catechumen their SRC.PA shares into accepted shares as added absolutely declared in the SRC.PA shares prospectus.
In attention to the acquittal of assets and aloft liquidation, SRC.PA shares rank inferior to SRC’s chief debt, appropriately with added adopted allotment alternation (currently there are none), and chief to the accepted shares of SRC.
Trading about $22, SRC.PA shares accept bound alarm accident back the shares are trading beneath par ($25.00). Accustomed SRC’s able control (near 99.6%) and its advance brand appraisement and its bigger banking position as accent above, the better accident to the adopted shares are ascent absorption rates.
For bourgeois investors, SRC.PA shares are account a look. SRC is acutely a abundant stronger aggregation post-spin as categorical above.
Notably, I am bistro my own affable actuality too as I purchased shares abutting to $22. Also, it should be acclaimed that bisected of my position is finer leveraged as I chose to booty a home advance accommodation back I did not charge to do so (i.e., I had adored the banknote for the improvement). I chose this avenue because the amount on the accommodation was 2.99% anchored for 10 years [note: allowance accommodation ante are currently abundant higher]. I afresh invested a allocation of those funds in SRC.PA (with a crop of 6.80% or about 380 base credibility aloft my amount of funds). Back advance allotment are acceptable activity to be harder to appear by in the advancing decade, I am aggravating to be conservative, but artistic at the aforementioned time (but hopefully not too creative!).
Of course, risks abide (see the announcement affiliated above), and administration beheading will be key for SRC activity forward. Nonetheless, at these levels, SRC.PA shares provide, in my estimation, a reasonable acknowledgment about to the risks involved.
Finally, I ahead endemic SRC accepted shares but awash those in the contempo run up aloft $8. If we get a pullback, I will accede affairs the accepted shares afresh (preferably abreast $7), decidedly if administration continues to execute. Stay tuned.
Disclosure: I am/we are continued SRC.PA.
I wrote this commodity myself, and it expresses my own opinions. I am not accepting advantage for it (other than from Seeking Alpha). I accept no business accord with any aggregation whose banal is mentioned in this article.
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