# EDGAR Filing Document

**Accession Number:** 0001308606
**File Stem:** 0001193125-23-077276
**Filing Date:** 2023-3
**Character Count:** 132351
**Document Hash:** 7868256456febcab092f1772f381e4b4
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001193125-23-077276.hdr.sgml**: 20230323

**ACCESSION NUMBER**: 0001193125-23-077276

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230323

**DATE AS OF CHANGE**: 20230323

**EFFECTIVENESS DATE**: 20230323

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** SPIRIT REALTY CAPITAL, INC.
- **CENTRAL INDEX KEY:** 0001308606
- **STANDARD INDUSTRIAL CLASSIFICATION:** OPERATORS OF NONRESIDENTIAL BUILDINGS [6512]
- **IRS NUMBER:** 201676382
- **STATE OF INCORPORATION:** MD
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-36004
- **FILM NUMBER:** 23754448

**BUSINESS ADDRESS:**
- **STREET 1:** 2727 NORTH HARWOOD STREET
- **STREET 2:** SUITE 300
- **CITY:** DALLAS
- **STATE:** TX
- **ZIP:** 75201
- **BUSINESS PHONE:** 972.476.1900

**MAIL ADDRESS:**
- **STREET 1:** 2727 NORTH HARWOOD STREET
- **STREET 2:** SUITE 300
- **CITY:** DALLAS
- **STATE:** TX
- **ZIP:** 75201

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Spirit Realty Capital, Inc.
- **DATE OF NAME CHANGE:** 20130723

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Cole Credit Property Trust II Inc
- **DATE OF NAME CHANGE:** 20041115

### Attached PDF Documents

**Attachment 1:** `d373428dars.pdf`

# 2022 ANNUAL REPORT

![img-0.jpeg](img-0.jpeg)

SPIRIT REALTY

# 2022 HIGHLIGHTS

$1.5B

INVESTED

Including acquisitions and revenue producing expenditures with a cash capitalization rate of 6.65%

$323.7M

DISPOSITIONS

With a cash capitalization rate of 5.47%

$3.56

AFFO

BBB/Baa2/BBB

RATED

Across S&P/Moody's/Fitch, with 99.9% of debt being unsecured

99.9%

OCCUPIED

As of December 31, 2022

Dear Fellow Spirit Shareholders,

Spirit Realty's results can be summarized quite simply - strong operational results driven by an impressive team dedicated to continually improving our solid and diverse portfolio of assets and credits, navigating internal and external challenges, and always seeking excellence for our shareholders.

In December 2019, Spirit hosted an Investor Day that gave us the opportunity to showcase our team, our real estate portfolio and our credit, acquisition, and asset management processes. We also highlighted numerous three-year objectives to be completed by year-end 2022, including: (1) achieve $600.0 million in Annualized Base Rent "ABR" (from a baseline of $421 million in September 2019); (2) generate one-third to one-half of our investment opportunities from existing relationships; (3) achieve a BBB+ unsecured credit rating; and (4) generate $3.32 - $3.52 of AFFO/share.

So where did we land as of year-end 2022 in relation to these 2019 objectives?

- Operationally, we accomplished all of our goals, in spite of the COVID-19 pandemic and lockdowns, the Russian invasion of Ukraine, runaway inflation and significant increases in interest rates.
  - In 2022, we invested over $1.5 billion of capital in real estate assets, comprised of over 100 transactions. A substantial 69% of these investments were sourced through existing Spirit relationships, far exceeding our Investor Day objective. This resulted in year-end 2022 ABR of $680.9 million, meaningfully higher than the $600.0 million objective we presented in 2019.
  - At our Investor Day, we highlighted the Industrial sector as an area of opportunity based on our proprietary heat map. Seizing on this identified opportunity, we have increased our Industrial sector exposure from 4.2% of ABR as of September 30, 2019 to 23.0% of ABR as of year-end 2022.
  - In 2022, we also raised proceeds from asset dispositions (the majority of which were retail, non-Investment Grade tenanted buildings), in over 50 separate transactions that generated $323.7 million in proceeds at a 5.47% weighted average cash capitalization rate for occupied properties and resulted in a $110.9 million gain. Our occupancy rate increased to 99.9 % and we experienced minimal lost rent.
  - Overall, we ended 2022 with a healthy and resilient portfolio that has been underwritten to provide stability despite uncertainty in the macroeconomic environment.
- In 2022, we entered into several important capital markets transactions that strengthened our healthy balance sheet, including an amended and expanded $1.2 billion unsecured revolving line of credit facility, unsecured term loans totaling $1.3 billion, and a $595.5 million raise of common equity. We finished 2022 with a reasonable leverage ratio of 5.2x adjusted debt/EBITDAre and well staggered debt maturities. While we were not yet able to improve our credit rating from BBB to BBB+, as of year-end 2022 we have maintained our investment grade rating with a stable outlook across all major rating agencies, and an improvement in our rating remains a goal.
- Finally, our 2022 AFFO per share of $3.56 was in excess of the $3.32-$3.52 outlook that we presented back in 2019, surpassing the midpoint by $0.14 and resulting in 9.5% annual growth over fiscal year 2021.

2727 North Harwood Street  
Suite 300  
Dallas, TX 75201

Spirit concluded its 2019 Investor Day Presentation with a discussion about “What Success Could Look Like”, which centered around achieving our 2022 financial and operational targets and a range of 3-year total shareholder returns utilizing dividend contribution and stock appreciation derived from AFFO multiples of a public net lease REIT peer group. While we came up short in closing the AFFO multiple gap to our net lease peers in 2022, we continue to make this one of our highest priorities and believe that consistently operating successfully and “doing what we say” will result in closing this gap. Our executive leadership team is aligned with shareholders on this goal from a compensation perspective as well. In 2022, 100% of our executive’s annual equity grants were performance share awards, with no purely time-based grants awarded. This demonstrates the emphasis Spirit places on pay-for-performance and variable at-risk pay elements. Performance share awards have long been a hallmark of our compensation program. In 2020, we granted our executives performance share awards that were eligible to vest at the end of 2022 based on our TSR performance relative to the TSR achieved by two set performance peer groups during the 2020-2022 performance period. In spite of achieving the majority of our 2022 operating and financial goals, based on the TSR performance during the performance period, the threshold performance was not met, and the 2020 awards were surrendered completely. Our alignment with shareholders is clear across multiple angles.

Spirit is proud of the operational and financial successes we had in 2022. Nevertheless, as we begin 2023, we recognize that we are entering into yet another turbulent period of global and economic uncertainty, this time due to interest rate volatility, persistent high inflation, and a recent large bank failure that has rattled global equities and fixed income markets.

But the “New Spirit” is ready to weather this storm, as we have in the past. As demonstrated by our successes in 2022, I would like to reiterate that the “New Spirit” is financially solid, diversified, steady and poised to take advantage of opportunities that meet our investment criteria, improve our existing real estate portfolio and generate good risk adjusted returns. Our team has continued to successfully move through numerous external macro-economic challenges, and we are determined to build Spirit Realty Capital into one of the pre-eminent real estate investment companies focused on net leased properties.

As I think about the opportunities and challenges ahead of us in 2023, I believe this will be an important year where we can demonstrate how our consistent application of investment, research, credit and asset management acumen over the years has created and will continue to create and maintain a broadly diversified and granular real estate portfolio. We believe that our portfolio will perform at very low volatility from a cash flow perspective, similar to that of an investment grade tenanted real estate portfolio. We have also developed a unique ability to consistently identify and analyze underappreciated credits and industries which have historically produced better risk adjusted returns. Finally, our years of consistently being a reliable and predictable capital partner has deepened and strengthened our tenant relationships, which we believe will enhance the quality and return profile of our 2023 investment pipeline.

We continue to Fight On!

Best,

![img-1.jpeg](img-1.jpeg)

![Handwritten signature of Jackson Hsieh.]()

Chief Executive Officer

Spirit Realty Capital | Annual Report

Company Information

# Executive Officers

Jackson Hsieh

President
Chief Executive Officer

Michael Hughes

Executive Vice President
Chief Financial Officer

Ken Heimlich

Executive Vice President
Chief Investment Officer

Jay Young

Executive Vice President
Chief Administrative Officer
Chief Legal Officer

Rochelle Thomas

Executive Vice President
General Counsel

# Board of Directors

Richard Gilchrist

Chairman
Compensation Committee

Jackson Hsieh

Director
President & Chief Executive Officer

Diana Laing

Director
Audit Committee (Chair)

Michelle Frymire

Director
Audit Committee
Nominating & Corporate
Governance Committee

Kevin Charlton

Director
Compensation Committee

Thomas Sullivan

Director
Compensation Committee (Chair)

Nicholas Shepherd

Director
Compensation Committee
Nominating & Corporate
Governance Committee (Chair)

Kristian Gathright

Director
Nominating & Corporate
Governance Committee

Elizabeth Frank

Director
Audit Committee
Nominating & Corporate
Governance Committee

![img-2.jpeg](img-2.jpeg)

Spirit Realty Capital | Annual Report

**UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
Washington, D.C. 20549

# **FORM 10-K**

☑ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
For the fiscal year ended December 31, 2022

Or

☐ **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**
(State or other jurisdiction of
incorporation or organization)

**20-1676382**
(I.R.S. Employer
Identification Number)

**2727 North Harwood Street, Suite 300, Dallas, Texas 75201**
(Address of principal executive offices; zip code)

**(972) 476-1900**
(Registrant's telephone number, including area code)

**Securities registered pursuant to Section 12(b) of the Act:**

| Title of each class | Trading Symbol(s) | Name of exchange on which registered |
| --- | --- | --- |
| Common Stock, $0.05 par value per share | SRC | New York Stock Exchange |
| 6.000% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share | SRC-A | New York Stock Exchange |

**Securities registered pursuant to Section 12(g) of the Act: None**

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

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 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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐

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

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑ No ☐

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

As of June 30, 2022 (the last business day of the registrant's most recently completed second fiscal quarter), the aggregate market value of Spirit Realty Capital, Inc.'s shares of common stock, $0.05 par value, held by non-affiliates of the Registrant, was $5.1 billion based on the last reported sale price of $37.78 per share on the New York Stock Exchange on June 30, 2022.

The number of outstanding shares of Spirit Realty Capital, Inc.'s common stock, $0.05 par value, as of February 23, 2023, was 141,304,436 shares.

# **Documents Incorporated by Reference**

Certain specific portions of the definitive Proxy Statement for Spirit Realty Capital, Inc.'s 2023 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K. Only those portions of the Proxy Statement which are specifically incorporated by reference herein shall constitute a part of this Annual Report on Form 10-K.

# GLOSSARY

| 2016 ATM Program | At-the-market equity distribution program established in November 2016, which was terminated upon entry into the 2020 ATM Program |
| --- | --- |
| 2017 Tax Legislation | Tax Cuts and Jobs Act of 2017 |
| 2019 Credit Facility | $800.0 million unsecured revolving credit facility, expanded to $1.2 billion in March 2022, pursuant to the 2019 Revolving Credit and Term Loan Agreement |
| 2019 Revolving Credit and Term Loan Agreement | Revolving credit and term loan agreement between the Operating Partnership and certain lenders dated January 14, 2019, as amended or otherwise modified from time to time |
| 2020 ATM Program | At-the-market equity distribution program established in November 2020, which was terminated upon entry into the 2021 ATM Program |
| 2020 Term Loans | $400.0 million senior unsecured term facility pursuant to the 2020 Term Loan Agreement |
| 2020 Term Loan Agreement | Term loan agreement between the Operating Partnership and certain lenders dated April 2, 2020, as amended or otherwise modified from time to time |
| 2021 ATM Program | At-the-market equity distribution program established in November 2021, pursuant to which the Corporation may offer and sell registered shares of common stock from time to time |
| 2021 Convertible Notes | $345.0 million convertible notes of the Corporation which matured in May 2021 |
| 2022 Term Loans | $800.0 million senior unsecured term facility pursuant to the 2022 Term Loan Agreement |
| 2022 Term Loan Agreement | Term loan agreement between the Operating Partnership and certain lenders dated August 22, 2022, as amended or otherwise modified from time to time |
| 2023 Term Loans | $500.0 million senior unsecured term facility pursuant to the 2023 Term Loan Agreement |
| 2023 Term Loan Agreement | Term loan agreement between the Operating Partnership and certain lenders dated November 17, 2022, as amended or otherwise modified from time to time |
| 2026 Senior Notes | $300.0 million principal amount of senior notes issued in August 2016 |
| 2027 Senior Notes | $300.0 million principal amount of senior notes issued in September 2019 |
| 2028 Senior Notes | $450.0 million principal amount of senior notes issued in March 2021 |
| 2029 Senior Notes | $400.0 million principal amount of senior notes issued in June 2019 |
| 2030 Senior Notes | $500.0 million principal amount of senior notes issued in September 2019 |
| 2031 Senior Notes | $450.0 million principal amount of senior notes issued in August 2020 |
| 2032 Senior Notes | $350.0 million principal amount of senior notes issued in March 2021 |
| 401(k) Plan | Defined contribution retirement savings plan qualified under Section 401(k) of the Code |
| ACM | Asbestos-Containing Materials |
| ADA | Americans with Disabilities Act |
| Adjusted Debt | Adjusted Debt is a non-GAAP financial measure. See definition in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
| Adjusted EBITDAre | Adjusted EBITDAre is a non-GAAP financial measure. See definition in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
| AFFO | Adjusted Funds From Operations is a non-GAAP financial measure. See definition in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
| Amended Incentive Award Plan | Second Amended and Restated Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan, as amended |
| Annualized Base Rent (ABR) | Represents Base Rent plus earned income from direct financing leases and deferred revenue from development deals for the final month of the reporting period. It is adjusted to reflect acquisitions and dispositions for that month as if such acquisitions and dispositions had occurred as of the beginning of the month. The total is then multiplied by 12. ABR is used when calculating certain metrics to evaluate portfolio credit and diversification and to manage risk. |
| AOCIL | Accumulated Other Comprehensive Income / (Loss) |
| ASC | Accounting Standards Codification |
| Asset Management Agreement | Asset Management Agreement between Spirit Realty, L.P. and Spirit MTA REIT dated May 31, 2018, subsequently assigned by Spirit Realty, L.P. to Spirit Realty AM Corporation on April 1, 2019 and terminated effective September 20, 2019 |
| ASU | Accounting Standards Update |
| ATM Program | The 2016 ATM Program, 2020 ATM Program, or 2021 ATM Program, as applicable |
| Base Cash Rent | Represents Base Rent adjusted for contractual rental income abated, deemed not probable of collection, or recovered from prior period reserves |
| Base Rent | Represents contractual rental income for the period, prior to deferral or abatement agreements, and excluding contingent rents |
| CMBS | Commercial Mortgage-Backed Securities |
| Code | Internal Revenue Code of 1986, as amended |

| Company | The Corporation and its consolidated subsidiaries |
| --- | --- |
| Convertible Notes | 2021 Convertible Notes |
| Corporation | Spirit Realty Capital, Inc., a Maryland corporation |
| CPI | Consumer Price Index |
| EBITDA | Earnings Before Interest, Taxes, Depreciation and Amortization |
| EBITDAre | EBITDAre is a non-GAAP financial measure and is computed in accordance with standards established by NAREIT. See definition in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
| Exchange Act | Securities Exchange Act of 1934, as amended |
| FASB | Financial Accounting Standards Board |
| FFO | Funds From Operations is a non-GAAP financial measure. See definition in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
| GAAP | Generally Accepted Accounting Principles in the United States |
| Interim Management Agreement | Interim Management Agreement between Spirit Realty AM Corporation, a wholly-owned subsidiary of the Company, and Spirit MTA REIT dated June 2, 2019, which was effective from September 20, 2019 through September 4, 2020 |
| IRS | Internal Revenue Service |
| LIBOR | London Interbank Offered Rate |
| MGCL | Maryland General Corporation Law |
| NAREIT | National Association of Real Estate Investment Trusts |
| NYSE | New York Stock Exchange |
| OP Holdings | Spirit General OP Holdings, LLC |
| Operating Partnership | Spirit Realty, L.P., a Delaware limited partnership |
| Porter's Five Forces | An analytical framework used to examine the attractiveness of an industry and potential for disruption in that industry based on: threats of new entrants, threats of substitutes, the bargaining power of customers, the bargaining power of suppliers and industry rivalry |
| REIT | Real estate investment trust |
| S&P | S&P Global Ratings |
| SEC | Securities and Exchange Commission |
| Securities Act | Securities Act of 1933, as amended |
| Senior Unsecured Notes | 2026 Senior Notes, 2027 Senior Notes, 2028 Senior Notes, 2029 Senior Notes, 2030 Senior Notes, 2031 Senior Notes, and 2032 Senior Notes, collectively |
| Series A Preferred Stock | 6,900,000 shares of 6.00% Cumulative Redeemable Preferred Stock issued October 3, 2017, with a liquidation preference of $25.00 per share. |
| SMTA | Spirit MTA REIT, a Maryland real estate investment trust, or SMTA Liquidating Trust, a Maryland common law trust, as the context dictates. On January 1, 2020, Spirit MTA REIT transferred all of its assets (subject to all of its liabilities) to SMTA Liquidating Trust. |
| SOFR | Secured Overnight Financing Rate |
| Spin-Off | Creation of an independent, publicly traded REIT, SMTA, through our contribution of certain properties and other additional assets and liabilities, followed by the distribution by us to our stockholders of all of the common shares of beneficial interest in SMTA. |
| Spirit Heat Map | An analysis of industries across Porter's Five Forces and potential causes of technological disruption to identify tenant industries which Spirit believes to have good fundamentals for future performance |
| Spirit Property Ranking Model | A proprietary model used annually to rank properties across twelve factors and weightings consisting of both real estate quality scores and credit underwriting criteria, in order to benchmark property quality, identify asset recycling opportunities and to enhance acquisition or disposition decisions |
| Subtitle 8 | Title 3, Subtitle 8 of the MGCL |
| TRS | Taxable REIT subsidiary, which is a corporation, other than a REIT, in which a REIT directly or indirectly holds stock and that has made a joint election with such REIT to be treated as a taxable REIT subsidiary and meets certain other requirements |
| TSR | Total Shareholder Return |

*Unless otherwise indicated or unless the context requires otherwise, all references to the 'registrant,' the 'Company,' 'Spirit Realty Capital,' 'we,' 'us' or 'our' refer to the Corporation and its consolidated subsidiaries, including the Operating Partnership. Unless otherwise indicated or unless the context requires otherwise, all references to the 'Operating Partnership' refer to Spirit Realty, L.P. and its consolidated subsidiaries.*

# SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, the Private Securities Litigation Reform Act of 1995 and other federal securities laws. When used in this Annual Report, the words “estimate,” “anticipate,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “seek,” “approximately” or “plan,” or the negative of these words or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management.

Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all).

The following risks and uncertainties, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

- • industry and economic conditions;
- • volatility and uncertainty in the financial markets, including potential fluctuations in the CPI;
- • our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate, integrate and manage diversified acquisitions or investments;
- • the financial performance of our retail tenants and the demand for retail space;
- • our ability to diversify our tenant base;
- • the nature and extent of future competition;
- • increases in our costs of borrowing as a result of changes in interest rates and other factors;
- • our ability to access debt and equity capital markets;
- • our ability to pay down, refinance, restructure and/or extend our indebtedness as it becomes due;
- • our ability and willingness to renew our leases upon expiration and to reposition our properties on the same or better terms upon expiration in the event such properties are not renewed by tenants or we exercise our rights to replace existing tenants upon default;
- • the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us or our major tenants;
- • our ability to manage our expanded operations;
- • our ability and willingness to maintain our qualification as a REIT;
- • the impact on our business and those of our tenants from epidemics, pandemics or other outbreaks of illness, disease or virus; and
- • other risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters, illiquidity of real estate investments and potential damages from natural disasters.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.

# INDEX

| PART I |  |  |
| --- | --- | --- |
| Item 1. | Business | 6 |
| Item 1A. | Risk Factors | 14 |
| Item 1B. | Unresolved Staff Comments | 28 |
| Item 2. | Properties | 29 |
| Item 3. | Legal Proceedings | 31 |
| Item 4. | Mine Safety Disclosure | 31 |
| PART II |  |  |
| Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 32 |
| Item 6. | [Reserved] | 32 |
| Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 33 |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 47 |
| Item 8. | Financial Statements and Supplementary Data | 48 |
| PART III |  |  |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 83 |
| Item 9A. | Controls and Procedures | 83 |
| Item 9B. | Other Information | 84 |
| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 84 |
| Item 10. | Directors, Executive Officers and Corporate Governance | 84 |
| Item 11. | Executive Compensation | 84 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 84 |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 84 |
| Item 14. | Principal Accountant Fees and Services | 84 |
| PART IV |  |  |
| Item 15. | Exhibits, Financial Statement Schedules | 85 |
| Item 16. | Form 10-K Summary | 88 |
| SIGNATURES |  | 96 |

5

PART I

# Item 1. Business

# Overview

![img-3.jpeg](img-3.jpeg)

Spirit Realty Capital, Inc. is an internally-managed net-lease REIT with in-house functions including acquisitions, credit research, asset management, portfolio management, real estate research, legal, finance and accounting. We invest primarily in single-tenant, operationally essential real estate assets throughout the United States, which are subsequently leased on a long-term, triple-net basis to high quality tenants with operations in retail, industrial and certain other industries. As a REIT, we are required to, among other things, annually distribute at least 90% of our taxable income (excluding net capital gains) to our stockholders. We achieve this objective through consistent quarterly dividends supported by the cash flows generated by our leasing operations, which we look to continue to grow over time.

As of December 31, 2022, we owned a highly diversified portfolio of 2,115 properties operated by 351 tenants and with in-place Annualized Base Rent of $680.9 million. See Item 2. "Properties" for further information on our portfolio diversification.

Shares of our common stock are traded on the NYSE under the symbol "SRC."

# Business and Growth Strategies

![img-4.jpeg](img-4.jpeg)

Our objective is to maximize stockholder value by providing a growing stream of earnings and dividends generated by high quality, diversified commercial real estate. We seek to accomplish this objective by utilizing our proprietary tools and underwriting expertise to invest in and manage a high-quality portfolio of single-tenant, operationally essential real estate throughout the United States, which generally consists of free-standing, commercial real estate facilities where our tenants conduct activities essential to the generation of their sales and profits. We then generate revenue primarily by leasing these properties to tenants we believe possess attractive credit characteristics and operate in stable or growing industries. Our leases are typically structured as triple-net leases, whereby the tenant is responsible for all improvements and is contractually obligated to pay all property operating expenses, such as real estate taxes, insurance premiums and repair and maintenance costs.

6

## STRONG OPERATING SYSTEMS

Spirit utilizes integrated tools that streamline key processes for acquisitions, portfolio management, tenant monitoring, capital funding, forecasting and record keeping. We believe the effective use of technology to inform decisions provides efficiency, depth and scalability to our processes, allowing us to seamlessly execute our objectives. To enhance our operating systems, we have developed several proprietary tools to minimize risk and maximize stockholder returns:

- o *Spirit Property Ranking Model.* The Spirit Property Ranking Model is a core tool developed internally by Spirit that ranks every property across twelve criteria, with a higher weighting allocated to real estate characteristics: (i) real estate score based on the site's location, access, visibility and overall desirability, (ii) building score to evaluate the quality of the structure for industrial assets, (iii) 5-mile population for retail properties or 15-mile population for industrial properties, (iv) remaining lease term, (v) 5-mile household income, (vi) pre-overhead unit coverage, (vii) pre-overhead master lease coverage, (viii) corporate coverage, (ix) U.S. State ranking, (x) rent escalation characteristics, (x) lease structure, (xii) tenant industry ranking and (xiii) replacement rent, assuming the property becomes vacant. We believe that the higher the overall score assigned to a property, the lower the risk of a residual loss. Through acquisitions, dispositions, lease renewals and re-lets, we seek to continually improve the weighted-average property ranking of our portfolio.
- o *The Spirit Heat Map.* The Spirit Heat Map is used to analyze tenant industries across Porter's Five Forces and for potential causes of technological disruption. The data is then used to understand the competitive landscape, performance and outlook of each industry. The Spirit Heat Map is updated regularly to incorporate changes in business and market conditions, changes in technology and other trends. Using this tool, coupled with our intensive credit and real estate analysis, lease structuring and ongoing portfolio management, we seek to achieve superior risk-adjusted returns by focusing our investments within industries that we believe will be healthy and viable prospectively and disposing of properties within industries that have less favorable outlooks.
- o *Spirit Business Intelligence Tools.* Our business intelligence tools capture and bring together critical information across Spirit's databases, including property data (including property performance and data points used in the Spirit Property Ranking Model), industry data and tenant credit data, allowing the information to be efficiently analyzed. Spirit uses these tools to compare potential acquisitions and dispositions to the existing portfolio and quantify improvements in key metrics including industry concentration, tenant concentration, weighted-average lease term, weighted-average Spirit property ranking and credit metrics.

## OUTSTANDING PEOPLE

With less than 100 employees, we are "All One Team" - our growth and success depend on teamwork and the individual contribution of each and every person we employ. We believe attracting, developing and retaining a team of highly talented and motivated employees is critical to creating a culture of collaboration and mutual respect and delivering strong financial results. We strive to prioritize the well-being and development of our employees through the following:

- o *Employee Compensation and Benefits.* To attract and retain top talent, we provide attractive compensation, including stock awards for all employees. Spirit also aims to award our employees benefits that are in line with those of our peers and competitors, including the following: Medical, Dental, and Vision Insurance; Pet Insurance; Flexible Spending Accounts (Health and Dependent); Life and AD&D Insurance; Paid Vacation; Maternity and Paternity Leave; Military Leave; Short and Long-Term Disability; 401(k) and Roth Savings Plans; Employee Assistance Program; Employee Discount Program; Bereavement Leave; and COVID-19 Leave.
- o *Workplace culture.* We strive to foster a best-in-class workplace culture, where all employees are encouraged to "R.E.A.C.H. for the stars" by demonstrating our five core values: (i) value Relationships, (ii) pursue Excellence, (iii) Act with integrity, (iv) Choose optimism, and (v) Have fun. We actively seek employee feedback through surveys, and anonymous survey results are communicated to all employees, as well as to our Board of Directors, to provide transparency and with the goal of continuous improvement. We also acknowledge employee successes through recognition at monthly "Town Hall" meetings hosted by our CEO.
- o *Employee wellness.* We believe the physical and mental well-being of our employees is important to our business and overall success. We implemented a hybrid work policy, which allows our employees the benefits of both remote and in-person work environments and supports flexible work schedules to help meet employee needs. Our offices were designed with the goal of employee health and well-being in mind, with sit-stand desks, ergonomic chairs, healthy snack options, maximized natural light in all workspaces, designated creative and collaborative workspaces, and robust cleaning and sanitizing procedures. Further, we routinely sponsor employee wellness initiatives, including walking and weight-loss challenges.

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o Diversity and inclusion. We seek to provide equal employment opportunities to all individuals and seek to cultivate an inclusive culture that respects and appreciates diversity of experience, ideas and opinions. Our Diversity and Inclusion Council is tasked with providing educational and social programming for all affinity groups, as well as directing support to charitable organizations working to advance diversity, equity and inclusion in society. Under the Diversity and Inclusion Council, we have a Women's Leadership Council, which focuses on empowering our female employees in personal and professional growth, and a Young Professionals Committee, which focuses on developing our employees under the age of 35. Programming in 2022 included hosting a mandatory third-party administered Inclusion and Bias Workshop for all employees and a mandatory Inclusive Leader Series for people-managers, funding scholarships for three students attending Historically Black Colleges and Universities, partnering with Project Destined (a real estate training program for scholars in underserved communities) to mentor college students in a real estate case study competition, holding monthly meetings for our women's book club, hosting a third annual women's "real talk" speaker event and sponsoring an outing to a Texas Ranger's game for our young professionals.
o Talent development. We aim to develop our employees through numerous channels, including third-party administered programs, individual coaching for certain employees, Pryor Learning membership (an extensive online training platform), and tuition assistance and course reimbursement for career-enhancing education and licensure requirements. We also internally curate development opportunities, including learning sessions on business and leadership topics, formal and informal mentorships to provide critical developmental feedback and direct access for all employees to our executive team, including through monthly "Town Hall" meetings. Annual goals are set for every employee and formal feedback is provided semi-annually on those goals as well as our core competencies: communication, accountability, teamwork, and our core values. We look to promote from within, but when external hires are needed, we use a thorough hiring process which includes multiple levels of interviews, cultural surveys, and technical skill testing, when appropriate.
o Social engagement. We firmly believe that regular social and team building events for our employees encourage relationship building and collaboration - which we believe are important for employee engagement and a high performing "All One Team" culture. Our Spirit One Committee (comprised of employees across all levels) develops company-wide social events throughout the year, which in 2022 included "Coffee Talks" (small group discussions of non-work topics), our Annual Crawfish Boil, company-sponsored kick-ball and sand volleyball teams, and a Family Fun Day at Main Event. Additionally, our departments host team building events throughout the year.

Gender Breakdown

![img-0.jpeg](img-0.jpeg)

Racial/Ethnic Breakdown

![img-1.jpeg](img-1.jpeg)

Age Group Breakdown

![img-2.jpeg](img-2.jpeg)

As of December 31, 2022, we had 89 employees, as compared to 84 employees as of December 31, 2021. None of these employees are currently subject to a collective bargaining agreement.

## DEFINED AND DISCIPLINED INVESTMENT STRATEGY

During the year ended December 31, 2022, we purchased 172 properties with a gross investment of $1.4 billion, invested $101.1 million in revenue producing capital expenditures and funded a $12.7 million loan receivable. During the same period, we sold 60 properties with a gross investment of $240.1 million. We believe a highly disciplined and selective approach to acquisitions, paired with prudent asset recycling, will allow us to meet our business objectives.

o Sourcing acquisitions. We believe a multi-channel approach drives volume for high-quality acquisitions and we focus on building and growing partnerships with a diverse base of tenants, brokers and owners. Over time, our target is a balanced mix of opportunities sourced from direct relationships with existing tenants, direct relationships with new tenants and broker relationships. These channels are built through current relationships with key members of our acquisitions, asset management and executive teams, partner appreciation events, attendance at critical conferences and conventions and through reliable execution.

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o Evaluating acquisitions. Each opportunity is evaluated against our acquisition criteria which includes, but is not limited to: accretive capitalization rate, long-term lease containing rent escalations, favorable tenant industries based on our Spirit Heat Map, favorable ranking based on the Spirit Property Ranking Model, attractive tenant credit characteristics and overall portfolio diversification impact. We target tenants that are publicly listed and have over $100 million in revenues, as we believe those tenants generally possess attractive characteristics including continual access to capital, lower leverage, audited financial statements and governance scrutiny. Further, when evaluating sale-leaseback transactions, we select opportunities where the tenant's planned use of proceeds is to provide funding to meet their growth objectives. While we consider the foregoing when making investments, we have made investments, and may make additional investments, that do not meet one or more of these criteria if we believe the opportunity is sufficiently attractive. Acquisition opportunities go through a rigorous evaluation process culminating in review and approval by our Investment Committee. The Investment Committee includes representation from the acquisitions, asset management, credit, legal and finance departments.
o Evaluating tenant credit. We believe extensive credit underwriting is vital to minimizing tenant financial risk and protecting stockholder value. Our credit department, which is independent from our acquisitions department, underwrites all acquisition, disposition and capital investment opportunities and monitors the financial health of our existing portfolio. We use our underwriting capabilities to identify tenants with attractive credit characteristics and stable operating histories and to dispose of tenants with weakening characteristics.
o Evaluating dispositions. We believe one of the tenets of maintaining a high-quality portfolio is an active disposition program, which allows for continued portfolio shaping and risk mitigation for potential tenant credit issues or near-term expirations. We look to dispose of properties when we believe the funds can be accretively recycled into new properties or into properties with characteristics we believe are more attractive, including, but not limited to, better tenant industry based on our Spirit Heat Map or better real estate, lease terms and/or tenant credit based on our Spirit Property Ranking Model.

## HIGH-QUALITY PORTFOLIO

We believe that portfolio diversification and leases with structures aligned with our business and growth strategies are the cornerstones to managing the inherent risk associated with investing in real estate. The following portfolio qualities help maintain the stability of our rental revenue and maximize our long-term return on our investments:

o Highly diverse portfolio. We seek to maintain a portfolio that (i) derives no more than 5.0% of its ABR from any single tenant, (ii) derives no more than 2.0% of its ABR from any single property, (iii) is leased to tenants operating in various industries aligned with our Spirit Heat Map and (iv) is located across the U.S. without significant geographic concentration. As of December 31, 2022, our largest tenant exposure equaled 4.0%, our largest single property exposure equaled 1.1%, our largest industry concentration equaled 7.8%, and our largest geographic concentration by state equaled 14.2%, in each case based on ABR. Additionally, we seek to increase our industrial asset type exposure, which has risen to 23.0% of ABR as of December 31, 2022. See Item 2. "Properties" for further information on our portfolio composition.
o Leases for operationally essential real estate. We seek to own properties where our tenants operate their business and generate sales and profits, which makes the location fundamentally important to that business and thereby reduces the risk that a tenant would not renew an expiring lease or reject a lease in bankruptcy.
o Leases with contractual rental growth. We seek leases that contain contractual provisions to increase rental revenue over the term of the lease. Approximately 91.0% of our ABR as of December 31, 2022 is subject to rent escalations which, generally, increase rent at specified dates by: (i) a fixed amount; or (ii) the lesser of (a) 1 to 2 times any increase in the CPI over a specified period or (b) a fixed percentage.
o Leases with relatively long terms. We seek leases with relatively long terms, typically with non-cancellable initial terms of 10 to 20 years and tenant renewal options for additional terms with attractive rent escalation provisions. As of December 31, 2022, our weighted average remaining lease term based on ABR was 10.4 years.
o Leases with a master lease structure. Where appropriate, we seek master leases whereby we lease multiple properties to a tenant on an "all or none" basis. In this master lease structure, a tenant remits a single lease payment for the entire portfolio of leased properties, which hinders a tenant's ability to unilaterally give up underperforming properties while maintaining its leasehold interest in well-performing properties. Approximately 44.6% of our ABR as of December 31, 2022 is subject to a master lease structure.

Since our inception, our occupancy has never fallen below 96.1%, despite the economic downturn of 2008 through 2010, and since the Spin-Off, our occupancy has never fallen below 99.2%, despite the COVID-19 pandemic. We believe the diversity and strength of our portfolio are key drivers for our sustained high occupancy levels.

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# FORTRESS BALANCE SHEET

Our long-term financing strategy is to maintain a leverage profile that creates operational flexibility and generates superior risk-adjusted returns for our stockholders. We finance our operations and investments using a variety of methods, including available unrestricted cash balances, property operating revenue, proceeds from property dispositions, available borrowings under our credit facilities, common and preferred stock issuances, and debt securities issuances, including mortgage indebtedness and senior unsecured debt. We determine the amount of equity and debt financing to be used when acquiring an asset by evaluating our cost of equity capital, terms available in the credit markets (such as interest rate, repayment provisions and maturity) and our assessment of the particular asset's risk.

In October 2020, we renewed our shelf registration statement with the SEC, which became immediately effective upon filing and will expire in October 2023, unless renewed before. Under this shelf registration statement, we may offer shares of our common or preferred stock or debt securities in amounts, at prices, and on terms to be announced when, and if, such securities are offered. The specifics of any future offerings, along with the use of proceeds from any such offerings, will be described in detail in a prospectus supplement or other offering materials at the time of such offerings.

- o Issuance of common stock. We may issue common stock when we believe that our share price is at a level that allows the offering proceeds to be accretively invested into additional properties, to permanently finance properties that were financed by our credit facilities, or to repay outstanding debt at or before maturity.
- o Issuance of debt securities. We have issued senior unsecured debt securities and have obtained other senior unsecured debt at the Operating Partnership level. To the extent practicable, we expect to maintain a well-balanced debt profile with manageable and staggered maturities.
- o Cash provided by dispositions. We expect to sell real estate investments from time-to-time, as part of our active portfolio shaping strategy or as a form of risk mitigation.
- o Cash provided by operations. In addition to cash provided by the issuance of common stock, debt securities and dispositions, we expect to fund our operating expenses and other short-term liquidity requirements, including property acquisitions, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs, and cash distributions to common and preferred stockholders, primarily through cash provided by operating activities and borrowings under our available revolving credit facilities and delayed-draw term loans.

We anticipate that we will continue to use a number of different sources to finance our acquisitions and operations going forward; however, we cannot assure you that we will have access to the capital and credit markets at times and at terms that are acceptable to us.

## Environmental, Social and Governance (ESG)

We believe doing the right thing for our employees, community and tenants - drives long term value for our stockholders. By implementing ESG practices throughout the operation of our business, we hope to demonstrate our focus on being responsible and conscientious in everything we do. We aim to be socially responsible investors by making investment decisions that consider not only financial factors, but also the social and environmental impact of our tenants and properties.

### ENVIRONMENTAL SUSTAINABILITY

We adopted an Environmental Management System (EMS) to formalize our company policy of implementing sound environmental sustainability practices throughout the business, which can be accessed on our website at www.spiritrealty.com. As we invest predominantly in single-tenant real estate under triple-net leases, our tenants are generally responsible for maintaining the leased premises, including controlling their energy usage and implementation of environmentally sustainable practices at each location. While we do not maintain direct control over our assets, we partner with our tenants to define environmental opportunities. We currently work to manage and mitigate the environmental risk that may be associated with our net-lease properties by:

- • including green lease clauses in our form lease agreement, which we strive to incorporate in our new leases, where possible
- • obtaining a Phase I environmental site assessment as part of our acquisition process and requiring additional environmental testing, including Phase II environmental site assessments, if applicable
- • requiring sellers to remediate known environmental issues, as needed, in compliance with applicable laws
- • maintaining comprehensive pollution insurance coverage for our properties
- • appropriately underwriting the financial health and responsibility record of our tenants that are engaged in potentially environmentally sensitive operations

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We also have an employee-led Think Green Committee dedicated to helping Spirit make environmentally smart choices and organize environmentally-focused community service projects. Additionally, environmental sustainability practices at our headquarters include:

- automatic lighting control systems
- ENERGY STAR certified computers, monitors, copiers, conference room displays and printers
- active recycling of materials such as aluminum, paper and plastic, and use of recycled paper where possible
- substantial paper reduction and default double-sided printing
- elimination of disposable cups
- incorporation of "green" cleaning products

# SOCIAL RESPONSIBILITY

We are committed to providing an inclusive and engaging work environment that generates long-term value for our employees and shareholders. We strive to provide a diverse and safe workplace that fosters the health, wellness, and development of our employees, which is detailed in "Business and Growth Strategies: Outstanding People" above.

We aim to be a good corporate citizen through charitable donations and by encouraging our employees to participate in volunteer activities. In addition to company-directed donations, we have an Employee Gift Matching Program, under which we match, up to a certain dollar amount per employee, employee contributions to eligible charitable organizations. During 2022, we donated over $166.0 thousand across 43 organizations.

We have implemented social and human capital management practices and policies throughout the operation of our business, which we have documented in our Code of Business Conduct and Ethics, DEI Policy, and Human Rights Policy, each of which can be accessed on our website at www.spiritrealty.com.

# CORPORATE GOVERNANCE

We aim to be honest, fair and forthright in all of our business activities. As such, we aim to implement and maintain corporate governance practices that promote transparency, alignment, accountability, and value to our stockholders. Corporate governance documents, including our Corporate Governance Guidelines, can be accessed on our website at www.spiritrealty.com. Highlights of our governance principles and practices include:

- eight of nine directors on our Board of Directors are independent, including the chairman
- independent directors are elected annually by majority vote
- Audit, Compensation and Nominating & Corporate Governance Committees are made up of independent directors only
- Board of Directors hold regular executive sessions, including with management, internal and external auditors, and without the presence of the CEO
- Compensation Committee utilizes an independent consultant to assist with executive team compensation
- Nominating & Corporate Governance Committee is responsible for ESG oversight and receives ESG-related updates from executives at least quarterly and on an as-needed basis

In addition, we maintain a Whistleblower Policy and independent, 24-hour helpline for reporting illegal or improper conduct or ethical concerns anonymously and have a Disclosure Committee composed of members of management with established controls and procedures so that all required disclosures are timely and accurate.

# Competition

We face competition for acquisitions from other real estate investors, including traded and non-traded public REITs, private equity funds and institutional investment funds, some of which have greater financial resources than we do, a greater ability to borrow funds to acquire properties and the ability to accept more risk than we can prudently manage. This competition may increase the demand for the types of properties in which we typically invest and, therefore, reduce the number of suitable acquisition opportunities available to us and increase the prices paid for such. This competition will increase if investments in real estate become more attractive relative to other forms of investment.

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As a landlord, we compete in the multi-billion dollar commercial real estate market with numerous developers and owners of properties, many of which own properties similar to ours in the same markets in which our properties are located. In operating and managing our portfolio, we compete for tenants based on a number of factors, including location, rental rates and flexibility. Some of our competitors have greater economies of scale, have lower cost of capital, have access to more resources, and have greater name recognition than we do. If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose our tenants or prospective tenants and we may be pressured to reduce our rental rates or to offer substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options in order to retain tenants when our leases expire.

## Regulation

### GENERAL

Our properties are subject to various covenants, laws, ordinances and regulations, including those relating to common areas and fire and safety requirements. We believe that each of our properties has the necessary permits and approvals.

### AMERICANS WITH DISABILITIES ACT

Pursuant to the ADA, our properties are required to meet federal requirements related to access and use by persons with disabilities. Compliance with the ADA, as well as a number of additional federal, state and local laws and regulations, may require modifications to properties we currently own and any properties we purchase, or may restrict renovations of those properties. Noncompliance with these laws or regulations could result in fines or an award of damages to private litigants, as well as the incurrence of costs to make modifications to attain compliance. Although our tenants are generally responsible for compliance with the ADA and other similar laws or regulations, we could be held liable as the owner of the property for a failure of one of our tenants to comply with such laws or regulations.

### ENVIRONMENTAL MATTERS

Federal, state and local environmental laws and regulations regulate releases of hazardous or toxic substances into the environment. Some of our properties contain, have contained, or are adjacent to or near properties that contain or have contained storage tanks for petroleum products or that involve or involved the use of hazardous or toxic substances. Under certain of these laws and regulations, a current or previous owner, operator or tenant may be required to investigate and clean-up hazardous or toxic substances or petroleum product releases or threats of releases, and may be held liable to a government entity or third parties for property damage and for investigation, clean-up and monitoring costs incurred by those parties in connection with actual or threatened contamination. These laws typically impose clean-up responsibility and liability without regard to fault, or whether or not the owner, operator or tenant knew of or caused the contamination. The liability may be joint and several for the full amount of the investigation, clean-up and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may seek contributions from other identified, solvent, responsible parties for their fair share toward these costs. In addition, strict environmental laws regulate a variety of activities that can occur on a property, including the storage of petroleum products or other hazardous or toxic substances, air emissions and water discharges. Such laws may impose fines or penalties for violations.

Environmental laws also govern ACM. Federal regulations require building owners and those exercising control over a building's management to identify and warn, through signs and labels, of potential hazards posed by workplace exposure to ACM in their building. The regulations also have employee training, record keeping and due diligence requirements pertaining to ACM. Significant fines can be assessed for violation of these regulations and we could be subject to lawsuits if personal injury from exposure to ACM occurs. Federal, state and local laws and regulations also govern the removal, encapsulation, disturbance, handling and/or disposal of ACM when those materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. These laws may impose liability for improper handling or a release into the environment of ACM and may provide for fines to, and for third parties to seek recovery from, owners or operators of real properties for personal injury or improper work exposure associated with ACM. In addition, our properties may contain or develop harmful mold or other airborne contaminants. The presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. Further, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs.

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Before completing an acquisition, our policy is to obtain environmental assessments carried out in accordance with the Standard Practice for Environmental Site Assessments as set by ASTM International. These assessments generally include a physical site inspection, a review of relevant available federal, state and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property's chain of title and review of historical aerial photographs and other information on past uses of the property. These assessments are limited in scope, however, if recommended in the initial assessments, we may undertake additional assessments such as soil and/or groundwater samplings, other limited subsurface investigations and ACM or mold surveys. A prior owner or operator of a property or historic operations at our properties may have created a material environmental condition that is not known to us or the independent consultants preparing the site assessments. Generally, our leases provide that the lessee will indemnify us for any loss or expense we incur as a result of the presence, use or release of hazardous materials on our property during their period of tenancy. However, if environmental concerns are not satisfactorily resolved in any initial or additional assessments, we may obtain environmental insurance policies to insure against potential environmental risk or loss depending on the type of property, the availability and cost of the insurance and various other factors we deem relevant (i.e., an environmental occurrence affects one of our properties where our lessee may not have the financial capability, or refuses, to honor its indemnification obligations to us).

## Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and the Section 16 filings of our directors and officers, as well as any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on our website www.spiritrealty.com as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Also available on our website, free of charge, are corporate governance documents, including our Corporate Governance Guidelines and Code of Business Conduct and Ethics. We intend to disclose on our website any amendment to, or waiver of, any provisions of our Code of Business Conduct and Ethics applicable to the directors and/or officers of the Company that would otherwise be required to be disclosed under the rules of the SEC or the NYSE. Information contained on or hyperlinked from our website is not incorporated by reference into, and should not be considered part of, this Annual Report on Form 10-K or our other filings with the SEC. A copy of this Annual Report on Form 10-K is also available without charge upon written request to: Investor Relations, Spirit Realty Capital, Inc., 2727 North Harwood Street, Suite 300, Dallas, Texas 75201.

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# Item 1A. Risk Factors

Set forth below are some (but not all) of the risk factors that could adversely affect our business, financial condition, results of operations, cash flow, liquidity and ability to access the capital markets and satisfy debt service obligations and make distributions to our stockholders (which we refer to collectively as 'materially and adversely affecting' us or having 'a material adverse effect' on us and comparable phrases) and the market price of our securities. Because we operate in a highly competitive and rapidly changing environment, new risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can management assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

## RISKS RELATED TO OUR BUSINESS AND PROPERTIES

#### *Risks related to commercial real estate ownership could reduce the value of our properties.*

Our core business is the ownership of retail, industrial and other real estate that is leased to companies on a triple-net basis. Accordingly, our performance is subject to risks inherent to the ownership of commercial real estate, including:

- • inability to collect rent from tenants due to financial hardship, including bankruptcy;
- • changes in local real estate markets resulting in the lack of availability or demand for single-tenant retail space;
- • changes in consumer trends and preferences that reduce the demand for products/services of our tenants;
- • inability to lease or sell properties upon expiration or termination of existing leases;
- • environmental risks related to the presence of hazardous or toxic substances or materials on our properties;
- • subjectivity of real estate valuations and changes in such valuations over time;
- • illiquid nature of real estate compared to most other financial assets;
- • changes in laws and regulations, including those governing real estate usage and zoning;
- • changes in interest rates and the availability of financing; and
- • changes in the general economic and business climate.

The occurrence of any of the risks described above may cause the value of our real estate to decline.

#### *Increases in market interest rates and/or inflation may materially and adversely affect us and our tenants.*

The recent increases in interest rates may significantly reduce our earnings or impede our growth. In response to significant and prolonged increases in inflation over the past year, the Federal Reserve has raised interest rates and has announced an expectation that it will continue to raise interest rates into 2023. The timing, number and amount of any future interest rate increases are uncertain. Increases in interest rates could increase our interest expense for our current variable interest rate debt, including $55.5 million outstanding under the 2019 Credit Facility as of December 31, 2022, as well as result in higher interest rates on any newly incurred debt, which would adversely affect our financial results. In addition, expectations of rising interest rates may increase our cost of capital, while capitalization rates for new acquisitions (which generally respond to higher interest rates over time on a lagging basis) could remain low or even decline, thereby placing additional pressure on investment spreads throughout the net lease sector.

Our leases typically contain provisions designed to mitigate the adverse impact of inflation on our results of operations. Because tenants are typically required to pay all property operating expenses, increases in property-level expenses at our leased properties generally do not affect us directly. However, the increases in property operating costs for our tenants and increases in our tenants' borrowing costs resulting from higher interest rates may negatively impact their ability to pay rent owed to us. Moreover, increased operating expenses at vacant properties and the limited number of properties that are not subject to full triple-net leases could cause us to incur additional operating expenses, which could increase our exposure to inflation. Additionally, approximately 77.4% of our leases provide for fixed annual rent increases; however, the impact of the current rate of inflation may not be adequately offset by some of our annual rent escalations, and it is possible that the resetting of rents from our renewal and re-leasing activities would not fully offset the impact of the current inflation rate. As a result, during inflationary periods in which the inflation rate exceeds the annual rent escalation percentages within our lease contracts, we may not adequately mitigate the impact of inflation, which may adversely affect our business, financial condition, results of operations, and cash flows.

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*We may be unable to identify and complete acquisitions of suitable properties, which may impede our growth, or our future acquisitions may not yield the returns we expect.*

Our ability to expand through acquisitions requires us to identify and complete property acquisitions on favorable terms that are compatible with our growth strategy. Our ability to acquire properties on favorable terms and successfully operate them may be constrained by the following significant risks:

- • competition from other real estate investors, including REITs and institutional investment funds, which may be able to accept more risk, including higher acquisition prices, than we can prudently manage;
- • competition from other real estate investors across our acquisition sourcing channels (including brokers, existing tenant relationships, prospective tenant relationships, etc.) that may significantly reduce our acquisition volume or increase the purchase price for a property we acquire;
- • financing for an acquisition may not be available on favorable terms or at all for potential acquisitions;
- • significant costs and management attention diverted to evaluate and negotiate potential acquisitions, including ones that we may not subsequently complete;
- • acquisition of properties that are not and may not become accretive to our results;
- • cash flow from an acquired property may be insufficient to meet our required principal and interest payments with respect to debt used to finance the acquisition of such property;
- • necessary improvements or renovations to acquired properties may exceed budgeted amounts;
- • market conditions may result in higher than expected vacancy rates and lower than expected rental rates; or
- • properties acquired may be subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as clean-up of undisclosed environmental contamination or claims by tenants, vendors or other persons dealing with the former owners of the properties.

*Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.*

The real estate investments made, and expected to be made, by us are relatively difficult to sell quickly. As a result, our ability to promptly sell one or more of our properties in response to changing economic, financial or investment conditions is limited. We may be unable to dispose of properties by sale, other disposition or refinancing at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions and changes in laws, regulations or fiscal policies of the jurisdiction in which a property is located.

In addition, the Code imposes restrictions on a REIT's ability to dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs effectively require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would be in our best interest. Therefore, we may not be able to vary our portfolio in response to economic or other conditions promptly or on favorable terms.

*In the future, we may choose to acquire properties or portfolios of properties through tax deferred contribution transactions, which could result in stockholder dilution and limit our ability to sell such assets.*

In the future, we may acquire properties or portfolios of properties through tax deferred contribution transactions in exchange for partnership interests in the Operating Partnership, which may result in stockholder dilution. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors' ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their tax bases. These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.

*We face significant competition for tenants, which may decrease or prevent increases of the occupancy and rental rates of our properties.*

We compete with numerous developers, owners and operators of properties, many of which own properties similar to ours in the same markets in which our properties are located. If our competitors offer rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates or to offer substantial rent abatements, tenant improvements, early termination rights, below-market renewal options or other lease incentive payments in order to retain tenants when our leases expire. Competition for tenants could decrease or prevent increases of the occupancy and rental rates of our properties.

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# ***Our tenants may fail to successfully operate their businesses, which could adversely affect us.***

The success of our investments is materially dependent on the financial stability of our tenants' financial condition and leasing practices. At any given time, our tenants may experience a downturn in their business, including as a result of adverse economic conditions, that may weaken the operating results and financial condition of individual properties or of their business as a whole. We depend on our tenants to operate the properties we own in a manner which generates revenues sufficient to allow them to meet their obligations to us, including their obligations to pay rent, maintain certain insurance coverage and pay real estate taxes and maintain the properties in a manner so as not to jeopardize their operating licenses or regulatory status. Although our occupied properties are generally essential to the tenant's generation of sales and profits, this does not guarantee that a tenant's operations at a particular property will be successful or that the tenant will be able to meet all of its obligations to us. As a result, a tenant may delay lease commencement, decline to extend a lease upon its expiration, fail to make rental payments when due, become insolvent or declare bankruptcy.

# ***Single-tenant leases involve particular and significant risks related to tenant default.***

Our strategy focuses primarily on investing in single-tenant triple-net leased properties throughout the United States. The financial failure of, or default in payment by, a tenant under its lease is likely to cause a significant reduction in, or elimination of, our rental revenue from that property and a reduction in the value of the property. We may also experience difficulty or a significant delay in re-leasing or selling such property. This risk is magnified in situations where we lease multiple properties to a single tenant under a master lease. The failure or default of a tenant under a master lease could reduce or eliminate rental revenue from multiple properties and reduce the value of such properties. Although the master lease structure may be beneficial to us because it restricts the ability of tenants to individually remove underperforming properties from the portfolio of properties leased from us, there is no guarantee that a tenant will not default in its obligations to us or decline to renew its master lease upon expiration.

# ***The bankruptcy or insolvency of any of our tenants could result in the termination of such tenant's lease and material losses to us.***

The bankruptcy or insolvency of any of our tenants could diminish the income we receive from that tenant's lease or leases. A substantial portion of our properties are leased to unrated tenants, which may increase the risk that a tenant bankruptcy or insolvency will occur. If a tenant becomes bankrupt or insolvent, federal law may prohibit us from evicting such tenant based solely upon such bankruptcy or insolvency. In addition, a bankrupt or insolvent tenant may be authorized to reject and terminate its lease or leases with us. Any claims against such bankrupt tenant for unpaid future rent would be subject to statutory limitations that would likely result in our receipt of rental revenues that are substantially less than the contractually specified rent we are owed under the lease or leases. In addition, any claim we have for unpaid past rent, if any, may not be paid in full. We may also be unable to re-lease a terminated or rejected space or to re-lease it on comparable or more favorable terms.

Moreover, tenants who are considering filing for bankruptcy protection may request that we agree to amendments of their master leases to remove certain of the properties they lease from us under such master leases. We cannot guarantee that we will be able to sell or re-lease such properties or that lease termination fees, if any, received in exchange for such releases will be sufficient to make up for the rental revenues lost as a result of such lease amendments.

# ***We may be unable to renew or re-lease space as leases expire or lease vacant space on favorable terms or at all.***

Our results of operations depend on our ability to strategically lease space in our properties (by renewing or re-leasing expiring leases and leasing vacant space). As of December 31, 2022, leases representing 2.4% of our ABR will expire during 2023 and three of our properties, representing 0.1% of our total properties, were vacant. Current tenants may decline, or may not have the financial resources available, to renew current leases and we cannot guarantee that leases that are renewed will have terms that are as economically favorable to us as the expiring lease terms. If tenants do not renew their leases as they expire, we will have to find new tenants to lease our properties and there is no guarantee that we will be able to find new tenants or that our properties will be re-leased at rental rates equal to or above the current average rental rates or that substantial rent abatements, tenant improvement allowances, early termination rights, below-market renewal options or other lease incentive payments will not be offered to attract new tenants. We may experience significant costs in connection with renewing, leasing or re-leasing a significant number of our properties.

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# ***Our ability to realize future rent increases will vary depending on changes in the CPI.***

As of December 31, 2022, approximately 13.6% of our ABR is subject to CPI-based rent escalators, which generally increase rent by the lesser of (a) a multiple of any increases in the CPI or (b) a fixed percentage. During periods of low inflation or deflation, small increases or decreases in the CPI subject us to the risk of receiving lower rental revenue than we would have been entitled to receive if our rent escalators were based solely on fixed percentages. Conversely, periods of high inflation subject us to the risk of receiving lower rental revenue than we would have been entitled to receive if our rent escalators were based solely on a multiple of any increases in the CPI.

# ***Property vacancies could result in significant capital expenditures and illiquidity.***

Many of the leases we enter into or acquire are for properties that are specially suited to the particular business of our tenants. Because these properties have been designed or physically modified for a particular tenant, if the current lease is terminated or not renewed, we may be required to renovate the property at substantial costs, decrease the rent we charge or provide other concessions in order to lease the property to another tenant. In the event we are required to sell the property, we may have difficulty selling it to a party other than the tenant due to the special purpose for which the property may have been designed or modified. This potential illiquidity may limit our ability to quickly modify our portfolio in response to changes in economic or other conditions, including tenant demand.

# ***High geographic concentration of our properties could magnify the effects of adverse economic or regulatory developments in such geographic areas on our operations and financial condition.***

As of December 31, 2022, 14.2% of our portfolio (as a percentage of ABR) was located in Texas, representing the highest concentration of our assets. We are susceptible to adverse developments in the economic or regulatory environments of the geographic areas in which we concentrate (or in which we may develop a substantial concentration of assets in the future), such as business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes or costs of complying with governmental regulations.

# ***Decrease in demand for traditional retail space may materially and adversely affect us.***

As of December 31, 2022, leases representing approximately 26.5% of our ABR were with tenants in traditional retail industries and we may acquire additional properties in the future leased to traditional retail tenants. The market for traditional retail space has previously been, and could continue to be, adversely affected by weakness in the national, regional and local economies, the adverse financial condition of some large retail companies, the ongoing consolidation in retail industries, the excess amount of traditional retail space in a number of markets and, in the case of the discretionary retail industry, increasing consumer purchases over the Internet. To the extent that these conditions continue, they are likely to negatively affect market rents for traditional retail space.

# ***The market price and trading volume of shares of our common stock may fluctuate or decline.***

The market price and trading volume of our common stock may fluctuate widely due to various factors, including:

- • broad market fluctuations unrelated to our or our competitors' operating performances;
- • actual or anticipated variations in our or our competitors' quarterly operating results or distributions;
- • publication of research reports about us, our competitors or the real estate industry;
- • market reaction to any additional indebtedness we incur or debt or equity securities we or the Operating Partnership issue in the future;
- • additions or departures of key management personnel;
- • changes in our credit ratings;
- • the financial condition, performance and prospects of our tenants;
- • changes in market interest rates in comparison to the distribution yield on shares of our common stock; and
- • the realization of any of the other risk factors presented in this Annual Report on Form 10-K.

We may issue shares of our common stock or other securities without stockholder approval, including shares issued to satisfy REIT distribution requirements. The Operating Partnership may issue partnership interests to third parties, and such partnership interests would be exchangeable for cash or, at our election, shares of our common stock at specified ratios set when partnership interests in the Operating Partnership are issued. Our existing stockholders have no preemptive rights to acquire any of these securities, and any issuance of equity securities by us or the Operating Partnership may dilute stockholder investment.

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# ***Actual or perceived threats associated with epidemics, pandemics or public health crises could have a material adverse effect on us.***

Epidemics, pandemics or other public health crises that impact economic and market conditions, particularly in markets where our properties are located, and preventative measures taken to alleviate any public health crises, may have a material adverse effect on us and our tenants, and may affect our ability as a net-lease real estate investment trust to acquire properties or lease properties to our tenants, who may be unable, as a result of any economic downturn or longer-term changes in consumer demand occasioned by public health crises, to make rental payments when due. We are not able to predict whether any epidemics, pandemics or other public health crises will occur in the future that may have a potential adverse impact on us.

Such adverse impacts could depend on, among other factors:

- • the financial condition and viability of our tenants - many of which are in retail industries - and their ability or willingness to pay rent in full on a timely basis;
- • state, local, federal and industry-initiated efforts that may adversely affect landlords, including us, and their ability to collect rent and/or enforce remedies for the failure to pay rent;
- • our need to restructure leases with our tenants and our ability to do so on favorable terms or at all;
- • our ability to renew leases or re-lease available properties on favorable terms or at all in the event of nonrenewal or in the event we exercise our right to replace an existing tenant, and obligations we may incur in connection with the replacement of an existing tenant;
- • a severe and prolonged disruption and instability in the global financial markets may affect our or our tenants' ability to access capital necessary to fund our respective business operations or retire, replace or renew maturing liabilities on a timely basis, on attractive terms or at all;
- • a refusal or failure of one or more lenders under the 2019 Revolving Credit and Term Loan Agreement to fund their respective financing commitment to us; and
- • our and our tenants' ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed.

# ***We may be vulnerable to security breaches or cyber-attacks which could disrupt our operations and have a material adverse effect on our financial performance and operating results.***

Security breaches, cyber-attacks, or disruption, of our or our third-party service providers' physical or information technology infrastructure, networks and related management systems could result in, among other things, a breach of our networks and information technology infrastructure, the misappropriation of our or our tenants' proprietary or confidential information, interruptions or malfunctions in our or our tenants' operations, delays or interruptions to our ability to meet tenant needs, breach of our legal, regulatory or contractual obligations, inability to access or rely upon critical business records, unauthorized access to our facilities or other disruptions in our operations. Numerous sources can cause these types of incidents, including: physical or electronic security breaches; viruses, ransomware or other malware; hardware vulnerabilities such as Meltdown and Spectre; accident or human error by our own personnel or third parties; criminal activity or malfeasance (including by our own personnel); fraud or impersonation scams perpetrated against us or our partners or tenants; or security events impacting our third-party service providers or our partners or tenants. Our exposure to cybersecurity threats and negative consequences of cybersecurity breaches will likely increase as we store an increasing amount of tenant data.

We recognize the increasing volume of cyber-attacks and employ commercially practical efforts to provide reasonable assurance such attacks are appropriately mitigated. We may be required to expend significant financial resources to protect against or respond to such breaches. Techniques used to breach security change frequently and are generally not recognized until launched against a target, so we may not be able to promptly detect that a security breach or unauthorized access has occurred. We also may not be able to implement security measures in a timely manner or, if and when implemented, we may not be able to determine the extent to which these measures could be circumvented. Any breaches that may occur could expose us to increased risk of lawsuits, material monetary damages, potential violations of applicable privacy and other laws, penalties and fines, harm to our reputation and increases in our security and insurance costs. In the event of a breach resulting in loss of data, such as personally identifiable information or other such data protected by data privacy or other laws, we may be liable for damages, fines and penalties for such losses under applicable regulatory frameworks despite not handling the data. We cannot guarantee that any backup systems, regular data backups, security protocols, network protection mechanisms and other procedures currently in place, or that may be in place in the future, will be adequate to prevent network and service interruption, system failure, damage to one or more of our systems or data loss in the event of a security breach or attack.

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In addition, the regulatory framework around data custody, data privacy and breaches varies by jurisdiction and is an evolving area of law with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the United States. We may not be able to limit our liability or damages in the event of such a loss. Data protection legislation is becoming increasingly common in the United States at both the federal and state level and may require us to further modify our data processing practices and policies. Compliance with existing, proposed and recently enacted laws and regulations can be costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against the Company by governmental entities or others, fines and penalties, or damage to our reputation and credibility.

*If we fail to maintain effective internal controls over financial reporting, we may not be able to accurately and timely report our financial results.*

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports, effectively prevent fraud and operate successfully as a public company. We are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002.

As a result of material weaknesses or significant deficiencies that may be identified in our internal control over financial reporting in the future, we may also identify certain deficiencies in some of our disclosure controls and procedures that we believe require remediation. If we or our independent registered public accounting firm discover any such weaknesses or deficiencies, we will make efforts to further improve our internal control over financial reporting controls. However, there is no assurance that we will be successful. Any failure to maintain effective controls or timely effect any necessary improvement of our internal control over financial reporting could harm operating results or cause us to fail to meet our reporting obligations, which could affect the listing of our common stock on the NYSE. Ineffective internal control over financial reporting and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common stock.

*Loss of our key personnel with long-standing business relationships could materially impair our ability to operate successfully.*

Our continued success and our ability to manage anticipated future growth depend, in large part, upon the efforts of key personnel, particularly our President and Chief Executive Officer, Jackson Hsieh, who has extensive market knowledge and relationships and exercises substantial influence over our operational, financing, acquisition and disposition activity. Many of our other key executive personnel, particularly our executive and senior vice presidents, also have extensive experience and strong reputations in the real estate industry and have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel and arranging necessary financing. In particular, the extent and nature of the relationships that these individuals have developed with financial institutions and existing and prospective tenants is critically important to the success of our business. The loss of services of one or more members of our senior management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners, existing and prospective tenants and industry personnel, which could materially and adversely affect us.

*Costs of compliance with, or liabilities related to, environmental laws may materially and adversely affect us.*

The properties we own or have owned in the past may subject us to known and unknown environmental liabilities. Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under or migrating from such property, including costs to investigate, clean up such contamination and liability for harm to natural resources. We may face liability regardless of:

- our knowledge of the contamination;
- the timing of the contamination;
- the cause of the contamination; or
- the party responsible for the contamination of the property.

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Our policy is to obtain Phase I environmental site assessments on all properties we finance or acquire, however, these assessments are limited in scope and therefore may not reveal all environmental conditions affecting a property. Therefore, there could be undiscovered environmental liabilities on the properties we own. Some of our properties use, or may have used in the past, underground tanks for the storage of petroleum-based products or waste products that could create a potential for release of hazardous substances or penalties if tanks do not comply with legal standards. If environmental contamination exists on our properties, we could be subject to strict, joint and/or several liability for the contamination by virtue of our ownership interest. Some of our properties may contain ACM. Strict environmental laws govern the presence, maintenance and removal of ACM and such laws may impose fines and penalties for failure to comply with these requirements or expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos). Strict environmental laws also apply to other activities that can occur on a property, such as air emissions and water discharges, and such laws may impose fines and penalties for violations.

The presence of hazardous substances on a property may adversely affect our ability to sell, lease or improve the property or to borrow using the property as collateral. In addition, environmental laws may create liens on contaminated properties in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which they may be used or the businesses that may be operated, and these restrictions may require substantial expenditures.

In addition, although our leases generally require our tenants to operate in compliance with all applicable laws and to indemnify us against any environmental liabilities arising from a tenant's activities on the property, we could be subject to strict liability by virtue of our ownership interest. We cannot be sure that our tenants will, or will be able to, satisfy their indemnification obligations, if any, under our leases. Furthermore, the discovery of environmental liabilities on any of our properties could lead to significant remediation costs or to other liabilities or obligations attributable to the tenant of that property, which may affect such tenant's ability to make payments to us, including rental payments and, where applicable, indemnification payments.

Our environmental liabilities may include property damage, personal injury, investigation and clean-up costs. These costs could be substantial. Although we may obtain insurance for environmental liability for certain properties that are deemed to warrant coverage, our insurance may be insufficient to address any particular environmental situation and we may be unable to continue to obtain insurance for environmental matters, at a reasonable cost or at all, in the future. If our environmental liability insurance is inadequate, we may become subject to material losses for environmental liabilities. Our ability to receive the benefits of any environmental liability insurance policy will depend on the financial stability of our insurance company and the position it takes with respect to our insurance policies.

# ***Insurance on our properties may not adequately cover all losses, which could materially and adversely affect us.***

Our tenants are required to maintain liability and property insurance coverage for the properties they lease from us pursuant to triple-net leases. Pursuant to such leases, our tenants are generally required to name us (and any of our lenders that have a mortgage on the property leased by the tenant) as additional insureds on their liability policies and additional insured and/or loss payee (or mortgagee, in the case of our lenders) on their property policies. All tenants are required to maintain casualty coverage and most carry limits at 100% of replacement cost. Depending on the location of the property, losses of a catastrophic nature, such as those caused by earthquakes and floods, may be covered by insurance policies that are held by our tenant with limitations such as large deductibles or co-payments that a tenant may not be able to meet. In addition, losses of a catastrophic nature, such as those caused by wind/hail, hurricanes, terrorism or acts of war, may be uninsurable or not economically insurable. In the event there is damage to our properties that is not covered by insurance and such properties are subject to recourse indebtedness, we will continue to be liable for the indebtedness, even if these properties are irreparably damaged.

Inflation, changes in building codes and ordinances, environmental considerations, and other factors, including terrorism or acts of war, may make any insurance proceeds we receive insufficient to repair or replace a property if it is damaged or destroyed. In that situation, the insurance proceeds received may not be adequate to restore our economic position with respect to the affected real property. Furthermore, in the event we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications without significant capital expenditures, which may exceed any amounts received pursuant to insurance policies, as reconstruction or improvement of such a property would likely require significant upgrades to meet zoning and building code requirements. The loss of our capital investment in, or anticipated future returns from, our properties due to material uninsured losses could materially and adversely affect us.

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*Compliance with the ADA and fire, safety and other regulations may require us to make unanticipated expenditures that materially and adversely affect us.*

Our properties are subject to the ADA, fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to our properties. While our tenants are obligated by law to comply with the ADA, and typically obligated under our leases and financing agreements to cover costs associated with compliance, if required changes involve greater expenditures than anticipated or if the changes must be made on a more accelerated basis than anticipated, our tenants' ability to cover the costs could be adversely affected. We may be required to expend our own funds to comply with the provisions of the ADA. We may be required to make substantial capital expenditures to comply with these requirements and may be required to obtain approvals from various authorities with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. Additionally, failure to comply with any of these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. While we intend to only acquire properties that we believe are currently in substantial compliance with all regulatory requirements, these requirements may change and new requirements may be imposed which would require significant unanticipated expenditures by us.

*Climate change, and related regulation, could have an adverse impact on our cash flow and operating results or otherwise harm our business.*

The impacts of climate change on the global economy and our industry are rapidly evolving. Climate change may add to the unpredictability and frequency of natural disasters and severe weather conditions. Certain of our operations are located in areas that are subject to natural disasters and severe weather conditions such as hurricanes, earthquakes, tornadoes, floods, droughts, and wildfires. The impact of climate change or the occurrence of natural disasters can result in physical damage or a decrease in rent from, the demand for, and the value of, our properties or an increase future property insurance costs in the areas affected by these conditions. If insurance is unavailable to us or is unavailable on acceptable terms, or if our insurance is not adequate to cover business interruption or losses from these events, our earnings, liquidity or capital resources could be adversely affected.

The jurisdictions where we operate have made formal public commitments to, and/or have additional legislation or regulation pending that will increase commitments to, carbon reduction aligned with the goal to keep global warming in line with the 2$^{nd}$ scenario or similar scenarios and have begun to take steps to enforce these commitments by regulation on building efficiency and/or mandated purchase of renewable energy. These and similar changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to, among other things, improve the energy efficiency of our existing properties in order to comply with such regulations. Further, transition impacts of climate change may subject us to increased emissions and other reporting or auditing requirements, standards or expectations regarding the environmental impacts of our business. Failure to disclose accurate climate change information in a timely manner may also adversely affect our reputation, business, or financial performance.

*An increased and evolving focus on metrics and reporting related to environmental, social and governance ('ESG') factors, may impose additional costs, harm our reputation, adversely impact our access to capital and financial results, otherwise adversely impact our business.*

Investors and other stakeholders, as well as governmental organizations, have become more focused on understanding how companies address a variety of ESG factors, such as climate change and diversity and inclusion, among other issues. As we continue to focus on developing our ESG practices, and as investor and other stakeholder expectations and voluntary and regulatory ESG disclosure standards and policies continue to evolve, we have expanded and expect to further expand our public disclosures in these areas. Such disclosures may reflect aspirational goals, targets, and other expectations and assumptions, which are necessarily uncertain and may not be realized. Failure to realize (or timely achieve progress on) such aspirational goals and targets could adversely affect our third party ESG ratings, our reputation or otherwise adversely affect us.

In addition, this emphasis on ESG matters has resulted in in the adoption of new laws and regulations, including new reporting requirements, and may result in the adoption of additional laws and regulations in the future. New reporting requirements may be particularly difficult or expensive to comply with and, if we fail to comply, we may be required to issue financial restatements, suffer harm to our reputation or otherwise have our business be adversely impacted.

In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on ESG matters. Such ratings are used by some investors to inform their investment or voting decisions. Unfavorable ESG ratings could lead to negative investor sentiment toward us and/or our industry, which could have a negative impact on our access to and costs of capital. To the extent ESG matters negatively impact our reputation, we may also not be able to compete as effectively to recruit or retain employees.

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## RISKS RELATED TO OUR CAPITAL STRUCTURE

*Our growth depends on external sources of capital that are outside of our control and may not be available to us on commercially reasonable terms or at all.*

To maintain our qualification as a REIT, we are required to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we are subject to federal corporate income tax to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gain. Because of these distribution requirements, we may not be able to fund future capital needs, including acquisition financing, from operating cash flow and may have to rely on third-party sources. We may not be able to obtain the financing on favorable terms or at all. Any additional debt we incur will increase our leverage and likelihood of default. Our access to third-party sources of capital depends, in part, on:

- general market conditions;
- the market's perception of our growth potential;
- our current debt levels;
- our current and expected future earnings;
- our cash flow and cash distributions; and
- the market price per share of our common stock.

If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to maintain our qualification as a REIT.

In recent history, we have raised a significant amount of debt through senior unsecured debt securities. We have generally used the proceeds from these financings to repay debt and fund real estate acquisitions. No assurance can be given that we will have access to the capital markets in the future at times and on terms that are acceptable to us, whether to refinance existing debt or to raise additional debt capital.

*We have significant indebtedness outstanding, which may expose us to risk of default under our debt obligations, limit our ability to obtain additional financing or affect the market price of our common stock or debt securities.*

As of December 31, 2022, the total principal balance outstanding on our indebtedness was approximately $3.6 billion, of which the $55.5 million outstanding under the 2019 Credit Facility incurs interest at a variable rate. We may also incur significant additional debt to finance future investment activities. Payments of principal and interest on borrowings may leave us with insufficient cash resources to meet our cash needs or make the distributions to our common stockholders necessary to maintain our REIT qualification. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

- our cash flow may be insufficient to meet our required principal and interest payments;
- cash interest expense and financial covenants relating to our indebtedness may limit or eliminate our ability to make distributions to our common stockholders;
- we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to capitalize upon acquisition opportunities or meet operational needs;
- we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
- increases in interest rates could increase our interest expense for our variable interest rate debt;
- we may be unable to hedge floating rate debt, counterparties may fail to honor their obligations under any hedge agreements we enter into, such agreements may not effectively hedge interest rate fluctuation risk, and, upon the expiration of any hedge agreements we enter into, we would be exposed to then-existing market rates of interest and future interest rate volatility;
- we may be forced to dispose of properties, possibly on unfavorable terms or in violation of certain covenants to which we may be subject;
- we may default on our obligations and the lenders or mortgagees may foreclose on our properties or our interests in the entities that own the properties that secure their loans and receive an assignment of rents and leases;
- we may be restricted from accessing some of our excess cash flow after debt service if certain of our tenants fail to meet certain financial performance metric thresholds;
- we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations; and
- our default under any loan with cross-default provisions could result in a default on other indebtedness.

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Changes in our leverage ratios may also negatively impact the market price of our equity or debt securities. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.

*The agreements governing our indebtedness contain restrictions and covenants which may limit our ability to enter into or obtain funding for certain transactions, operate our business or make distributions to our preferred and common stockholders.*

The agreements governing our indebtedness contain restrictions and covenants that limit or will limit our ability to operate our business. These covenants, as well as any additional covenants to which we may be subject in the future because of additional indebtedness, could cause us to forgo investment opportunities, reduce or eliminate distributions to our preferred and common stockholders or obtain financing that is more expensive than financing we could obtain if we were not subject to the covenants. In addition, the agreements may have cross-default provisions, which provide that a default under one of our financing agreements would lead to a default on some or all of our debt financing agreements.

The covenants and other restrictions under our debt agreements affect, among other things, our ability to:

- incur indebtedness;
- create liens on assets;
- sell or substitute assets;
- modify certain terms of our leases;
- prepay debt with higher interest rates;
- manage our cash flows; and
- make distributions to equity holders.

Additionally, these restrictions may adversely affect our operating and financial flexibility and may limit our ability to respond to changes in our business or competitive environment, all of which may materially and adversely affect us.

*Current market conditions could adversely affect our ability to refinance existing indebtedness or obtain additional financing for growth on acceptable terms or at all.*

The credit markets can experience significant price volatility, displacement and liquidity disruptions, including the bankruptcy, insolvency or restructuring of certain financial institutions. These circumstances could materially impact liquidity in the financial markets, making financing terms for borrowers less attractive, and in certain cases, result in the unavailability of various types of debt financing. As a result, we may be unable to obtain debt financing on favorable terms or at all or fully refinance maturing indebtedness with new indebtedness. We primarily use external financing to fund acquisitions and to refinance indebtedness as it matures. Reductions in our available borrowing capacity or inability to obtain credit when required or when business conditions warrant could materially and adversely affect us, and we could be forced to limit our acquisition activity and/or take other actions to fund our business activities and repayment of debt, such as selling assets.

Furthermore, if prevailing interest rates or other factors result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. Higher interest rates on newly incurred debt may negatively impact our acquisition yields, earnings per share and cash flow as well. If interest rates increase, our interest costs and overall costs of capital will increase, which could materially and adversely affect us. Total debt service, including scheduled principal maturities and interest, for 2023 and 2024 is $139.5 million and $130.2 million, respectively.

*Some of our financing arrangements involve balloon payment obligations.*

Some of our financings require us to make a lump-sum or “balloon” payment at maturity. Our ability to make any balloon payment is uncertain and may depend on our ability to obtain additional financing or our ability to sell our properties. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell our properties at a price sufficient to make the balloon payment, if at all. If the balloon payment is refinanced at a higher rate, it will reduce or eliminate any income from our properties. In addition, if we are unable to refinance these maturities or otherwise retire the indebtedness, we could be forced to relinquish the related collateral.

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## RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE

*Our charter and bylaws and Maryland law contain provisions that may discourage, delay or prevent third parties from seeking a change of control transaction, even if such an event may be in the interest of our stockholders.*

Our charter contains various provisions that are intended to preserve our qualification as a REIT and, subject to certain exceptions, authorizes our directors to take such actions as are necessary or appropriate to preserve our qualification as a REIT. For example, our charter prohibits the actual, beneficial or constructive ownership by any person of more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock or more than 9.8% in value of the aggregate of the outstanding shares of all classes and series of our stock. Our Board of Directors, in its sole and absolute discretion, may exempt a person, prospectively or retroactively, from these ownership limits if certain conditions are satisfied. The restrictions on ownership and transfer of our stock may delay or prevent a transaction or change of control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

Our Board of Directors, without stockholder approval, has the power under our charter to increase the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to authorize us to issue authorized but un-issued shares of our common stock or preferred stock and to classify or reclassify any un-issued shares of our common stock or preferred stock into one or more classes or series of stock and to set the terms of such newly classified or reclassified shares. As a result, we may issue one or more series or classes of common stock or preferred stock with preferences, dividends, powers and rights, voting or otherwise, that are senior to, or otherwise conflict with, the rights of our common stockholders. Although our Board of Directors has no such intention at the present time, it could establish a class or series of common stock or preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Certain provisions of the MGCL may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

- “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock), or any affiliate of an interested stockholder, for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose fair price and/or super-majority and stockholder voting requirements on these combinations; and
- “control share” provisions that provide that a holder of “control shares” of our Company (defined as shares that, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of outstanding “control shares”) has no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

As permitted by the MGCL, we have elected, by resolution of our Board of Directors, to opt out of the business combination provisions of the MGCL and, pursuant to a provision in our bylaws, to exempt any acquisition of our stock from the control share provisions of the MGCL. However, our Board of Directors may, by resolution, elect to repeal the exemption from the business combination provisions of the MGCL and may, by amendment to our bylaws, opt into the control share provisions of the MGCL at any time in the future, whether before or after an acquisition of control shares.

Additionally, Subtitle 8 permits our Board of Directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain corporate governance provisions, some of which we currently do not have. These provisions may have the effect of limiting or precluding a third party from making an unsolicited acquisition proposal for us or of delaying, deferring or preventing a change in control under circumstances that otherwise could be in the best interests of our stockholders. Our charter contains a provision whereby we have elected, at such time we became eligible to do so, to be subject to the provisions of Subtitle 8 relating to filling vacancies on our Board of Directors only by the remaining directors. Our Board of Directors has adopted a resolution prohibiting us from electing to be subject to the provisions of Subtitle 8 relating to a classified board unless such election is approved by our stockholders by the affirmative vote of a majority of all the votes entitled to be cast on the matter.

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*Our rights and the rights of our stockholders to take action against our directors and officers are limited.*

As permitted by Maryland law, our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from (i) actual receipt of an improper benefit or profit in money, property or services or (ii) active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated. As a result, we and our stockholders have rights against our directors and officers that are more limited than might otherwise exist. Accordingly, in the event that actions taken by any of our directors or officers impede the performance of our company, our stockholders' and our ability to recover damages from such director or officer may be limited. In addition, our charter authorizes us to obligate our company, and our bylaws require us, to indemnify our directors and officers for actions taken by them in those and certain other capacities to the maximum extent permitted by Maryland law.

**RISKS RELATED TO TAXES AND OUR STATUS AS A REIT**

*Failure to qualify as a REIT would materially and adversely affect us and the value of our common stock.*

We believe that we have been organized and have operated in a manner that has allowed us to qualify as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2005 and we intend to continue operating in such a manner. We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT and the statements in this Annual Report on Form 10-K are not binding on the IRS or any court. Therefore, we cannot guarantee that we have qualified as a REIT or that we will remain qualified as such in the future. If we lose our REIT status, we will face significant tax consequences that would substantially reduce our cash available for distribution to our stockholders for each of the years involved because:

- we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to regular U.S. federal corporate income tax;
- we could be subject to the federal alternative minimum tax for tax years prior to 2018 and increased state and local taxes; and
- unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.

Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our operations and distributions to stockholders. In addition, if we fail to qualify as a REIT, we will not be required to make distributions to our stockholders. As a result of these factors, our failure to qualify as a REIT could also impair our ability to expand our business and raise capital and could materially and adversely affect the trading price of our common stock.

Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. To qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our stock, the composition of our assets and the sources of our income. Also, we must make distributions to stockholders aggregating annually to at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains.

New legislation, regulations, administrative interpretations or court decisions may materially and adversely affect our investors, our ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.

Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local income, property and excise taxes and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer. In addition, our TRSs will be subject to income tax as regular corporations in the jurisdictions in which they operate.

*If Spirit MTA REIT failed to qualify as a REIT, we could cease to qualify as a REIT and suffer other adverse consequences.*

If Spirit MTA REIT failed to qualify as a REIT for any taxable year, such failure could adversely affect our ability to qualify as a REIT. If Spirit MTA REIT failed to qualify as a REIT during the year of the Spin-Off, the income recognized by us in connection with the Spin-Off would not have constituted qualifying income for purposes of the 75% gross income test, which could have adversely affected our ability to qualify as a REIT for such year. In addition, if Spirit MTA REIT failed to qualify as a REIT for any period, the SMTA Preferred Stock would not have qualified as a real estate asset for purposes of the REIT asset tests or produced qualifying income for purposes of the REIT 75% gross income test for such period. In such case, our ownership of the SMTA Preferred Stock during such period could adversely affect our ability to qualify as a REIT, unless we are entitled to relief under an applicable cure provision.

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*If the Operating Partnership fails to qualify as a partnership for federal income tax purposes, we would cease to qualify as a REIT and suffer other adverse consequences.*

We believe the Operating Partnership is currently treated as a partnership for federal income tax purposes and, as a partnership, is not subject to federal income tax on its income. Instead, each of its partners, including us, is allocated, and may be required to pay tax with respect to, such partner's share of its income. We cannot assure you that the IRS will not challenge the status of the Operating Partnership or any other subsidiary partnership or limited liability company in which we own an interest as a disregarded entity or partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating the Operating Partnership or any such other subsidiary partnership or limited liability company as an entity taxable as a corporation for federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT. Also, the failure of the Operating Partnership or any subsidiary partnership or limited liability company to qualify as a disregarded entity or partnership for applicable income tax purposes could cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners or members, including us.

*Our ownership of TRSs is subject to certain restrictions, and we will be required to pay a 100% penalty tax on certain income or deductions if our transactions with our TRSs are not conducted on arm's-length terms.*

We own securities in TRSs and may acquire securities in additional TRSs in the future. If a TRS owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a TRS. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A TRS is subject to federal income tax as a regular C corporation. In addition, a 100% excise tax will be imposed on certain transactions between a TRS and its parent REIT that are not conducted on an arm's-length basis.

A REIT's ownership of securities of a TRS is not subject to the 5% or 10% asset tests applicable to REITs. No more than 25% of the value of our total assets may be represented by securities (including securities of TRSs), other than those securities includable in the 75% asset test, and no more than 20% of the value of our total assets may be represented by securities of TRSs. We anticipate that the aggregate value of the stock and securities of any TRS and other nonqualifying assets that we own will be less than 25% (or, in the case of securities of TRSs, 20%) of the value of our total assets, and we will monitor the value of these investments to ensure compliance with applicable ownership limitations. In addition, we intend to structure our transactions with any TRSs that we own to ensure that they are entered into on arm's-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the above limitations or to avoid application of the 100% excise tax discussed above.

*The IRS may treat sale-leaseback transactions as loans, which could jeopardize our REIT status or require us to make an unexpected distribution.*

The IRS may take the position that specific sale-leaseback transactions that we treat as leases are not true leases for federal income tax purposes but are, instead, financing arrangements or loans. If a sale-leaseback transaction were so re-characterized, we might fail to satisfy the REIT asset tests, the income tests or distribution requirements and consequently lose our REIT status effective with the year of re-characterization unless we elect to make an additional distribution to maintain our REIT status. The primary risk relates to our loss of previously incurred depreciation expenses, which could affect the calculation of our REIT taxable income and could cause us to fail the REIT distribution test that requires a REIT to distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In this circumstance, we may elect to distribute an additional dividend of the increased taxable income so as not to fail the REIT distribution test. This distribution would be paid to all stockholders at the time of declaration rather than the stockholders existing in the taxable year affected by the re-characterization.

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