EDGAR 10-K Filing

Company CIK: 1722992
Filing Year: 2021
Filename: 1722992_10-K_2021_0001193125-21-096513.json

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ITEM 1. BUSINESS
Item 1. Business
OVERVIEW
Until January 1, 2020, our predecessor, Spirit MTA REIT, or SMTA, operated as an externally managed REIT that owned and managed a portfolio of single-tenant, operationally essential real estate throughout the United States that was generally leased on a long-term, triple-net basis to tenants operating within retail, office, and industrial property types. SMTA began operations through predecessor legal entities which were wholly-owned subsidiaries of Spirit Realty Capital Inc., or Spirit.
LIQUIDATION OF SMTA
On July 11, 2019, the board of trustees of SMTA adopted a plan of voluntary dissolution, or the Plan of Liquidation, which was subsequently approved by the shareholders of SMTA on September 4, 2019. The Plan of Liquidation provided for an orderly sale of SMTA’s remaining assets, payment of its liabilities and other obligations, and the winding up of its operations and its dissolution.
In accordance with the Plan of Liquidation, as of 12:01 A.M. Eastern Time on January 1, 2020, or the Effective Time, SMTA entered into a Liquidating Trust Agreement, or the Trust Agreement, for the creation and operation of a newly-created trust called SMTA Liquidating Trust, a Maryland common law trust, or the Liquidating Trust and transferred to the Liquidating Trust the remaining 11 properties and other assets then owned by SMTA (subject to all of SMTA’s liabilities). Pursuant to the Trust Agreement, as of the Effective Time, Steven G. Panagos, Steven H. Shepsman, Richard J. Stockton and Thomas J. Sullivan, the four members of the board of trustees of SMTA, were appointed as the trustees of the Liquidating Trust, or the Liquidating Trustees. Also, as of the Effective Time, all of the units of beneficial interests of the Liquidating Trust, or the Trust Units, were distributed to SMTA’s shareholders, with each shareholder receiving one Trust Unit for each common share of SMTA then held of record by such shareholder.
As of the Effective Time, SMTA was dissolved and terminated and all of the outstanding common shares of SMTA were cancelled and are no longer outstanding. Accordingly, on January 3, 2020, Form 15 was filed with the Securities and Exchange Commission, or the SEC, to terminate the registration of the common shares of SMTA under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
The Liquidating Trust’s activities are restricted to winding up the affairs of SMTA as promptly as reasonably possible. Under the terms of the Trust Agreement, the Liquidating Trust will not acquire any new properties, and is focused on liquidating the remaining assets. The Liquidating Trust will terminate upon the earlier of the distribution of all of the Liquidating Trust’s assets in accordance with the terms of the Trust Agreement, or the expiration of a period of three years from the effective date of the Liquidating Trust (or January 1, 2023). The existence of the Liquidating Trust may, however, be extended for fixed-term extensions under certain circumstances at the Liquidating Trustees’ reasonable discretion pursuant to the terms of the Trust Agreement. The aggregate of all such extensions may not exceed three years unless the Liquidating Trustees receive a favorable ruling from the Internal Revenue Service that any further extension would not adversely affect its status as a liquidating trust within the meaning of Treasury Regulations Section 301.7701-4(d) for federal income tax purposes. This description of the Trust Agreement is qualified in its entirety by the text of the Trust Agreement, which has been incorporated by reference as an exhibit to this Annual Report.
THE MANAGER
In connection with the closing of the Master Trust 2014 Sale, the Asset Management Agreement between SMTA and Spirit Realty AM Corporation, a wholly owned subsidiary of Spirit Realty Capital, Inc. (or the Initial Manager) was terminated and replaced by an Interim Management Agreement under which the Initial Manager agreed to provide external management services for an initial annual term beginning September 20, 2019 for $1 million, plus certain cost reimbursements. The Interim Management Agreement was assigned by SMTA to the Liquidating Trust by operation of law at the Effective Time.
On March 18, 2020, the Initial Manager notified the Liquidating Trust of its intent to terminate the Interim Management Agreement with the Liquidating Trust effective September 14, 2020. After receipt of the termination notice from the Initial Manager, the Liquidating Trust began a search process for a replacement manager. On April 16, 2020, the Liquidating Trust entered into an engagement agreement (or the Engagement Agreement) with Walker, Truesdell, Roth & Associates, Inc. (or WTR or the Manager), pursuant to which WTR agreed to serve as manager of the Liquidating Trust under the direction and supervision of the Liquidating Trustees. WTR served as manager alongside the Initial Manager for a transition period until September 4, 2020, when the Interim Management Agreement was formally terminated, which resulted in the resignation of the Initial Manager. The Engagement
Agreement with WTR provides that WTR receive a fee of $25,000 per month for each of the first three months to act as manager of the Liquidating Trust and $20,000 per month thereafter, with certain services being charged on an hourly rate to be paid in addition to the $20,000 base monthly payment. The Liquidating Trustees and WTR subsequently agreed that the Liquidating Trust would pay a flat fee of $25,000 per month after the first three months in lieu of having WTR charge hourly for certain other services. The Engagement Agreement may be terminated by WTR or the Liquidating Trust on 30 days’ written notice.
Under the terms of the Engagement Agreement, WTR has responsibility for our day-to-day affairs, administers our accounting and bookkeeping functions, serves as a consultant in connection with policy decisions to be made by the Liquidating Trustees, manages our remaining properties and renders other services deemed appropriate by the Liquidating Trustees. We do not have any employees. The individuals who perform services under the Engagement Agreement are employees of, or consultants retained by, WTR or its affiliates. This description of our Engagement Agreement is qualified in its entirety by the text of the Engagement Agreement, which has been included as an exhibit to this Annual Report.
CURRENT INVESTMENT OBJECTIVES AND POLICIES
In accordance with the Trust Agreement, we are committed to winding up the affairs of the Liquidating Trust as promptly as reasonably possible, and we currently consider various factors when evaluating potential property dispositions. These factors include, without limitation, (i) the ability to sell our remaining assets at the highest possible price in order to maximize the return to our beneficiaries and (ii) the ability of prospective buyers to finance the acquisition of our assets. Until we successfully sell our remaining properties, our primary operating strategy is to enhance the performance and value of these properties through strategies designed to address the needs of current and prospective tenants.
REAL ESTATE PORTFOLIO
Since January 1, 2020, the Liquidating Trust has completed the sale of eight of the 11 properties that were transferred to it by SMTA in connection with the Plan of Liquidation and the Liquidating Trust’s formation for approximately $21 million in gross proceeds. The Liquidating Trust recently completed lease modifications, for which new leases were entered into with respect to the remaining properties (located in The Woodlands, TX; East Humble, TX; and Henderson, NV). The Liquidating Trust will market these remaining properties with the objective of completing the monetization of its property portfolio as soon as practicable. See “Item 2 - Properties” for further information on our remaining properties.
DISTRIBUTIONS TO TRUST UNIT HOLDERS
On November 2, 2020, we distributed $0.50 per Trust Unit to the Trust Unit holders, resulting in an aggregate payment of $21,588,977.50 to all Trust Unit holders since January 1, 2020.
In 2019, SMTA paid total dividends of $9.99 per share to its stockholders, resulting in an aggregate payment of $430,756,169.96 to all stockholders.
U.S. FEDERAL INCOME TAX TREATMENT
The Liquidating Trust is intended to qualify as a “liquidating trust” for U.S. federal income tax purposes that is treated as a “grantor trust” for U.S. federal income tax purposes. Accordingly, each Trust Unit represents ownership of an undivided proportionate interest in all of the assets and liabilities of the Liquidating Trust, and each holder of Trust Units will be treated for U.S. federal income tax purposes as receiving or paying directly a pro rata portion of all income, gain, loss, deduction and credit of the Liquidating Trust. Each holder of Trust Units must report its pro rata share of such items on its own U.S. federal income tax return. The Liquidating Trustees will provide to each holder of Trust Units after each year end a detailed itemized statement that reports on a per unit basis the holder’s allocable share of all the various categories of revenue and expense of the Liquidating Trust for the year. Each holder of Trust Units is urged to consult with its own tax advisors regarding the filing requirements and the appropriate tax reporting of this information on its tax returns.
REGULATION
General
Our remaining properties are subject to various covenants, laws, ordinances and regulations, including regulations relating to common areas and fire and safety requirements. We believe that each of our properties has the necessary permits and approvals to operate as intended.
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 our properties. Noncompliance with these laws or regulations could result in the imposition of fines or an award of damages to private litigants, as well as the incurrence of the costs of making modifications to attain compliance, and future legislation could impose additional financial obligations or restrictions on our properties. 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, and impose liability for, releases of hazardous or toxic substances into the environment. Under certain of these laws and regulations, a current or previous owner, operator or tenant of real estate may be required to investigate and clean up hazardous or toxic substances, hazardous wastes or petroleum product releases or threats of releases at the property, and may be held liable to a government entity or to 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 presence of the contamination. The liability under these laws 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. These costs may be substantial and can exceed the value of the property and the value of our remaining properties. The presence of contamination, or the failure to properly remediate contamination, on a property may adversely affect the ability of the owner, operator or tenant to sell or rent that property or to borrow using the property as collateral and may adversely impact our investment in that property.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, which could materially affect our financial condition and Plan of Liquidation. The risks described below are not the only risks facing us. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our financial condition and Plan of Liquidation.
RISKS RELATED TO THE COVID-19 PANDEMIC
The COVID-19 pandemic affects how our tenants operate their businesses, and the duration and extent to which this will impact our ability to market and sell our remaining properties remains uncertain.
The full impact of COVID-19 is unknown and rapidly changing. The pandemic has caused substantial disruption in the U.S. economy. The outbreak is having a significant adverse impact on our tenants, all three of whom are in the childcare services industry. In response to public health guidance, federal, state and local governments have implemented measures to contain the virus, including social distancing, changes in regulations, increased daycare closures, limitations on enrollment and other changes in operating practices of our tenants. Moreover, the uncertainties related to the COVID-19 pandemic and its continued effect on the childcare industry and real estate market generally is uncertain and these uncertainties may impact the value and consideration we can obtain, and our ability to timely sell, our remaining properties.
RISKS RELATED TO THE PLAN OF LIQUIDATION
Our expectations about the amount of any liquidating distributions we pay to holders of Trust Units and when we will pay them are based on many estimates and assumptions, one or more of which may prove to be incorrect.
In accordance with the Trust Agreement, our objectives are to (i) complete the orderly liquidation of our assets pursuant to the Plan of Liquidation; and (ii) maximize value to holders of Trust Units by selling all of our remaining real estate properties, providing for the payment of contingent liabilities, distributing the net proceeds from liquidation
to our holders of Trust Units and winding up our operations and dissolving our company. We do not expect to pay regular distributions during the liquidation process. We expect to pay liquidating distributions to holders of Trust Units from time to time as we sell our remaining properties, pay all of our known liabilities and provide for unknown liabilities.
We can give no assurance regarding the timing of the sale of our remaining properties, the sale prices we will receive for such properties, and the amount or timing of any liquidating distributions. We intend to maintain adequate cash reserves for liquidity and other future capital needs but cannot assure you we will be able to do so.
If we are unable to find buyers for our remaining properties, our liquidating distributions to holders of Trust Units may be delayed or reduced.
As of the date of this report, none of our remaining properties are subject to a binding sales agreement providing for their disposition. However, we may have overestimated the sales price that we will ultimately be able to obtain for these properties. For example, in order to find a buyer in a timely manner, we may be required to lower our asking price below the low end of our current estimate of the property’s fair value. If we are not able to find buyers for these properties in a timely manner or if we have overestimated the sales prices we will receive, our liquidating distributions to holders of Trust Units would be delayed and/or reduced. Furthermore, the projected amounts of liquidating distributions to holders of Trust Units are based upon current appraisals and/or other indicators of value of our properties, but real estate market values are constantly changing and fluctuate with changes in interest rates, supply and demand dynamics, occupancy percentages, lease rates, the availability of suitable buyers, and the perceived quality and dependability of income flows from tenancies. The COVID-19 pandemic has impacted our ability to market our properties, and as a result there is unpredictability around when we will be able to sell our remaining properties.
If any of the parties to a future sale agreement default under such agreement, or if a sale does not otherwise close, our liquidating distributions to holders of Trust Units may be delayed or reduced.
The consummation of any future potential sale transaction will be subject to the satisfaction of applicable closing conditions. If a transaction contemplated by a future sale agreement does not close because of a buyer default, failure of a closing condition or for any other reason, we will need to locate a new buyer for the property, which we may be unable to do promptly or at a price or on terms that are as favorable as the failed transaction. We will also incur additional costs involved in locating a new buyer and negotiating a new sale agreement for the property. These additional costs are not included in our projections. In the event that we incur these additional costs, our liquidating distributions to holders of Trust Units would be delayed and/or reduced.
We will continue to incur liabilities and expenses that will reduce the amount available for distribution out of the liquidation to holders of Trust Units.
The liquidation and dissolution process is subject to numerous uncertainties and may result in less capital than anticipated, or none at all, remaining available for future distribution to holders of Trust Units. The precise nature, amount and timing of any future distribution to holders of Trust Units will depend on and could be delayed by, among other things, currently unknown creditor claims or lawsuits and unexpected or greater than expected expenses. Furthermore, we cannot provide any assurances that we will actually make any distributions. Because the COVID-19 pandemic has impacted our ability to sell our remaining properties, and may delay such sales for an unpredictable amount of time, we may continue to incur liabilities and expenses relating to the remaining properties that we did not anticipate.
We will continue to incur certain expenses associated with complying with public company reporting requirements.
In accordance with the Trust Agreement, we will be required to continue to comply with certain reporting requirements of the Exchange Act, even if compliance with these reporting requirements is economically burdensome. We expect to continue to file annual reports on Form 10-K and current reports on Form 8-K to disclose material events relating to our liquidation, along with any other reports that the SEC may require. While the financial statements contained in such reports will be prepared in accordance with generally accepted accounting principles, it is not contemplated that the financial statements will be reviewed or audited by independent registered public accountants. We will continue to incur costs associated with the preparation and filing of those reports, including legal and accounting fees, and we will continue to apply resources of the Liquidating Trust to comply with our SEC reporting obligations. These expenses may be substantial and may reduce any distributions that we make to holders of Trust Units.
The Plan of Liquidation, the Trust Agreement, and the actions and transactions contemplated thereby, may lead to shareholder litigation, which could result in substantial costs and distract management.
Historically, extraordinary corporate actions such as the Plan of Liquidation, the Trust Agreement, and the actions and transactions contemplated thereby, sometimes lead to federal securities class action lawsuits or state law claims being filed against the company taking such actions. We may become involved in this type of litigation as a result of such extraordinary actions. If such a lawsuit is filed against us, the litigation is likely to be expensive and, even if we ultimately prevail, the process will divert our attention from winding up the Liquidating Trust’s affairs and selling the remaining properties. If we were not to prevail in such a lawsuit, we cannot predict the amount of any damages for which we may be obligated. However, if applicable, any such damages may be significant and may reduce the amounts available for any distributions to holders of Trust Units.
Holders of Trust Units may recognize taxable income as a result of their ownership of Trust Units.
The Liquidating Trust is intended to qualify as a “liquidating trust” for U.S. federal income tax purposes that is treated as a “grantor trust” for U.S. federal income tax purposes. Accordingly, each Trust Unit represents ownership of an undivided proportionate interest in all of the assets and liabilities of the Liquidating Trust, and each holder of Trust Units will be treated for U.S. federal income tax purposes as receiving or paying directly a pro rata portion of all income, gain, loss, deduction and credit of the Liquidating Trust. A holder of Trust Units will be taxed each year on its share of revenues from the Liquidating Trust, net of such holder’s share of expenses of the Liquidating Trust whether or not the holder of Trust Units receives a distribution of cash from the Liquidating Trust that year. The long-term or short-term character of any capital gain or loss recognized in connection with the sale of the Liquidating Trust’s assets will be determined based upon a holding period commencing at the time of the acquisition by each holder of Trust Units.
Because holders of Trust Units are treated as owning their respective shares of the Liquidating Trust’s assets, they are expected to be treated as directly engaging in the operations of the Liquidating Trust. As such, tax-exempt U.S. holders of Trust Units may realize “unrelated business taxable income” with respect to the Liquidating Trust’s operations and non-U.S. holders of Trust Units may be considered to derive income that is effectively connected with a U.S. trade or business. In that event, non-U.S. holders would be subject to U.S. federal income tax (including pursuant to the Foreign Investment in Real Property Tax Act of 1980) and, for corporate non-U.S. holders, branch profits tax. Accordingly, under current law, the liquidating trust is expected to withhold 21% of any distributions made to non-U.S. holders of Trust Units. That amount will be creditable against the non-U.S. holder’s U.S. federal income tax liability. The Liquidating Trust currently holds its real estate properties through entities that are taxable as corporations for U.S. federal income tax purposes, which may mitigate certain of the consequences described in this paragraph. Tax-exempt U.S. holders and non-U.S. holders should consult their own tax advisors regarding the U.S. federal income tax consequences of holding Trust Units.
If the Liquidating Trust fails to qualify as a liquidating trust for U.S. federal income tax purposes, the consequences to the holders of Trust Units will depend on the reason for the failure to qualify, and, under certain circumstances, the Liquidating Trust could be treated as an association taxable as a corporation for U.S. federal income tax purposes, rather than as a trust. If the Liquidating Trust is taxable as a corporation, the Liquidating Trust itself will be subject to U.S. federal income tax at the applicable corporate income tax rate, which is currently 21%. In that case, distributions made by the Liquidating Trust would be reduced by this additional level of tax, and a holder of Trust Units would be subject to tax upon the receipt of distributions that constitute dividends from the Liquidating Trust rather than taking into account its share of the Liquidating Trust’s taxable items on an annual basis.
RISKS RELATED TO OUR REMAINING PROPERTIES
Costs of compliance with, or liabilities related to, environmental laws may materially and adversely affect us.
The remaining properties we own or other properties we 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 and clean up such contamination and liability for harm to natural resources. We may face liability regardless of:
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our knowledge of the contamination;
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the timing of the contamination;
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the cause of the contamination; or
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the existence of other parties responsible for the contamination of the property.
Our environmental liabilities may include property damage, personal injury, investigation and clean-up costs. These costs could be substantial. Although we have obtained insurance for environmental liability for certain properties that were deemed to warrant coverage, our current insurance on the remaining properties may be insufficient to address any particular environmental situation and we may be unable to maintain 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. If we were to become subject to significant environmental liabilities, we could be materially and adversely affected.
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 as additional insureds on their liability policies and additional insured and/or loss payee 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. Further, any business interruption insurance for which our tenants contracted may be subject to limitations or exclusions, including for losses arising from closures or curtailment of operations as a result of an epidemic or pandemic disease.
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.
Our tenants may fail to successfully operate their businesses, which could adversely affect us.
Our ability to maximize the value in our remaining properties is dependent on the financial stability of our tenants’ financial condition. Adverse economic conditions, including as a result of the global outbreak of novel coronavirus disease (COVID-19), high unemployment levels, interest rates, tax rates and fuel and energy costs may have an impact on the results of operations and financial condition of our tenants and result in a decline in rent or an increased incidence of default under existing leases of our remaining properties. Such adverse economic conditions may also reduce overall demand for our remaining properties, which could adversely affect our ability to maintain our current tenants or for a potential purchaser to attract new tenants.
At any given time, our tenants may experience a downturn in their business that may weaken the operating results and financial condition of our remaining properties or of their business as whole. As a result, a tenant may decline to extend a lease upon its expiration, fail to make rental payments when due, abide by the terms and conditions of the tenant’s lease agreement, become insolvent or declare bankruptcy.
Moreover, because all three of our remaining properties are occupied by affiliates of Children’s Learning Adventure USA, LLC (“CLA”), any downturn of CLA could impact the value and our ability to collect revenue on all three of our remaining properties. CLA has experienced financial challenges, including a prior filing by affiliates of CLA under Chapter 11 of the U.S. Bankruptcy Code, which was subsequently dismissed, and, as a result, this may impair our ability to receive rent or other payments from our tenants, delay the sale of these properties and/or significantly decrease the value of these properties. 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. The ability of our tenants to fulfill their obligations under our leases may depend, in part, upon the overall profitability of their operations. Cash flow generated by certain tenant businesses may not be sufficient for a tenant to meet its obligations to us. Our tenants’ failure to successfully operate their businesses could materially and adversely affect our results of operations and the value of our remaining properties.
RISKS RELATED TO OUR TRUST UNITS
There is no market for our Trust Units and the Trust Units may not be transferred or assigned except in limited circumstances.
Holders of Trust Units will not be able to transfer or assign their Trust Units other than in limited circumstances, as the Trust Agreement prohibits all transfers of Trust Units, except by will, intestate succession or operation of law, and or by an executor or administrator of the estate of a holder of a Trust Unit under certain circumstances. The Trust Units are not and will not be listed on any exchange, quoted by any securities broker or dealer, or admitted for trading in any market, including the over-the-counter market. Therefore, the Trust Units are illiquid, and holders of Trust Units have limited ability to dispose of them.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
Tenant Concept
Industry
Asset
Type
Square
Feet
City
State
Zip
Code
Annualized
Cash Rent
(Thousands)
(1)(2)
Remaining
Lease
Term
(Years)
Early Childhood Learning Center (3) (4)
Education
Retail
25,190
The Woodlands
TX
$650
15.0
Early Childhood Learning Center (3) (4)
Education
Retail
25,737
East Humble
TX
$300
15.0
Early Childhood Learning Center (3) (4)
Education
Retail
20,032
Henderson
NV
$750
15.0
(1) The Annualized Cash Rent shown above is the full rent due pursuant to new leases, effective January 1, 2021.
(2) The properties above paid $1.2 million in rent, percentage rent and past due rent in 2020.
(3) Tenant’s bankruptcy case was dismissed in November 2020. New leases were entered into with affiliates of Tenant.
(4) Tenant entered into a lease termination agreement wherein amounts for past due rent and real estate tax reserves was agreed upon and paid upon signing of new leases. New leases provide for reduced base rent in addition to percentage rent from July 1, 2020 through December 31, 2020. Full rent became payable effective January 1, 2021.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
From time-to-time, we may be subject to certain claims and lawsuits in the ordinary course, the outcome of which cannot be determined at this time. In the opinion of management, any liability we might incur upon the resolution of these ordinary course claims and lawsuits will not, in the aggregate, have a material adverse effect on our consolidated financial position or results of operations.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosure
None.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
MARKET INFORMATION FOR COMMON SHARE, HOLDERS OF RECORD AND DIVIDEND POLICY
There is no market for the Trust Units. The Trust Units are not listed on any exchange, quoted by a securities broker or dealer, nor admitted for trading in any market, including the over-the-counter market. The Trust Units are not transferable except by operation of law, will or intestate succession, all in accordance with the terms and conditions of the Trust Agreement.
RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES
None.
ISSUER PURCHASES OF EQUITY SECURITIES
None.
EQUITY COMPENSATION PLAN INFORMATION
The Liquidating Trust has no equity compensation plans in place.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
[Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion relates to our consolidated financial statements and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. Such consolidated financial statements and information have been prepared to reflect our net assets in liquidation as of December 31, 2020. Statements contained in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and elsewhere in this report, that are not historical facts may be forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially. Some of the financial and other information presented is forward-looking in nature, including information concerning projected future occupancy rates, rental rate increases, property development timing and amount and timing of dispositions. Although the information is based on our current expectations, actual results could vary from expectations stated in this report. Numerous factors will affect our actual results, some of which are beyond our control. These include, without limitation, those set forth under “Forward Looking Statements” and “Item 1A - Risk Factors,” as well as our other filings with the SEC. You are cautioned not to place undue reliance on this information, which speaks only as of the date of this report. We assume no obligation to update publicly any forward-looking information, whether as a result of new information, future events, or otherwise, except to the extent required by law. For a discussion of important risks related to our financial condition and Plan of Liquidation, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information, see “Item 1A - Risk Factors” and “Liquidity and Capital Resources.”
OVERVIEW AND BACKGROUND
On January 1, 2020, in connection with the Plan of Liquidation, SMTA entered into a Liquidating Trust Agreement and transferred and assigned its remaining properties to the Liquidating Trust. SMTA was dissolved and terminated, and all of the outstanding common shares of SMTA were cancelled and are no longer outstanding. Accordingly, on January 3, 2020, Form 15 was filed with the SEC to terminate the registration of the common shares of SMTA under the Exchange Act. During the fiscal year ended December 31, 2020, we completed the sale of eight properties (five vacant and three occupied). As a result, our remaining net assets at the date of this report are primarily comprised of three properties. See “Item 2 - Properties” for details on these assets. The dissolution process and the amount and timing of distributions to holders of Trust Units involves risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to holders of Trust Units, and no assurance can be given that the distributions will equal or exceed the estimate of net assets presented in the consolidated statement of net assets of the financial statements included elsewhere in this report.
Between January 1, 2020 and December 31, 2020 the Liquidating Trust sold eight of its remaining properties located in Tyler, Texas; Orange, Texas; Arlington, Texas; Denver, Colorado; Sacramento, California; Midland, Texas; El Paso, Texas; and Kansas City, Kansas for gross proceeds of $21.0 million.
On September 4, 2020, the Liquidating Trust terminated its relationship with Spirit Realty, Inc., its Initial Manager, and WTR became the Liquidating Trust’s sole manager.
On November 2, 2020, the Liquidating Trust distributed $0.50 per Trust Unit to the Trust Unit holders, for an aggregate payment of approximately $21.6 million to all Trust Unit holders.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies are determined in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that are subjective in nature and, as a result, our actual results could differ materially from our estimates. Prior to the adoption of the Plan of Liquidation, estimates and assumptions include, among other things, subjective judgments regarding the fair values and useful lives of our properties for depreciation and lease classification purposes, the collectability of receivables and asset impairment analysis. On September 1, 2019, we adopted the liquidation basis of accounting in connection with the approval of the Plan of Liquidation. Subsequent to the adoption of the Plan of Liquidation, we are required to estimate all expenses and income we expect to incur and earn through the end of liquidation including the estimated amount of cash we expect to collect on the disposal of our assets and the estimated costs to dispose of our assets. See Note 3 to the consolidated financial statements for further details.
Basis of Accounting-Liquidation Basis
As a result of the approval of the Plan of Liquidation by SMTA’s shareholders, we adopted the liquidation basis of accounting as of September 1, 2019 and for the periods subsequent to September 1, 2019 in accordance with GAAP. Accordingly, on September 1, 2019 assets were adjusted to their estimated net realizable value, or liquidation value, which represents the estimated amount of cash that we expect to collect. Estimated costs to dispose of assets have been presented separately from the real estate assets, net in the consolidated statement of net assets. Liabilities are carried at their contractual amounts due or estimated settlement amounts. The liquidation value of our net assets is presented on an undiscounted basis.
We accrue expenses and income that we expect to incur and earn through the end of liquidation to the extent it has a reasonable basis for estimation. These amounts are classified as a liability for estimated expense in excess of estimated income during liquidation on the consolidated statement of net assets. Actual expenses and income may differ from amounts reflected in the financial statements because of inherent uncertainty in estimating future events. These differences may be material.
Net assets in liquidation represents the estimated liquidation value available to shareholders upon liquidation. Due to the uncertainty in the timing of the anticipated sale dates and the estimated cash flows, actual operating results and sale proceeds may differ materially from the amounts estimated.
Purchase Accounting and Acquisition of Real Estate; Lease Intangibles
We use a number of sources to estimate fair value of real estate acquisitions, including building age, building location, building condition, rent comparables from similar properties, and terms of in-place leases, if any. Lease intangibles, if any, acquired in conjunction with the purchase of real estate represent the value of in-place leases and above or below-market leases. In-place lease intangibles are valued based on our estimates of costs related to tenant acquisition and the carrying costs that would be incurred during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases at the time of the acquisition. We then allocate the purchase price (including acquisition and closing costs) to land, building, improvements and equipment based on their relative fair values. For properties acquired with in-place leases, we allocate the purchase price of real estate to the tangible and intangible assets and liabilities acquired based on their estimated fair values. Above and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition of the real estate and our estimate of current market lease rates for the property, measured over a period equal to the remaining initial term of the lease.
Impairment
We review our real estate investments and related lease intangibles periodically for indicators of impairment, including the asset being held for sale, vacant or non-operating, tenant bankruptcy or delinquency, and leases expiring in 60 days or less. For assets with indicators of impairment, we then evaluate if its carrying amount may not be recoverable. We consider factors such as expected future undiscounted cash flows, estimated residual value, market trends (such as the effects of leasing demand and competition) and other factors in making this assessment. An asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows.
Impairment is then calculated as the amount by which the carrying value exceeds the estimated fair value, or for assets held for sale, as the amount by which the carrying value exceeds fair value less costs to sell. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results. Key assumptions used in estimating future cash flows and fair values include, but are not limited to, revenue growth rates, interest rates, discount rates, capitalization rates, lease renewal probabilities, tenant vacancy rates and other factors.
Impairment and Allowance for Loan Losses
We periodically evaluate the collectability of our loans receivable, including accrued interest, by analyzing the underlying property-level economics and trends, collateral value and quality, and other relevant factors in determining the adequacy of its allowance for loan losses. A loan is determined to be impaired when, in management’s judgment based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Specific allowances for loan losses are provided for impaired loans on an individual loan basis in the amount by which the carrying value exceeds the estimated fair value of the underlying collateral less disposition costs. Delinquent loans receivable are written off against the allowance when all possible means of collection have been exhausted.
A loan is placed on non-accrual status when the loan has become 60 days past due, or earlier if management determines that full recovery of the contractually specified payments of principal and interest is doubtful. While on non-accrual status, interest income is recognized only when received.
REIT Status
SMTA elected to be taxed as a REIT for federal income tax purposes commencing with its taxable year ended December 31, 2018. We believe SMTA was organized and operated in a manner that allowed it to qualify as a REIT until January 1, 2020 when SMTA was dissolved. To maintain its REIT status, SMTA was required to annually distribute to its shareholders at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of share ownership. Provided that SMTA qualified for taxation as a REIT, it was generally not subject to corporate level federal income tax on the earnings distributed to its shareholders that it derived from its REIT qualifying activities. SMTA was still subject to state and local income and franchise taxes and to federal income and excise tax on its undistributed income. If the Internal Revenue Service were to determine that SMTA failed to qualify as a REIT in any taxable year, and it was unable to avail itself of certain savings provisions set forth in the Code, all of its taxable income would be subject to federal income tax at the regular corporate rates.
RESULTS OF OPERATIONS
Liquidation Basis of Accounting
In light of the adoption of liquidation basis accounting as of September 1, 2019, the results of operations for the current year periods are not comparable to the prior year periods. On September 1, 2019, as a result of adopting the liquidation basis of accounting, we adjusted the assets and liabilities held to their expected net realizable value. Net assets in liquidation represents the estimated liquidation value available to shareholders upon liquidation. Due to the uncertainty in the timing of anticipated sale dates and estimated cash flows, actual results and sale proceeds may differ materially from amounts estimated in our financial statements.
Net realizable value of investments in real estate
For Master Trust 2014 and two properties from the Other Properties segment (the single-distribution center leased to Academy and a multi-tenant building), the net realizable value was adjusted to the signed sales agreements, which resulted in a net increase of $667.0 million. All three of these sales were completed in September 2019. In conjunction with these sales, the Master Trust 2014 debt was retired and the CMBS debt on the Academy property was assumed by the buyer. In the four months ended December 31, 2019, there was an $11.7 million increase to the estimated net realizable value of the remaining 11 properties, resulting in a total net realizable value of $37.5 million at December 31, 2019.
During the fiscal year ended December 31, 2020 we sold eight of our remaining 11 properties listed below for gross proceeds of approximately $21 million.
Property
Square Feet
City, State
Sale Price ($)
Closing Date
Former Neighbors Health System
6,371
Tyler, TX
2,000,000
1/17/20
Exceptional Emergency Center
6,500
Orange, TX
2,350,000
2/21/20
7-Eleven
4,000
Arlington, TX
3,556,000
6/25/20
Former Best Car Buys
20,559
Denver, CO
4,000,000
5/28/20
Former Fitness Evolution
28,580
Sacramento, CA
1,253,588
5/28/20
SignatureCare ER
8,000
Midland, TX
4,600,000
6/10/20
Former Neighbors Health System
8,694
El Paso, TX
2,000,000
6/3/20
Former Best Buy
46,449
Kansas City, KS
1,275,000
8/5/20
For our three remaining properties, the net realizable value was derived using a range of values, including brokers’ and the Liquidating Trustees’ opinions of value. We reduced the liquidation value of investments in real estate by $1.4 million during 2020 to reflect the actual sales prices achieved and our estimate for our remaining three properties. The actual timing and amount of these future sales proceeds may differ materially from our current projection. For example, the impact of potential risks, or public perception of risks, related to COVID-19 could have a material impact on the liquidation value of remaining properties and timing of liquidation. The affiliate tenants of the remaining properties are early childcare centers, and particularly vulnerable to risks related to COVID-19. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our operations, including timing and amount of future sales proceeds, will depend on future developments, which are highly uncertain and cannot be predicted. See “Risk Factors” under Part 1A of this Annual Report on Form 10-K.
Net realizable value of other assets and liabilities
Upon adoption of the Plan of Liquidation, the evaluation of the remaining assets for collectability and remaining liabilities for expected settlement amount resulted in a net write-off of $24.1 million. This was driven by a $29.0 million write-off of straight-line rent receivables and a $3.8 million write-off of lease-incentive intangibles. This was partially offset by the accrual of a $5.2 million tax refund receivable of which $1.7 million was collected during the fiscal year ended December 31, 2020 and a $1.6 million write-off of property tax liability for the transfer of the liability to SVC in conjunction with the Master Trust 2014 Sale. The remaining other assets balance of $3.5 million and $5.3 million at December 31, 2020 and December 31, 2019, respectively, is primarily attributable to the tax refund receivable. The remaining accounts payable and other liabilities balance of $0.5 million and $5.9 million is primarily attributable to accrued general and administrative expenses which were incurred in 2020 and 2019 and reclassified from estimated expense in excess of estimated income during liquidation to accounts payable and other liabilities as of December 31, 2020 and 2019, respectively, as they are no longer estimated.
Estimated expense in excess of estimated income during liquidation
As a basis for our assumptions, at December 31, 2020, we expect to sell the remaining three properties during 2021 and to complete our liquidation by June 30, 2022, although there can be no assurance that we will meet the expected timing. The amounts estimated below may vary significantly due to, among other things, the timing of property sales, costs incurred to complete sales, timing and amounts associated with discharging liabilities and costs associated with the winding-up of our operations. Based on the foregoing, we accrued the following:
•
Rental income: $1.0 million was accrued as of December 31, 2019 and $1.7 million was collected during the year ended December 31, 2020. The additional $0.7 million collected resulted from entering into a restructuring agreement with the tenants of the remaining properties that resolved outstanding base rents and real estate tax reserves and resulted in new leases with affiliates of the tenants for the properties. The new leases provide for a reduced base rent in addition to percentage rent for the period beginning July 1, 2020 and ending December 31, 2020. Full rent is effective commencing January 1, 2021. During 2020 remeasurement adjustments increased estimated rental income by $2.8 million to reflect the settlement payment of past due rents and real estate tax reserves and the terms of the new leases over the expected time period to liquidate the properties.
•
Property costs: $1.3 million was accrued as of December 31, 2019 and $0.3 million was paid during the fiscal year ended December 31, 2020. During the fiscal year ended December 31, 2020, eight properties were sold, resulting in a remeasurement adjustment decreasing estimated property costs by $0.3 million, and $0.2 million was reclassified to accounts payable and other liabilities in the accompanying consolidated statement of net assets. The December 31, 2020 balance of $0.5 million is related to expenses expected to be incurred on the remaining properties prior to their estimated sale in 2021.
•
General and administrative: $6.2 million was accrued as of December 31, 2019, and $2.4 million was paid during the year ended December 31, 2020. The payments primarily relate to legal, tax, accounting, consulting, management fees and Liquidating Trustee fees. At December 31, 2020, $0.3 million of general and administrative expenses have been reclassified to accounts payable and other liabilities in the accompanying consolidated statement of net assets for actual expenses incurred, not yet paid. Over the course of the year ended December 31, 2020, a remeasurement adjustment increased estimated general and administrative expenses by $1.0 million to reflect legal, accounting, consulting, Liquidating Trustee fees, management fees and other professional fees and costs related to the extended termination date of the Liquidating Trust and an increase in contingency and rent reserves. The December 31, 2020 balance of $4.5 million includes estimates for professional fees for legal, accounting, tax or consulting services, management fees, Liquidating Trustee fees, insurance, rent reserves, taxes and other costs of liquidation.
•
Related party fees: $0.9 million was accrued as of December 31, 2019 and $0.7 million was paid during the year ended December 31, 2020. The payments relate to the management fees paid to the Initial Manager. In 2020, a remeasurement adjustment of $0.2 million decreased estimated related party fees to reflect actual fees paid. The Initial Manager was terminated on September 4, 2020.
•
Cost of real estate investment sales: $2.6 million was accrued as of December 31, 2019 and $1.1 million was paid during the year ended December 31, 2020 for the sales completed. In 2020, a remeasurement adjustment of $0.5 million decreased estimated costs of real estate investments sales to reflect revised estimates of selling costs for the remaining properties. The December 31, 2020 balance of $1.0 million represents the estimated costs of sales for the remaining three properties.
Due to the adoption of the Plan of Liquidation, we no longer report funds from operations or adjusted funds from operations as we no longer consider these to be key performance measures.
Changes in Liquidity
In the year ended December 31, 2020, our primary source of cash flow was net proceeds of $21.0 million from the sale of eight of the properties that were transferred to the Liquidating Trust in connection with the Plan of Liquidation, collection of $1.7 million in tax withholding and $1.7 million of cash rent collected. This was offset by:
•
payment of distributions to holders of trust units of $21.6 million, or $0.50 per Trust Unit, and
•
payment of costs of sales for the properties sold in 2020 of $1.2 million, general and administrative expenses of $2.4 million, related party asset management fees of $0.7 million and payment of accounts payable of $5.9 million in 2020.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
On a short-term basis, our principal demands for funds will be for operating expenses and distributions to the holders of Trust Units. As of December 31, 2020, our cash on hand totaled $9.7 million. We believe that remaining cash on hand will be sufficient to fund our operating expenses incurred during liquidation and other short-term liquidity requirements. We believe that cash on hand and proceeds from the remaining assets will provide sufficient liquidity to meet our obligations over the next 12 months or any shorter period during which we complete our liquidation.
Contractual Obligations
The Company had no outstanding purchase obligations or tenant improvement obligations as of December 31, 2020.
Liquidating Distributions
The actual amount and timing of, and record dates for, future liquidating distributions on our Trust Units will be determined by the Liquidating Trustees and will depend upon the timing and proceeds of the sales of our assets and the amounts deemed necessary by the Liquidating Trustees to pay or provide for our liabilities and obligations. Any such liquidating distributions on the Trust Units will be deemed a return of capital until the applicable holder has received liquidating distributions totaling its cost basis.
Off-Balance Sheet Arrangements
As of December 31, 2020, we did not have any material off-balance sheet arrangements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks. Interest rates and other factors, such as occupancy, rental rates and the financial condition of our tenants, influence our performance more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our leases with the three affiliated tenants at our remaining properties are triple net leases, where the tenant is responsible for property operating costs and expenses. However, in fiscal year 2020 these leases also provided for contingent rent based on the tenant’s revenue. Going forward, these leases do not feature such contingent rent. Due to the COVID-19 pandemic, the ability of the three affiliated tenants at our remaining properties to pay rent when due is highly uncertain and cannot be predicted due to the uncertainty surrounding the magnitude, duration and scope of the COVID-19 pandemic.
As of December 31, 2020, we had no outstanding debt and, therefore, changes in market interest rates would have no impact on the estimated costs expected to be incurred during the liquidation of the Company although changes in interest rates could have an impact on our property liquidations as a result of such interest rate changes having an impact on the ability of potential purchasers to obtain financing.
The estimated liquidation values of our remaining properties were based on assumptions and market conditions at December 31, 2020. The global outbreak of the COVID-19 pandemic could have a material impact on our operations, including without limitation, the financial condition of existing tenants, the liquidation value of remaining properties, the timing of liquidation and the ability of potential purchasers to obtain financing. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our financial condition and Plan of Liquidation will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. Accordingly, we cannot predict the extent to which our liquidation of assets and ultimate distributions will be affected.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements and Supplemental Data
Consolidated Statement of Net Assets (Liquidation Basis) of SMTA Liquidating Trust (formerly known as Spirit MTA REIT) as of December 31, 2020 and December 31, 2019
Consolidated Statement of Changes in Net Assets (Liquidation Basis) of SMTA Liquidating Trust (formerly known as Spirit MTA REIT) for the Year Ended December 31, 2020 and the Fourth Months Ended December 31, 2019
Consolidated Statements of Operations and Comprehensive Income (Loss) (Going Concern Basis) of Spirit MTA REIT for the Eight Months Ended August 31, 2019
Consolidated Statements of Changes in (Deficit) Equity (Going Concern Basis) of Spirit MTA REIT for the Eight Months Ended August 31, 2019
Consolidated Statements of Cash Flows (Going Concern Basis) of Spirit MTA REIT for the Eight Months Ended August 31, 2019
Notes to Consolidated Financial Statements
Schedule I-Real Estate and Accumulated Depreciation as of December 31, 2020 and December 31, 2019.
Schedule II-Mortgage Loans on Real Estate as of December 31, 2020 and December 31, 2019.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SMTA LIQUIDATING TRUST
(Formerly known as Spirit MTA REIT)
Consolidated Statement of Net Assets
(In Thousands)
(Liquidation Basis)
(Unaudited)
December 31,
December 31,
Assets
Real Estate Assets, net
$ 15,000
$ 37,450
Cash and cash equivalents
$ 9,730
$ 17,183
Other Assets
$ 3,533
$ 5,266
Total Assets
$ 28,263
$ 59,899
Liabilities
Liability for estimated expense in excess of estimated income during liquidation
$ 3,931
$ 9,973
Accounts payable and other liabilities
$
$ 5,851
Total liabilities
$ 4,400
$ 15,824
Commitments and contingencies (see Note 9)
Net Assets in liquidation
$ 23,863
$ 44,075
See accompanying notes
SMTA LIQUIDATING TRUST
(Formerly known as Spirit MTA REIT)
Consolidated Statement of Changes in Net Assets
(In Thousands)
(Liquidation Basis)
(Unaudited)
Period from
January 1, 2020
through
December 31,
Period from
September 1,
2019 through
December 31,
Net assets in liquidation, beginning of period
$ 44,075
$ 377,226
Change in liquidation value of investments in real estate
$ (1,415 )
$ 11,719
Remeasurement of assets and liabilities
$ 2,792
$
Net increase in liquidation value
$ 1,377
$ 12,273
Liquidating distributions to common shareholders
$ (21,589 )
$ (345,424 )
Net Assets in liquidation, end of period
$ 23,863
$ 44,075
See accompanying notes
SPIRIT MTA REIT
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In Thousands, Except Share and Per Share Data)
(Going Concern Basis)
(Unaudited)
Eight Months
Ended August 31,
Revenues:
Rental income
$ 132,812
Interest income on loans receivable
2,669
Other income
2,916
Total revenues
138,397
Expenses:
General and administrative
5,703
Related party fees
18,057
Transaction costs
6,223
Shopko-related expenses
10,116
Property costs (including reimbursable)
4,887
Interest
78,254
Depreciation and amortization
47,378
Impairment, net of recoveries for loan losses
4,869
Total expenses
175,487
Other (loss) income:
Loss on debt extinguishment
(21,411 )
Gain on disposition of real estate assets
1,740
Total other (loss) income
(19,671 )
(Loss) income before income tax expense
(56,761 )
Income tax expense
(86 )
Net (loss) income and total comprehensive (loss) income
(56,847 )
Preferred dividends
(10,611 )
Net (loss) income attributable to common shareholders
$ (67,458 )
Net (loss) income per share attributable to common shareholders:
Basic
$ (1.57 )
Diluted
$ (1.57 )
Weighted average common shares outstanding:
Basic
42,938,777
Diluted
42,938,777
See accompanying notes.
SPIRIT MTA REIT
Consolidated Statements of Changes in (Deficit) Equity
(In Thousands, Except Share Data)
(Going Concern Basis)
(Unaudited)
Redeemable Preferred Equity
Shareholders’ (Deficit) Equity and Parent Company Equity
SMTA Preferred
Shares
SubREIT
Preferred
Shares
Common Shares
Shares
Par Value
and Capital
in Excess of
Par Value
Shares
Par Value
and Capital
in Excess
of Par
Value
Total
Redeemable
Preferred
Equity
Shares
Par
Value
Capital in
Excess of
Par Value
Accumulated
Deficit
Net Parent
Investment
Total
Shareholders’
and Parent
Company
(Deficit)
Equity
Balances,
January 1, 2019
6,000,000
$ 150,000
5,125
$ 5,125
$ 155,125
43,000,862
$
$ 201,056
$ (291,071 )
$ -
$ (89,585 )
Net loss
-
-
-
-
-
-
-
-
(56,847 )
-
(56,847 )
Issuance of
preferred
shares, net
-
-
-
-
-
-
-
(25 )
-
-
(25 )
Dividends
declared on
common
shares
-
-
-
-
-
-
-
-
(28,461 )
-
(28,461 )
Dividends
declared on
preferred
shares
-
-
-
-
-
-
-
-
(10,611 )
-
(10,611 )
Share-based
compensation, net
-
-
-
-
-
163,693
1,403
(18 )
-
1,387
Tax
withholdings
related to net
stock
settlements
-
-
-
-
-
(4,624 )
-
-
(36 )
-
(36 )
Balances, August 31, 2019
6,000,000
$ 150,000
5,125
$ 5,125
$ 155,125
43,159,931
$
$ 202,434
$ (387,044 )
$ -
$ (184,178 )
See accompanying notes.
SPIRIT MTA REIT
Consolidated Statements of Cash Flows
(In Thousands)
(Going Concern Basis)
(Unaudited)
Eight Months Ended
August 31,
Operating activities
Net (loss) income
$ (56,847 )
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
47,378
Impairment, net of recoveries for loan losses
4,869
Amortization of deferred financing costs
3,692
Amortization of debt discounts
4,593
Share-based compensation expense
1,405
Loss on debt extinguishment, net
21,411
Gain on disposition of real estate assets
(1,740 )
Non-cash revenue
(2,482 )
Non-cash promote fee expense
-
Bad debt expense and other
Changes in operating assets and liabilities:
Deferred costs and other assets, net
2,495
Accounts payable, accrued expenses and other liabilities
7,473
Net cash provided by operating activities
33,197
Investing activities
Acquisitions of real estate
-
Capitalized real estate expenditures
(5,891 )
Collections of principal on loans receivable
36,399
Proceeds from dispositions of real estate and other assets
32,660
Net cash provided by (used in) investing activities
63,168
Financing activities
Borrowings under mortgages and notes payable
-
Repayments under mortgages and notes payable
(27,025 )
Restricted cash surrendered in loan foreclosure
(21,227 )
Debt extinguishment costs
(144 )
Deferred financing costs
-
Repurchase of common shares for tax withholdings related to net shares settlements
(36 )
Proceeds from issuance of preferred shares, net of offering costs
(25 )
Dividends paid on common shares
(85,652 )
Dividends paid on preferred shares
(7,958 )
Contributions from parent company
-
Distributions to parent company
-
Net cash (used in) provided by financing activities
(142,067 )
Net (decrease in) increase in cash, cash equivalents and restricted cash
(45,702 )
Cash, cash equivalents and restricted cash, beginning of period
205,100
Cash, cash equivalents and restricted cash, end of period
$ 159,398
Eight Months Ended
August 31,
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Investment contribution from parent
$ -
Investment distribution to parent
-
Financing provided in connection with the disposition of assets
-
Issuance of common shares
-
Preferred equity issuance
-
Relief of debt through sale or foreclosure of real estate properties
160,785
Net real estate and other assets surrendered to lender
159,735
Accrued capitalized costs
3,364
Distributions declared and unpaid
2,653
Supplemental Cash Flow Disclosures:
Interest paid
$ 66,495
Taxes paid
$
See accompanying notes.
SMTA LIQUIDATING TRUST
(Formerly known as Spirit MTA REIT)
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Organization
Organization and Operations
Spirit MTA REIT (“SMTA” or the “Company”) operated as an externally managed REIT formed in Maryland. The Company began operations through predecessor legal entities which were wholly-owned subsidiaries of Spirit Realty Capital, Inc. (“Spirit”). On May 31, 2018, Spirit completed the Spin-Off that resulted in the Company’s establishment as an independent, publicly traded company. The Spin-Off was effected by means of a pro rata distribution of SMTA common shares to Spirit stockholders of record as of the close of business on the record date. In conjunction with the Spin-Off, SMTA and a wholly-owned subsidiary of Spirit (the “Manager”) entered into an Asset Management Agreement under which the Manager provided external management of SMTA.
On January 16, 2019, in connection with the Shopko bankruptcy filing, the Company announced that its board of trustees elected to accelerate its strategic plan and on June 2, 2019 announced a definitive agreement to sell its interests in Master Trust 2014 to SVC. Costs associated with the execution of strategic alternatives (excluding the SVC transaction closing costs) in the eight months ended August 31, 2019 totaled $6.2 million, and are reflected as transaction costs on the accompanying consolidated statements of operations and comprehensive income (loss). On September 4, 2019, at a special meeting of SMTA shareholders, SMTA’s shareholders approved the Master Trust 2014 Sale, as well as the Plan of Liquidation. As a result, the Company adopted the liquidation basis of accounting using a convenience date of September 1, 2019, as the difference in dates is not material to presentation of the financial results.
On March 18, 2020, the Manager notified the Liquidating Trust of its intent to terminate the Interim Management Agreement with the Liquidating Trust effective September 14, 2020. After receipt of the termination notice from the Manager, the Liquidating Trust began a search process for a replacement manager, On April 16, 2020, the Liquidating Trust entered into an engagement agreement (the “Engagement Agreement”) with Walker, Truesdell, Roth & Associates, Inc. (“WTR”), pursuant to which WTR agreed to serve as manager of the Liquidating Trust under the direction and supervision of the Liquidating Trustees. WTR served as a manager alongside the Initial Manager for a transition period until September 4. 2020, when the Interim Management Agreement was formally terminated, which resulted in resignation of the Manager.
In accordance with the Plan of Liquidation, on January 1, 2020, SMTA entered into a Liquidating Trust Agreement (the “Trust Agreement”), for the creation and operation of a newly-created trust called SMTA Liquidating Trust (the “Liquidating Trust”), a Maryland common law trust, and transferred to the Liquidating Trust the remaining 11 properties and other assets then owned by SMTA (subject to all of SMTA’s liabilities). Also, all of the units of beneficial interests of the Liquidating Trust, or the Trust Units, were distributed to SMTA’s shareholders, with each shareholder receiving one Trust Unit for each common share of SMTA then held of record by such shareholder. This return of capital distribution of $1.34 per share was reported to shareholders of record on Form 1099-DIV. SMTA was dissolved and terminated and all of the outstanding common shares of SMTA were cancelled and are no longer outstanding.
The Liquidating Trust’s activities are restricted to winding up the affairs of SMTA as promptly as reasonably possible. Under the terms of the Trust Agreement, the Company will not acquire any new properties, and is focused on liquidating its remaining assets. As of the date of the report, the Company has sold eight of the 11 properties remaining at December 31, 2019, for a total of $21.0 million, and owns a total of three properties.
The accompanying financial statements reflect the accounts and activities of SMTA Liquidating Trust and its wholly-owned subsidiaries and, for certain periods prior to January 1, 2020, its predecessor entities.
Note 2. Plan of Liquidation
The Plan of Voluntary Liquidation provides for an orderly sale of the Company’s remaining assets, payment of the Company’s liabilities and other obligations, and the winding up of operations and dissolution of the Company
following the Master Trust 2014 Sale, which occurred on September 20, 2019. The Plan of Voluntary Liquidation enables the Company to sell any and all of its assets without further approval of the shareholders and provides that liquidating distributions be made to the shareholders as determined by the board of trustees. On January 1, 2020, the Company transferred and assigned its remaining assets to the Liquidating Trust. The Liquidating Trust expects to pay or provide for all of the Company’s liabilities and distribute any remaining net proceeds from the sale of its remaining assets to the holders of interests in the Liquidating Trust.
The dissolution process and the amount and timing of distributions to shareholders involves significant risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to shareholders, and no assurance can be given that the distributions will equal or exceed the estimate of net assets presented in the consolidated statement of net assets.
Note 3. Summary of Significant Accounting Policies
As a result of the approval of the Plan of Liquidation in September 2019, the Company’s financial position and results of operations for the year ended December 31, 2019 have been presented using two different presentations. The Company adopted the liquidation basis of accounting as of September 1, 2019 and for the period subsequent to September 1, 2019. As a result, a consolidated statement of net assets is presented, which represents the estimated amount of net cash that the Company reasonably expects to collect as it carries out its Plan of Liquidation. In addition, a consolidated statement of changes in net assets reflects changes in net assets from the original estimated values as of September 1, 2019 through the most recent periods presented, as further described below.
All financial results and disclosures up through August 31, 2019, prior to adopting the liquidation basis of accounting, will be presented based on a going concern basis, which contemplated the realization of assets and liabilities in the normal course of business. As a result, the consolidated statement of operations, the consolidated statements of changes in (deficit) equity and the consolidated statement of cash flow for the eight months ended August 31, 2019 used the going concern basis presentation consistent with the Company’s Annual Report on Form 10-K for prior reporting periods, as further described below.
Basis of Accounting-Going Concern Basis
The accompanying consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the SEC. In the opinion of management, the consolidated financial statements include the normal, recurring adjustments necessary for a fair presentation of the information required to be set forth therein. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
These consolidated financial statements include certain special purpose entities that were formed to acquire and hold real estate encumbered by indebtedness (see Note 7). Each special purpose entity is a separate legal entity and is the sole owner of its assets and responsible for its liabilities. The assets of these special purpose entities are not available to pay, or otherwise satisfy obligations to, the creditors of any affiliate or owner of another entity unless the special purpose entities have expressly agreed and are permitted under their governing documents. As of December 31, 2019, there were no encumbered special purpose entities.
Basis of Accounting-Liquidation Basis
As a result of the approval of the Plan of Liquidation by SMTA’s shareholders, the Company adopted the liquidation basis of accounting as of September 1, 2019 and for the periods subsequent to September 1, 2019 in accordance with GAAP. Accordingly, on September 1, 2019 assets were adjusted to their estimated net realizable value, or liquidation value, which represents the estimated amount of cash that the Company reasonably expects to collect. Estimated costs to dispose of assets have been presented separately from the real estate assets, net in the consolidated statement of net assets. Liabilities are carried at their contractual amounts due or estimated settlement amounts. The liquidation value of the Company’s net assets is presented on an undiscounted basis.
The Company accrues expenses and income that it expects to incur and earn through the end of liquidation to the extent it has a reasonable basis for estimation. These amounts are classified as a liability for estimated expense in excess of estimated income during liquidation on the consolidated statement of net assets. Actual expenses and income may differ from amounts reflected in the financial statements because of inherent uncertainty in estimating future events. These differences may be material. See Note 4 for further discussion.
Net assets in liquidation represents the estimated liquidation value available to shareholders upon liquidation. Due to the uncertainty in the timing of the anticipated sale dates and the estimated cash flows, actual operating results and sale proceeds may differ materially from the amounts estimated. These uncertainties are potentially more significant due to the COVID-19 pandemic.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes its estimates are reasonable, actual results could differ from those estimates.
Segment Reporting
The Company views its operations in two segments-Master Trust 2014 and all other properties (“Other Properties”). The Master Trust 2014 segment was sold on September 20, 2019.
Revenue Recognition-Going Concern Basis
Rental Income: Cash and Straight-line Rent
The Company primarily leased real estate to its tenants under long-term, triple-net leases that were classified as operating leases. To evaluate lease classification, the Company assessed the terms and conditions of the lease to determine the appropriate lease term. For the majority of our operating leases, the lease included one or more options to extend, typically for a period of five to ten years per renewal option. The Company’s operating leases sometimes also included an option to terminate or to purchase. The Company did not include these options in its evaluation for lease classification purposes or for recognizing rental income unless the Company was reasonably certain the tenant would exercise the option.
Another component of lease classification which required significant assumptions and judgment was the amount expected to be derived from the property at the end of the lease term. Generally, the Company assumed a value equal to net book value of the property at the date of the assessment, as the Company generally expected fair value to be equal to or greater than net book value. The Company sought to protect residual value through its underwriting of acquisitions, as well as lease structures where the lessee was responsible for maintenance of the property, including insurance protecting any damage to the property. To further protect residual value, the Company supplemented the tenant insurance policy with a master policy covering all properties owned by the Company. Additionally, the Company occasionally invested in capital improvements on properties, re-leasing properties to new tenants or extending lease terms to protect residual value.
The Company’s leases sometimes provided for contingent rent based on a percentage of the tenant’s gross sales, in which case the Company recognized contingent rental revenue when the change in the factor on which the contingent lease payment was based actually occurred.
The Company’s leases generally provided for rent escalations throughout the lease terms. For leases that had contingent rent escalators indexed to future changes in the CPI, rent increased at a multiple of any increase in the CPI over a specified period. Because of the volatility and uncertainty with respect to future changes in the CPI, increases in rental revenue from leases with this type of escalator were recognized when the changes in the rental rates occurred.
For leases that provided for fixed contractual escalations, rental revenue was recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Accordingly, accrued rental revenue, calculated as the aggregate difference between the rental revenue recognized on a straight-line basis and scheduled rents, represented unbilled rent receivables that the Company would receive only if the tenants made all rent payments required through the expiration of the initial term of the leases.
Rental income was subject to an evaluation for collectability, which included management’s estimates of amounts that would not be realized based on an assessment of the risks inherent in the portfolio, considering historical experience, as well as the tenant’s payment history and financial condition. The Company recorded a provision for losses against rental income for amounts that were not probable of collection.
Rental Income: Tenant Reimbursement Revenue
Under a triple-net lease, the tenant is typically 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. Certain leases contained additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, which were non-lease components. The Company elected to combine all of its non-lease components, which were determined to have the same pattern of transfer as the related operating lease component, into a single combined lease component. Tenant reimbursement revenue was variable and recognized as revenue in the period in which the related expenses were incurred, with the related expense included in property costs (including reimbursable). Tenant receivables were carried net of any allowances for amounts that were not probable of collection.
Rental Income: Intangible Amortization
Initial direct costs associated with the origination of a lease were deferred and amortized over the related lease term as an adjustment to rental revenue. In-place lease intangibles were amortized on a straight-line basis over the remaining initial term of the related lease and included in depreciation and amortization expense. Above-market lease intangibles were amortized over the remaining initial terms of the respective leases as a decrease in rental revenue. Below-market lease intangibles were amortized as an increase to rental revenue over the remaining initial term of the respective leases, or over the initial term plus renewal periods when the Company was reasonably certain the tenant would exercise the renewal options. If the Company was reasonably certain a lease would terminate early, the unamortized portion of any related lease intangible was immediately recognized in impairments in the Company’s consolidated statements of operations and comprehensive income (loss).
Allowance for Doubtful Accounts-Going Concern Basis
Under going concern basis, the Company reviewed its rent and other tenant receivables for collectability on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operated, and economic conditions in the area in which the tenant operated. If the collectability of a receivable with respect to any tenant was in doubt, a provision for uncollectible amounts was established or a direct write-off of the specific receivable was made. Receivables were written off against the reserves for uncollectible amounts when all possible means of collection had been exhausted. Receivables are presented within deferred costs and other assets, net in the accompanying consolidated balance sheet.
For receivable balances related to the straight-line method of reporting rental revenue, the collectability was assessed in conjunction with the evaluation of rental income as described above.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents were $9.7 million and $17.2 million at December 31, 2020 and 2019, respectively, and include cash and highly liquid investment securities with maturities at acquisition of three months or less. The Company invests cash primarily in operating accounts in major financial institutions, money market funds of major financial institutions with fund investments consisting of highly-rated money market instruments and other short-term instruments. At December 31, 2020 and 2019, the Company had no restricted cash.
Goodwill
Goodwill arises from business combinations and represents the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the identifiable assets acquired and the liabilities assumed. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Spirit recorded goodwill as a result of its merger with Cole Credit Property II, Inc. (“Cole”) on July 17, 2013. Goodwill was allocated to the Company based on the fair value of the Cole assets attributable to the Company relative to the total fair value of Cole assets acquired by Spirit through its merger. Goodwill then was initially allocated to each reporting unit of the Company based upon the relative fair value of each reporting unit, resulting in $7.0 million allocated to Master Trust 2014 and $6.5 million allocated to Other Properties. The goodwill related to the Other Properties segment was fully impaired in 2018. The goodwill allocated to the Master Trust 2014 segment was relieved in conjunction with the Master Trust 2014 Sale in September 2019.
Income Taxes
For the period prior to the Spin-Off, the Company applied the provisions of FASB ASC Topic 740, Income Taxes, and computed the provision for income taxes on a separate return basis. The separate return method applied the accounting guidance for income taxes to the stand-alone consolidated financial statements as if the Company was a separate taxpayer and a stand-alone enterprise for the periods presented.
The Company was wholly-owned by Spirit prior to the Spin-Off and was disregarded for federal income tax purposes. The Manager is wholly-owned by Spirit through certain direct and indirect ownership interests and is taxed as a partnership for Federal income tax purposes. Spirit has elected to be taxed as a REIT under the applicable provisions of the Code and, as a result, will not be subject to federal income tax as long as it distributes 100% of its taxable income and satisfies certain other requirements. Therefore, no provision for federal income tax was made in the accompanying consolidated financial statements for the period prior to the Spin-Off.
For the period subsequent to the Spin-Off, the Company elected to be taxed as a REIT under the Code beginning with its initial tax year ended December 31, 2018 through the transfer of its remaining assets to the Liquidating Trust on January 1, 2020. As a REIT, the Company generally was not subject to federal income tax provided it continued to satisfy certain tests concerning the Company’s sources of income, the nature of its assets, the amounts distributed to its shareholders, and the ownership of Company shares. Management believes the Company qualified as a REIT beginning with its initial tax year ended December 31, 2018 through the transfer of its remaining assets to the Liquidating Trust on January 1, 2020 and therefore, no provision has been made for federal income taxes in the accompanying consolidated financial statements. Even if the Company qualified for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income tax and excise tax on its undistributed income.
The Company is subject to certain other taxes which are reflected as income tax expense in the consolidated statements of operations and comprehensive income (loss). Franchise taxes are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss) and estimated future taxes are included in liability for estimated expense in excess of estimated income during liquidation in the accompanying consolidated statement of net assets.
Earnings Per Share-Going Concern Basis
The Company’s unvested restricted common shares, which contain non-forfeitable rights to receive dividends, are considered participating securities requiring the two-class method of computing earnings per share. Under the two class method, earnings attributable to unvested restricted shares are deducted from income from continuing operations in the computation of net income (loss) attributable to common shareholders. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on their respective weighted average shares outstanding during the period. Under the terms of the 2018 Incentive Award Plan and the related restricted share awards, losses are not allocated to participating securities including undistributed losses as a result of dividends declared exceeding net income. The Company uses income or loss from continuing operations as the basis for determining whether potential common shares are dilutive or anti-dilutive and undistributed net income or loss as the basis for determining whether undistributed earnings are allocable to participating securities.
New Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for the fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, and as such, the Company adopted ASU 2016-02 effective January 1, 2019. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief as follows:
•
The Company elected to use the package of practical expedients, which permits the Company to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases and (3) any initial direct costs for any existing leases as of the effective date.
•
The Company elected to use the comparative period expedient, which permits the Company to recognize any cumulative adjustments as of the date of initial application and not record adjustments to prior reported periods. As a result of this election, bad debt expense is being presented in “rental income” on a prospective basis, compared to “property costs (including reimbursable)” for periods prior to January 1, 2019. Bad debt expense was $0.9 million for the eight months ended August 31, 2019. The adoption of the lease standard did not result in a cumulative catch-up adjustment to opening equity.
•
The Company elected to use the land easements expedient, which permits the Company to not reassess land easements for potential lease classification.
•
The Company elected to use the components expedient, which permits the Company to not separate non-lease components from lease components if timing and pattern of transfer is the same. The Company elected this expedient for all lessor operating leases, where certain leases contain non-lease components related to tenant reimbursement, and concluded that the leasing component is the predominant component.
•
The Company elected not to use the hindsight expedient, which would require the re-evaluation of the lease term on all leases using current facts and circumstances.
As a lessor, our recognition of rental income remained consistent with previous guidance, apart from expanded disclosure requirements. As such, the Company concluded that the overall impact of the ASU had no material impact on the Company’s reported revenues, results of operations or financial position.
Note 4. Liability for Estimated Expense in Excess of Estimated Income During Liquidation
The liquidation basis of accounting requires the Company to estimate net cash flows from operations and to accrue all income and expenses associated with implementing and completing the Plan of Liquidation. As a basis for our assumptions, although there can be no assurance that we will meet such timing, we currently expect to sell the remaining properties during 2021 and to complete our liquidation by June 30, 2022, although, with the impact that the recent pandemic has had on asset values, tenant liquidity and capital markets, there can be no assurance that we will be able to do so. The Company currently estimates that it will have expenses in excess of income during the liquidation. These amounts can vary significantly due to, among other things, the timing of property sales, direct costs incurred to complete the sales, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with the winding up of operations. These amounts are estimated and are anticipated to be paid out and collected over the liquidation period.
Upon transition to the liquidation basis of accounting on September 1, 2019, the Company accrued the following income and expenses expected to be incurred during liquidation, had the following cash payments (receipts) in the four months ended December 31, 2019 and the fiscal year ended December 31, 2020 and has reclassified income earned, not yet received, to other assets and expenses incurred, not yet paid, to accounts payable and other liabilities in the accompanying consolidated statement of net assets (in thousands):
September 1, 2019
Cash
Payments
(Receipts)
Remeasurement
of Assets
and Liabilities
Reclassification
for Expenses
Incurred and
Income Earned
December 31,
Assets:
Rental income (1)
$ 7,594
$ (6,253 )
$
$ (790 )
$ 1,038
Liabilities:
Property costs (2)
(1,159 )
(1,100 )
(1,273 )
General and administrative (3)
(27,620 )
10,678
1,699
9,044
(6,199 )
Related party fees (4)
(51,693 )
49,857
(917 )
Cost of real estate investment sales (5)
(4,981 )
3,694
(1,335 )
-
(2,622 )
Total liability for estimated expense in excess of estimated income during liquidation
$ (77,859 )
$ 58,898
$
$ 8,401
$ (9,973 )
(1) The majority of the revenue accrued at September 1, 2019 and collected in the four months ended December 31, 2019 relates to the properties sold during September 2019. In the fourth quarter of 2019, the rental income estimate was remeasured to reflect increased rental income expected to be collected as a result of changes in the timing of sales of the remaining assets. The December 31, 2019 balance of $1.0 million is comprised of estimated rental income on the six operating properties until their estimated sale in 2020.
(2) The majority of the costs accrued at September 1, 2019 and paid in the four months ended December 31, 2019 relate to the properties sold during September 2019. In the fourth quarter of 2019, the property costs estimate was remeasured to reflect increased property costs expected to be paid as a result of changes in the timing of sales of the remaining assets. The December 31, 2019 balance of $1.3 million is related to expenses expected to be incurred on the remaining properties prior to their estimated sale in 2020.
(3) The payments in the four months ended December 31, 2019 primarily relate to legal and consulting fees incurred in conjunction with the Master Trust 2014 Sale. $9.0 million of general and administrative expenses have been reclassified to accounts payable and other liabilities in the accompanying consolidated statement of net assets for actual expenses incurred, not yet paid, as of December 31, 2019. In the fourth quarter of 2019, the general and administrative expense estimate was remeasured to reflect decreased costs expected to be paid as a result of lower actual costs on the Master Trust 2014 sale and the reduction in audit fees as a result of transferring to the Liquidating Trust. The December 31, 2019 balance of $6.2 million includes estimates for professional fees, compensation to the Company’s CEO and members of the board of trustees, insurance, taxes and other costs of liquidation.
(4) The payments in the four months ended December 31, 2019 include the $48.2 million termination fee for the Asset Management Agreement, as well as 20 days of management fees under the Asset Management Agreement and 3 months of management fees under the Interim Management Agreement. In the fourth quarter of 2019, the related party fees estimate was remeasured to reflect decreased costs expected to be paid as a result of revised expectations for the fees expected to be incurred subsequent to the termination of the Interim Management Agreement. The December 31, 2019 balance of $0.9 million is comprised of 12 months of expected management fees.
(5) $3.7 million paid in the four months ended December 31, 2019 relates to the three sales completed in September 2019. In the fourth quarter of 2019, the cost of sales estimate was remeasured to reflect increased costs expected to be paid on the sales of the remaining assets. The December 31, 2019 balance of $2.6 million represents the estimated costs of sales for the remaining 11 properties.
January 1, 2020
Cash
Payments
(Receipts)
Remeasurement
of Assets
and Liabilities
Reclassification
for Expenses
Incurred and
Income Earned
December 31,
Assets:
Rental income (1)
$ 1,038
$ (1,747 )
$ 2,792
$ -
$ 2,083
Liabilities:
Property costs (2)
(1,273 )
(452 )
General and administrative (3)
(6,199 )
2,388
(1,016 )
(4,512 )
Related party fees (4)
(917 )
-
Cost of real estate investment sales (5)
(2,622 )
1,118
-
(1,050 )
Total liability for estimated expense in excess of estimated income during liquidation
$ (9,973 )
$ 2,781
$ 2,792
$
$ (3,931 )
(1) The majority of the rental revenue collected for the year ended December 31, 2020 and all of the revenue accrued at December 31, 2020 relates to the three remaining properties. The Rental Income estimate was remeasured in 2020 after the master lease for the three remaining properties was terminated and the Trust executed new leases with affiliates of the prior tenants. As part of the lease termination agreement, past due rents and real estate tax reserves were settled.
(2) The majority of the costs accrued at December 31, 2019 and paid during the fiscal year ended December 31, 2020 relate to the properties sold during the fiscal year ended December 2020. During the fiscal year ended December 31, 2020 the property costs estimate was remeasured to reflect (decreased) property costs at December 31. 2020. The December 31, 2020 balance of $0.5 million is related to expenses expected to be incurred on the remaining properties prior to their estimated sale in 2021
(3) The payments for the fiscal year ended December 31,2020 primarily relate to legal, tax, accounting, consulting, Liquidating Trustee and non-related manager fees. General and administrative expenses aggregating $0.3 million have been reclassified to accounts payable and other liabilities in the accompanying consolidated statement of net assets for actual expenses incurred and not yet paid as of December 31, 2020. During 2020, the general and administrative expense estimate was remeasured to reflect increased costs expected to be incurred as a result of the extended timeline in which to sell the remaining properties and liquidate the Trust and a reclassification of manager fees out of related party fees. The December 31, 2020 balance of $4.5 million includes estimates for professional fees, accounting, tax, consulting, manager, and board of trustee fees, insurance, taxes, contingency, reserves and other costs of liquidation.
(4) The payments of $0.7 million during the fiscal year ended December 31, 2020 relate to payments made to the Initial Manager pursuant to the Interim Management Agreement for services rendered in 2020. The Interim Management Agreement was terminated September 4, 2020 resulting in a remeasurement decrease of $0.2 million of fees. The current manager is not a related party of the Trust.
(5) $1.1 million paid during the fiscal year ended December 31, 2020 relates to the eight properties sold during the year. In the fiscal year ended December 31, 2020, the cost of sales estimate was remeasured to reflect costs expected to be paid on the sale of the remaining three properties.
Note 5. Net Assets in Liquidation
Adoption of Liquidation Basis
The following is a reconciliation of shareholders’ deficit under the going concern basis of accounting to net assets in liquidation under the liquidation basis of accounting as of September 1, 2019 (in thousands):
Shareholders’ deficit as of August 31, 2019
$ (184,178 )
Increase due to estimated net realizable value of investments in real estate
667,006
Decrease due to adjustment of assets and liabilities to net realizable value
(24,089 )
Decrease due to obligation to redeem preferred shares
(3,654 )
Liability for estimated expense in excess of estimated income during liquidation
(77,859 )
Adjustment to reflect the change to the liquidation basis of accounting
561,404
Estimated value of net assets in liquidation as of September 1, 2019
$ 377,226
The net realizable value of investments in real estate for the Master Trust 2014 Sale, the sale of the property leased to Academy and one other property were adjusted to the signed sales agreements, which resulted in a net increase of $667.0 million. All three of these sales were completed in September 2019. In conjunction with these sales, the Master Trust 2014 debt was retired and the CMBS debt on the Academy property was assumed by the buyer. The net realizable value of the remaining 11 properties as of September 1, 2019 was derived using the sales comparable approach and the income capitalization approach, resulting in no change in value. Eight of the 11 properties were valued utilizing the sales comparable approach, specifically vacant sales comparables, using price per square foot ranging from $26.86 to $141.47. The remaining three assets were valued as of September 2019 utilizing the direct income capitalization rate approach, using capitalization rates ranging from 5.75% to 8.41%.
The adjustment of assets and liabilities to net realizable value was primarily comprised of a $29.0 million write-off of straight-line rent receivables and a $3.8 million write-off of lease-incentive intangibles, which were partially offset by the accrual of $5.2 million tax refund receivable of which $1.7 million was collected in 2020 and a $1.6 million write-off of property tax liability for the transfer of the liability to SVC in conjunction with the Master Trust 2014 Sale.
The decrease due to obligation to redeem preferred shares was comprised of $2.8 million of dividends and pre-payment premiums for the Series A SubREIT Preferred Shares, $0.8 million of dividends for the SMTA Preferred Shares and $16 thousand of dividends and pre-payment premiums for the Series B SubREIT Preferred Shares.
See Note 4 for detail on the liability for estimated expense in excess of estimated income during liquidation.
Changes in Net Assets
During the period from September 1, 2019 through December 31, 2019, $345.4 million, or $8.00 per share, of the net assets were distributed to common shareholders. Real estate assets were remeasured, resulting in an $11.7 million increase to the estimated net realizable value of the remaining 11 properties. For two of the remaining properties, the properties sold subsequent to December 31, 2019, the executed sales agreement was used for remeasurement in determining the net realizable value. For the remaining nine properties, the net realizable value was derived using broker opinions of value, with prices per square foot ranging from $27.93 to $587.50. The estimated liquidation values of our remaining properties as of December 31, 2019 were based on market conditions and assumptions as of that date, which preceded the global outbreak of a novel coronavirus (COVID-19) and its impact on the economy and real estate markets. The estimated liquidation value of our three remaining properties at December 31, 2020 was derived using a range of values, including brokers’ and the Liquidating Trustees’ opinions of value. The actual timing and amount of these future sales proceeds may differ materially from our current estimates, particularly because of the uncertainties surrounding COVID-19’s continuing impact on the operations of our tenants and real estate markets generally.
Also, during the period from September 1, 2019 through December 31, 2019, other assets and liabilities were remeasured, resulting in a $0.6 million increase. There was a $0.6 million increase in net assets related to the liability for estimated expense in excess of estimated income during liquidation, see Note 4. There was also a $0.5 million increase related to interest earned on cash and cash equivalents. These increases were partially offset by a $0.5 million increase in accounts payable, accrued expenses and other liabilities as a result of increased property taxes on the remaining properties held and an increase in liabilities incurred in connection with the Master Trust 2014 sale.
During the fiscal year ended December 31, 2020, eight of the 11 properties held at December 31, 2019 were sold for $21.0 million, and the three remaining properties were devalued due to the impact of COVID-19. This resulted in a remeasurement decrease in real estate assets of $1.4 million. The master lease for the 3 remaining properties was terminated and three new leases were executed with affiliates of the former tenant. An amount representing past due rent and real estate tax reserves was agreed upon and paid at the signing of the new leases. The new leases provide for a reduced base rent in addition to percentage rent for the period July 1, 2020 through December 1, 2020. Effective January 1, 2021, the full base rent is due. As of December 31, 2020, the tenants were current with their rent obligations pursuant to these leases.
Rental income was remeasured by $2.8 million to reflect the rents and reimbursed taxes received, the settlement payment received and to reflect the rental income and reimbursed taxes per the lease terms to be collected through the end of the liquidation period. General and administrative expenses were increased by $1.0 million related to costs in connection with the extended time line to sell the remaining three properties and liquidate the Trust such as increased legal, accounting, tax, consulting, contingency, rent reserve, management, trustee, insurance and other related fees. Property costs were decreased by $0.3 million. Related party fees were reduced by $0.2 million due to termination of the Interim Management Agreement and cost of real estate sales was reduced by $0.5 million to reflect the actual costs incurred and estimated costs of sales for the three remaining properties. The result was a net increase in liquidation value at December 31, 2020 of $1.4 million
The remaining undistributed net assets in liquidation of $44.1 million as of December 31, 2019 and $23.9 million at December 31, 2020 would result in liquidating distributions of approximately $1.02 and $0.55 per Trust Unit respectively. A return of capital distribution in the amount of $21.6 million or $0.50 per Trust Unit was made to holders of trust units on November 2, 2020. This estimate of liquidating distributions includes projections of timing and amounts of future sales, as well as costs and expenses to be incurred during the period required to complete the Plan of Liquidation as described in Note 4. There is inherent uncertainty with these projections, and they could change materially based on the timing and amount of the sales, the performance of the underlying assets and any changes in the underlying assumptions of the projected cash flows.
Note 6. Investments
Real Estate Investments
As of December 31, 2019, the Company’s net investment in real estate totaled approximately $37.5 million, representing investments in 11 owned properties.
Owned Properties
During the twelve months ended December 31, 2019 and December 31, 2020, the Company had the following owned real estate activity (dollars in thousands):
For the eight months ended August 31, 2019
Total Properties
Dollar Amount
of Investments
(prior to liquidation basis)
Gross balance, December 31, 2018
$ 2,531,248
Acquisitions/improvements
-
5,891
Dispositions of real estate (1)(2)
(100 )
(199,560 )
Impairments
-
(38,655 )
Write-off of intangibles
-
(48,112 )
Gross balance, August 31, 2019
$ 2,250,812
Accumulated depreciation
(455,995 )
Accumulated amortization
(58,413 )
Other non-real estate assets held for sale
Net balance, August 31, 2019
$ 1,736,447
For the four months ended December 31, 2019
(post liquidation basis)
Net balance, September 1, 2019
$ 1,736,447
Net Adjustments to Realizable Value
-
678,725
Net Dispositions
(765 )
(2,377,722 )
Net balance, December 31, 2019
$ 37,450
(1) For the eight months ended August 31, 2019, the net gains on the disposal of total properties was $1.7 million.
(2) Includes 83 properties with a real estate investment of $167.6 million that were transferred to the lender under the Shopko CMBS Loan Agreement.
For the year ended December 31, 2020
Total Properties
Dollar Amount
of Investments
Net balance, January 1, 2020
$ 37,450
Net Adjustments to Realizable Value
-
(1,415 )
Net Dispositions
(8 )
(21,035 )
Net balance, December 31, 2020
$ 15,000
As of December 31, 2019 and December 31, 2020, all remaining assets are considered held for sale under liquidation basis of accounting.
Operating Leases
As of August 31, 2019, the Company held 771 properties under operating leases. The following table summarizes the components of rental income recognized on these operating leases in the accompanying consolidated statements of operations (in thousands) for 2019.
Eight Months
Ended August 31,
Base cash rent
$ 127,663
Variable cash rent (including reimbursables)
3,590
Straight-line rent, net of bad debt expense (1)
1,546
Amortization of lease intangibles (2)
Total rental income
$ 132,812
(1) As a result of the Company’s adoption of ASU 2016-02 on January 1, 2019, the Company reclassified bad debt expense to rental income on a prospective basis. See Note 3 for additional detail.
(2) Excludes amortization of in-place leases of $5.8 million for the eight months ended August 31, 2019, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations and comprehensive income (loss).
Loans Receivable
During the twelve months ended December 31, 2019, the Company had the following loan activity (dollars in thousands):
For the eight months ended August 31, 2019
Mortgage Loans
Other
Notes
Total
Investment
(prior to liquidation basis)
Properties
Investment
Investment
Principal, December 31, 2018
$ 30,778
$ 34,416
$ 65,194
Acquisitions
-
-
-
-
Dispositions
-
-
-
-
Principal payments and payoffs
-
-
(34,416 )
(34,416 )
Write-off of principal balance
(2 )
(2,888 )
-
(2,888 )
Principal, August 31, 2019
$ 27,890
$ -
$ 27,890
For the four months ended December 31, 2019
(post liquidation basis)
Principal, September 1, 2019
$ 27,890
$ -
$ 27,890
Principal payments and payoffs
(6 )
(27,890 )
-
(27,890 )
Principal, December 31, 2019
-
$ -
$ -
$ -
The mortgage loans were secured by single-tenant commercial properties and generally had fixed interest rates over the term of the loans. Other notes consisted of the Shopko B-1 Term Loan. A loan was placed on non-accrual status when the loan had become 60 days past due, or earlier if management determined that full recovery of the contractually specified payments of principal and interest was doubtful. While on non-accrual status, interest income was recognized only when received. In connection with Shopko’s bankruptcy filing in January 2019, Shopko filed pleadings asserting that any recovery under the Shopko B-1 Term Loan will be limited and may be impaired in full. Therefore, the Company recorded a full allowance for the Shopko B-1 Term Loan and placed the loan on non-accrual status as of December 31, 2018. The Company recovered the full principal balance owed during the eight months ended August 31, 2019. During the eight months ended August 31, 2019, the Company recorded interest income on loans receivable of $2.5 million on the B-1 Term Loan. There were no loans receivable outstanding in 2020.
Impairments
The following table summarizes total impairment (recoveries) recognized on the accompanying consolidated statements of operations and comprehensive income (loss) (in thousands) in 2019.
Eight Months
Ended
August 31,
Real estate and intangible asset impairment
$ 38,655
(Recoveries) provision for loan losses
(33,786 )
Goodwill impairment and other
-
Impairment, net of recoveries for loan losses
$ 4,869
Note 7. Debt
Master Trust 2014
The Company had access to an asset-backed securitization platform, Master Trust 2014, to raise capital through the issuance of non-recourse, asset-back securities collateralized by commercial real estate, net-leases and mortgage loans. Master Trust 2014 had five bankruptcy-remote, special purpose entities as issuers or co-issuers of the notes. In December 2017, the existing issuers under Master Trust 2014, completed the issuance of $674.4 million aggregate principal amount of Series 2017-1 net-lease mortgage notes comprised of $542.4 million of 4.36%, Class A, amortizing notes and $132.0 million of 6.35%, Class B, interest only notes. In conjunction with the issuance, the Company pre-paid the Series 2014-1 Class A1 notes, resulting in a loss on debt extinguishment of approximately $2.2 million primarily related to the pre-payment premium. On November 1, 2018, SMTA closed on variable funding notes within Master Trust 2014 with up to $50.0 million in borrowing capacity. During the year ended December 31, 2018, the Company extinguished $6.3 million of Master Trust 2014 debt as a result of unscheduled principal pre-payments, resulting in approximately $0.4 million in losses on debt extinguishment attributable to the pre-payment premiums paid. As of December 31, 2018, the notes had an outstanding principal balance of $1.94 billion, unamortized debt discount of $21.2 million and unamortized deferred financing costs of $14.9 million. During the eight months ended August 31, 2019, pre-payments of principal of $3.0 million were made, resulting in a loss on debt extinguishment of $0.1 million due to pre-payment premiums. On September 20, 2019, the Company completed the sale of the entities that comprise Master Trust 2014 to SVC, which included 769 owned and financed properties. Upon closing the Master Trust 2014 Sale, all of the outstanding classes and series of the notes issued under the Master Trust 2014 were repaid in full, and the related pre-payment premium of $82 million was paid by SVC.
CMBS
Academy CMBS
On January 22, 2018, the Company entered into a non-recourse loan agreement, which was collateralized by a single distribution center property located in Katy, Texas leased to Academy Sports + Outdoors. As a result of the issuance, the Company received approximately $84.0 million in proceeds, which were distributed to Spirit. As of December 31, 2018, the loan had an outstanding principal balance of $83.0 million and unamortized deferred financing costs of $1.1 million. On September 27, 2019, the Company sold the distribution center, and the outstanding CMBS debt and restricted cash associated with the property was assumed by the buyer.
Shopko CMBS
On November 1, 2018, SMTA, through four indirectly wholly-owned, property-owning subsidiaries, entered into a $165.0 million non-recourse mortgage loan agreement and, on November 27, 2018, $40.0 million of the loan was carved out into a separate mezzanine loan agreement. These Shopko CMBS Loan Agreements were secured by the equity of the entity that owned the four property-owning subsidiaries, which collectively held 85 assets (83 owned properties and two seller-financed notes on properties) that were leased to Shopko. As of December 31, 2018, the loans had an outstanding principal balance of $157.4 million, unamortized deferred financing costs of $5.9 million and a remaining maturity of 0.9 years.
On January 16, 2019, the Company’s indirect wholly-owned subsidiaries as borrowers under the Shopko CMBS Loan Agreements defaulted on the loans when those entities ceased to make interest payments as a result of Shopko ceasing to pay its rent obligations following its bankruptcy filing. Upon the default, the full balance of principal outstanding under the loans immediately became due and payable and interest began accruing at the default rate of LIBOR plus 12.50% on the $125.0 million portion and LIBOR plus 18.00% on the $40.0 million mezzanine portion. On March 1, 2019, the Shopko Lenders foreclosed on the equity of the entity that owned the four property-owning subsidiaries. As a result of the foreclosure, the Company recognized a loss on debt extinguishment of $21.3 million during the eight months ended August 31, 2019. The components of the loss on debt extinguishment were $161.3 million of net investments and $21.2 million of restricted cash foreclosed, offset by $155.9 million of net debt and $5.3 million of accrued payables relieved.
Interest Expense
The following table is a summary of the components of interest expense related to the Company’s borrowings (in thousands):
Eight Months
Ended August 31,
Interest expense
$ 69,969
Non-cash interest expense:
Amortization of deferred financing costs
3,692
Amortization of debt discount
4,593
Total interest expense
$ 78,254
Note 8. Shareholders’ Equity and Redeemable Preferred Equity
The Company’s declaration of trust authorized it to issue 750,000,000 common shares of beneficial interest, $0.01 par value per share, and 20,000,000 preferred shares of beneficial interest, $0.01 par value per share. The board of trustees had the power, without shareholder approval, to increase or decrease the number of common shares the Company is authorized to issue. The Company became a Liquidating Trust on January 1, 2020 and the Company’s declaration of trust was no longer in effect.
Common Shares
SMTA was originally capitalized on November 17, 2017 with the issuance of 10,000 common shares of beneficial interest ($0.01 par value per share) for a total of $10,000.
On May 31, 2018, the distribution date, Spirit completed the Spin-Off of SMTA. On the distribution date, Spirit distributed on a pro rata basis one SMTA common share for every ten shares of Spirit common stock held by each of Spirit’s stockholders as of May 18, 2018, which was the record date. As a result, 42,851,010 SMTA common shares were issued on May 31, 2018.
On January 1, 2020, all of the outstanding common shares of SMTA were cancelled and are no longer outstanding. Also on January 1, 2020 each shareholder received one Trust Unit for each common share of SMTA then held of record by such shareholder. See Note 1 for further discussion.
SMTA Preferred Shares
In conjunction with the Spin-Off, SMTA issued to the Manager and one of its affiliates, also a wholly-owned subsidiary of Spirit, 6.0 million Series A preferred shares with an aggregate liquidation preference of $150.0 million (the “SMTA Preferred Shares”). Redemption value of the SMTA Preferred Shares is equal to the liquidation preference plus any accrued and unpaid dividends and redemption is under the control of SMTA unless a change of control event occurs, as defined in the SMTA Preferred Shares agreements. Therefore, as redemption may occur outside the control of SMTA, the SMTA Preferred Shares are classified as temporary equity.
The SMTA Preferred Shares pay cash dividends at the rate of 10.0% per annum on the liquidation preference of $25.00 per share (equivalent to $0.625 per share on a quarterly basis and $2.50 per share on an annual basis). In September 2019, all 6.0 million shares of 10.0% SMTA Preferred Shares were repurchased for the full liquidation preference of $150.0 million.
SubREIT Preferred Shares
Prior to the Spin-Off, in exchange for property, SubREIT issued to the Manager 5,000 shares of Series A preferred shares with an aggregate liquidation preference of $5.0 million (the “SubREIT Preferred Shares”). The Series A SubREIT Preferred Shares pay cash dividends at the rate of 18.0% per annum on the liquidation preference of $1,000.00 per share (equivalent to $45.00 per share on a quarterly basis and $180.00 per share on an annual basis). On December 19, 2018, SubREIT issued 125 Shares of Series B SubREIT Preferred Shares with an aggregate liquidation preference of $125 thousand. Series B SubREIT Preferred Shares pay cash dividends at the rate of 12.0% per annum on the liquidation preference of $1,000.00 per share (equivalent to $30.00 per share on a quarterly basis and $120.00 per share on an annual basis).
Redemption value of the SubREIT Preferred Shares is equal to the liquidation preference plus any accrued and unpaid dividends and redemption is under the control of SubREIT unless a change of control event occurs, as defined in the SubREIT Preferred Shares agreements. Therefore, as redemption may occur outside the control of SubREIT, the SubREIT Preferred Shares are classified as temporary equity. In conjunction with the Spin-Off, the Manager sold the SubREIT Preferred Shares to a third-party. On September 30, 2019, SMTA caused the funding for all the Series B SubREIT Preferred Shares to be redeemed by SMTA at their full liquidation preference of $125 thousand, plus $16 thousand for pre-payment penalties and accrued but unpaid dividends, which was effective on October 1, 2019. In October 2019, all Series A SubREIT Preferred Shares were redeemed by SMTA at their full liquidation preference, plus a pre-payment premium and accrued but unpaid dividends.
Dividends Declared
During the year ended December 31, 2019, the Company’s board of trustees declared the following dividends for SMTA Preferred Shares and SMTA common shares, and SubREIT’s Board of Directors declared the following dividends for SubREIT Preferred Shares:
Declaration Date
Dividend
Per Share
Record Date
Total Amount
(in
Thousands)
Payment Date
Preferred Shares
SMTA Preferred Shares
March 5, 2019
$ 0.625
March 15, 2019
$ 3,750
March 29, 2019
SubREIT Series A Preferred Shares
February 28, 2019
$ 45.000
March 15, 2019
$
March 29, 2019
SMTA Preferred Shares
May 1, 2019
$ 0.625
June 14, 2019
$ 3,750
June 28, 2019
SubREIT Series A Preferred Shares
May 23, 2019
$ 45.000
June 14, 2019
$
June 28, 2019
SubREIT Series B Preferred Shares
May 29, 2019
$ 64.000
June 14, 2019
$
June 28, 2019
SMTA Preferred Shares
July 1, 2019
$ 0.625
September 13, 2019
$ 3,750
September 20, 2019
SubREIT Series B Preferred Shares
September 30, 2019
$ 30.330
September 30, 2019
$
September 30, 2019
SubREIT Series A Preferred Shares
August 1, 2019
$ 45.000
September 13, 2019
$
October 1, 2019
Common Shares
SMTA Common Shares
March 5, 2019
$ 0.330
March 29, 2019
$ 14,218
April 15, 2019
SMTA Common Shares
May 1, 2019
$ 0.330
June 28, 2019
$ 14,243
July 15, 2019
SMTA Common Shares
October 3, 2019
$ 8.000
October 14, 2019
$ 345,424
October 23, 2019
Note 9. Commitments and Contingencies
The Company is periodically subject to claims or litigation in the ordinary course of business, including claims generated from business conducted by tenants on real estate owned by the Company. In these instances, the Company is typically indemnified by the tenant against any losses that might be suffered, and the Company and/or the tenant are insured against such claims.
On March 4, 2019, SMTA received a demand notice from the Shopko Lenders seeking repayment of the loans under the Shopko CMBS Loan Agreements pursuant to SMTA’s guaranty of the loans in which the Shopko Lenders allege, among other things, fraud and intentional misrepresentations by the borrowers. While SMTA believes the allegations were without merit, on July 29, 2019, SMTA resolved the dispute with the Shopko Lenders and reached a confidential settlement. The Company has recorded the cost of the settlement in Shopko-related expenses in the consolidated statements of operations and comprehensive income (loss) for the eight months ended August 31, 2019.
The Company was a lessee under five long-term, non-cancelable ground leases under which it is obligated to pay monthly rent as of December 31, 2018. Total rental expense included in property costs (including reimbursable) amounted to $0.3 million for the eight months ended August 31, 2019. Certain of the ground lease rental expenses were reimbursed by unrelated third parties, and the corresponding rental revenue was recorded in rentals on the accompanying consolidated statements of operations and comprehensive income (loss). Four of these ground leases were included in the foreclosure of the Shopko entities and the remaining obligation transferred. The remaining ground lease obligation was included in the Master Trust 2014 Collateral Pool and sold on September 20, 2019.
As of December 31, 2020, there were no outstanding claims against the Company that are expected to have a material adverse effect on the Company’s financial position.
As of December 31, 2020, the Company had no outstanding commitments to fund improvements or construction on properties the Company currently owns, nor any commitments to acquire new properties.
The Company estimates future costs for known environmental remediation requirements when it is probable that the Company has incurred a liability and the related costs can be reasonably estimated. The Company considers various factors when estimating its environmental liabilities, and adjustments are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues. When only a wide range of estimated amounts can be reasonably established and no other amount within the range is better than another, the low end of the range is recorded in the consolidated financial statements. As of December 31, 2020, no accruals have been made.
Note 10. Segments
Prior to the completion of the Master Trust 2014 Sale in September 2019, management viewed the operations of the Company as two separate segments-Master Trust 2014 and Other Properties-and made operating decisions based on these two reportable segments. Subsequent to the adoption of the Plan of Liquidation, the Company no longer makes operating decisions or assesses performance in separate segments as all remaining assets and liabilities are held for sale.
Master Trust 2014 was an asset-backed securitization platform, see Note 7, with specific criteria for operating the Collateral Pool, including restrictions on use of Release Account cash, concentration thresholds which could not be exceeded, and a minimum debt service coverage ratio which had to be met. On September 20, 2019, the Company completed the Master Trust 2014 Sale. Accordingly, as of December 31, 2019, all remaining assets and liabilities are related to the Other Properties segment.
For periods prior to the completion of the Master Trust 2014 Sale, segment results are comprised of revenues, property management and servicing fees, property costs, depreciation and amortization, impairments, and interest expense. General and administrative expenses, asset management fees under the Asset Management Agreement, transaction costs, and income taxes are not allocated to individual segments for purposes of assessing segment performance.
The performance of the reportable segments prior to the Master Trust 2014 Sale was not comparable with the Company’s consolidated results, nor necessarily comparable with similar information for any other REITs. Additionally, because of the interrelationship of the segments prior to the Master Trust 2014 Sale, the information presented is not indicative of how the segments would perform if they operated as independent entities.
Segment results for the eight months ended August 31, 2019 are as follows (in thousands):
Eight Months Ended August 31, 2019
Master Trust 2014
Other Properties
Total
Segment Results:
Rental income
$ 118,204
$ 14,608
$ 132,812
Interest income on loans receivable
2,490
2,669
Other income
1,967
2,916
Property Management and Servicing Fees (1)
(5,070 )
-
(5,070 )
Property expenses (including reimbursable)
(3,541 )
(1,346 )
(4,887 )
Depreciation and amortization
(42,386 )
(4,992 )
(47,378 )
Impairments, net of recoveries for loan losses
(5,959 )
1,090
(4,869 )
Interest expense
(70,628 )
(7,626 )
(78,254 )
Loss on debt extinguishment
(144 )
(21,267 )
(21,411 )
Gain on disposition of assets
1,626
1,740
Segment loss
$ (6,770 )
$ (14,962 )
$ (21,732 )
Non-allocated expenses
(35,029 )
Loss before income tax expense
$ (56,761 )
(1) Property Management and Servicing Fees are included in related party fees in the consolidated statements of operations and comprehensive income (loss). Asset Management Fees, the other component of related party fees, are included in non-allocated expenses.
Dispositions by reportable segment are as follows (dollars in thousands):
Year Ended December 31, 2019
Properties
Gross
Proceeds
Master Trust 2014 (1)
$ 2,416,445
Other Properties (2)
112,805
Total
$ 2,529,250
(1) Includes 769 owned and financed properties disposed on September 20, 2019 in the Master Trust 2014 Sale. See Note 7 for further discussion.
(2) Includes 83 properties disposed during the year ended December 31, 2019, which relieved Shopko CMBS debt in lieu of generating cash proceeds. See Note 7 for further discussion.
(3) Excludes three properties transferred to Spirit prior to the Spin-Off, see Note 13.
Note 11. 2018 Incentive Award Plan
Restricted Common Shares
During the year ended December 31, 2019, the Company granted approximately 164 thousand restricted shares under the 2018 Incentive Award Plan to the principal executive officer of the Company and members of the board of trustees. Prior to the shareholder approval of the Master Trust 2014 Sale and Plan of Liquidation, the Company had 145 thousand unvested restricted shares outstanding. These outstanding restricted shares vested in connection with the aforementioned shareholder meeting and approval, and there were no outstanding restricted shares as of December 31, 2019.
The following table summarizes restricted share activity under the 2018 Incentive Award Plan:
Number of
Shares
Weighted
Average Price
(1)
(per share)
Outstanding non-vested shares, beginning of year
149,852
$ 11.04
Shares granted
163,693
7.33
Shares vested
(313,545 )
9.10
Shares forfeited
-
-
Outstanding non-vested shares, end of year
-
$ -
(1) Based on grant date fair values.
Market-Based Awards
During the year ended December 31, 2019, the Company granted approximately 32 thousand shares under market-based awards to the principal executive officer of the Company. The performance period of these grants runs through December 31, 2021. Awards vest in three annual tranches beginning December 31, 2019 and ending December 31, 2021. Potential common shares that the participant is eligible to receive is based on performance goals related to total shareholder return achieved by the Company during the performance period. During the year ended December 31, 2019, the market-based awards were accelerated in conjunction with shareholder approval of the Master Trust 2014 Sale and were earned at 200% of the target amount, which resulted in 64 thousand market-based awards issued. The Company had no outstanding market-based awards as of December 31, 2019.
Share-based Compensation Expense
For the eight months ended August 31, 2019, the Company recognized $1.4 million in stock-based compensation expense from restricted share and market-based awards. Of this amount, $0.9 million related to restricted shares awarded to members of the board of trustees and is included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss). The remaining $0.5 million related to restricted shares and market-based awards granted to the principal executive officer of the Company, an employee of the Manager. This expense is considered a component of the Company’s management fees under the Asset Management Agreement and is included in related party fees in the accompanying consolidated statements of operations and comprehensive income (loss).
As of December 31, 2020 and 2019, the Company had no remaining unamortized share-based compensation expense as all restricted share awards and market-based awards had vested and paid out.
Note 12. Loss Per Share
Loss per share has been computed using the two-class method, which is computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and any participating securities based on the weighted average shares outstanding during the period. Under the two-class method, any earnings attributable to unvested restricted shares are deducted from loss from continuing operations in the computation of net loss attributable to common shareholders.
The table below is a reconciliation of the numerator and denominator used in the computation of basic and diluted net loss per share computed using the two-class method (dollars in thousands):
Eight Months
Ended
August 31,
Basic and diluted (loss) income:
Net (loss) income and total comprehensive (loss) income
$ (56,847 )
Less: dividends paid to preferred shareholders
(10,611 )
Less: dividends declared on unvested restricted shares
(120 )
Net (loss) income attributable to common shareholders used in basic and diluted (loss) income per share
$ (67,578 )
Basic weighted average common shares outstanding:
Weighted average common shares outstanding
43,112,164
Less: Unvested weighted average restricted shares
(173,387 )
Weighted average common shares outstanding used in basic
(loss) income per share
42,938,777
Net (loss) income per share attributable to common shareholders
$ (1.57 )
Dilutive weighted average common shares:
Weighted average common shares outstanding used in diluted
(loss) income per share
42,938,777
Net (loss) income per share attributable to common shareholders - diluted
$ (1.57 )
Total potentially dilutive common shares (1)
107,115
(1) For the eight months ended August 31, 2019, potential dilutive shares consisted of unvested restricted shares and market-based awards. For the year ended December 31, 2018, there were no adjustments to the weighted average number of common shares outstanding used in the diluted calculation given there were no potentially dilutive shares.
Note 13. Related Party Transactions
Cost Sharing Arrangements
In conjunction with the Spin-Off, the Company entered into certain agreements, including the Separation and Distribution Agreement, Tax Matters Agreement, Registration Rights Agreement and Insurance Sharing Agreement. These agreements provide a framework for the relationship between the Company and Spirit after the Spin-Off, by which Spirit may incur certain expenses on behalf of the Company that the Company must reimburse in a timely manner. These agreements, except for the Tax Matters Agreement, were terminated in conjunction with the termination of the Asset Management Agreement. At December 31, 2019, the Company had immaterial accrued payable and accrued receivable balances in connection with these arrangements.
Asset Management Agreement
In conjunction with the Spin-Off, the Company entered into the Asset Management Agreement pursuant to which the Manager provided various services subject to the supervision of SMTA’s board of trustees, including, but not limited to: (i) performing all of SMTA’s day-to-day functions, (ii) sourcing, analyzing and executing on investments and dispositions, (iii) determining investment criteria, (iv) performing investment and liability management duties, including financing and hedging, and (v) performing financial and accounting management. As compensation for these services, the Manager was entitled to a management fee of $20 million per annum, payable monthly in arrears. Under certain circumstances, the Manager was also entitled to a promoted interest fee based on the total shareholder return of SMTA’s common shares during the relevant period, as well as a termination fee. On June 2, 2019, concurrently with the execution of the agreement for the Master Trust 2014 Sale, the Company entered into a termination agreement of the Asset Management Agreement, which became effective on September 20, 2019. Pursuant to the termination agreement, the Company paid the Manager a termination fee of $48.2 million and the Manager waived its right to receive any promoted interest fee as otherwise provided for under the Asset Management Agreement, resulting in a net reversal of $0.8 million in promoted interest expense for the eight months ended August 31, 2019. The Manager also waived its rights to receive management fees for a 180-day notice period and subsequent eight-month transition services period provided for in the Asset Management Agreement. On June 2, 2019, the Company and the Manager also entered into an Interim Management Agreement, which became effective September 20, 2019, which provides that the Manager is entitled to an annual management fee of $1 million for the initial one-year thereof, plus certain cost reimbursements. The Interim Management Agreement was terminable at any time by the Company and, upon a six month notice period, at any time after March 18, 2020 by the Manager, in each case without payment of a termination fee. On March 18, 2020, the Manager notified the Liquidating Trust that it intended to terminate the Interim Asset Management Agreement on September 14, 2020. Asset management fees of $13.3 million were incurred during the eight months ended August 31, 2019, which are included in related party fees in the consolidated statements of operations and comprehensive income (loss). Additionally, under the terms of the Asset
Management Agreement, the Company recognized related party fees of $0.5 million for stock compensation awarded by SMTA to its principal executive officer for the eight months ended August 31, 2019. At December 31, 2019, asset management fees of $0.1 million are included in accounts payable and $0.9 million are included in the liability for estimated expense in excess of estimated receipts during liquidation in the accompanying statement of net assets. During the fiscal year ended December 31, 2020, $0.7 million of this amount was paid and $0.2 million was reduced in a remeasurement upon the termination of the Interim Management Agreement on September 4, 2020. Walker, Truesdell, Roth & Associates, Inc. became the manager effective September 4, 2020. See Note 1 for more information.
Property Management and Servicing Agreement
The Manager provided property management services and special services for Master Trust 2014 under the terms of the Property Management and Servicing Agreement dated May 20, 2014. The property management fees accrued daily at 0.25% per annum of the collateral value of the Master Trust 2014 Collateral Pool other than specially serviced assets, which accrued daily at 0.75% per annum. Property management fees of $4.0 million were incurred during the eight months ended August 31, 2019. Additionally, special servicing fees of $1.1 million were incurred during the eight months ended August 31, 2019. The property management fees and special servicing fees are included in related party fees in the consolidated statements of operations and comprehensive income (loss). In conjunction with the Master Trust 2014 Sale, the notes were satisfied and discharged on September 20, 2019 and the Property Management and Servicing Agreement was terminated.
Related Party Loans Receivable
Prior to September 20, 2019, the Company had four mortgage loans receivable where wholly-owned subsidiaries of Spirit were the borrower, and the loans were secured by six single-tenant commercial properties. These mortgage loans, which had a weighted average stated interest rate of 1.00%, were entered into by entities under common control of Spirit in conjunction with the issuance of the Series 2014 notes of Master Trust 2014 because the underlying properties did not qualify to be held directly as collateral by Master Trust 2014 under its governing agreements. The mortgage notes generated $0.2 million of interest income for the eight months ended August 31, 2019, which is included in interest income on loans receivable in the consolidated statements of operations and comprehensive income (loss). In conjunction with the Master Trust 2014 Sale, the remaining balance of the related party loans payable was repaid to the Company in full.
Related Party Notes Payable
In conjunction with the Series 2017-1 notes issuance completed in December 2017, a subsidiary of Spirit, as sponsor of the issuance, retained a 5% economic interest in the Master Trust 2014 Series 2017-1 notes as required by the risk retention rules issued under 17 CFR Part 246. Interest expense on the consolidated statements of operations and comprehensive income (loss) includes $1.1 million for the eight months ended August 31, 2019. In conjunction with the Master Trust 2014 Sale, the outstanding principal balance of $33.5 million was paid in full, plus an early repayment premium of $0.9 million was paid by SVC to the Manager in relation to these notes.
Related Party Transfers and Acquisitions
There were no related party transfers during the years ended December 31, 2020 and 2019.
Note 14. Engagement Letter with WTR
The Engagement Agreement with WTR provides that WTR receive a fee of $25,000 per month for each of the first three months to act as manager of the Liquidating Trust and $20,000 per month thereafter, with certain services being charged on an hourly rate to be paid in addition to the $20,000 base monthly payment. The Liquidating Trustees and WTR subsequently agreed that the Liquidating Trust would pay a flat fee of $25,000 per month after the first three months in lieu of having WTR charge hourly for certain other services. The Engagement Agreement may be terminated by WTR or the Liquidating Trust on 30 days’ written notice.
Under the terms of the Engagement Agreement, WTR has responsibility for our day-to-day affairs, administers our accounting and bookkeeping functions, serves as a consultant in connection with policy decisions to be made by the Liquidating Trustees, manages our remaining properties and renders other services deemed appropriate by the Liquidating Trustees. We do not have any employees. The individuals who perform services under the Engagement Agreement are employees of, or consultants retained by, WTR or its affiliates. This description of our Engagement Agreement is qualified in its entirety by the text of the Engagement Agreement, which has been included as an exhibit to this Annual Report.
PART III

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Liquidating Trustees, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15(b) and 15d-15(b) of the Act, an evaluation as of December 31, 2020, was conducted under the supervision and with the participation of our Liquidating Trustees of the effectiveness of SMTA’s disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Act). Based on this evaluation, the Liquidating Trustees concluded that SMTA’s disclosure controls and procedures as of December 31, 2020 were effective for the purpose stated above.
Management’s Report on Internal Control Over Financial Reporting
The Liquidating Trustees are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 14d-15(f) under the Act. Based on the evaluation of the Liquidating Trustees, the Liquidating Trustees concluded that SMTA’s internal control over financial reporting was effective as of December 31, 2020.
Changes in Internal Control Over Financial Reporting
There were no changes in the Liquidating Trust’s internal control over financial reporting that occurred in the year ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, the Liquidating Trust’s internal control over financial reporting.
The Liquidating Trustees’ assessment of the effectiveness of our internal controls over financial reporting was not audited. The Liquidating Trustees’ report is not subject to attestation pursuant to the rules of the SEC.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
Not applicable.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Trustees, Executive Officers and Corporate Governance
Corporate Governance
WTR manages the day-to-day affairs of the Liquidating Trust and the liquidation of the assets of the Liquidating Trust, at all times subject to the supervision of the Liquidating Trustees. The Liquidating Trustees have the power and authority to perform any and all acts necessary or desirable to accomplish the purposes of the Liquidating Trust, including the power to contract with third parties to assist with the management of our operations.
The following biographical description sets forth information with respect to our Liquidating Trustees as of March 15, 2021, each of whom was a trustee of the Liquidating Trust during 2020.
Name
Age
Position
Steven G. Panagos
Liquidating Trustee
Steven H. Shepsman
Liquidating Trustee
Richard J. Stockton
Liquidating Trustee
Thomas J. Sullivan
Liquidating Trustee
Steven G. Panagos, 59, has served as a Liquidating Trustee of the Liquidating Trust since the Liquidating Trust’s establishment on January 1, 2020. Mr. Panagos served on the board of trustees of SMTA, and as Chair of its Nominating and Corporate Governance Committee and as a member of its Compensation Committee, from May 2018 until SMTA’s dissolution on January 1, 2020 in connection with the establishment of the Liquidating Trust. Mr. Panagos also serves as a board member and Plan Administrator for Old Copper Company, Inc., f/k/a JC Penney Company, Inc. In addition, Mr. Panagos serves on the board of Tops Markets and has formerly served on the boards and special committees for numerous companies going through sale or restructuring transactions. Mr. Panagos previously served as Managing Director and Vice Chairman of the Recapitalization & Restructuring Group at Moelis & Company until his retirement in July 2019. Mr. Panagos has a long and distinguished career of leading complex bankruptcies and reorganizations for both companies and their creditors across a broad spectrum of industries. Mr. Panagos has restructured more than $100 billion worth of debt across more than 80 situations and has provided expert testimony regarding valuation and restructuring matters. Prior to joining Moelis & Company, Mr. Panagos was the National Practice Leader of Kroll Zolfo Cooper’s Corporate Advisory & Restructuring Practice where, among other roles, served as interim chief executive officer and chief restructuring officer of Penn Traffic Supermarkets (2003-2004); president and chief operating officer of Krispy Kreme Doughnuts (2005-2006) and chief restructuring officer and member of the special committee of the board of directors of Metromedia Fiber Network (2002-2003). Mr. Panagos received a Bachelor of Science degree in Accounting and Finance from the University of Michigan. He was formerly a certified public accountant. Mr. Panagos was selected to serve as a trustee on the board of trustees of SMTA and asked to continue to serve as a Liquidating Trustee, based on his extensive experience with restructurings and his other qualifications and skills.
Steven H. Shepsman, 68, has served as a Liquidating Trustee of the Liquidating Trust since the Liquidating Trust’s establishment on January 1, 2020. Mr. Shepsman served on the board of trustees of SMTA, and as Chair of its Audit Committee and as a member of its Nominating and Corporate Governance Committee, from May 2018 until SMTA’s dissolution on January 1, 2020 in connection with the establishment of the Liquidating Trust. Mr. Shepsman has been an executive managing director of New World Realty Advisors, a real estate investment and advisory firm specializing in real estate restructurings, development and finance, since its inception in 2009. Amongst his other assignments, Mr. Shepsman served as chair of the Official Committee of Equity Holders in the Chapter 11 bankruptcy proceedings of General Growth Properties, Inc. Previously, as a principal at the manager of a real estate fund, Mr. Shepsman had oversight responsibility for the fund’s due diligence and acquisition of investment platforms and subsequent asset acquisitions, financings and dispositions. Mr. Shepsman currently serves as a member of the board of directors of the Howard Hughes Corporation and as chairperson of the audit committee and as a member of the nominating and corporate governance committee and risk committee. Earlier in his career, Mr. Shepsman, a certified public accountant, was a managing partner of Kenneth Leventhal and Company and of Ernst & Young LLP’s Real Estate Practice. Mr. Shepsman is a trustee of The University of Buffalo Foundation and a member of the Dean’s Advisory Council for its School of Management. Mr. Shepsman received a Bachelor of Science degree in Management from the University of Buffalo. Mr. Shepsman was selected to serve as a trustee on the board of trustees of SMTA, and asked to continue to serve as a Liquidating Trustee, based on his extensive professional accounting and financial experience and expertise, including in the real estate industry, which enable him to provide key contributions to the board of trustees on financial, accounting, corporate governance and strategic matters.
Richard J. Stockton, 50, has served as a Liquidating Trustee of the Liquidating Trust since the Liquidating Trust’s establishment on January 1, 2020. Mr. Stockton served on the board of trustees of SMTA, and as its lead independent trustee, and as a member of its Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, from May 2018 until SMTA’s dissolution on January 1, 2020 in connection with the establishment of the Liquidating Trust. Mr. Stockton has served as Chief Executive Officer of Braemar Hotels & Resorts(formally Ashford Hospitality Prime) since November 2016 and as President since April 2017. Mr. Stockton spent over 15 years at Morgan Stanley in real estate investment banking where he rose from associate to managing director and regional group head. At Morgan Stanley, he was head of EMEA Real Estate Banking in London, executing business across Europe, the Middle East and Africa. He was also appointed co-head of the Asia Pacific Real Estate Banking Group, where he was responsible for a team across Hong Kong, Singapore, Sydney and Mumbai. He left Morgan Stanley in 2013 to become president and chief executive officer-Americas for OUE Limited, a publicly
listed Singaporean property company with over $5 billion in assets. Most recently, Mr. Stockton served as global chief operating officer for Real Estate at Carval Investors, a subsidiary of Cargill with approximately $1 billion in real estate investments in the United States, Canada, United Kingdom and France. Mr. Stockton received a Bachelor of Science degree from the School of Hotel Administration at Cornell University and a Masters in Business Administration in Finance and Real Estate from The Wharton School at the University of Pennsylvania. Mr. Stockton was selected to serve as a trustee on the board of trustees of SMTA, and was asked to continue to serve as a Liquidating Trustee, based on his extensive experience in the real estate industry and his other qualifications and skills.
Thomas J. Sullivan, 58, has served as a Liquidating Trustee of the Liquidating Trust since the Liquidating Trust’s establishment on January 1, 2010. Mr. Sullivan served on the board of trustees of SMTA, and as Chair of its Compensation Committee and as a member of its Audit Governance Committee from May 2018 until SMTA’s dissolution on January 1, 2020 in connection with the establishment of the Liquidating Trust. Mr. Sullivan has served as a partner with Standard General L.P., a New York-based investment firm that manages event-driven opportunity funds, since June 2016 where he is responsible for portfolio management of Standard General’s SG Special Situations Fund L.P. Mr. Sullivan has also served as the chairman of the board of directors of NewHold Investment Corp., a special purpose acquisition company, since September 2020. Prior to joining Standard General L.P., Mr. Sullivan was the managing partner of Smallwood Partners, LLC, a financial advisory services firm (2009-2015) and a managing director of Investcorp International, Inc., a global middle market private equity firm (1996-2008). He has served on numerous boards and committees over the prior twenty years. Most recently, Mr. Sullivan served as a member of the board of directors, including as a member of the audit committee, finance committee and budget advisory committee, of Media General Inc. from November 2013 to February 2017. Additionally, Mr. Sullivan served as a member of the board of directors, lead director of the suitability committee and chairperson of the nominating and governance committee of American Apparel Inc. from August 2014 to March 2016. Mr. Sullivan has been nominated for election to the board of directors of Spirit Realty, Inc., an affiliate of the Initial Manager, and the shareholder vote for the election of Mr. Sullivan to the board of directors is expected to take place at the next annual shareholder meeting for Spirit Realty, Inc. Mr. Sullivan received a Bachelor of Business Studies from Villanova University. Mr. Sullivan was selected to serve as a trustee on the board of trustees of SMTA and was asked to continue to serve as a Liquidating Trustee, based on his extensive operating and financial management experience, including in the financial services industry.
Liquidating Trustees Leadership Structure and Roles
The Liquidating Trust Agreement vests in the Liquidating Trustees the authority to manage the Liquidating Trust. Any of the Liquidating Trustees, individually or acting together, may:
•
call meetings of the Liquidating Trustees;
•
set, and approve, the agenda and schedules of the meetings in consultation with WTR;
•
engage with Trust Unit holders; and
•
preside over all meetings of the Liquidating Trustees.
In the event of any disagreement among the Liquidating Trustees as to whether or not any action should be taken, the decision of a majority of the Liquidating Trustees shall prevail.
2020 Meetings Attendance of the Board of Trustees
The Liquidating Trustees held a total of 27 meetings in 2020. Evidencing a strong commitment to the Liquidating Trust, the Liquidating Trustees collectively attended 96% of the Liquidating Trust board meetings held during 2020.
How to Communicate with the Liquidating Trustees
Liquidating Trust unitholders and other parties interested in communicating directly with us on any Liquidating Trust-related issues may do so by submitting an email to investorrelations@smtaliquidatingtrust.com. Additionally, Liquidating Trust unitholders and other parties interested in communicating directly with the Liquidating Trustees, individually or as a group, may do so by submitting an email to investorrelations@smtaliquidatingtrust.com. Communications addressed to the Liquidating Trustees are screened internally for appropriateness before being distributed to the Liquidating Trustees, or to any individual trustee or trustees, as applicable.
Audit Committee
The Liquidating Trust is not required to, and does not have, a formal audit committee or any other formal committee that performs similar functions and, as a result, has not established an audit committee or formally designated an audit committee financial expert. However, Messrs. Steven H. Shepsman, Thomas J. Sullivan and Richard J. Stockton, the former members of the Audit Committee of SMTA, assist the Liquidating Trustees in overseeing the Liquidating Trust in:
•
its financial reporting and internal control activities, including the integrity of its financial statements; and
•
its compliance with legal and regulatory requirements.
Code of Ethics
The Liquidating Trust is not required to adopt, and has not adopted, a formal code of ethics. The Liquidating Trust is committed to ethical conduct and expects the Liquidating Trustees to promote honest and ethical conduct and act with integrity and conduct themselves, and the operations of the Liquidating Trust, in a way that protects the Liquating Trust’s reputation for fairness and honesty, including full and fair disclosure in reports to the SEC and compliance with applicable governmental laws and regulations.
Process for Considering Liquidating Trustee Nominees
The Liquidating Trust is not required to, and does not have, a formal nominating and corporate governance committee and, as a result, has not established a nominating and corporate governance committee. The Liquidating Trust Agreement provides that there shall initially be four trustees of the Liquidating Trust and that the number of trustees may be increased or decreased from time to time by the Liquidating Trustees. Any Liquidating Trustee may resign or may be removed at any time, with or without cause, by the Liquidating Trust unitholders holding at least two-thirds of the Trust Units at a meeting of the Liquidating Trust’s unitholders. If a Liquidating Trustee resigns or is removed, the remaining Liquidating Trustees have the authority under the Liquidating Trust Agreement to appoint such trustee’s successor. In the event that there are no remaining Liquidating Trustees, unitholders representing at least 10% of the total Trust Units may call a meeting of unitholders to elect replacement trustee(s) by a plurality vote, or holders of a majority of the Trust Units may elect replacement trustee(s) by written consent, in each case pursuant to the Liquidating Trust Agreement.
Compensation
The Liquidating Trust is not required to, and does not have, a formal compensation committee or any other formal committee that performs similar functions and, as a result, has not established a compensation committee. The Liquidating Trust’s compensation arrangements with the Manager are described elsewhere in this Annual Report.
Risk Management
While the Manager has primary responsibility for identifying and managing the Liquidating Trust’s exposure to risk, the Liquidating Trustees play an active role in overseeing the processes we establish to assess, monitor and mitigate that exposure. The Liquidating Trustees routinely discuss with the Manager the most effective way to wind up the affairs of the Liquidating Trust as promptly as reasonably possible. At Liquidating Trustee meetings, the Liquidating Trustees receive information and presentations from the Manager and third-party experts regarding specific areas of risk identified in the process of winding up the Liquidating Trust’s affairs, from which they engage in further analyses and dialogue. This process enables the Liquidating Trustees to focus on the strategic, financial, operational, legal, regulatory and other risks that are most significant to the winding up of the Liquidating Trust and ensures that the Liquidating Trustees’ enterprise risks are well understood, mitigated (to the extent reasonable) and consistent with the Liquidating Trustees’ view of our risk profile and tolerance.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Compensation Matters Beginning January 1, 2020
As a Liquidating Trust, since our formation on January 1, 2020, we have had no executive officers or employees. Our day-to-day management is performed by the Manager. We pay the Manager fees and reimburse its expenses pursuant to the Engagement Letter, as further described under “Item 1 - Business-The Manager”. We do not currently intend to hire or compensate any executive officers or other employees. Mr. Rodriguez, our former Chief Executive Officer, President, Chief Financial Officer and Treasurer, was an employee of Spirit and, in that capacity, continued to provide services to the Liquidating Trust. For 2020, Mr. Rodriguez received compensation in the form of an annual base salary
of $89,353 and a bonus of $257,750, and an affiliate of Mr. Rodriguez received a fee of $125,000, which was approved by the Liquidating Trustees. Other than as specified herein, the Liquidating Trust has no compensation arrangements with Mr. Rodriguez, nor does it provide any employee benefits or perquisites.
Fees Payable to the Liquidating Trustees
The Liquidating Trustees are entitled to receive compensation for their services as Liquidating Trustees comparable to the fees paid by SMTA when the Liquidating Trustees served on the board of trustees of SMTA, consisting of reasonable meeting fees or quarterly or annual retainer fees or a combination of such fees, as determined by the Liquidating Trustees. Each of the Liquidating Trustees will be reimbursed from the Liquidating Trust’s assets for all expenses reasonably incurred, and appropriately documented, by such Liquidating Trustee in the performance of that Liquidating Trustee’s duties. We compensate each of our Liquidating Trustees with an annual retainer of $125,000 and pay each of our Liquidating Trustees $1,500 for each Liquidating Trustee meeting attended in excess of six meetings per year. For the fiscal year ended December 31, 2020, Messrs. Shepsman, Stockton and Sullivan each earned cash fees in the amount of $159,500, and Mr. Panagos earned cash fees in the amount of $158,000.
Compensation Discussion and Analysis
Because the Engagement Agreement with our Manager provides that it will assume principal responsibility for managing our affairs and liquidating our assets in accordance with our Plan of Liquidation, we have no employees and no executive officers and therefore no compensation is paid to any executive officers.
Compensation Committee Interlocks and Insider Participation
We do not have a compensation committee or other committee that performs similar functions.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Not applicable.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Trustee Independence SMTA Relationship with Spirit
Statement of Policy Regarding Transactions by the Liquidating Trust with Related Persons
Pursuant to the Liquidating Trust Agreement and in accordance with Maryland law, the Liquidating Trustees must act in good faith and reasonably under the circumstances. All transactions between the Liquidating Trust and any related person, including the Manager and its affiliates, will be reviewed and approved by the Liquidating Trustees.
Interim Management Agreement
Under the Interim Management Agreement, the Initial Manager agreed to provide external management services for an initial annual term beginning September 20, 2019 for $1 million, plus certain cost reimbursements. Pursuant to the Interim Management Agreement, the Liquidating Trust was responsible for the cost to the Initial Manager of a portion of Mr. Rodriguez’s base salary, and with the approval of its trustees, Mr. Rodriguez’s cash and equity incentive compensation. Until September 4, 2020, the Initial Manager was responsible for our day-to-day affairs, administered our accounting and bookkeeping functions, served as a consultant in connection with policy decisions to be made by the Liquidating Trustees, managed our remaining properties and rendered other services deemed appropriate by the Liquidating Trustees. The individuals who performed services under the Interim Management Agreement were employees of the Initial Manager or its affiliates. See “Item 1 - Business-The Manager” for a discussion of the Interim Management Agreement.
Liquidating Trustee Indemnification
Pursuant to the Liquidating Trust Agreement, the Liquidating Trust shall, to the maximum extent permitted by law, indemnify the Liquidating Trustees, and hold the Liquidating Trustees harmless as to all liabilities and expenses incurred in connection with any claim, demand, action, suit or proceeding by the Liquidating Trustee by reason of such Liquidating Trustee being or having been such a Liquidating Trustee, except to the extent that it is finally adjudicated that such Liquidating Trustee has engaged in misconduct intentionally committed in bad faith. The Liquidating Trustees shall be entitled to cause the Liquidating Trust to make advance payments in connection with any such indemnification matter.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
Not applicable.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
(a)(1) and (2). Consolidated Financial Statements are included in Part II, Item 8. “Financial Statements and Supplementary Data’’ of this Annual Report on Form 10-K.
(b) Exhibits.
Exhibit No.
Description
3.1
Liquidating Trust Agreement, dated January 1, 2020, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on January 2, 2020 and incorporated herein by reference.
10.1*
Engagement Letter, by and between SMTA Liquidating Trust and Walker, Truesdell, Roth & Associates, Inc.
21.1*
List of Subsidiaries.
31.1*
Certification of Trustee pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
Certification of Trustee pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*
Filed herewith.
SMTA LIQUIDATING TRUST
(Formerly known as Spirt MTA REIT)
Schedule I
Real Estate and
Accumulated Depreciation
(Amounts in thousands)
Land, buildings, and improvements
Balance at the beginning of the year
$ 37,450
$ 2,397,482
Additions:
Acquisitions, contributions, capital expenditures, and reclassifications from held
for sale and deferred financing leases
-
11,036
Deductions:
Dispositions of land, buildings, and improvements and other adjustments
(21,035 )
(2,307,674 )
Reclassifications to held for sale
-
-
Impairments and basis reset due to impairment
-
(74,129 )
Liquidation adjustment
(1,415 )
10,735
Gross Real Estate Balance at close of the year
$ 15,000
$ 37,450
Accumulated depreciation and amortization
Balance at the beginning of the year
$ -
$ (459,615 )
Additions:
Depreciation expense, contributions and reclassifications from held for sale
-
(41,893 )
Deductions:
Dispositions and transfers of land, buildings, and improvements and other
adjustments including basis reset due to impairment
-
463,449
Reclassifications to held for sale
-
36,654
Liquidation adjustment
-
1,405
Balance at close of the year
$ -
$ -
Net Real Estate Investment
$ 15,000
$ 37,450
SMTA LIQUIDATING TRUST
(Formerly known as Spirt MTA REIT)
Schedule II
Mortgage Loans on Real Estate
(Amounts in thousands)
Reconciliation of Mortgage Loans on Real Estate
Balance January 1,
$ -
$ 29,479
Additions during period
New mortgage loans
-
-
Deductions during period
Collections of principal (inclusive of loans
receivable exchanged for real estate acquired)
-
(27,890 )
Write-off due to Shopko foreclosure
-
(1,589 )
Amortization of premium
-
-
Mortgage loans receivable December 31,
-
-
Mortgage loan loss provisions
-
-
Total mortgage loans receivable, net
$ -
$ -