DEF 14A 1 d231619ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

(Amendment No.     )

 

 

Filed by the Registrant                               Filed by a Party other than the Registrant  

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under Rule 14a-12

SPIRIT REALTY CAPITAL, INC.

(Name of Registrant as Specified in Its Charter)

Payment of Filing Fee (Check the appropriate box):

 

  No fee required.
  Fee paid previously with preliminary materials.
  Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

 


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2727 North Harwood Street

Suite 300

Dallas, TX 75201

April 8, 2022

  
 

2021

MILESTONES

        

 

Dear Fellow Shareholders,

 

Thank you for your confidence in Spirit. We present this year’s Proxy Statement and invite you to our 2022 Annual Meeting of Shareholders on May 18, 2022 at 8:30 a.m. Central Time to be held at our headquarters located at 2727 N. Harwood Street, Suite 300, Dallas, TX 75201. You may attend in person or by proxy.

 

2021 was a pivotal year for Spirit. We were able to shift from defense against COVID-19 and re-focus on our key business initiatives and goals - maximizing shareholder value by providing a growing stream of earnings and dividends generated by a high-quality, diversified commercial real estate portfolio, while simultaneously demonstrating our commitment to sound environmental, social and corporate governance practices. Outlined below are some of our significant efforts and achievements since the beginning of 2021:

 

Operational Excellence

 

LOGO   Built and executed on an extensive acquisition pipeline, acquiring $1.2 billion worth of assets, resulting in acquisition activity up 42% from 2020.

 

LOGO   Retained a third-party with the oversight of the Audit Committee, to conduct a formal Enterprise Risk Management Assessment (“ERM”) of the Company to determine and assess Spirit’s key enterprise risk and focus areas, as determined by management and other key leaders in the Company.

 

LOGO   Maintained strong liquidity by generating $533.6 million in net proceeds under our At-the-Market Program.

 

All One Team Culture and Environmental, Social and Governance Initiatives

 

LOGO   Released our first inaugural ESG Report which highlighted Diversity, Equity and Inclusion (“DEI”), corporate governance, and environmental initiatives of our Company in 2021 and aligned with the Sustainability Accounting Standards Board (“SASB”) and Task Force on Climate-Related Financial Disclosures (“TCFD”) (published March 21, 2022).

 

LOGO   Continued our focus on diversity and inclusion by establishing a formal Diversity, Equity & Inclusion Policy, as well as executing numerous initiatives by our Diversity, Equity & Inclusion Council including mandatory DEI trainings, a DEI-focused speaker series, and internal diversity education opportunities.

 

LOGO   Hosted virtual events by our Women’s Leadership Council, including book club and a roundtable with our four female board members on attaining professional success and overcoming common issues women face in their careers. Women comprise approximately 52% of our workforce and 40% of our Board.

 

LOGO   Continued our commitment to reducing our environmental footprint and managing environmental risks through the implementation of environmentally sustainable practices, including adoption of an Environmental Management System, implementation of “green lease” clauses into our lease form, and a company-wide service event with Groundwork Dallas facilitated by our Think Green Committee.

 

LOGO   Maintained consistent and meaningful communication with employees during the pandemic, including through monthly town hall meetings led by our Chief Executive Officer (“CEO”), Jackson Hsieh, internal “pulse” surveys to monitor employee satisfaction, and a wide-array of virtual employee social events.

  
                 
             
 

   Acquired $1.2 billion of high-quality real estate assets across 166 properties, with a weighted average lease term of 15.9 years.

        
 

   Refreshed Board composition and improved diversity by adding two female directors making our Board 40% female in 2021.

        
 

   Conducted a formal Enterprise Risk Assessment with a third-party facilitator, as part of our comprehensive enterprise risk management program, to identify significant operational risks to the company.

        
 

   Continued accessing the capital markets, generating net proceeds of $533.6 million from the issuance of shares of common stock and issuing $800 million in unsecured bonds. Upgraded credit rating by Moody’s to Baa2, making Spirit BBB equivalent across all three rating agencies.

        
            
          
          
          
          
             
             
             

 


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Board of Directors

 

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Continued engagement with our compensation consultant, who conducted a comprehensive review of our compensation program and philosophy and advised the Board on opportunities resulting in improvements including the implementation of an ESG-related performance metric for the Executive Leadership Team’s 2021 Bonus Program.

 

LOGO

Formalized Board and Committee oversight of ESG-related items, as shown in the ESG Flow Chart on page 50 of the Proxy Statement and in each Committee’s charter.

 

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Continued commitment to diversity and active refreshment of our Board, including the election of three new, independent, highly qualified directors to our Board in 2021, two of whom are female. Our 2022 Board nominee slate is now 44% female. Adopted a “Rooney” style rule in connection with recommending director candidates to the Board, which requires the Nominating and Corporate Governance Committee to use best efforts to include qualified female and/or ethnic or racial minority candidates in the initial search pool that is further evaluated for recommendation to the Board.

On behalf of the Board of Directors and all of the employees at Spirit, we thank you for your commitment to Spirit and ask for your support on the matters described in the Proxy Statement so that we can continue to produce results and increase long-term shareholder wealth going forward.

 

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Richard I. Gilchrist

Chairman of the Board

  

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Jackson Hsieh

CEO and President


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NOTICE OF 2022 ANNUAL MEETING OF SHAREHOLDERS

 

Date & Time:    Place:   Record Date:   Outstanding Shares
on Record Date:

May 18, 2022,

8:30 a.m. Central
Time

   2727 N. Harwood Street, Suite 300, Dallas, TX 75201. For more information, see the “Questions and Answers” section of the Proxy Statement.   March 14, 2022   127,747,162

ITEMS OF BUSINESS AND RECOMMENDATIONS:

 

  Proposal  
No.

  Description   Board’s
    Recommendation    
           Page        

 

  1

 

 

The election of (9) nine directors nominated by our Board of Directors and named in the accompanying Proxy Statement to hold office until the next annual meeting of shareholders and until their respective successors have been duly elected and qualified

  FOR each of the
9 nominees
  75

 

  2

 

 

The ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022

  FOR   87

 

  3

 

 

The approval of the Second Amended and Restated Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan, including an increase to the number of shares of common stock reserved for issuance by 3,000,000 shares;

  FOR   88

 

  4

 

 

A non-binding, advisory resolution to approve the compensation of our named executive officers as described in the accompanying Proxy Statement

  FOR   95

Shareholders may also be asked to consider such other business as may properly come before the Shareholders at the Annual Meeting or any postponements or adjournments thereof. We have not received notice of any other proposals to be presented at the Annual Meeting.

 

 

HOW TO VOTE

 

If you are a shareholder of record of Spirit common stock as of the close of business on the Record Date, you may vote at the Annual Meeting or by Proxy using any of the following methods:

 

LOGO  

 

By Internet

at www.proxypush.com/SRC

  LOGO   

 

By Mail

Vote your shares by proxy by signing, dating and returning the proxy card in the postage-paid envelope provided.

 

LOGO

 

 

 

By Phone

call toll-free 1-866-256-1217

 

 

LOGO

  

 

By Attendance at the Annual Meeting

Vote your shares by attending the Annual Meeting in person and depositing your proxy card at the registration desk or completing a ballot that will be distributed at the Annual Meeting upon request. See the “Questions and Answers” section of this Proxy Statement for more information.

 

Votes submitted by internet or phone must be received prior to the start of the Annual Meeting.

 

Shares Held in Street Name: If you hold your shares through a broker, bank or other nominee (i.e. in street name), you will receive instructions from your broker, bank or nominee regarding how to vote which you must follow in order to submit your voting instructions and have your shares voted at the Annual Meeting.

 

 

  Spirit Realty Capital | 2022 Proxy Statement   


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NOTICE OF 2022 ANNUAL MEETING OF SHAREHOLDERS

 

IMPORTANT NOTICE REGARDING INTERNET AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON MAY 18, 2022: This Proxy Statement, our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and our Annual Report to Shareholders for the fiscal year ended December 31, 2021 are available at www.proxydocs.com/SRC. More information regarding proxy voting, proxy materials, and attending the annual meeting can be found in the “Questions and Answers” section of the Proxy Statement.

By Order of our Board of Directors,

 

 

LOGO

Rochelle Thomas,

Executive Vice President,

General Counsel and Secretary

 

  Spirit Realty Capital | 2022 Proxy Statement   


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TABLE OF CONTENTS

 

ANNUAL MEETING INFORMATION      1  
PROXY SUMMARY      4  

Executive Compensation Highlights

     7  

Driving Shareholder Value With Our Commitment to ESG

     9  

Corporate Governance and Board Highlights

     14  

Voting Items

     16  
OUR NAMED EXECUTIVE OFFICERS      17  
COMPENSATION DISCUSSION AND ANALYSIS      18  

Compensation Committee Report

     18  

Executive Summary

     18  

2021 Compensation Program Highlights

     20  

Compensation Philosophy and Objectives

     20  

Compensation Determination

     23  

2021 Executive Compensation

     27  
COMPENSATION TABLES      37  

Non-Employee Director Compensation

     45  

Chief Executive Officer Pay Ratio Disclosure

     46  

Equity Compensation Plan Information

     47  
CORPORATE GOVERNANCE      48  

Our Board of Directors

     48  
AUDIT COMMITTEE      55  

Audit Committee Report

     55  
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE      56  

Process for Considering Director Nominees

     56  
COMPENSATION COMMITTEE      58  

Compensation Committee Interlocks and Insider Participation

     58  
ADDITIONAL CORPORATE GOVERNANCE MATTERS      59  
RELATED PARTY TRANSACTIONS      61  

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

     61  
SOCIAL, HUMAN CAPITAL MANAGEMENT, COMMUNITY, AND ENVIRONMENTAL RESPONSIBILITY      64  

Social, Human Capital Management, and Community Engagement

     66  

Community Outreach

     69  

Environmental Sustainability

     70  
PROPOSALS REQUIRING YOUR VOTE      75  

Proposal 1 - Election of Directors

     75  

Proposal 2 - Ratification of the Selection of Ernst  & Young LLP as Our Independent Registered Public Accounting Firm for Fiscal Year 2022

     87  

Proposal 3 - Approval Of The Second Amended and Restated Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan

     88  

Proposal 4 - Advisory Vote on the Compensation of Our Named Executive Officers

     95  
QUESTIONS AND ANSWERS; ADDITIONAL INFORMATION      97  
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION      99  
ANNEX A RECONCILIATION OF NON-GAAP FINANCIAL MEASURES      A-1  
ANNEX B SECOND AMENDED AND RESTATED SPIRIT REALTY CAPITAL, INC. AND SPIRIT REALTY, L.P. 2012 INCENTIVE AWARD PLAN      B-1  
 

 

 

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ANNUAL MEETING INFORMATION

2022 ANNUAL MEETING OF SHAREHOLDERS

This Proxy Statement is being furnished in connection with the solicitation by the Board of Directors (the “Board”) of Spirit Realty Capital, Inc., a Maryland corporation and its affiliates (“Spirit,” “we,” “us” or the “Company”), of proxies to be exercised at the 2022 Annual Meeting of Shareholders (the “Annual Meeting”) to be held at 8:30 a.m. Central Time on May 18, 2022 at our headquarters located at 2727 N. Harwood Street, Suite 300, Dallas, TX 75201, and at any postponement(s) or adjournment(s) thereof. On or about April 8, 2022, we began mailing a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our proxy materials online, how to vote and how to request paper copies of our proxy materials. In order to be admitted to the Annual Meeting, you must present photo identification (such as a driver’s license) and proof of ownership of shares of our common stock on March 14, 2022, the record date for the Annual Meeting. Proof of ownership can be accomplished through the following:

 

   

A brokerage statement or letter from your broker or custodian with respect to your ownership of shares of our common stock on March 14, 2022;

 

   

A printout of the proxy distribution email (if you receive your materials electronically);

 

   

A proxy card;

 

   

A voting instruction form; or

 

   

A legal proxy provided by your broker or custodian.

For the safety and security of our shareholders, we will be unable to admit you to the Annual Meeting if you do not present photo identification and proof of ownership of shares of our common stock or if you otherwise refuse to comply with our security procedures.

For the purposes discussed in this Proxy Statement and in the accompanying Notice of 2022 Annual Meeting of Shareholders (the “Proposals”), proxies are solicited to give all shareholders of record at the close of business on March 14, 2022, an opportunity to vote on matters properly presented at the Annual Meeting.

NO PERSON IS AUTHORIZED ON BEHALF OF THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS WITH RESPECT TO THE PROPOSALS OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION AND/OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE DELIVERY OF THIS PROXY STATEMENT SHALL UNDER NO CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

 

 

 

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ANNUAL MEETING INFORMATION

 

THE ANNUAL MEETING AND VOTING

Who Can Vote

Holders of our common stock at the close of business on March 14, 2022 are entitled to receive notice of and to vote their shares at the Annual Meeting. As of that date, there were 127,747,162 common shares outstanding and entitled to vote. Each outstanding share of common stock is entitled to one vote on each matter properly brought before the Shareholders at the Annual Meeting.

How to Vote

You may vote your shares in one of several ways, depending on how you own your shares.

Shareholders of Record

If you own shares registered in your name with our transfer agent, American Stock Transfer & Trust Company (a “shareholder of record”), you may vote:

 

              
         

 

 

 

 

 

LOGO

 

 

 

   BY TELEPHONE Vote your shares by proxy by calling 1-866-256-1217, 24-hours a day, seven days a week until the start of the Annual Meeting. Please have your notice or proxy card in hand when you call. The telephone voting system has easy-to-follow instructions and provides confirmation that the system has properly recorded your vote.
              
      
              
         

 

 

 

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   VIA THE INTERNET Vote your shares by proxy via the website www.proxypush.com/SRC 24-hours a day, seven days a week until the start of the Annual Meeting. Please have your notice or proxy card in hand when you access the website. The website has easy-to-follow instructions and provides confirmation that the system has properly recorded your vote.
              
      
              
   

 

 

 

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   BY MAIL Vote your shares by proxy by signing, dating and returning a proxy card in the postage-paid envelope provided. If you vote by telephone or over the Internet, you do not need to return a proxy card by mail.
              
      
              
   

 

 

 

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   BY ATTENDANCE AT THE ANNUAL MEETING Vote your shares by attending the Annual Meeting and depositing your proxy card at the registration desk or completing a ballot that will be distributed at the Annual Meeting upon request. See the “Questions and Answers” section of this Proxy Statement for more information.
              

Beneficial Owners

If you own shares registered in the name of a broker or other custodian (a “beneficial owner”), follow the instructions provided by your broker or custodian on how to vote your shares. If you want to vote your shares at the Annual Meeting, you must obtain a legal proxy from your broker or other custodian to bring with you to the Annual Meeting to demonstrate your authority to vote. If you do not instruct your broker or custodian how to vote, such broker or custodian will have discretionary authority, under current New York Stock Exchange (“NYSE”) rules, to vote your shares in its discretion on the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for fiscal year ending December 31, 2022 (Proposal 2). However, your broker or custodian will not have discretionary authority to vote on the election of directors (Proposal 1), the Second Amended and Restated Plan (Proposal 3), or the advisory vote to approve our executive compensation (Proposal 4) without instructions from you. As a result, if you do not provide instructions to your broker or custodian, your shares will not be voted on Proposal 1, Proposal 3, or Proposal 4.

 

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ANNUAL MEETING INFORMATION

 

Votes by Proxy

All shares that have been properly voted by proxy and not revoked will be voted at the Annual Meeting in accordance with the instructions contained in the proxy. Shares represented by proxy cards that are signed and returned but do not contain any voting instructions will be voted consistent with the Board’s recommendations:

 

Proposal

   Recommendation
of the Board

1.

  The election of (9) nine directors nominated by our Board of Directors and named in the accompanying Proxy Statement to hold office until the next annual meeting of shareholders and until their respective successors have been duly elected and qualified    FOR each of
the 9 nominees

2.

  Ratification of the appointment of the selection of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2022    FOR

3.

  Approval of the Second Amended and Restated Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan, including the increase to the number of shares of common stock reserved for issuance by 3,000,000 shares    FOR

4.

  A non-binding, advisory resolution to approve the compensation of our named executive officers as described in the accompanying Proxy Statement    FOR

Lastly, in the discretion of the proxy holders, other such other business as may properly come before the Annual Meeting.

EXPENSES AND SOLICITATION

Spirit will bear the expense of soliciting proxies by the Board of Directors. Proxies may be solicited on behalf of the company in person, by telephone or e-mail, by directors, officers or employees of Spirit, who will receive no additional compensation for soliciting proxies. We have engaged the Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and information support, for a services fee, plus customary disbursements, which are not expected to exceed $23,000 in total. We will also reimburse brokers and other nominees for their expenses incurred in distributing proxy materials to beneficial owners of our shares.

 

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PROXY SUMMARY

This summary highlights selected information that is provided in more detail throughout the Proxy Statement. Please read the entire Proxy Statement before casting your vote. Note that certain financial measures contained within this Proxy Statement (AFFO Per Share, Annualized Adjusted EBITDAre, and Adjusted Debt to Annualized Adjusted EBITDAre) are not calculated according to U.S. generally accepted accounting principles (“GAAP”). Please see Annex A for a reconciliation of these non-GAAP measures.

OUR BUSINESS

We are a real estate investment trust (“REIT”) which primarily invests in single-tenant, operationally essential real estate assets throughout the United States, which are subsequently leased on a long-term triple-net basis to high quality tenants with operations in retail, industrial, and certain other industries. A triple-net lease typically requires the tenant to be solely 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. Thus, our goal is not only to acquire high quality properties, but to invest in industry-leading tenants with whom we can build trusting, long-term relationships. Our operating strategy is to provide our shareholders with predictable earnings and dividend growth.

 

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OUR TRANSFORMATION TO A SIMPLIFIED TRIPLE-NET LEASE REIT

Jackson Hsieh, our current President and Chief Executive Officer (“CEO”), joined Spirit in 2016 as President and Chief Operating Officer (“COO”). Prior to joining the Company, Mr. Hsieh served as an external advisor to the Company for eight years. At the time of his appointment to COO in 2016, Spirit had begun to face some major challenges which came to a peak shortly after Mr. Hsieh joined the Company. These challenges were reflected in the Company’s stock price, as you can see in the TSR Charts below, dropping 49% from September 7, 2016 to May 4, 2017. The Board recognized that Spirit needed a leader who could think creatively and formulate a strategy that would grow the Company and repair relationships with our investor base, and Mr. Hsieh was the best candidate for that job. In May 2017, the Board promoted Mr. Hsieh to CEO.

Mr. Hsieh immediately formulated a strategy forward for Spirit to become a simplified triple-net lease REIT, with a competitive cost of capital, a fortress balance sheet, best in class real estate portfolio, defined and disciplined investment strategy, strong operating systems and outstanding people.

 

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LOGO

 

In less than five years from Mr. Hsieh’s appointment to CEO of Spirit, we have accomplished many milestones, including our goal of becoming a simplified triple-net lease REIT. We have improved relationships with our investor base by providing consistent, high-quality results and building back trust by always doing what we say. We have also:

INCREASED TOTAL SHAREHOLDER RETURN (“TSR”): Our TSR has risen to 98.6% since Mr. Hsieh was appointed CEO in 2017.

 

 

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1 

The MSCI US REIT Index (RMZ) is a free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (REITs). It represents about 99% of the US REIT universe and securities are classified under the Equity REITs Industry according to the Global Industry Classification Standard (GICS®), have core real estate exposure and carry REIT tax status.

 

2 

VEREIT, Inc. was acquired by Realty Income Corporation in November 2021, Retail Properties of America, Inc. was acquired by Kite Realty Group, L.P. in October 2021, and Washington Prime Group Inc. voluntarily delisted its shares of common stock from the NYSE in October 2021 and is now privately owned. As such, these peers have been excluded from this chart.

SIGNIFICANTLY LOWERED OUR COST OF CAPITAL1:

 

 

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1.

Spirit’s weighted average cost of capital (“WACC”) is calculated using the following assumptions: (i) a targeted capital structure comprising 60% equity and 40% debt; (ii) cost of equity of 7.5% and 11.3% as of December 31, 2021 and May 8, 2017, respectively; and (iii) cost of debt of 3.0% and 7.0% as of December 31, 2021 and May 8, 2017, respectively.

 

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BUILT A FORTRESS BALANCE SHEET:

 

LOGO

 

1.

Please note that defined terms have been modified between March 31, 2017 to December 31, 2021 and thus these amounts are not directly comparable. For March 31, 2017, this metric was calculated as Adjusted Debt to Annualized Adjusted EBITDA. Adjusted Debt represents interest bearing debt (reported in accordance with GAAP) adjusted to exclude unamortized debt discount/premium and deferred financing costs and reduced by cash and cash equivalents and restricted cash. Adjusted EBITDA represents EBITDA adjusted for certain items that we believe are not indicative of our core operating performance and Annualized Adjusted EBITDA represents Adjusted EBITDA multiplied by four.

In the first quarter of 2018, we adopted the EBITDAre concept, as defined by NAREIT. Adjusted EBITDAre represents EBITDAre adjusted for revenue producing acquisitions and dispositions for the quarter (as if such acquisitions and dispositions had occurred as of the beginning of the quarter), construction rent collected, not yet recognized in earnings and for other certain items that we believe are not indicative of our core operating performance. Annualized Adjusted EBITDAre is calculated as Adjusted EBITDAre for the quarter, adjusted for items where annualization would not be appropriate, multiplied by four. Please refer to Annex A for a reconciliation of non-GAAP financial measures.

 

2.

Adjusted Debt/Annualized Adjusted EBITDAre remains 5.1x assuming the settlement of the 56 thousand open forward equity contracts.

 

3.

Due to rounding. Actual percentage is 99.8%.

DEVELOPED DISCIPLINED INVESTMENT STRATEGY AND STRONG SYSTEMS TO DRIVE ACQUISITIONS:

 

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EXECUTIVE COMPENSATION HIGHLIGHTS

Compensation Philosophy

The Compensation Committee believes that our executive compensation program should emphasize pay-for-performance and reflect the value created for our shareholders, while supporting our business strategies, operational goals and long-range plans. In addition, the Compensation Committee believes that such compensation should assist the Company in attracting and retaining key executives critical to our long-term success. Our compensation practices reflect this philosophy:

 

DO provide executive officers with the opportunity to earn market-competitive compensation through a mix of cash and equity compensation with a strong emphasis on performance-based incentive awards (our executives received only performance-based long-term incentive plan (“LTIP”) awards in 2021).

 

DO align pay and performance by linking a substantial portion of compensation to the achievement of pre-established performance metrics that drive shareholder value.

 

DO evaluate TSR when determining performance under LTIP performance share awards to enhance shareholder alignment.

 

DO cap payouts for awards under our annual bonus and LTIP plans.

 

DO require executive officers to own and retain shares of our common stock to further align interests with our shareholders.

 

DO enhance executive officer retention with annual LTIP equity awards, including multi-year performance periods for our performance-based incentive awards.

 

DO enable the Board to “claw back” incentive compensation in the event of a financial statement restatement pursuant to a recoupment policy.

 

DO maintain a Compensation Committee comprised solely of independent directors.

 

DO engage an independent compensation consultant to advise the Compensation Committee on executive compensation matters.

  

DO NOT base LTIP awards on a single performance metric, thereby discouraging unnecessary or excessive risk-taking.

 

DO NOT provide uncapped award opportunities.

 

DO NOT have employment agreements with executive officers that provide single-trigger change of control benefits.

 

DO NOT permit executive officers or directors to engage in derivative or other hedging transactions in our securities.

 

DO NOT provide executive officers with excessive perquisites or other personal benefits.

 

DO NOT permit executive officers or directors to hold our securities in margin accounts or pledge our securities to secure loans without pre-approval by the Audit and Compensation Committees (no executive officer or director pledged or held our securities in margin accounts at any time during 2021).

 

DO NOT provide for tax gross-up payments for compensation or benefits paid in connection with a change in control.

 

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Commitment to Pay-for-Performance

In 2021, consistent with our compensation philosophy that linking a substantial portion of compensation to variable at-risk pay elements creates appropriate alignment with our shareholders, the Compensation Committee determined that 100% of our Named Executive Officers’ annual LTIP equity awards should be tied to pre-established performance metrics and 0% tied to time-vesting equity awards. In 2020, this ratio was 60% performance-based awards and 40% time-vesting awards. The following graphs1 show the emphasis we placed on variable at-risk pay elements, such as performance-based cash bonuses and equity awards, for all of our Named Executive Officers (defined herein) in 2021.

 

 

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1 

Performance Share awards were calculated for purposes of the above graphics using the grant date fair value calculated in accordance with ASC Topic 718.

 

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DRIVING SHAREHOLDER VALUE WITH OUR COMMITMENT TO ESG

At Spirit, we believe that doing the right thing for all of our stakeholders, including employees, our community and our tenants, will drive long term value for our shareholders. Our commitment is integrated throughout our organization and is ultimately overseen by our Board and committees thereof. Our Nominating and Corporate Governance Committee has key responsibility for ESG oversight and making ESG-related recommendations to the full Board. The Nominating and Corporate Governance Committee and Board receive ESG-related updates from the Executive Leadership Team at least quarterly and on an as-needed basis. In 2021, our Board or Board committees received updates or discussed environmental, human capital management or social matters affecting the Company on at least eleven occasions.

We have also formed several ESG-related committees which operate to facilitate frequent discussions around important ESG topics and assist our business in taking actionable ESG measures. These committees meet regularly and report to Spirit’s Executive Leadership Team, which then reports to the Board and committees thereof.

The flow chart below outlines our ESG reporting framework:

 

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Spirit continued to make great strides in its ESG efforts in 2021. Some of the key initiatives and goals accomplished include:

 

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SOCIAL AND HUMAN CAPITAL MANAGEMENT

At Spirit, we believe that by implementing sound community and human capital management practices throughout the operation of our business, we demonstrate our solid commitment to be responsible and conscientious in everything that we do as we strive to both increase long-term stakeholder value and make the communities in which we operate a better place to live and work.

All One Team Culture

Our Culture . . .

 

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Focuses on Teamwork – We are “All One Team” – we have successfully navigated the challenges presented over the last few years and reached our goal of becoming a simplified triple net lease REIT through effective interdepartmental communication and collaborative, multi-disciplinary teams delivering on critical objectives in a timely manner.

 

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Celebrates Diversity and Inclusion – approximately 52% of our employees are female, approximately 26% of our employees are racial or ethnic minorities, and 40% of our directors are female. In 2020, we established an employee driven Diversity, Equity & Inclusion Council to promote diversity and inclusivity within our Company and community. In 2021, we formalized our efforts in diversity and inclusion by creating our Diversity, Equity & Inclusion Policy. Together with the Women’s Leadership Council, these groups provide perspective to both our executives and our Board of Directors.

 

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Encourages Employee Development – in 2021, we continued investing in our employees through development and training on leadership, operations, finance and accounting, legal, employee relations and information technology.

 

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Is Dynamic – Our leadership keeps the lines of communication open with and among our employees, including monthly Town Hall meetings where our CEO and other senior leaders update employees on company matters and answer questions from employees.

 

Our Values…

 

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Our Community…

In 2021, we were able to make a meaningful impact on our community through significant corporate donations:

 

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Environmental Sustainability Highlights

Spirit recognizes that the ownership of commercial real estate can have a significant impact on the environment. As a result, we are committed to implementing environmentally sustainable practices at our headquarters and considering environmental factors and risks in our investment decisions. Our approach to these matters is set forth in our Environmental Management System (the “EMS”), which was approved and adopted by the Nominating and Corporate Governance Committee in 2021. Our commitment is further outlined in our inaugural ESG Report, which is aligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework.

Our Headquarters

Our commitment to sustainability and reducing our environmental footprint is demonstrated by our approach to managing operations at our corporate headquarters. Some highlights include:

 

   

Installation of automatic lighting control systems

 

   

Use of ENERGY STAR certified computers, monitors, copiers, conference room displays and printers

 

   

Active recycling of materials such as aluminum, paper, and plastic and use of recycled paper where possible

 

   

Use of low VOC paint and “green” cleaning products

 

   

Use of water machines to encourage employees to use reusable cups

In 2021, through the recycling initiatives at our headquarters we were able to save over 113 trees.

Our Portfolio and Investments

As a triple-net lease real estate investment trust, we primarily invest in single-tenant real estate under absolute net-leases. With this business structure, each tenant is generally responsible for maintaining the leased improvements, including controlling their energy usage and the implementation of environmentally sustainable practices at each location.

Although our tenants are ultimately responsible for reducing energy usage and being environmentally conscience in their operations at the leased premises, to further align and collaborate with our tenants on environmental sustainability matters, including reducing energy and water usage, we have integrated into our form lease certain “green lease” provisions and have implemented certain sustainability practices, as set forth in our EMS, which is available on our website at www.spiritrealty.com.

Our Community Impact

Our environmental sustainability initiatives extend to our community:

 

   

Volunteering with local environmentally-focused non-profit organizations

 

   

Donating funds to non-profits that share in our commitment to sustainability

 

   

Employee communications regarding ways to be more “green”

 

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CORPORATE GOVERNANCE AND BOARD HIGHLIGHTS

Our Board is committed to sound governance practices designed to promote the long-term interests of shareholders and strengthen Board and management accountability. Our Board regularly evaluates our governance profile against best practices to identify areas for improvement. The Board also leverages our active shareholder engagement program to gather insights on key areas of shareholder interest and emerging trends to evaluate. Key elements of our governance program include:

 

Board of Directors

 

  

Governance Highlights

 

  Independent Chair

 

  All directors, with the exception of our CEO, are independent

 

  Annual election of directors

 

  Board regularly meets in executive sessions, including without the presence of our CEO

 

  Board seeks direct engagement with employees at all levels of the organization

 

  Board oversight and engagement on environmental, social, governance, and human capital management matters

 

  Diverse Board including gender, race/ethnicity, tenure, age, and experience

  

  Majority vote standard for director elections

 

  Majority standard for shareholder right to call special meeting

 

  Majority vote standard to amend/repeal Bylaw provisions, without subject matter restrictions

 

  Minimum stock ownership policy for Board

 

  Active shareholder engagement program

 

  Regular Board review of CEO and senior management succession plans

 

Committees & Attendance

 

  

Shareholder Engagement

 

 

  Ongoing Board committee leadership rotation

 

  Annual Board evaluations

 

  Fully independent Board committees

 

  Board Investment Committee responsible for assisting the Board in discharging its responsibilities as to the review and approval of certain real estate acquisitions

 

  Nominating and Corporate Governance Committee is responsible for overseeing ESG-related issues

 

  Audit Committee is responsible for overseeing risk assessment and mitigation

 

  Dedicated Company Disclosure Committee to ensure timeliness and accuracy of all required disclosures

  

 

  In 2021, we continued our shareholder engagement program by reaching out to the holders of 53.17% of our outstanding shares as of September 30, 2021

 

  Topics included our business strategy and 2021 performance, executive compensation, our business transformation, Board and governance practices, and ESG

 

  Shareholder feedback informs Board decision-making

 

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Our current Board is composed of directors who collectively have the right mix of skills, professional experience and expertise to effectively oversee management. Specifically, our directors have backgrounds in finance, M&A, real estate, risk oversight, and stakeholder value initiatives, among other skills relevant to Spirit’s strategic goals.

 

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This diversity in skill set pairs with other sources of viewpoint diversity. We are proud that our director nominee slate is 44% female. We have also cultivated significant diversity in the length of service amongst our Board members, with tenures ranging from 13 years to a little over one year. Our Board believes that tenure diversity enables us to capture the value of both new perspectives and the deep institutional knowledge of longer-tenured directors to help the Board effectively oversee our business.

 

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Key Board Statistics

Of Our Director Nominees

 

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Board Refreshment

We are focused on ensuring that directors’ skills and experiences continue to reflect the evolving needs of the business, and as such, our robust Board evaluation process is an important part of our Board refreshment and succession planning efforts. The Nominating and Corporate Governance Committee considers diversity to be a key priority in director recruitment. In 2021, the Committee adopted a “Rooney” style rule which requires it to use best efforts to include qualified female and/or ethnic or racial minority candidates in the initial search pool that the Committee further evaluates for recommendation to the Board. Over the past few years, our active refreshment process has led to the appointment of Diana Laing, Elizabeth Frank, Michelle Frymire, Kristian Gathright and Thomas Sullivan, each of whom offer different perspectives to the Board.

VOTING ITEMS

Proposals to be Voted on and Board Voting Recommendations

 

  Proposal  
No.

  Description   Board’s
    Recommendation    
           Page        

 

  1

 

 

The election of (9) nine directors nominated by our Board of Directors and named in the accompanying Proxy Statement to hold office until the next annual meeting of shareholders and until their respective successors have been duly elected and qualified

  FOR each of the
9 nominees
  75

 

  2

 

 

Ratification of the appointment of the selection of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2022

  FOR   87

 

  3

 

 

The approval of the Second Amended and Restated Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan, including an increase to the number of shares of common stock reserved for issuance by 3,000,000 shares

 

  FOR   88

 

  4

 

 

A non-binding, advisory resolution to approve the compensation of our named executive officers as described in the accompanying Proxy Statement

 

  FOR   95

 

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OUR NAMED EXECUTIVE OFFICERS

Set forth below is certain biographical information concerning our Named Executive Officers. Ages shown are as of the Record Date.

 

   
Name, Age, Position    Business Experience
   

Jackson Hsieh, Age 61

President and Chief Executive Officer (effective May 8, 2017)

 

 

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Jackson Hsieh serves as President and Chief Executive Officer in addition to serving on the Board of Directors. In addition, Mr. Hsieh serves on the Company’s Investment Committee and Management Operating Committee that monitors business activities and defines company strategy. Prior to joining Spirit in September 2016, Mr. Hsieh served as Managing Director and Vice Chairman of Investment Banking at Morgan Stanley, Vice Chairman and Sole/Co-Global Head of UBS’s Real Estate Investment Banking Group, and in various other leadership roles which include a prior period at Morgan Stanley and tenures at Bankers Trust Company and Salomon Brothers, Inc. Mr. Hsieh is a graduate of the University of California at Berkeley and earned a master’s degree from Harvard University.

 

   

Michael Hughes, Age 47

Executive Vice President, Chief
Financial Officer (effective April 1, 2018)

 

 

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Michael Hughes serves as Executive Vice President and Chief Financial Officer. In addition, Mr. Hughes serves on the Company’s Investment Committee and Management Operating Committee that monitors business activities and defines company strategy. Prior to joining Spirit in April 2018, Mr. Hughes served as Executive Vice President and Chief Financial Officer at FelCor Lodging Trust from 2013 through the close of the company’s merger with RLJ Lodging Trust in 2017. Prior to that, he held various roles in corporate finance at FelCor from 2006 to 2013 and held multiple roles at Wyndham International, Inc. from 2002 to 2006, most recently serving as Vice President, Corporate Finance. Mr. Hughes earned a bachelor’s degree in business from Rhodes College and is a holder of the Chartered Financial Analyst® designation.

 

   

Ken Heimlich, Age 56

Executive Vice President, Chief Investment Officer (Executive Vice President effective April 3, 2018; Chief Investment Officer effective January 1, 2021)

 

 

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Ken Heimlich joined Spirit in March 2017 and serves as Executive Vice President and Chief Investment Officer. In this role, he has oversight responsibility for acquisitions, asset management, dispositions, property management, underwriting, research, and construction. In addition, Mr. Heimlich serves on the Company’s Investment Committee and Management Operating Committee that monitors business activities and defines company strategy. Mr. Heimlich has extensive experience in the REIT industry having served as Managing Principal at Capital Formation, LLC, a net lease real estate advisory firm, as well as in several senior leadership roles at GE Capital, Franchise Finance. During his tenure at GE Capital, he successfully led the IPS and Surplus platforms for a 2,000+ property portfolio, built and directed a nationwide retail development platform, and managed a 500-property triple net lease portfolio. Mr. Heimlich earned a bachelor’s degree in finance from Eastern Illinois University.

 

   

Jay Young, Age 52

Executive Vice President, Chief Administrative Officer and Chief Legal Officer (effective January 20, 2022) (Formerly Executive Vice President, General Counsel and Secretary (effective April 25, 2016))

 

 

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Jay Young serves as Executive Vice President, Chief Administrative Officer and Chief Legal Officer, effective January 20, 2022. In 2021, Mr. Young served as Executive Vice President, General Counsel and Secretary. In addition, Mr. Young serves on the Company’s Investment Committee and Management Operating Committee that monitors business activities and defines company strategy. Prior to joining Spirit in April 2016, Mr. Young served as Senior Vice President and General Counsel for Wingstop, Inc., Senior Vice President and General Counsel for CEC Entertainment, and in-house counsel for Wachovia Corporation and UBS. Mr. Young holds a bachelor’s degree in economics from Southern Methodist University, a Juris Doctor from the University of Oklahoma College of Law and a Master of Business Administration from the University of Oklahoma Price College of Business.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis and based on such review and discussions, recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

COMPENSATION COMMITTEE

Kevin M. Charlton, Chairperson

Richard I. Gilchrist

Nicholas P. Shepherd

Thomas J. Sullivan

This Compensation Discussion and Analysis describes our 2021 compensation program for our principal executive officer (Jackson Hsieh), our principal financial officer (Michael Hughes), and our two other executive officers during 2021 (Ken Heimlich and Jay Young) (collectively, our “Named Executive Officers” or “NEOs”).

In particular, this discussion and analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, how each element of our executive compensation program is designed to satisfy those objectives, and the policies underlying our 2021 executive compensation program and the compensation awarded to our Named Executive Officers for 2021. The following discussion and analysis of compensation arrangements of our Named Executive Officers should be read together with the compensation tables and related disclosures.

EXECUTIVE SUMMARY

Our Board and Compensation Committee place emphasis on ensuring our executive compensation program clearly links pay-to-performance. Additionally, our Compensation Committee and Board have made extensive changes to our executive compensation program based on direct feedback from our shareholders over the last few years.

In 2020, following an extensive shareholder outreach and engagement initiative, the Compensation Committee made a substantial number of changes to our executive compensation program, including a reduction in our CEO’s base salary and no increase in base salary for the other NEOs, a reduction in target annual cash bonus opportunity for our CEO, a reduction in target annual equity award value under our LTIP for our CEO, an increase to the portion of annual equity awards under our LTIP tied to performance from 50% to 60% for all NEOs and a reduction to the portion of the annual cash bonus tied to individual performance from 20% to 16% for all NEOs.

In 2021, to further demonstrate our commitment to pay-for-performance, the Compensation Committee increased the portion of our LTIP equity grants tied to performance for each NEO from 60% to 100%. In addition, the Compensation Committee added a new individual ESG-related performance metric to the 2021 cash bonus program emphasizing Spirit’s commitment to ESG.

 

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2021 Strategy, Performance and Financial Overview

Our executive compensation program is designed to emphasize pay-for-performance and reflect the value created for our shareholders, while supporting our business strategies, operational goals and long-range plans. In addition, our compensation program focuses on maintaining a strong link between our NEOs’ compensation and Company performance to assist the Company in attracting and retaining key executives critical to our long-term success. Coming off a turbulent 2020, we were able to shift from defense against COVID-19 and re-focus on our key business initiatives and goals- maximizing shareholder value by providing a growing stream of earnings and dividends generated by a high-quality, diversified commercial real estate portfolio.

Highlights for the year ended December 31, 2021 include:

 

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Please see Annex A for a reconciliation of non-GAAP measures FFO and AFFO per share.

 

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1 

The MSCI US REIT Index (RMZ) is a free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (REITs). It represents about 99% of the US REIT universe and securities are classified under the Equity REITs Industry according to the Global Industry Classification Standard (GICS®), have core real estate exposure and carry REIT tax status

 

2 

VEREIT, Inc. was acquired by Realty Income Corporation in November 2021, Retail Properties of America, Inc. was acquired by Kite Realty Group, L.P. in October 2021, and Washington Prime Group Inc. voluntarily delisted its shares of common stock from the NYSE in October 2021 and is now privately owned. As such, these peers have been excluded from this chart.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

2021 COMPENSATION PROGRAM HIGHLIGHTS

The table below details the changes discussed above, as well as other actions the Committee took in 2021 to address investors’ perspectives on our executive compensation program.

 

              
      LOGO      Increased the portion of our NEOs’ annual LTIP equity grants tied to performance from 60% to 100%, eliminating the portion attributable to time-vesting
              
      
              
            LOGO      Revised our proxy disclosure, providing additional and clear rationale with respect to how our pay is clearly linked to performance and detailing the vesting metrics of our performance share awards
              
      
              
   

 

LOGO

 

   Added an ESG-related goal for determining bonus attainment in connection with each NEO’s individual performance goals
              
      
              
      LOGO      Undertook a fresh evaluation of our peer group for 2021 compensation to ensure alignment of our 2021 programs with those of our peers
              

2021 Say-on-Pay Voting Results

The Compensation Committee values the perspectives and concerns of our shareholders regarding executive compensation, and our Board has determined that an advisory vote to approve our executive compensation program will be submitted to our shareholders on an annual basis. At our 2021 Annual Meeting of Shareholders, 84% of shares were represented at the meeting, and eligible to vote, cast votes FOR our executive compensation program.

2021 Shareholder Engagement Program

In 2021, we completed another successful Shareholder Engagement Program. Similar to our approach in 2020, we contacted each of our top ten shareholders as of September 30, 2021, representing 53.17% of outstanding shares at that time, and hosted calls with five of them. During these calls we addressed a handful of topics including our compensation program, ESG commitment, business strategy, and Board composition and refreshment efforts.

In connection with the insight gained from our Shareholder Engagement Program, in 2021 our Board revised our NEOs’ annual LTIP equity grants program to better align with our pay-for-performance philosophy by increasing the portion of such awards based on performance from 60% to 100% and eliminating the portion of such awards that vest solely based on the passage of time. In addition, the Compensation Committee included an ESG-related individual performance measure under the NEOs’ cash bonus program to strengthen our commitment to sound ESG practices. The Compensation Committee and the Board value the opinions of our shareholders and will continue to consider those opinions when making future executive compensation decisions that align compensation with the creation of value for our shareholders.

Compensation Philosophy and Objectives

The Compensation Committee believes that the executive compensation program should emphasize pay-for-performance and reflect the value created for our shareholders, while supporting our business strategies, operational goals and long-range plans. In addition, the Compensation Committee believes that such compensation should assist the Company in attracting and retaining key executives critical to our long-term success.

 

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Pay for Performance

We emphasize pay-for-performance by designing the executive compensation program to align Company-wide financial and operational achievements through the use of annual cash bonuses and performance-based long-term equity awards granted to our Named Executive Officers.

Attract and Retain Talent

Our executive compensation philosophy also recognizes that, given that the market for experienced management is highly competitive in our industry, the core of our success is our ability to attract and retain the most highly-qualified executives to manage each of our business functions.

Fundamentally, we believe executive officer compensation should be structured to provide competitive base salaries and benefits, which attract and retain superior executives. Additionally, we use annual performance-based cash compensation to motivate executive officers to attain (and reward them for attaining) financial, operational, individual and other goals that are consistent with increasing shareholder value.

Balanced Mix of Compensation, Weighted Towards Variable Pay Elements

The Compensation Committee believes that a balanced mix of compensation elements, significantly weighted towards variable at-risk pay elements, provides the intended alignment of executive compensation with the Company’s performance and shareholder interests. The structure also provides the necessary fixed and knowable minimum and short and long-term incentive opportunities necessary to attract, motivate and retain talented and experienced executive officers. In 2021, the Compensation Committee determined to grant each of our Named Executive Officers 100% performance share awards and 0% time-based restricted awards, increasing the weight towards at-risk pay as shown below and enhancing alignment with shareholder interests.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

The following graphs1 show the emphasis we placed on variable at-risk pay elements, such as performance-based cash bonuses and LTIP equity awards, for all of our Named Executive Officers in 2021:

 

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1 

Performance Share awards were calculated for purposes of the above graphics using the grant date fair value of such awards calculated in accordance with ASC Topic 718.

Commitment to Compensation Best Practices

We view the components of our executive compensation program as related but distinct, and we regularly reassess the total compensation of our Named Executive Officers to ensure that our overall compensation objectives are met. Our Compensation Committee meets frequently to address compensation matters and regularly reviews our executive compensation program to ensure that it provides competitive pay opportunities to help attract and retain highly-qualified and dedicated executive talent that is critical to our business.

In 2021, as part of its commitment to strong corporate governance and best practices, our Compensation Committee continued its engagement of Ferguson Partners Consulting (“FP”), an independent third-party compensation consultant, which provided advice on the compensation program. FP provided no other services to us in 2021 other than those provided directly to or on behalf of the Compensation Committee.

Each of the primary elements of our executive compensation program is discussed in more detail below. While we have identified particular compensation objectives that each element of executive compensation serves, our compensation program is designed to be flexible and complementary, and to collectively serve all of the executive compensation objectives described

 

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above. Accordingly, whether or not specifically mentioned below, we believe that as a part of our overall executive compensation policy, each individual element, to a greater or lesser extent, serves each of our compensation objectives and that collectively, they are effective in achieving our overall objectives.

Compensation Practices at a Glance

 

DO provide executive officers with the opportunity to earn market-competitive compensation through a mix of cash and equity compensation, with a strong emphasis on performance-based LTIP awards (our executives received only performance-based LTIP awards in 2021).

 

DO align pay and performance by linking a substantial portion of compensation to the achievement of pre-established performance metrics that drive shareholder value.

 

DO evaluate TSR when determining performance under LTIP performance share awards to enhance shareholder alignment.

 

DO cap payouts for awards under our annual bonus plan and LTIP plan.

 

DO require executive officers to own and retain shares of our common stock to further align interests with our shareholders.

 

DO enhance executive officer retention with multi-year performance periods for performance-based LTIP equity awards.

 

DO enable the Board to “claw back” incentive compensation in the event of a financial statement restatement pursuant to a recoupment policy.

 

DO maintain a Compensation Committee comprised solely of independent directors.

 

DO engage an independent compensation consultant to advise the Compensation Committee on executive compensation matters.

  

DO NOT base LTIP awards on a single performance metric, thereby discouraging unnecessary or excessive risk-taking.

 

DO NOT provide uncapped award opportunities.

 

DO NOT have employment agreements with executive officers that provide single-trigger change of control benefits.

 

DO NOT permit executive officers or directors to engage in derivative or other hedging transactions in our securities.

 

DO NOT provide executive officers with excessive perquisites or other personal benefits.

 

DO NOT permit executive officers or directors to hold our securities in margin accounts or pledge our securities to secure loans without pre-approval by the Audit and Compensation Committees (no executive officer or director pledged or held our securities in margin accounts at any time during 2021).

 

DO NOT provide for tax gross-up payments for compensation or benefits paid in connection with a change in control.

COMPENSATION DETERMINATION

Roles of our Compensation Committee and Chief Executive Officer in Compensation Decisions: The Compensation Committee oversees our compensation program for all Named Executive Officers, subject, in the case of our Chief Executive Officer, to the Board’s approval.

Our Chief Executive Officer evaluates the individual performance and contributions of each other Named Executive Officer and reports to the Compensation Committee his recommendations regarding their compensation. Our Chief Executive Officer does not participate in any formal discussion with the Compensation Committee or the Board regarding decisions on his own compensation and recuses himself from meetings when his compensation is discussed. The Board or the Compensation Committee, as applicable, approves compensation for each of the Named Executive Officers.

We do not solely rely on formulaic guidelines to determine the mix or levels of cash and equity-based compensation, but rather maintain a flexible compensation program that allows us to adapt components and levels of compensation to motivate, reward and retain individual Named Executive Officers within the context of our desire to attain financial and operational objectives consistent with our strategic goals and shareholder interests. Subjective factors considered in compensation determinations include the Named Executive Officer’s responsibilities, leadership abilities, skills, contributions as a member of the executive management team and to our overall performance, and whether the total compensation potential and structure is sufficient to ensure the retention of a Named Executive Officer when considering the compensation potential that may be available elsewhere.

Engagement of Compensation Consultants: For 2021, the Compensation Committee continued utilizing the services of FP to provide assistance to the Compensation Committee in reviewing market data on compensation, understanding industry executive compensation trends, determining and managing risks associated with elements of our executive compensation program, and assisting with the Company’s incorporation of responses we received from our shareholders in connection with our shareholder engagement efforts.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Peer Group

In 2021, using the below methodology and best practices, the Compensation Committee, with input from FP, analyzed the existing peer group as part of its annual review of executive and director compensation. After performing this analysis, the Compensation Committee determined no changes were needed from the 2020 peer group and that this group was appropriately situated for the Compensation Committee to assess 2021 compensation.

 

Spirit Realty Capital, Inc.’s Peer Composition Methodology

 

   

Consider size to identify peers that fall within the generally accepted size parameters of 0.5x to 2.0x our total capitalization

 

   

Consider operational activity and asset class to select other retail, net lease and/or asset management intensive REITs

 

   

Consider other characteristics such as geographic location and company performance

 

   

Consider other key questions such as:

       —Who are our direct competitors?

       —Who might analysts compare Spirit to?

       —Who do we compete with for recruiting talent or where might our employees find employment elsewhere?

       —Who cites Spirit as a peer?

The peers in the compensation peer group were selected primarily on the basis of appropriate size (as defined by total capitalization), although operational activity (net lease and/or asset management intensive REITs) and the additional characteristics listed above were also considered. Additionally, the Compensation Committee also considered asset class and geography when selecting the peers. At the time compensation was being determined for 2021, Spirit ranked in the 66th percentile by total market capitalization as of January 31, 2021 as compared to the 2021 Compensation Peer Group.

The peer group established in 2021 for setting 2021 compensation consists of the following 18 public REITs (the “2021 Compensation Peer Group”):

 

  Peer   Industry
  Medical Properties Trust, Inc.   Health Care
  VEREIT, Inc.*   Other Retail
  Federal Realty Investment Trust   Shopping Center
  STORE Capital Corporation   Diversified
  National Retail Properties, Inc.   Other Retail
  Healthcare Trust of America, Inc.   Health Care
  Macerich Company   Regional Mall
  EPR Properties   Diversified
  Paramount Group, Inc.   Office
  Sabra Health Care REIT, Inc.   Health Care
  Pebblebrook Hotel Trust   Hotel
  Acadia Realty Trust   Shopping Center
  Retail Properties of America, Inc.*   Shopping Center
  LXP Industrial Trust   Diversified
  Washington Prime Group Inc.*   Regional Mall
  Urban Edge Properties   Shopping Center
  Seritage Growth Properties   Other Retail
  RPT Realty   Shopping Center

 

*

VEREIT, Inc. was acquired by Realty Income Corporation in November 2021. Retail Properties of America, Inc. was acquired by Kite Realty Group, L.P. in October 2021. Washington Prime Group Inc. voluntarily delisted its shares of common stock in October 2021 and is now privately owned. These peers were still utilized by the Company for setting 2021 compensation due to the fact that compensation was set prior to the forgoing events.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

The total capitalization as of January 31, 2021 of the 2021 Compensation Peer Group was as follows:

 

 

LOGO

Also, beginning in 2020, the Board, in consultation with FP, selected a new performance peer group for purposes of assessing relative TSR performance under our LTIP performance share awards, which peer group remained unchanged for 2021, other than the addition of Four Corners Property Trust, Inc. as described further below. This allows performance-based equity compensation to be measured against a more focused net-lease peer group that is more closely aligned to the Company’s business. For 2021, this performance peer group (the “Performance Peer Group”) consisted of:

 

   

Agree Realty Corporation

  

Realty Income Corporation

   

EPR Properties

  

STORE Capital Corporation

   

Essential Properties Realty Trust, Inc.

  

VEREIT, Inc.*

   

LXP Industrial Trust

  

W.P. Carey, Inc.

   

National Retail Properties, Inc.

  

Four Corners Property Trust, Inc.

 

*

VEREIT, Inc. was acquired by Realty Income Corporation in November 2021 and is no longer part of the 2021 peer group. The Compensation Committee determined to add Four Corners Property Trust, Inc. to the peer group for the 2021 awards.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Program Components

Each of the following elements of our compensation program taken separately, and as a whole, are necessary to support the Company’s overall compensation objectives. The following table sets forth the key elements of our Named Executive Officers’ compensation, along with the primary objective associated with each element of compensation:

 

Pay Element

  2020 Program   Changes under 2021 Program    Objectives

Base Salary

 

•  Reduction in Base Salary for our CEO and no Base Salary increases for our other Named Executive Officers based on shareholder feedback

 

•  Reviewed annually and adjusted based on individual skill set, time in role, and pay relative to peers. Adjustments in 2021 were minimal

  

•  Compensate ongoing performance of job responsibilities and provide a fixed and knowable minimum income level as a necessary tool in attracting and retaining executives

Annual Cash

Bonus

 

•  84% tied to corporate objectives

•  16% tied to individual performance goals

 

•  85% tied to corporate objectives

•  15% tied to individual performance goals, including an analysis of ESG-related accomplishments for each Named Executive Officer

  

•  Incentivize and reward the attainment of short-term corporate objectives and individual contributions to the achievement of those objectives

•  Performance metrics selected drive shareholder value creation

Time-Based Restricted

Stock Awards

 

•  40% of LTIP equity awards are time-based and vest ratably over three years

 

•  None of our executives’ LTIP equity awards are solely time-based

  

•  To retain and motivate our executives and build stock ownership positions, aligning interests of our executives with shareholder interests and encouraging the maximization of shareholder value

Performance-

Based Awards

 

•  60% of our executives’ LTIP equity awards eligible to vest based on relative TSR performance measured over a three-year period

 

•  100% of our executives’ LTIP equity awards eligible to vest based on relative TSR performance measured over a three-year period

  

•  To emphasize long-term performance objectives, providing a pay-for-performance structure and rewarding executives for TSR objectives, aligning executive interests with shareholders

Base Salary — Providing Knowable Income Commensurate with Responsibilities and Experience:

We provide our Named Executive Officers with a base salary to compensate them for services rendered to our Company during the fiscal year. The base salary payable to each Named Executive Officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. Generally, factors considered for initial base salary amounts include, but are not limited to, the scope of the Named Executive Officer’s responsibilities, years of service, and general knowledge of our Compensation Committee or Chief Executive Officer of the competitive market based on, among other things, experience with other companies and our industry. The base salaries of our Named Executive Officers are reviewed periodically by our Compensation Committee or Chief Executive Officer, and merit salary increases have been made as deemed appropriate based on such factors including the scope of an executive officer’s responsibilities, individual contribution, prior experience and sustained performance.

Cash Bonus Program — Linking Short-Term Financial Performance and Strategic Initiatives to Compensation:

Annual cash bonuses are focused primarily on short-term Company financial performance, as well as individual performance metrics linked to important strategic initiatives. They are earned based upon achievement of Company-wide performance goals and the Compensation Committee’s assessment of individual performance for the applicable year.

Long Term Incentive Plan—Aligning Executive Compensation with Value Creation:

Our LTIP provides for restricted stock grants and performance share awards which vest over time to motivate and/or reward long-term, multi-year performance and facilitate retention of our executives. However, in 2021, in order to emphasize pay-for-performance, our Named Executive Officers received only performance share awards and no time-based restricted stock grants.

Time-based awards, which generally vest over a three-year period, create a balanced focus on the achievement of short-term and long-term financial and operational goals and stock price performance.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Performance share awards are “unit” awards and are earned based on performance over a three-year performance cycle. In 2021, pursuant to the performance share awards, each participant was eligible to vest in and receive shares of the Company’s common stock based on an initial target number of shares granted multiplied by a percentage ranging between 0% and 250% depending on the Company’s TSR relative to the TSR achieved by the Performance Peer Group during the performance period, which for the awards made in 2021, is from January 4, 2021 through December 31, 2023. The minimum, target and maximum TSR goals are the achievement of a TSR during the performance period that places the Company in the 25th, 55th or 80th percentile, respectively, of the TSRs achieved during the performance period by the companies in the Performance Peer Group. In the event that the Company’s TSR during the performance period is less than the minimum relative TSR goal, no performance shares will vest and all will be forfeited. The number of 2021 performance shares that vest will be further adjusted by a multiple that is based on the Company’s absolute TSR (150% if the Company’s TSR is equal to or greater than 14.7%, between 120%-150% based on straight line interpolation if the Company’s TSR is equal to or greater than 10% but less than 14.7%, between 80%-120% based on straight line interpolation if the Company’s TSR is greater than 0% but less than 10%, and 80% if the Company’s TSR is equal to or less than 0%). In no event, however, shall the maximum number of performance shares that vest exceed 375% of the target number of performance shares granted. For each performance share that ultimately vests, its holder is entitled to a cash payment equal to the aggregate dividends that would have been paid on the total number of performance shares as if such shares had been outstanding on each dividend record date over the period from the grant date through the issuance of the shares. In the event of a non-qualifying termination of a participant prior to the performance period end date, all of the rights to performance shares will be automatically forfeited along with the participant’s rights to the cash payment of any dividend equivalent.

In setting LTIP award levels, our Compensation Committee considers resulting total compensation to our executives, including all elements of compensation described above, our Company’s performance and the market for compensation of executives of competitors and other comparable market participants.

2021 EXECUTIVE COMPENSATION

The following describes the primary components of our 2021 executive compensation program for each of our Named Executive Officers, the rationale for each component and how compensation amounts were determined. As mentioned above, our Named Executive Officers for 2021 are our principal executive officer (Mr. Jackson Hsieh), our principal financial officer (Mr. Michael Hughes) and our other executive officers during 2021, our Executive Vice President and Chief Investment Officer (Mr. Ken Heimlich) and our Executive Vice President, Chief Administrative Officer and Chief Legal Officer (Mr. Jay Young). In 2021, Mr. Young’s title was Executive Vice President, General Counsel and Secretary. In January 2022, Mr. Young’s title became Executive Vice President, Chief Administrative Officer and Chief Legal Officer.

Base Salary

In its review of base salaries for 2021, the Compensation Committee considered the Company’s operating results and the positioning of the Company’s salaries for the Named Executive Officers as compared to similarly situated executives in the Company’s 2021 Compensation Peer Group.

The 2020 and 2021 base salaries for each Named Executive Officer are set forth in the table below.

 

Named Executive Officer

   2020
Base Salary ($)
    2021
Base Salary ($)
     Change in Salary (%)    

Jackson Hsieh

     875,000 (1)      901,250        3  

Michael Hughes

     463,500       477,405        3  

Ken Heimlich

     388,722       400,384        3  

Jay Young

     365,650       376,620        3  

 

(1)

Annualized base salary pursuant to and effective as of Mr. Hsieh’s Second Amended and Restated Employment Agreement dated February 27, 2020. This amount differs from the base salary reflected for Mr. Hsieh for fiscal year 2020 in the Summary Compensation Table herein due to the timing of Mr. Hsieh’s base annual salary decrease from $900,000 to $875,000, effective February 27, 2020.

Annual Performance Based Cash Incentive Compensation

We use cash bonuses to motivate our Named Executive Officers to achieve our short-term financial and strategic objectives, while making progress towards our longer-term growth and other goals. In February 2021, our Compensation Committee recommended, and our Board approved, the 2021 Cash Bonus Program (defined below), which ties our executives’ annual cash incentive awards closely to our financial performance, thereby aligning the interests of management with the interests of our shareholders. All of our Named Executive Officers were eligible to participate in the 2021 Cash Bonus Program.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Under the 2021 cash bonus program (“2021 Cash Bonus Program”), 85% of each executive officer’s cash bonus was based on the Company’s achievement of the following quantitative performance goals (i) Adjusted Debt to Annualized Adjusted EBITDAre (referred to herein as “Debt to EBITDA Leverage”); (ii) capital deployment (includes revenue producing capital expenditures and acquisitions made in accordance with the Company’s Investment Guidelines), and (iii) AFFO per share (collectively, the “2021 Key Performance Measures”) (the “2021 Cash Bonus”). This was an increase from 84% in 2020, 80% in 2019 and 75% in 2018. Accordingly, the portion of each executive officer’s cash bonus based on individual performance under the 2021 Cash Bonus Program was 15%, which was decreased from 16% in 2020, 20% in 2019 and 25% in 2018. Each executive’s individual performance is evaluated based on the Compensation Committee’s assessment of individual performance against pre-determined performance goals and includes an analysis of ESG-related accomplishments, with input from our Chief Executive Officer with respect to the other Named Executive Officers and from the Board with respect to our Chief Executive Officer (the “2021 Individual Bonus”).

Our Compensation Committee approved threshold, target and maximum bonus opportunities for each executive under the 2021 Cash Bonus Program, taking into consideration the degree of difficulty to achieve the targets, which are set forth below expressed as a percentage of each executive’s annual base salary:

 

Named Executive Officer

   Threshold
Bonus
    Target
Bonus
    Maximum
Bonus
 

Jackson Hsieh

     87.5     150     350

Michael Hughes

     62.5     125     200

Ken Heimlich

     62.5     125     200

Jay Young

     62.5     125     200

The Company’s performance goals and actual results under the 2021 Cash Bonus Program as to the 2021 Key Performance Measures were as follows:

 

2021 Key Performance Measures

   Threshold    Target    Maximum    Actual

Debt to EBITDA Leverage (1)

   5.7    5.5    5.3    5.1

Capital Deployment (2)

   $700MM    $800MM    $900MM    $1,257MM

AFFO per Share (3)

   $3.00    $3.05    $3.10    $3.31

 

(1)

Per the 2021 Cash Bonus Program, Debt to EBITDA Leverage assumes full settlement of forward contracts under the Company’s At-the-Market Program (refer to Annex A for further detail).

 

(2)

Per the 2021 Cash Bonus Program, capital deployment includes acquisitions and revenue producing capital expenditures made in accordance with the Company’s Investment Guidelines and stock repurchases made in accordance with the Company’s Stock Repurchase Program. In 2021, there were no stock repurchases made by the Company, and accordingly, the above “Actual Number” for this metric is comprised entirely of real estate acquisitions and revenue producing capital expenditures.

 

(3)

Refer to Annex A for our definition of AFFO per Share and a reconciliation of AFFO to net income.

Metric Selection

Details regarding the rationale for and results for each 2021 Key Performance Measure for the 2021 Company Performance Bonus are detailed below.

Debt to EBITDA Leverage

Weighting: 25%

Goals:

 

Threshold

     5.7  

Target

     5.5  

Maximum

     5.3  

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Why does this measure matter? Debt to EBITDA Leverage is a common measure used by REIT analysts and investors to assess and compare balance sheet health, access to the capital markets, cost of capital, ability to service debt and credit worthiness. The Compensation Committee believed these goals were appropriately challenging due to the necessity to continue accessing capital markets in 2021 in order to achieve attractive cost of capital and ensure appropriate levels of liquidity.

Result: Exceeded Maximum Performance Goal. Our 2021 Debt to EBITDA Leverage was 5.1, exceeding the maximum goal. The result was due to the prudent actions of our Named Executive Officers which led to funding approximately $1.2 billion in acquisitions with approximately $533.6 million net proceeds in equity. This result assumed full settlement of forward contracts under the Company’s At-the-Market Program. The Company also received a credit upgrade by Moody’s to Baa2, which gave Spirit a BBB equivalent rating across all three rating agencies.

Capital Deployment

Weighting: 30%

Goals:

 

Threshold

   $ 700 million  

Target

   $ 800 million  

Maximum

   $ 900 million  

Why does this measure matter? Effective capital deployment is essential to the operational and financial performance of REITs. Disciplined capital allocation through accretive acquisitions, complemented by equity and debt issuances at attractive cost of capital levels, reflect a REIT that has access to capital at an attractive cost relative to the returns generated by new acquisitions and the existing portfolio. Capital can also be deployed through the accretive repurchase of stock.

Result: Exceeded Maximum Performance Goal. Our 2021 Capital Deployment was approximately $1.257 billion, all of which were real estate acquisitions and revenue producing capital expenditures (there were no stock repurchases made by the Company in 2021), exceeding the maximum. This exceptional result was largely due to actions led by our Named Executive Officers, principally developing our sourcing effort from both acquisition and asset management teams and integrating processes of credit underwriting, real estate underwriting, research, lease administration, and property management teams; and efficient execution by the closing department.

AFFO Per Share

Weighting: 30%

Goals:

 

Threshold

   $ 3.00  

Target

   $ 3.05  

Maximum

   $ 3.10  

Why does this measure matter? AFFO per share is a common measure used by REIT analysts and investors to assess the operating performance of the Company. AFFO is a non-GAAP number which is reconciled to net income. The goals were consistent with our public guidance, and the Compensation Committee believed these goals were appropriately challenging due to the necessity to continue accessing capital markets in 2021 and to close accretive acquisitions in a highly competitive market.

Result: Exceeded Maximum Performance Goal. Our 2021 AFFO per share was $3.31, which exceeded the maximum goal. This exceptional result was largely due to actions led by our Named Executive Officers, principally our accretive acquisitions and revenue producing capital expenditures; approximately $1.3 billion in equity and an unsecured bond issuance where the favorable timing of the issuance reduced overall interest expense; improved portfolio metrics including over 99.5% occupancy; and improved tenant performance resulting in rent recoveries and improved net operating margin.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

2021 Individual Bonus

Individual performance under management

objectives established for each Named Executive Officer

Weighting: 15%

Goals:

When determining the amounts paid pursuant to the 2021 Individual Bonus, the Compensation Committee considered performance of each executive as it relates to: (i) the specific goals set forth below for each individual Named Executive Officer, (ii) actions taken that enhanced the Company’s environmental, social and governance initiatives, (iii) leadership, (iv) development and execution of overall business strategy, (v) risk management, and (vi) effective communications with the Board. The 2021 Individual Bonus is weighted as 15% of the 2021 Cash Bonus Program with 10% attributed to the achievement of the individual goals and performance and 5% attributed to the setting and attainment of the company’s ESG related goals.

Below are the specific goals that were set for each Named Executive Officer as to determination of the 2021 Individual Bonus. Individual objectives relate to areas of special emphasis within the executive’s particular responsibilities and duties, such as achieving certain departmental and Company strategic, financial and operating goals, making other extraordinary or unusual contributions, and appropriately managing the Company’s risk.

Jackson Hsieh, President and Chief Executive Officer

Mr. Hsieh’s individual goals and results for 2021 were generally as follows:

 

Goal

1.

  Oversee the acquisitions efforts of the Company to ensure a sustainable and steady acquisitions program, including the transition of the Company’s acquisition process to the Chief Investment Officer, a newly created role in 2021

2.

  Focus on continuing to build upon the ESG efforts of the Company

Overall Rating – Maximum Result

Michael Hughes, EVP and Chief Financial Officer

Mr. Hughes’ individual goals and results for 2021 were generally as follows:

 

Goal

1.

  Work collaboratively across all departments to ensure timely information flow and communication, proper controls over financial reporting including no restatements or material weaknesses, reasonableness of earnings, and “no surprises”

2.

  Continue to provide effective investor communications through targeted outreach, professional earnings and presentation materials, and strategic messaging

Overall Rating – Maximum Result

Ken Heimlich, EVP, Chief Investment Officer

Mr. Heimlich’s individual goals and results for 2021 were generally as follows:

 

Goal

1.

  Reach a certain range of Annualized Base Rent by year-end 2021

2.

  Rebuild the acquisitions platform and complete the integration of the Company’s asset management and acquisitions teams

Overall Rating – Maximum Result

 

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Jay Young, EVP, Chief Administrative Officer and Chief Legal Officer

Mr. Young’s individual goals and results for 2021 were generally as follows:

 

Goal

1.

  Continue to develop more senior members of the legal department through increased exposure to and responsibilities related to a variety of legal and HR matters

2.

  Continue leading the Company’s commitment to ESG including improving the Company’s ESG ratings provided by third-party rating agencies; ensuring meaningful impact from the Diversity, Equity and Inclusion Council, Women’s Leadership Council and Think Green Committee; and sustaining employee engagement and positive culture in a remote working environment

Overall Rating – Maximum Result

As discussed above, the setting and attainment of ESG related achievements for the Company was an additional goal for each Named Executive Officer, counting for 5% of the 2021 Individual Bonus.

Why does this measure matter? A review of each Named Executive Officer’s individual accomplishments and ESG efforts enables our Compensation Committee to evaluate the specific contributions of the Named Executive Officer to our success and more closely link pay to performance.

Overall Individual Bonus Result: Each of our Named Executive Officers demonstrated solid performance this year with respect to his tailored individual objectives. Further, each of our Named Executive Officers contributed meaningfully to the Company’s ESG efforts and achievements in 2021 as set forth on page 10 herein, including the release of the Company’s first ESG Report. All Named Executive Officers received a payout for the 2021 Individual Bonus portion of the total 2021 Cash Bonus that is between target and maximum. Payment of a bonus based on individual performance metrics that is between target and maximum in a year of strong individual performance is consistent with the Board’s philosophy. Each Named Executive Officer exceeded most of their respective goals and performed at the highest level.

Total Bonus Under the 2021 Cash Bonus Program: The table below shows the total target cash bonus, the actual bonus received, and the actual cash bonus compared to the target cash bonus, expressed as a percentage, for each Named Executive Officer under the 2021 Cash Bonus Program:

 

Named Executive Officer

   2021 Target Cash
Bonus (% of
Base Salary)
  2021 Target Cash
Bonus ($)
     Total 2021 Cash Bonus
Actually Received ($)
     Total 2021 Cash Bonus
Actually Received (%
of Base Salary)

Jackson Hsieh

   150%     1,351,875        3,109,313      345%

Michael Hughes

   125%     596,756        945,859      198%

Ken Heimlich

   125%     500,480        793,260      198%

Jay Young

   125%     470,775        746,178      198%

LTIP Equity Based-Incentives

The goals corresponding to our LTIP equity-based awards are intended to reward and encourage long-term corporate performance based on the value of our stock and, thereby, align our Named Executive Officers’ interests with those of our shareholders.

In 2021, we granted 100% performance share awards to our Named Executive Officers. Historically, we have provided a mix of time-based and performance share awards, but in an effort to emphasize pay-for-performance the Compensation Committee and Board determined only performance awards should be granted in 2021.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

The table below reflects target annual LTIP equity opportunities, and actual allocation of awards (based on grant date value), granted to our Named Executive Officers in 2021.

 

Named Executive Officer

   Target LTIP Value
(% of Base Salary)
    Actual LTIP Value
(% of Base
Salary)
    % of Actual LTIP
Value Awarded in
Restricted Stock
    % of Actual LTIP
Value Awarded in
Performance Shares
 

Jackson Hsieh

     500     500     0     100

Michael Hughes

     200     200     0     100

Ken Heimlich

     200     200     0     100

Jay Young

     200     200     0     100

Time-Based Restricted Stock Awards: In 2021, we did not make grants of restricted stock to our Named Executive Officers.

These awards are typically granted to incentivize and retain our Named Executive Officers and to further incentivize the executives to achieve performance expectations that we believe will correlate to increases in long-term shareholder value, which further aligns our Named Executive Officers’ interests with those of our shareholders. Our Named Executive Officers are entitled to receive dividends on unvested shares of time-based stock subject to these awards. The time-based stock awards generally are subject to vesting over a period of three years from the grant date and are subject to the executive’s continued employment with us. Historically, we have granted our Named Executive Officers a mix of time-based stock and performance share awards, but to emphasize pay-for-performance and alignment with shareholder interests, the Compensation Committee and Board determined only performance awards should be granted in 2021.

Performance Share Awards: In 2021, our Compensation Committee approved the grant of performance share awards in tandem with dividend equivalent rights to our Named Executive Officers. The vesting of performance shares is subject to our TSR achieved during the performance period relative to the TSR achieved by the specified Performance Peer Group as described below, as well as the Named Executive Officer’s continued employment.

With the assistance of our independent compensation consultant, our Compensation Committee deemed the following companies as those in our “Performance Peer Group” for 2021, which remain unchanged from 2020, other than the addition of Four Corners Property Trust, Inc., as described below:

 

  Performance Peer Group for 2021

 

Agree Realty Corporation

 

 

EPR Properties

 

 

Essential Properties Realty Trust, Inc.

 

 

LXP Industrial Trust

 

 

National Retail Properties, Inc.

 

 

Realty Income Corporation

 

 

STORE Capital Corporation

 

 

VEREIT, Inc.*

 

 

W.P. Carey, Inc.

 

 

Four Corners Property Trust, Inc.

 

 

 

*

VEREIT, Inc. was acquired by Realty Income Corporation in November 2021 and is no longer part of the 2021 peer group. The Compensation Committee determined to add Four Corners Property Trust, Inc. to the peer group for the 2021 awards.

For 2021, the target performance shares granted to each Named Executive Officer are below:

 

Named Executive Officer

   Target Number of Performance
Shares Granted
 

Jackson Hsieh

     109,401  

Michael Hughes

     23,180  

Ken Heimlich

     19,440  

Jay Young

     18,286  

 

 

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These awards were granted to incentivize and retain our participating Named Executive Officers while imposing performance expectations intended to reward increases in long-term shareholder value, which further aligns our Named Executive Officers’ interests with those of our shareholders.

The number of 2021 performance shares that vest is dependent on our TSR achieved during the performance period relative to the TSR achieved by the specified Performance Peer Group. Between 0% and 250% of the target performance shares will be eligible to vest based on the achievement of minimum, target and maximum TSR goals relative to the TSR achieved by the Performance Peer Group. The minimum, target and maximum TSR goals are the achievement of a TSR during the performance period that places the Company in the 25th, 55th or 80th percentile, respectively, of the TSRs achieved during the performance period by the companies in the Performance Peer Group. In the event that the Company’s TSR during the performance period is less than the minimum TSR goal, the 2021 performance shares will be forfeited, and no shares will vest.

The number of 2021 performance shares that vest based on our relative TSR performance will be further adjusted based on the Company’s absolute TSR. If our absolute TSR is equal to 0% or negative, the number of shares will be reduced by 20%, if our absolute TSR is above 0% but less than 10% on a compounded, annual growth rate or CAGR basis, the award will be adjusted based on straight line linear interpolation from a reduction of 20% to an increase of 20%, if our absolute TSR is above 10% but less than 14.7% CAGR, the awards will be adjusted based on straight line linear interpolation from an increase of 20% to an increase of 50% and if our TSR exceeds a 14.7% CAGR (which equates to a 50% cumulative TSR), the number of shares will be increased by 50%. The maximum number of 2021 performance shares that may vest is 375%.

If any of our Named Executive Officers voluntarily terminate their employment with the Company without “good reason” or the Company terminates their employment for “cause” prior to the vesting of any performance share, all unvested performance shares (including any dividend equivalents) will be forfeited in their entirety.

If an executive experiences a termination of employment by the Company without “cause” or due to a non-extension of the executive’s employment agreement or by the executive for “good reason” during the performance period, then the greater of the target performance shares and actual performance based on achievement of the performance goals as of the termination date will vest immediately prior to such termination.

Each performance share award also entitles its holder to a cash payment equal to the aggregate dividends that would have been paid on the total number of performance shares that vest, had such shares been outstanding on the record date(s) that occur over the period from the applicable grant date through the issuance of the shares, if any.

For additional information regarding the vesting terms and conditions applicable to all outstanding performance share awards held by our Named Executive Officers, refer to “Potential Payments Upon Termination or Change of Control” below.

Performance Share Awards Earned Based on Performance through 2021

In 2019, we granted certain of our Named Executive Officers performance share awards that were eligible to vest at the end of 2021 based on our TSR performance relative to the TSR achieved by two set performance peer groups during the 2019—2021 performance period. For those performance shares vesting on December 31, 2021:

 

  (1)

Mr. Hsieh earned 161,762 shares, 250% of the total shares granted in 2019, which represents the maximum performance level

 

  (2)

Mr. Hughes earned 30,292 shares, 250% of the total shares granted in 2019, which represents the maximum performance level

 

  (3)

Mr. Heimlich earned 25,405 shares, 250% of the total shares granted in 2019, which represents the maximum performance level

 

  (4)

Mr. Young earned 23,897 shares, 250% of the total shares granted in 2019, which represents the maximum performance level

Additionally, in 2018 we granted a performance share award to Mr. Hughes in connection with his appointment as Chief Financial Officer of the Company that was eligible to vest in 2021 based on our TSR performance relative to that of specified peer groups of companies during the performance period (April 1, 2018 - April 1, 2021). In 2021, Mr. Hughes earned 26,678 shares, 155.3% of the total shares granted in 2018.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Performance Share Awards – Target versus Summary Compensation Table Grant Date Fair Value

In response to investor feedback received during our shareholder engagement efforts, we have decreased the target value of our CEO’s total compensation greatly since 2018.

 

LOGO

In tandem with decreasing target pay, we have increased the risk-profile of our CEO’s compensation by increasing the percentage of the LTIP equity tied to performance, which was increased from 60% in 2020 to 100% in 2021. The performance share awards are tied to rigorous TSR goals, which require the Company to outperform TSR of certain peers to achieve target and failure to achieve threshold TSR results in complete forfeiture of shares. Although we feel the increase to 100% performance-based awards demonstrates our commitment to pay-for-performance, accounting standards require that the grant date fair value of performance-based awards is calculated using the Monte Carlo” simulation for certain compensation tables, including the Summary Compensation Table, which requires that the grant date fair value be adjusted to reflect any increase or reduction in value that is appropriate for the probability that the market condition might or might not be met. As a result of this requirement, as well as a higher than typical volatility (one of the main components of the simulation), and the increase to 100% performance-based awards, the grant date fair value for the 2021 LTIP, as reflected in the Summary Compensation Table (“SCT”), is higher than the target value. In fact, the reported equity values reported in the SCT for 2021 are 188% of target value, despite target long-term incentive awards increasing only marginally (3% increase) on a target value basis and target compensation overall decreasing 9% since 2018.

 

Jackson Hsieh Target Compensation(1)

   2018      2019      2020     2021  

Base Salary ($)

     900,000        900,000        875,000       901,250  

Target Cash Bonus (% of Base Salary)

     175%        175%        150%       150%  

Target Cash Bonus ($)

     1,575,000        1,575,000        1,312,500       1,351,875  

Target LTIP (2) ($)

     4,950,000        4,950,000        4,375,000       4,506,250  

Time-Based LTIP as a % of Total LTIP

     50%        50%        40%       0%  

Performance-Based LTIP as a % of Total LTIP

     50%        50%        60%       100%  

Target Total Compensation ($)

     7,425,000        7,425,000        6,562,500       6,759,375  

 

Summary Compensation Table Disclosed LTIP(3)

   2018      2019      2020     2021  

Performance-Based LTIP ($)

     3,304,218        3,296,720        3,793,432       8,486,236  

Total LTIP ($)

     5,779,217        5,771,686        5,543,393       8,486,236  

Summary Compensation Table LTIP vs Target LTIP

     117%        117%        127%       188%  

 

(1)

Performance share award values within this table are based on target compensation and therefore differ from values reflected in the Summary Compensation Table which are based on the grant date fair value calculated in accordance with ASC Topic 718.

 

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(2)

Value excludes Mr. Hsieh’s one-time promotion performance share award, as well as incremental shares awarded in connection with a spin-off transaction, as these amounts were not part of our annual LTIP program.

 

(3)

Values within this table are based on grant date fair value calculated in accordance with ASC Topic 718 and therefore differ from target compensation values reflected in the table above.

STOCK OWNERSHIP AND RETENTION GUIDELINES

The Company has adopted stock ownership guidelines for our Named Executive Officers. We believe that linking a significant portion of an officer’s current and potential future net worth to the Company’s success, as reflected in our stock price, helps to ensure that officers have a stake similar to that of our shareholders. Stock ownership guidelines also encourage long-term management of the Company for the benefit of its shareholders. The guidelines require the Named Executive Officers to own a minimum number of shares of stock valued as a set percentage of base salary. Each officer is expected to satisfy the applicable ownership requirement within five years after first becoming subject to the guidelines. The table below reflects the current stock ownership guidelines:

 

Position

   Percentage of Base Salary  

Chief Executive Officer

   500%

Chief Financial Officer

   300%

Executive Vice President

   200%

The types of ownership arrangements counted towards the guidelines are: common stock, whether held individually, jointly, or in trust with or for the benefit of an immediate family member, and unvested restricted stock. Unearned performance shares are not included.

All of the Named Executive Officers are in compliance with the stock ownership guidelines.

RETIREMENT SAVINGS

We have established a 401(k) retirement savings plan for our employees, including our Named Executive Officers, who satisfy certain eligibility requirements. Our Named Executive Officers are eligible to participate in the 401(k) plan on the same terms as other employees. The Internal Revenue Code of 1986, as amended (the “Code”) allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. Currently, we provide a safe harbor matching contribution equal to 100% of elective deferrals up to 4% of the employee’s compensation. These matching contributions are 100% vested as of the date on which the contribution is made. We believe that providing a vehicle for tax-deferred retirement savings through our 401(k) plan, and making fully vested matching contributions, adds to the overall desirability of our executive compensation package and further incents our employees, including our Named Executive Officers, in accordance with our compensation policies. The plan also allows employees to contribute on an after-tax basis through Roth 401(k) contributions.

EMPLOYEE BENEFITS AND PERQUISITES

All of our full-time employees, including our Named Executive Officers, are eligible to participate in our health and welfare plans, including:

 

   

Medical and dental benefits, as well as vision discounts;

 

   

Health care flexible spending accounts;

 

   

Health savings accounts;

 

   

Short-term and long-term disability insurance;

 

   

Accidental death and dismemberment insurance;

 

   

Life insurance;

 

   

Supplemental health insurance plan discounts

We design our employee benefits programs to be affordable and competitive in relation to the market, and we modify our employee benefits programs as needed based upon regular monitoring of applicable laws and practices in the competitive market.

These benefits are provided to our Named Executive Officers on the same general terms as they are provided to all of our full-time employees, with the exception of certain additional supplemental long-term disability insurance and life insurance, which

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

covers participating executives (including our Named Executive Officers). We may also reimburse certain of our Named Executive Officers for reasonable legal fees and expenses incurred in connection with the negotiation of an employment agreement, individual life insurance policies, annual physical exams, and/or for costs associated with relocating and/or temporary living expenses. We believe that providing these benefits is a relatively inexpensive way to enhance the competitiveness of the executives’ compensation packages.

We may provide perquisites or other personal benefits in limited circumstances, where we believe it is appropriate to assist an individual Named Executive Officer in the performance of his duties, to make our Named Executive Officers more efficient and effective, and for recruitment, motivation and/or retention purposes. Future practices with respect to perquisites or other personal benefits for our Named Executive Officers will be approved and subject to periodic review by our Compensation Committee. We do not expect these perquisites to be a material component of our compensation program.

SEVERANCE AND CHANGE OF CONTROL-BASED COMPENSATION

As more fully described below under the caption “Potential Payments Upon Termination or Change of Control,” the employment agreements with our Named Executive Officers that were in effect during 2021 provided for certain payments and/or benefits upon a qualifying termination of employment or in connection with a change of control. We believe that job security and terminations of employment, both within and outside of the change of control context, are causes of significant concern and uncertainty for senior executives and that providing protections to our Named Executive Officers in these contexts is therefore appropriate in order to alleviate these concerns and allow the executives to remain focused on their duties and responsibilities to our Company in all situations. These are described and quantified below under “Potential Payments Upon Termination or Change in Control.”

TAX AND ACCOUNTING CONSIDERATIONS

Code Section 409A: Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”), requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities, penalty taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, it is our intention to design and administer our compensation and benefits plans and arrangements for all of our employees and other service providers, including our Named Executive Officers, so that they are either exempt from, or satisfy the requirements of, Section 409A.

Code Section 280G: Section 280G of the Code, or Section 280G, disallows a tax deduction with respect to excess parachute payments to certain executives of companies which undergo a change of control. In addition, Section 4999 of the Code imposes a 20% excise tax on the individual with respect to the excess parachute payment. Parachute payments are compensation linked to or triggered by a change of control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from long-term incentive plans including stock options, restricted stock and other equity-based compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G based on the executive’s prior compensation. In approving the compensation arrangements for our Named Executive Officers, our Compensation Committee considers all elements of the cost to the Company of providing such compensation, including the potential impact of Section 280G. However, the Compensation Committee may, in its judgment, authorize compensation arrangements that could give rise to loss of deductibility under Section 280G and the imposition of excise taxes under Section 4999 when it believes that such arrangements are appropriate to attract and retain executive talent. The Board has adopted a policy that the Company will not enter into any plan, program, policy, agreement or arrangement that provides for the payment or the reimbursement of any excise tax imposed under Section 4999 of the Code by operation of Section 280G of the Code.

Accounting for Stock-Based Compensation: We follow the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, or ASC Topic 718, for our stock-based compensation awards. ASC Topic 718 requires companies to calculate the grant date “fair value” of their stock-based awards using a variety of assumptions. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based awards in their income statements over the period that an employee is required to render service in exchange for the award. Grants of stock options, restricted stock, performance share awards and other equity-based awards, as applicable, under our equity incentive award plans are accounted for under ASC Topic 718. Our Compensation Committee will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.

 

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COMPENSATION TABLES

Summary Compensation Table

The following table sets forth information concerning the compensation of our Named Executive Officers for the years ended December 31, 2021, 2020 and 2019:

 

Name and

Principal Position

   Year     

Salary

($)

   

Stock

Awards ($)(1)

     Non-Equity
Incentive Plan
Compensation ($)
(2)
     All Other
Compensation ($)
    Total ($)  

Jackson Hsieh

President and Chief

Executive Officer

     2021        901,250       8,486,236        3,109,313        53,179 (3)      12,549,978  
     2020        879,170 (4)      5,543,393        1,766,864        54,020       8,243,447  
     2019        900,000       5,771,686        2,992,500        55,313       9,719,499  

Michael Hughes

Executive Vice President

and Chief Financial Officer

     2021        477,405       1,798,073        945,859        21,940 (3)      3,243,277  
     2020        463,500       1,174,554        608,217        19,740       2,266,011  
     2019        463,500       1,080,836        892,238        11,839       2,448,413  

Ken Heimlich

Executive Vice President and
Chief Investment Officer

     2021        400,384       1,507,961        793,260        24,434 (3)      2,726,039  
     2020        388,722       985,025        510,092        25,049       1,908,888  
     2019        388,722       906,450        748,290        26,983       2,070,445  

Jay Young

Executive Vice President,

Chief Administrative Officer, and Chief Legal Officer

     2021        376,620       1,418,445        746,178        20,959 (3)      2,562,202  
     2020        365,650       926,539        479,816        19,064       1,791,069  
     2019        365,650       852,663        703,876        26,067       1,948,256  
               

 

(1)

Amounts for 2021 represent the grant date fair value of performance share awards calculated in accordance with ASC Topic 718. Grants remain subject to vesting and/or forfeiture pursuant to their terms. For a discussion of the assumptions used to calculate the value of performance share awards made to Named Executive Officers, refer to Note 9 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. See “Compensation Discussion and Analysis—2021 Executive Compensation—Performance Share Awards—Target versus Summary Compensation Table Grant Date Fair Value” for discussion of the value resulting from the grant date fair value calculation in accordance with ASC Topic 718 versus target values. As market condition awards, the grant date fair value of the performance share awards is the full grant date fair value, as adjusted to reflect any increase or reduction in value that is appropriate for the probability that the market condition might or might not be met. Information with respect to vesting of the 2021 awards is disclosed in the Grants of Plan-Based Awards table and the accompanying notes.

 

(2)

This column reflects the performance-based amounts paid under our cash bonus programs. The 2021 Cash Bonus Program consists of two separate measurements/categories. The 2021 Individual Bonus opportunity is weighted at 15% of the total and is based on individual performance assessed against pre-determined goals and 85% of the total bonus opportunity is based on the achievement of the 2021 Key Performance Measures. See “Compensation Discussion and Analysis—2021 Executive Compensation—Annual Performance-Based Cash Incentive Compensation” for a detailed discussion of the 2021 Cash Bonus Program.

 

(3)

Includes compensation and perquisites paid to, or on behalf of, our Named Executive Officers during 2021 as described under “All Other Compensation” below.

 

(4)

Represents salary actually earned in 2020. Pursuant to Mr. Hsieh’s Second Amended and Restated Employment Agreement, effective as of February 27, 2020, Mr. Hsieh’s annual base salary was reduced from $900,000 to $875,000. The base salary amount reflected above differs slightly due to the timing of Mr. Hsieh’s base annual salary decrease from $900,000 to $875,000, which occurred as of February 27, 2020 on a going-forward basis.

All Other Compensation

 

Name

   401(k) Plan
Company
Contributions ($)
(1)
     Life
Insurance ($)
(2)
     Supplemental
Long-Term
Disability  ($)
(3)
     Physical
Exam ($)
(4)
     Total ($)  

Jackson Hsieh

     11,408        35,000        4,771        2,000        53,179  

Michael Hughes

     11,600        1,907        6,433        2,000        21,940  

Ken Heimlich

     11,600               12,834               24,434  

Jay Young

     9,423        1,803        8,233        1,500        20,959  

 

(1)

Amounts represent Company safe harbor matching contributions to the accounts of our Named Executive Officers in the Company’s 401(k) plan.

 

(2)

Amounts represent life insurance premiums paid by the Company for policies on behalf of our Named Executive Officers.

 

(3)

Amounts represent premium payments by the Company for supplemental long-term disability insurance policies for our Named Executive Officers.

 

(4)

Amounts reported represent amounts incurred by the Company in 2021 for executive physical expenses for Named Executive Officers.

 

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COMPENSATION TABLES

 

Grants of Plan-Based Awards in 2021

 

         

 

Estimated Possible Payouts
Under Non-Equity Incentive Plan
Awards(1)

    Estimated Future Payouts Under
Equity Incentive Plan Awards(2)
   

All Other
Stock
Awards:
Shares of
Stock (#)

 

   

Grant Date
Fair Value
of Stock
Awards ($)(3)

 

 

Name

  Grant Date     Threshold ($)     Target ($)     Max ($)     Threshold (#)     Target (#)     Max (#)  

Jackson Hsieh

    N/A       788,594       1,351,875       3,154,375                                        
    2/17/2021                               58,376       109,401       410,253             8,486,236  
                 

Michael Hughes

    N/A       298,378       596,756       954,810                                        
    2/17/2021                               12,368       23,180       86,925             1,798,073  
                 

Ken Heimlich

    N/A       250,240       500,480       800,768                                        
    2/17/2021                               10,373       19,440       72,900             1,507,961  
                 

Jay Young

    N/A       235,388       470,775       753,240                                        
    2/17/2021                               9,757       18,286       68,572             1,418,445  
                 

 

(1)

The amounts for each Named Executive Officer under these columns represent the potential total value of the 2021 Cash Bonus, consisting of (1) the 2021 Company Performance Bonus that could have been earned for 2021 (and paid in 2022) under the 2021 Cash Bonus Program based on our achievement in 2021 of the 2021 Key Performance Measures relating to (i) Debt to EBITDA Leverage, (ii) Capital Deployment, and (iii) AFFO per share, and (2) the 2021 Individual Bonus, based on achievement of individual performance goals.

 

  

At the threshold, target and maximum levels of achievement of the performance goals, Mr. Hsieh could have earned a bonus equal to 87.5%, 150% and 350%, respectively, of his annual base salary and Messrs. Hughes, Heimlich and Young could each have earned a bonus equal to 62.5%, 125% and 200%, respectively, of his annual base salary. Please also see “Compensation Discussion and Analysis—2021 Executive Compensation—Annual Performance-Based Cash Incentive Compensation” for a detailed discussion of the 2021 Cash Bonus Program.

 

(2)

The performance share awards were awarded in 2021 for the performance period running from January 4, 2021 through December 31, 2023. The minimum number of shares that would vest based on achieving a TSR equal to the 25th percentile of the range of total shareholder returns during the performance period of the companies included in the Performance Peer Group is equal to 66.7% of the performance shares granted. The target number of shares that would vest based on achieving a TSR equal to the 55th percentile of the range of total shareholder returns during the performance period of the companies included in the Performance Peer Group is equal to 100% of the performance shares granted. The maximum number of shares that would vest based on achieving a TSR equal to or in excess of the 80th percentile of the range of total shareholder returns during the performance period of the companies included in the Performance Peer Group is equal to 250% of the performance shares granted. The number of the 2021 performance shares that vest are subject to further adjustment based on the Company’s absolute TSR as follows: (1) if our TSR is equal to or less than 0%, the number of performance shares that vest and become payable will equal the amount that would have vested based on the TSR noted above (25th, 55th or 80th percentile) multiplied by 80%, (2) if our TSR is greater than 0% and less than 10%, the number of performance shares that vest and become payable will equal the amount that would have vested based on the TSR noted above (25th, 55th or 80th percentile) multiplied by a percentage between 80% and 120%, determined by straight line interpolation between the two levels, (3) if our TSR is equal to or greater than 10% and less than 14.7%, the number of performance shares that vest and become payable will equal the amount that would have vested based on the TSR noted above (25th, 55th or 80th percentile) multiplied by a percentage between 120% and 150%, determined by straight line interpolation between the two levels, (4) if our TSR is greater than 14.7%, the number of performance shares that vest and become payable will equal the amount that would have vested based on the TSR noted above (25th, 55th or 80th percentile) multiplied by 150% . In no event, however, shall the maximum number of performance shares that vest exceed 375% of the target number of performance shares granted. Accordingly, the “threshold” number of shares shown is 53.36% of target and the “maximum” number of shares shown is 375% of target, in each case, of the performance shares granted. The “target” number of shares shown is 100% of the performance shares granted. Please see the section “Compensation Discussion and Analysis-2021 Executive Compensation-LTIP Equity Based Incentives” for a detailed discussion of the performance share awards.

 

(3)

Amounts represent the grant date fair value of performance share awards granted during 2021, calculated in accordance with ASC Topic 718. There were no time-based restricted shares granted during 2021. The fair value of the performance share awards is estimated using a Monte Carlo simulation based on the probable outcome at the time of grant. For a discussion of the assumptions used to calculate the value of performance share awards made to Named Executive Officers, refer to Note 9 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

 

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COMPENSATION TABLES

 

Compensation Table Narrative

Narrative Disclosure to Compensation Tables

The following provides a description of the material terms of each Named Executive Officer’s employment agreement that was in effect in 2021.

In addition to the terms described below, each of the employment agreements also provides for certain payments and benefits upon a termination without “cause,” for “good reason” (each, as defined in the applicable employment agreement) or as a result of the Company’s non-extension of the employment term, which are described under the caption “Potential Payments Upon Termination or Change of Control” below.

Jackson Hsieh

Pursuant to his Second Amended and Restated Employment Agreement dated February 27, 2020, Mr. Hsieh serves as President and Chief Executive Officer of the Company. The term of his employment agreement will expire (unless earlier terminated) on February 27, 2023 and automatically renew for additional one-year terms. During the employment term, Mr. Hsieh is entitled to receive a base salary at an annual rate of not less than $875,000, subject to increase at the discretion of the Board or a committee thereof. In addition, Mr. Hsieh is eligible to receive an annual cash incentive payment under the Company’s annual bonus plan targeted at 150% of his base salary (with a maximum bonus opportunity equal to 350% of his base salary) based on the achievement of one or more pre-established performance criteria established by our Board or a committee thereof, in its sole discretion, which for 2021 were the criteria of the 2021 Cash Bonus Program discussed above. Additionally, Mr. Hsieh is eligible to receive long-term incentive awards under any plans that may be adopted by the Company, and the value of his equity awards as of fiscal year end 2021 was targeted at 500% of his base salary. Pursuant to his employment agreement, Mr. Hsieh’s long-term incentive awards are allocated as 40% time-based awards vesting ratably over three years and 60% performance-based awards vesting over a three-year performance period; however, the Board has discretion to adjust these allocations. In 2021, the Board determined to grant Mr. Hsieh 100% performance-based awards and no time-based awards.                 

If Mr. Hsieh voluntarily terminates his employment with the Company without “good reason,” or is terminated for “cause” or by non-extension of his employment agreement, prior to the vesting of any restricted stock or performance shares, all unvested restricted stock and/or performance shares will be forfeited in their entirety.

Mr. Hsieh is eligible to participate in customary health, welfare and fringe benefit plans. He is also entitled to receive Company-paid premiums for a $3.5 million term life insurance policy and up to $2,000 per year for an annual physical examination. Mr. Hsieh’s employment agreement contains customary confidentiality, non-compete, non-solicitation, non-disparagement and intellectual property provisions.

Michael Hughes

Pursuant to his Employment Agreement dated March 20, 2018, as amended February 27, 2020, Mr. Hughes serves as Executive Vice President and Chief Financial Officer of the Company effective April 1, 2018. His employment agreement automatically renewed on April 1, 2022. The term of his employment agreement will expire (unless earlier terminated) on April 1, 2023 and will automatically renew for additional one-year terms. During the employment term, Mr. Hughes will receive a base salary at an annual rate of not less than $450,000 which is subject to increase at the discretion of the Board or Compensation Committee. In addition, Mr. Hughes is eligible to receive an annual cash performance incentive payment under the Company’s annual bonus plan targeted at 125% of his base salary (with a maximum bonus opportunity equal to 200% of his base salary) based on the achievement of one or more pre-established performance goals established by our Board, or a committee thereof, in its sole discretion, which for 2021 were the criteria of the 2021 Cash Bonus Program discussed above. Mr. Hughes is eligible for annual long-term incentive awards with a target date-of-grant value of 200% of his annual base salary. Pursuant to his employment agreement, Mr. Hughes’ annual long-term incentive awards are allocated as 40% time-based award vesting ratably over three years and 60% performance-based award vesting over a three-year performance period; however, the Board or Compensation Committee has discretion to adjust these allocations. In 2021, the Board determined to grant Mr. Hughes 100% performance-based awards and no time-based awards.

If Mr. Hughes voluntarily terminates his employment with the Company without “good reason” or is terminated for “cause” or by non-extension of his employment agreement, prior to the vesting of any restricted stock or performance shares, all unvested restricted stock and/or performance shares will be forfeited in their entirety.

 

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Under his employment agreement, Mr. Hughes is eligible to participate in customary health, welfare and fringe benefit plans. He is also entitled to receive Company-paid premiums for a $1.0 million term life insurance policy and up to $2,000 per year for an annual physical examination. Mr. Hughes’ employment agreement contains customary confidentiality, non-solicitation, non-disparagement and intellectual property provisions.

Ken Heimlich

Pursuant to his Employment Agreement dated April 3, 2018, as amended February 27, 2020, Mr. Heimlich serves as Executive Vice President and Chief Investment Officer for the Company effective April 3, 2018 (note Mr. Heimlich obtained the title of Chief Investment Officer in January 2021). His employment agreement automatically renewed on April 3, 2022. The term of his employment agreement will expire (unless earlier terminated) on April 3, 2023 and will automatically renew for additional one-year terms. During the employment term, Mr. Heimlich will receive a base salary at an annual rate not less than $377,400. Mr. Heimlich is eligible to receive an annual cash incentive payment under the Company’s annual bonus plan with a target bonus opportunity equal to 125% of Mr. Heimlich’s annual base salary and a maximum bonus opportunity equal to 200% of Mr. Heimlich’s annual base salary upon attainment of one or more pre-established performance goals established by the Board or a committee thereof, which for 2021 were the criteria of the 2021 Cash Bonus Program discussed above. Mr. Heimlich is eligible for annual long-term incentive awards of 200% of his annual base salary. Pursuant to his employment agreement, Mr. Heimlich’s annual long-term incentive awards are allocated as 40% time-based award vesting ratably over three years and 60% performance-based award vesting over a three-year performance period; however, the Board or Compensation Committee has discretion to adjust these allocations. In 2021, the Board determined to grant Mr. Heimlich 100% performance-based awards and no time-based awards.

If Mr. Heimlich voluntarily terminates his employment with the Company without “good reason” or is terminated for “cause” or by non-extension of his employment agreement, prior to the vesting of any restricted stock or performance shares, all unvested restricted stock and/or performance shares will be forfeited in their entirety.

Under his employment agreement, Mr. Heimlich is eligible to participate in customary health, welfare and fringe benefit plans. He is also entitled to receive Company-paid premiums for a $1.0 million term life insurance policy and up to $2,000 per year for an annual physical examination. Mr. Heimlich’s employment agreement contains customary confidentiality, non-solicitation, non-disparagement and intellectual property provisions.

Jay Young

Pursuant to his Amended and Restated employment agreement dated April 3, 2018, as amended February 27, 2020, Mr. Young served as Executive Vice President, General Counsel and Corporate Secretary of the Company. His employment agreement automatically renewed on April 3, 2021. The term of his employment agreement was set to expire (unless earlier terminated) on April 3, 2022 with automatic renewals for additional one-year terms. During the employment term, Mr. Young was eligible to receive a base salary at an annual rate not less than $355,000. Mr. Young is eligible to receive an annual cash incentive payment under the Company’s annual bonus plan with a target bonus opportunity equal to 125% of Mr. Young’s annual base salary and a maximum bonus opportunity of 200% of Mr. Young’s annual base salary upon attainment of one or more pre-established performance goals established by the Board or a committee thereof. Mr. Young is eligible for annual long-term incentive awards of 200% of his annual base salary. Pursuant to his employment agreement, Mr. Young’s annual long-term incentive awards are allocated as 40% time-based award vesting ratably over three years and 60% performance-based award vesting over a three-year performance period; however, the Board or Compensation Committee has discretion to adjust these allocations. In 2021, the Board determined to grant Mr. Young 100% performance-based awards and no time-based awards.

If Mr. Young voluntarily terminates his employment with the Company without “good reason” or is terminated for “cause” or by non-extension of his employment agreement, prior to the vesting of any restricted stock or performance shares, all unvested restricted stock and/or performance shares will be forfeited in their entirety.

Mr. Young is eligible to participate in customary health, welfare and fringe benefit plans. He is also entitled to receive Company-paid premiums for a $1.0 million term life insurance policy and up to $2,000 per year for an annual physical examination. Mr. Young’s employment agreement contains customary confidentiality, non-solicitation, non-disparagement and intellectual property provisions.

On January 24, 2022, Mr. Young entered into a Second Amended and Restated employment agreement. Pursuant to his restated employment agreement, Mr. Young now serves as Executive Vice President, Chief Administrative Officer and Chief Legal Officer. The terms and conditions of his restated employment agreement are the same as his prior employment agreement, as amended, outlined above, except that the term of his restated employment agreement will expire on January 24, 2023, unless earlier terminated, and will automatically renew for additional one-year terms. During the employment term,

 

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COMPENSATION TABLES

 

Mr. Young will receive a base salary at an annual rate not less than $376,620. Lastly, Mr. Young’s annual long-term incentive awards may be granted as time-based vesting awards, vesting ratably over three years, as performance-vesting awards, vesting over a three-year performance period, or as a combination thereof, as determined by the Board or Compensation Committee in its sole discretion.

Outstanding Equity Awards at 2021 Fiscal Year-End: The following table summarizes the number of shares of our common stock and other securities underlying outstanding LTIP equity awards for each Named Executive Officer as of December 31, 2021.

 

Name

   Grant Date      Number of Shares
of Stock That Have
Not Vested (#)
(1)
     Market Value of
Shares of Stock
That Have
Not Vested ($)
(2)
    

Equity Incentive
Plan Awards:
Number of
Unearned

Shares That
Have Not
Vested (#)
(3)

    

Equity Incentive  
Plan Awards:

Market or Payout  
Value of
Unearned

Performance
Shares Not
Vested ($)
(2)

 

Jackson Hsieh

     1/25/2019        21,569        1,039,410                
     2/27/2020        25,052        1,207,256        140,915        6,790,694  
     2/17/2021                      410,253        19,770,092  

Michael Hughes

     1/25/2019        4,039        194,639                
     2/27/2020        5,308        255,793        29,857        1,438,809  
     2/17/2021                      86,925        4,188,916  

Ken Heimlich

     1/25/2019        3,388        163,268                
     2/27/2020        4,452        214,542        25,040        1,206,678  
     2/17/2021                      72,900        3,513,051  

Jay Young

     1/25/2019        3,187        153,582                
     2/27/2020        4,188        201,820        23,552        1,134,971  
     2/17/2021                      68,572        3,304,485  

 

(1)

This column shows time-based restricted stock awards that have not yet vested. The time-based restricted stock awards will vest in three equal annual installments, generally on or about the first through third anniversaries of the date of grant, subject to the executive’s continued employment with the Company through the applicable vesting date(s) and conditions of the grant agreement. Our Named Executive Officers did not receive any time-based restricted stock awards in 2021.

 

(2)

For purposes of this table, the market value of time-based restricted shares and unearned performance shares of our common stock that have not vested is calculated based on the closing trading price of our common stock ($48.19) as reported on the NYSE on December 31, 2021.

 

(3)

This column shows unearned performance share awards that have not yet vested. Per SEC guidelines, if performance has exceeded threshold, we are required to disclose the next highest performance measure level exceeding the prior fiscal year’s performance. Accordingly, for all awards exceeding the threshold performance goal as of 12/31/2021, we have reported the value of the performance share awards for each grant listed above at the next highest performance level exceeding such performance as of 12/31/2021. See the section “Compensation Discussion and Analysis—2021 Executive Compensation—Performance Share Awards” for a detailed discussion of the vesting of the performance share awards.

2021 Option Exercises and Stock Vested: We have not granted any stock options to our Named Executive Officers at any time. The following table summarizes vesting of restricted stock and performance share awards applicable to our Named Executive Officers during the year ended December 31, 2021:

 

Name

   Number of
Shares Acquired Upon
Vesting (#)
(1)
     Value Realized On  
Vesting ($)
(2)  
 

Jackson Hsieh

     216,954        9,982,018  

Michael Hughes

     68,817        3,108,049  

Ken Heimlich

     34,234        1,574,072  

Jay Young

     33,337        1,525,609  

 

(1)

Represents restricted stock and performance shares that vested in 2021.

 

(2)

Amounts shown are calculated based on the fair market value of our common stock on the applicable vesting date.

 

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COMPENSATION TABLES

 

Potential Payments upon Termination or Change of Control:

Employment Agreements: Under the employment agreements in place during 2021 for our Named Executive Officers, if the executive’s employment had been terminated by the Company without “cause,” by the executive for “good reason” (each, as defined in the applicable employment agreement) or by reason of the Company’s failure to extend the term of the executive’s employment agreement at the end of the initial three-year employment term or at the end of the one-year extension period(s) thereafter, then in addition to any accrued amounts such executives would be entitled to receive additional severance payments as outlined below.

Mr. Hsieh would be entitled to receive the following:

 

  (1)

a lump-sum payment totaling two times Mr. Hsieh’s annual base salary then in effect (unless termination is within 60 days prior to, on, or within 24 months following a change in control, in which case three times Mr. Hsieh’s annual base salary);

 

  (2)

a lump-sum payment equal to Mr. Hsieh’s earned but unpaid annual bonus for the prior year, plus a pro-rata portion of Mr. Hsieh’s bonus earned in the year of termination, and an amount totaling two times Mr. Hsieh’s target bonus (unless termination is within 60 days prior to, on, or within 24 months following a change in control, in which case three times Mr. Hsieh’s target bonus);

 

  (3)

accelerated vesting of any time-based equity awards;

 

  (4)

accelerated vesting of any performance-based equity awards which will vest at the greater of “target” and the actual performance based on the achievement of the performance goals as of the termination date; and

 

  (5)

up to 24 months of continued health care premiums for Mr. Hsieh and his eligible dependents.

Mr. Hughes would be entitled to receive the following:

 

  (1)

a lump-sum payment totaling two times Mr. Hughes’ annual base salary then in effect;

 

  (2)

a lump-sum payment equal to Mr. Hughes’ target bonus for the year of termination;

 

  (3)

a lump-sum payment equal to a pro-rata portion of Mr. Hughes’ bonus earned in the year of termination and any earned but unpaid annual bonus from the prior year;

 

  (4)

accelerated vesting of any time-based equity awards;

 

  (5)

accelerated vesting of any performance-based equity awards which will vest at the greater of “target” and the actual performance based on the achievement of the performance goals as of the termination date; and

 

  (6)

up to 24 months of continued health care premiums for Mr. Hughes and his eligible dependents.

Mr. Heimlich would be entitled to receive the following:

 

  (1)

a lump-sum payment totaling two times Mr. Heimlich’s annual base salary then in effect;

 

  (2)

a lump-sum payment equal to Mr. Heimlich’s target bonus for the year of termination;

 

  (3)

a lump-sum payment equal to a pro-rata portion of Mr. Heimlich’s bonus earned in the year of termination and any earned but unpaid annual bonus from the prior year;

 

  (4)

accelerated vesting of any time-based equity awards;

 

  (5)

accelerated vesting of any performance-based equity awards which will vest at the greater of “target” and the actual performance based on the achievement of the performance goals as of the termination date; and

 

  (6)

up to 12 months of continued health care premiums for Mr. Heimlich and his eligible dependents.

Mr. Young would be entitled to receive the following:

 

  (1)

a lump-sum payment totaling two times Mr. Young’s annual base salary then in effect;

 

  (2)

a lump-sum payment equal to Mr. Young’s target bonus for the year of termination;

 

  (3)

a lump-sum payment equal to a pro-rata portion of Mr. Young’s bonus earned in the year of termination and any earned but unpaid annual bonus from the prior year;

 

  (4)

accelerated vesting of any time-based equity awards;

 

  (5)

accelerated vesting of any performance-based equity awards which will vest at the greater of “target” and the actual performance based on the achievement of the performance goals as of the termination date; and

 

  (6)

up to 12 months of continued health care premiums for Mr. Young and his eligible dependents.

 

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COMPENSATION TABLES

 

Each executive’s right to receive the severance payments described above is subject to continued compliance with certain restrictive covenants and his delivery of an effective general release of claims in favor of the Company. Furthermore, under the employment agreements in place during 2021, in the event that the executive is terminated by reason of his or her death or disability, the executive would be entitled to receive, in addition to payment of accrued compensation and benefits through the date of termination, an amount equal to any earned but unpaid prior year’s bonus and also an amount equal to the annual bonus for the year in which the termination occurs based on actual results, pro-rated for the portion of the year of termination during which the executive was employed with the Company, accelerated vesting of time-based equity awards and accelerated vesting of any performance-based equity awards (which will vest at the greater of “target” and the actual performance based on the achievement of the performance goals as of the termination date).

If an executive voluntarily terminates his or her employment with the Company without “good reason” or the Company terminates the executive’s employment for “cause” prior to the vesting of any time-based restricted stock or performance shares, the unvested restricted stock and/or performance shares (including any dividend equivalents) will be forfeited in their entirety.

Generally, “good reason” is defined in each of our Named Executive Officer’s employment agreements as the occurrence of any of the following circumstances, without the express written consent of the employee, unless such circumstances are fully corrected in all material respects by the Company within 30 days following written notification by the employee to the Company of the occurrence of such circumstances:

 

(i)

material diminution in the employee’s duties, authorities or responsibilities (other than temporarily while physically or mentally incapacitated or as required by applicable law), including without limitation, (A) removal of the employee from their designated role within the Company, (B) the employee no longer reporting directly and exclusively to the CEO (for Messrs. Hughes, Heimlich and Young) or exclusively to the Board (for Mr. Hsieh), or (C) the Company’s common stock ceasing to be publicly traded or, following a Change in Control (as defined in the Plan), the Employee ceases to have their current title of the surviving entity in such transaction (including, without limitation, the ultimate parent of such entity);

 

(ii)

relocation of the employee’s primary work location by more than 50 miles from its then current location;

 

(iii)

a material breach by the Company or any of its affiliates of any of their material obligations to the employee; or

 

(iv)

material diminution in the Employee’s Base Salary, Target Bonus or Target LTIP (as defined in each applicable employment agreement).

Summary of Potential Payments: In accordance with SEC rules, the following table summarizes the payments that would be made to certain of our Named Executive Officers upon the occurrence of certain qualifying terminations of employment, assuming such Named Executive Officer’s termination of employment with the Company occurred on December 31, 2021 and, where relevant, that a change of control of the Company occurred on December 31, 2021. Amounts shown in the table below do not include (1) accrued but unpaid salary and (2) other benefits earned or accrued by the Named Executive Officer during his employment that are available to all salaried employees, such as accrued vacation.

 

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COMPENSATION TABLES

 

Name

  Benefit   Termination
Upon Death
($)
    Termination
Upon
Disability
($)
    Termination
Without
Cause, For
Good
Reason or
due to
Company
Non-
Renewal of
Employment
Agreement
(No Change
of Control)
($)
   

Change of
Control (No

Termination)

($)

    Termination
Without
Cause, For
Good
Reason or
due to
Company
Non-
Renewal of
Employment
Agreement
(Change of
Control) ($)
 

Jackson Hsieh

  Cash Severance (1)     3,109,313       3,109,313       7,615,563             9,868,688  
 

Accelerated Vesting of

Restricted Stock (2)

    2,246,666       2,246,666       2,246,666             2,246,666  
 

Accelerated Vesting of

Performance Shares (3)

    15,201,536       15,201,536       15,201,536             15,201,536  
  Dividend Equivalent Rights     990,584       990,584       990,584             990,584  
  Healthcare coverage                 37,974             37,974  
  Life Insurance (4)     3,500,000                          
  Disability Insurance (5)           1,078,880                    
      Total     25,048,099       22,626,979       26,092,323               28,345,448  

Michael Hughes

  Cash Severance (1)     945,859       945,859       2,497,425             2,497,425  
 

Accelerated Vesting of

Restricted Stock (2)

    450,432       450,432       450,432             450,432  
 

Accelerated Vesting of

Performance Shares (3)

    3,220,875       3,220,875       3,220,875             3,220,875  
  Dividend Equivalent Rights     208,572       208,572       208,572             208,572  
  Healthcare coverage                 37,974             37,974  
  Life Insurance (4)     1,000,000                          
  Disability Insurance (5)           4,580,000                    
      Total     5,825,738       9,405,738       6,415,278               6,415,278  

Ken Heimlich

  Cash Severance (1)     793,260       793,260       2,094,508             2,094,508  
 

Accelerated Vesting of

Restricted Stock (2)

    377,810       377,810       377,810             377,810  
 

Accelerated Vesting of

Performance Shares (3)

    2,701,242       2,701,242       2,701,242             2,701,242  
  Dividend Equivalent Rights     174,923       174,923       174,923             174,923  
  Healthcare Coverage                 15,530             15,530  
  Life Insurance (4)                              
  Disability Insurance (5)           2,940,000                    
      Total     4,047,235       6,987,235       5,364,013               5,364,013  

Jay Young

  Cash Severance (1)     746,178       746,178       1,970,193             1,970,193  
 

Accelerated Vesting of

Restricted Stock (2)

    355,401       355,402       355,402             355,402  
 

Accelerated Vesting of

Performance Shares (3)

    2,540,818       2,540,818       2,540,818             2,540,818  
  Dividend Equivalent Rights     164,532       164,532       164,532             164,532  
  Healthcare Coverage                 12,453             12,453  
  Life Insurance (4)     1,000,000                          
  Disability Insurance (5)           2,736,000                    
      Total     4,806,929       6,542,930       5,043,398               5,043,398  

 

(1)

Represents cash severance payments provided under the Named Executive Officer’s employment agreement. Amount assumes that the executive has already received any earned prior year’s bonus and that there is no unpaid base salary.

 

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COMPENSATION TABLES

 

(2)

Represents the aggregate value of the Named Executive Officer’s restricted common stock that would have vested on an accelerated basis, determined by multiplying the number of shares of restricted stock that would have been accelerated by the closing trading price of our common stock on December 31, 2021 ($48.19).

 

(3)

Represents the aggregate value of the Named Executive Officer’s performance shares that would have vested on an accelerated basis. The value of the performance share awards is determined by the greater of (i) the target number of performance shares that would have been accelerated by the closing trading price of our common stock on December 31, 2021 ($48.19) and (ii) actual performance based on achievement of performance goals as of the date of termination or change in control (which, for purposes of this table, is presumed to occur December 31, 2021).

 

(4)

Amounts represent potential life insurance policy benefits paid out by the insurer under the applicable policy based on current enrollment.

 

(5)

Amounts represent potential disability insurance policy benefits paid out by the insurers under the applicable executive’s standalone long-term disability policies, assuming a maximum monthly payout until the maximum age stated in the respective policies.

NON-EMPLOYEE DIRECTOR COMPENSATION

Our Board believes that the compensation paid to our non-employee directors should be competitive with public companies in our industry with similar enterprise value, market capitalization and total assets, and should enable us to attract and retain individuals of the highest quality to serve as our directors. In addition, the Board believes that a significant portion of non-employee director compensation should align director interests with the long-term interests of our shareholders. Accordingly, pursuant to the Director Compensation Program, as modified effective November 17, 2021 (the “Amended Director Compensation Program”), non-employee directors receive a combination of cash and equity-based compensation for their services, and beginning in 2022, directors have the option to elect to receive all or a portion of their cash compensation in restricted stock valued at 125% of the applicable cash value. Each of these components is described below.

We also reimburse each non-employee director for travel and other expenses associated with attending Board and committee meetings, director education programs and other Board-related activities. Mr. Hsieh, the only member of the Board employed by us, does not receive compensation for his service as a director.

CASH COMPENSATION

The cash compensation paid to, or earned by, our non-employee directors in 2021 was comprised of the following components:

 

   

Quarterly Board retainer: Each non-employee director received a retainer of $17,500 for each calendar quarter in which he or she served as a director.

 

   

Quarterly committee chair retainers: The chairs of the Audit, Compensation and Nominating and Corporate Governance Committees each received a retainer of $6,250, $6,250 and $3,750 (increased to $6,250 pursuant to the Amended Director Compensation Program), respectively, for each calendar quarter of service as the chair of such committee. The Lead Independent Director received a retainer of $7,500 for each calendar quarter of service.

 

   

Quarterly committee retainers: Each non-employee director serving as a non-chair member of the Audit, Compensation and Nominating and Corporate Governance Committees received a retainer of $2,500, $2,500 and $1,562.50 (increased to $2,500 pursuant to the Amended Director Compensation Program), respectively, for each calendar quarter of service as a member of such committee.

 

   

Board fees: After the occurrence of eight (8) meetings of the Board, each non-employee director received $1,500 for each Board meeting he or she attended in-person or telephonically.

Each non-employee director had the option to receive all or a portion of the aggregate payments to which such non-employee director was entitled in shares of our common stock. In 2021, no non-employee director chose to receive any portion of their cash compensation in the form of common stock. Per the Amended Director Compensation Program, beginning in calendar year 2022, each Director has the option to elect to receive all or a portion (in 25% increments) of the aggregate cash payments earned by such Director with respect to the next calendar year in restricted stock. Restricted stock granted in connection with such election will be valued at 125% of the applicable cash value and will vest on the first anniversary of the applicable grant date, subject to continued service. This modification further incentivizes our Directors to take compensation in the form of equity, thereby promoting alignment of director interests with the long-term interests of our shareholders.

EQUITY-BASED COMPENSATION

The Director Compensation Program provides for an annual grant of restricted stock covering a number of shares having a value equal to $110,000 to each director serving on the Board as of the date of each annual meeting or on the date of the director’s initial election or appointment. In addition, the director who is serving as chairman of the Board as of the date of each annual meeting is granted an additional restricted stock award with a value of $100,000. Accordingly, Mr. Gilchrist received an additional grant in 2021 equal to $100,000 for his service as chairman of the Board. Restricted stock, which has been granted, will fully vest on the first anniversary of the election or appointment. In addition, under the Plan, the total aggregate value of equity-based awards granted to any non-employee director during any calendar year may not exceed $500,000.

 

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COMPENSATION TABLES

 

Pursuant to the Amended Director Compensation Program, beginning on May 18, 2022, the date of the Annual Meeting, each director serving on the Board as of the date of each annual meeting of shareholders or on the date of the director’s initial election or appointment, will be eligible to receive an annual grant of restricted stock having a value equal to $130,000.

2021 Non-Employee Director Compensation Table: The following table sets forth the compensation awarded or paid to our non-employee directors during 2021. This table excludes Mr. Jackson Hsieh, our President and Chief Executive Officer, who did not receive compensation for his services as a director. All compensation paid to Mr. Hsieh in 2021 is provided in the Summary Compensation Table.

 

Name

  

Fees Earned in  Cash(1)

($)

    

Stock Awards(2)

($)

    

Total

($)

 

Diana M. Laing

     98,000        109,995        207,995  

Elizabeth F. Frank

     88,688        109,995        198,683  

Kevin M. Charlton

     96,500        109,995        206,495  

Kristian M. Gathright

     48,070        109,995        158,065  

Michelle M. Frymire

     49,451        109,995        159,446  

Nicholas P. Shepherd

     90,188        109,995        200,183  

Richard I. Gilchrist

     113,000        209,986        322,986  

Sheli Z. Rosenberg(4)

     30,769               30,769  

Thomas D. Senkbeil(4)

     33,173               33,173  

Thomas Sullivan

     49,451        109,995        159,446  

Todd A. Dunn(3)

     90,500        109,995        200,495  

 

(1)

Amount reflects (a) annual retainers and, if applicable, committee and committee chair retainers earned in 2021 and (b) Board meeting fees.

 

(2)

Amounts reflect the grant date fair value of restricted stock awards granted in 2021 computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of all restricted stock awards made to directors in Note 9 to our consolidated financial statements included in our Annual Report on Form 10-K for the period ended December 31, 2021.

 

(3)

In February 2022, Mr. Dunn formally notified Spirit of his decision not to stand for reelection at the Annual Meeting. Mr. Dunn will continue to serve as a director until the expiration of his term at the Annual Meeting.

 

(4)

Ms. Rosenberg and Mr. Senkbeil determined not to stand for reelection at the 2021 Annual Meeting on May 19, 2021 and thus each of their director terms ended immediately following the 2021 Annual Meeting.

As of December 31, 2021, each non-employee director held 2,386 shares of (unvested) restricted shares of our common stock, except for Mr. Gilchrist, who held 4,555 (unvested) restricted shares.                

 

Chief Executive Officer Pay Ratio Disclosure

As required by Section 953(b) of the Dodd-Frank and Item 402(u) of Regulation S-K, we are providing the following information regarding the relationship of the annual total compensation of our Chief Executive Officer to the annual total compensation of our median compensated employee. We consider the pay ratio specified below to be a reasonable estimate, calculated in a manner that is intended to be consistent with the requirements of Item 402(u) of Regulation S-K.

For 2021, our last completed fiscal year:

 

   

the annual total compensation of the employee who represents our median compensated employee (other than our Chief Executive Officer) was $122,763; and

 

   

the annual total compensation of our Chief Executive Officer was $12,549,978

Based on this information, for 2021, our Chief Executive Officer’s annual total compensation was 102.23 times that of the median compensated employee (other than the Chief Executive Officer).

Determining the Median Employee:

Employee Population

We used December 31, 2021 as the reference date for identifying our median employee. As of such date, our employee population consisted of 83 individuals, excluding Mr. Hsieh, all of whom were full-time employees.

 

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COMPENSATION TABLES

 

Methodology for Determining Our Median Employee

To identify the median employee from our employee population, we selected compensation as reported to the IRS on Form W-2 as the most appropriate measure of compensation.

Annual Total Compensation of Median Compensated Employee

With respect to the annual total compensation of the employee who represents our median compensated employee, we calculated the elements of such employee’s compensation for 2021 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $122,763.

Annual Total Compensation of Chief Executive Officer

For purposes of determining our pay ratio, we determined Mr. Hsieh’s annual total compensation for 2021 was $12,549,978, which, as required by SEC rules, includes his base salary for 2021 as well as the other compensation granted to and earned by him during 2021 for his services and reflected in the Summary Compensation Table above.

EQUITY COMPENSATION PLAN INFORMATION

Equity Compensation Plan Table: The following table provides information with respect to shares of our common stock that may be issued under our existing equity compensation plan. The following table provides information as of December 31, 2021 regarding compensation plans under which our equity securities are authorized for issuance:

 

Plan Category

   Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights (a)
(2)
     Weighted Average Exercise
Price of Outstanding
Options, Warrants and
Rights ($)
     Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(excluding securities
reflected in (a))
 

Equity compensation plans approved by shareholders(1)

     258,053        N/A        1,634,722  

Equity compensation plans not approved by shareholders

                    

Total

     258,053                 1,634,722  

 

(1)

Consists of shares of common stock reserved for future issuance pursuant to our Amended and Restated 2012 Incentive Award Plan, which was initially adopted by our Board in connection with the closing of our IPO in 2012.

 

(2)

Includes 258,053 outstanding target performance shares that have been granted, but not yet issued, as of December 31, 2021. Grantees of performance shares granted in fiscal year end 2020 are eligible to vest in up to 300% of the target number of performance shares. Grantees of performance shares granted in fiscal year end 2021 are eligible to vest in up to 375% of the target number of performance shares.

 

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CORPORATE GOVERNANCE

Spirit is committed to strong corporate governance principles and practices, which we believe serve the long-term interests of our shareholders by promoting effective risk oversight and management accountability.

Highlights of Spirit’s sound governance principles and practices include:

 

      

 

LEADERSHIP

and

INDEPENDENCE

    

•  Independent Chairperson of the Board

•  8 of 9 Director Nominees are independent

•  Independent Board committees

         
      

 

ACCOUNTABILITY

and RESPONSIVENESS

    

 

•  Annual election of all Directors

•  Regular shareholder outreach

•  Comprehensive annual Board evaluations

•  Committee Chair Rotation

         
     SHAREHOLDER RIGHTS     

 

•  No dual class common stock – 1 vote per 1 share

•  Majority voting standard in director elections

•  50% threshold to amend Bylaws

•  Plurality voting standard in contested elections

•  Opted out of the Maryland Unsolicited Takeover Act (MUTA)

         
    

EFFECTIVENESS

and

ALIGNMENT

    

 

•  Board diversity across multiple factors

•  Appropriate Board succession planning

•  Board review of senior management succession planning

•  Minimum stock ownership requirements for Board members and certain executives

•  Anti-hedging and derivative policy

         
   
    

EFFECTIVE CONTROLS

 

    

 

•  Disclosure Committee with established controls for timely and accurate disclosures

•  Regular evaluation of related party transactions

•  Board Investment Committee responsible for assisting the Board in discharging its responsibilities as to the review and approval of certain real estate acquisitions

•  Annual Board evaluation of independence

 

OUR BOARD OF DIRECTORS

We believe that strong corporate governance starts with having an independent,

diverse, engaged, and highly skilled Board.

The Spirit Board meets all of these criteria.

Leadership Structure

Pursuant to our Bylaws, the Board has discretion to determine whether to separate or combine the roles of Chief Executive Officer and Chairman of the Board. At the current time, the Board believes that our existing leadership structure—under which our Lead Independent Director is the Chairman of the Board—effectively allocates authority, responsibility and oversight between management and the independent members of our Board and achieves the optimal governance model for us and for our shareholders.

 

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CORPORATE GOVERNANCE

 

The roles of Chairman of the Board and Chief Executive Officer have been separated since May 2017. This leadership structure gives primary responsibility for the operational leadership and strategic direction of the Company to our Chief Executive Officer, while the Chairman of the Board facilitates our Board’s independent oversight of management and promotes communication between management and our Board.

Richard I. Gilchrist serves as Lead Independent Director and Chairman of the Board. As Chairman and Lead Independent Director, Mr. Gilchrist leads the activities of the Board, including:

 

   

Calling meetings of the Board and independent directors;

 

   

Setting the agendas and schedules of Board meetings in consultation with the Chief Executive Officer and Secretary;

 

   

Chairing executive sessions of the independent directors;

 

   

Conducting annual performance reviews of the Chief Executive Officer;

 

   

Meeting directly with management and non-management employees of the Company;

 

   

Engaging with shareholders; and

 

   

Performing such other duties as may be assigned from time to time by the Board.

ESG Reporting Flow Chart

Our ESG efforts are ultimately overseen by our Board and committees thereof. Our Nominating and Corporate Governance Committee has key responsibility for ESG oversight and making ESG-related recommendations to the full Board. The Committee also oversees the development of Spirit’s annual ESG Report and holds primary responsibility over Spirit’s ESG strategy, including ESG-related policies and procedures and incorporating ESG-related topics into the Board’s education and development programs. The Committee receives ESG-related updates from the ELT at least quarterly and on an as-needed basis.

Our Audit and Compensation Committees also oversee ESG-related responsibilities specific to their committee scope. The chart below outlines the flow of ESG reporting within our organization as well as some of the core ESG-related responsibilities of each committee of the Board.

While we recognize corporate responsibility as integral to our business and frequently stress the importance of its integration through all business functions, we also acknowledge that the formation of separate working committees facilitates a frequent discussion of these important topics and helps our business take actionable ESG measures. That is why, in addition to assigning responsibility at the Board level, we have also established several committees that meet regularly and report to Spirit’s ELT, which further report to our Board. Members of Spirit’s ELT and senior management sit on each of the internal ESG committees, as well as the ESG Task Force, to remain informed as well as involved in decision-making.

 

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LOGO

 

LOGO

 

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Key Human Capital Management, Environmental and Community Initiatives

As outlined in the flow chart above, our engaged Board oversees Spirit’s human capital management, community, and environmental initiatives. In 2021, our Board or Board committees received updates or discussed environmental, human capital management or social matters affecting the Company on at least eleven occasions.

Selected Areas for Board and Committee Oversights:

 

           
      Audit Committee    Compensation
Committee
   Nominating and
Corporate
Governance
Committee
   Board
Investment
Committee
   Full Board of
Directors
           

Corporate Strategy

                      
           

Enterprise Risk Management

                    
           

Legal and Regulatory Compliance

                    
           

Certain Real Estate Acquisitions

                    
           

Cyber Security

                    
           

Environment

                    
           

Climate Change

                    
           

Human Capital Management

                    
           

Diversity and Inclusion

                    
           

Shareholder Engagement

                    
           

Board and Executive Succession

                    

Board Diversity

Spirit strongly believes that a diverse board is an effective board. This diversity – across gender, tenure, age, race/ethnicity, and experience – brings with it a diversity of ideas and perspectives that support the Board’s role in overseeing the Company’s ongoing strategic objectives.

Our 2022 Director nominee composition reflects this commitment to diversity:

 

 

LOGO

Independence

NYSE listing standards require NYSE-listed companies to have a majority of independent board members and an audit committee, compensation committee and nominating and corporate governance committee, each composed solely of independent directors. Under the NYSE listing standards, in addition to other factors, no director of a company qualifies as “independent” unless the board of directors of such company affirmatively determines that the director has no material relationship with such company (either directly, or indirectly as a partner, shareholder or officer of an organization that has a relationship with such company).

 

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Not less than annually, the Board evaluates the independence of each director on a case-by-case basis by considering any matters that could affect his or her ability to exercise independent judgment in carrying out the responsibilities of a director, including all transactions and relationships between such director, members of his or her family and organizations with which such director or family members have an affiliation, on the one hand, and us, our subsidiaries and our management, on the other hand. Any such matters are evaluated from the standpoint of the director and the persons or organizations with which the director has an affiliation. Each director abstains from participating in the determination of his or her independence.

Based on its most recent review, the Board has affirmatively determined that, based on the standards set forth in the NYSE rules and our corporate governance documents, each of the following directors and director nominees has no direct or indirect material relationship with us and qualifies as “independent” under the NYSE listing standards: Kevin M. Charlton, Todd A. Dunn, Elizabeth F. Frank, Michelle M. Frymire, Kristian M. Gathright, Richard I. Gilchrist, Diana M. Laing, Nicholas P. Shepherd, and Thomas J. Sullivan. Mr. Hsieh is not considered independent under the NYSE listing standards due to his employment as our Chief Executive Officer and President.

Board Engagement and Attendance

Our Board provides guidance and oversight with respect to our financial and operating performance, ESG, strategic plans, key corporate policies and decisions, and enterprise risk management. Our Board considers and approves significant acquisitions, dispositions, and capital raises, as well as other material transactions, and advises and counsels senior management on key financial and business objectives. Members of the Board monitor our progress with respect to these matters on a regular basis with the assistance of our senior management team.

In effectuating this guidance and oversight role, our Board held a total of 10 meetings during 2021. Evidencing a strong commitment to the Company, the majority of directors attended 100% of the Board meetings held in 2021 that occurred while they were serving as a Director, with each Director attending at least 78% of the total meetings of the Board and all committees on which she or he served, during the time of service.

Our independent directors regularly meet in executive sessions, outside the presence of management – generally, at each regularly scheduled quarterly Board meeting and at other times as necessary or desirable. The Lead Independent Director chairs all regularly scheduled executive sessions of the Board and all other meetings of the independent directors. Members of our Audit, Compensation and Nominating and Corporate Governance Committees also regularly meet in executive session, outside the presence of management, at committee meetings and at other times as necessary or desirable.

We strongly encourage, but do not require, directors to attend our annual meetings of shareholders. We had full attendance by our Board members at the 2021 virtual meeting. We have scheduled the Annual Meeting at a time and date to permit attendance by directors and intend to make every effort to do so for future annual meetings of the shareholders, taking into account the directors’ schedules and the timing requirements of applicable law.

Annual Board Assessment Process

The Board recognizes that a comprehensive and constructive evaluation process is critical to our Board’s ongoing effectiveness and a key component of good corporate governance. While we have conducted a thorough Board evaluation in prior years, in 2019, in appreciation of the importance of this evaluation process and to ensure the integrity and candor of the evaluation process, our Board utilized the services of a third-party, independent consultant to conduct our formal annual Board evaluations. In 2020 and 2021, we took all the knowledge and best practices learned from the third-party, independent consultant in 2019 and performed the assessments “in-house,” as was the practice in prior years. Per the Corporate Governance Guidelines, the Board will utilize a third-party from time-to-time and perform peer reviews every three years.

Our robust annual review involves assessing our full Board and our committees, with a focus on numerous areas – composition, structure, competencies, processes and policies, and behaviors. The evaluation process is also used to consider Board succession planning and refreshment.

Board Composition and Refreshment

The Nominating and Corporate Governance Committee meets annually, at a minimum, and performs an assessment of the skills and experience needed to properly oversee the interests of the Company. Upon review of the Company’s short- and long-term strategies and goals, the Nominating and Corporate Governance Committee determines the mix of skills and experience to be represented on the recommended slate of nominees for the upcoming year.

The Nominating and Corporate Governance Committee also considers diversity as an important factor in determining composition of the Board. Over the past few years our active refreshment process has led to the appointment of Diana Laing, Elizabeth Frank, Michelle Frymire, Kristian Gathright and Thomas Sullivan, each of whom offered differentiated perspectives and diversity to the Board.

 

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Currently, 40% of our Board is female. Furthermore, there is significant diversity in the length of service amongst our Board members, with tenures ranging from thirteen years to a little more than one year. Such diversity illustrates that Spirit values both new perspectives and the deep institutional knowledge of longer-tenured directors.

Prior to each annual meeting at which directors are to be elected or re-elected, the Nominating and Corporate Governance Committee recommends to the Board for nomination by the Board such candidates as the Nominating and Corporate Governance Committee, in the exercise of its judgment, has found to possess a collective mix of skills and experience necessary to properly oversee the interests of the Company for the following year.

The Nominating and Corporate Governance Committee also oversees our comprehensive onboarding program for new directors which includes a combination of written materials, oral presentations and meetings in which the new members receive detailed information about Spirit’s history, culture, risk framework, ethics, investment strategy and other policies that are applicable to directors, as well as Spirit’s approach to human capital management, diversity and inclusion, environmental concerns and other social issues. This onboarding is not limited to only new directors. We also invite the existing board members to participate in these presentations as an additional way to provide ongoing training and updates to our Board members. Each new director is also assigned a “board buddy,” which is an existing member of the Board that acts as a designated support person and point of contact for the new director during his or her first year on the Board.

Director Stock Ownership Guidelines

The Board adopted revised stock ownership guidelines for our non-employee directors effective May 7, 2020. The purpose of the stock ownership guidelines is to align the interests and actions of non-employee directors with the long-term interests of shareholders, and further promote our commitment to sound corporate governance. The guidelines require each non-employee director to hold “Qualifying Shares” (defined below) equal in value to five times the annual Board retainer (excluding any additional retainers paid for service on or chairing a committee or as chairperson of the Board) paid to such non-employee director. The number of shares of common stock needed for each non-employee director to meet these guidelines is calculated annually on the day of the Company’s annual meeting of shareholders based on the prior thirty-day average closing price of the Company’s common stock as reported by the New York Stock Exchange. Directors that were appointed within the preceding three years of the date of the new stock ownership guidelines, or appointed thereafter, have a five-year grace period to meet the requirements. Each non-employee director (other than those currently within the grace period) is in compliance with the stock ownership guidelines.

Qualifying Shares are common stock, whether held individually, jointly with a spouse, or shares owned separately by a spouse and/or children that share the same household, and unvested restricted stock awards.

Board Governance Documents

The Board has adopted a written set of Corporate Governance Guidelines, as well as a Code of Business Conduct and Ethics that applies to the Company’s employees, officers and directors, including our Chief Executive Officer and Chief Financial Officer. To view our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Human Rights Policy, Anti-Corruption Policy, and Whistleblower Policy, please visit the Corporate Information section on the Investor Relations page of our website at www.spiritrealty.com. Each of these governing documents is also available, free of charge, in print to any shareholder who sends a written request to such effect to Investor Relations, Attention: Investor Relations, Spirit Realty Capital, Inc., 2727 North Harwood Street, Suite 300, Dallas, TX 75201.

How to Communicate with Directors

Shareholders and other parties interested in communicating directly with our Board or any director on Board-related issues may do so by writing to Board of Directors, c/o Investor Relations, Attention: Investor Relations, Spirit Realty Capital, Inc., 2727 North Harwood Street, Suite 300, Dallas, TX 75201, or by submitting an email to directors@spiritrealty.com. Additionally, shareholders and other parties interested in communicating directly with the Lead Independent Director of the Board or with the independent directors as a group may do so by writing to Lead Independent Director, c/o Investor Relations, Attention: Investor Relations, Spirit Realty Capital, Inc., 2727 North Harwood Street, Suite 300, Dallas, TX 75201, or by sending an e-mail to directors@spiritrealty.com. Communications addressed to the Board or individual members of the Board are screened internally for appropriateness before distributing to the Board, or to any individual director or directors, as applicable.

BOARD COMMITTEES

Our Board has three primary standing committees that perform certain delegated functions for the Board: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. Each committee operates pursuant to a written charter that is available in the Corporate Information section on the Investor Relations page of our website at

 

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www.spiritrealty.com or available, free of charge, upon request directed to Investor Relations, Attention: Investor Relations, Spirit Realty Capital, Inc., 2727 North Harwood Street, Suite 300, Dallas, TX 75201, or by submitting an email to InvestorRelations@spiritrealty.com.

Additionally, in 2019, the Board established the Board Investment Committee. The Board Investment Committee consists of, at minimum, three independent directors from the Board and is responsible for assisting the Board in discharging its responsibilities as to the review and approval of certain real estate acquisitions. The members of the Board Investment Committee are appointed by the Board and may be removed by the Board at any time, with or without cause. In 2020, the Board appointed Richard Gilchrist, Kevin Charlton, and Diana Laing to serve as members of the Board Investment Committee. These members continued to serve in 2021.

The Board committees met 16 times in the aggregate during 2021, with a majority of the committee members from the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee attending 100% of the meetings which occurred while they were a director and member of the applicable committee. The table below provides 2021 membership and meeting information for each of our Board committees.

 

Director

   Audit
Committee
   Compensation Committee    Nominating
and
Corporate
Governance
Committee

Kevin M. Charlton

      Chairperson   

Todd A. Dunn(1)

         Chairperson

Elizabeth F. Frank

   Member       Member

Michelle M. Frymire

   Member      

Kristian M. Gathright

         Member

Richard I. Gilchrist

      Member   

Diana M. Laing

   Chairperson      

Nicholas P. Shepherd

      Member    Member

Thomas J. Sullivan

      Member   

Total Meetings in 2021

   7    5    4

 

(1)

In February 2022, Mr. Dunn formally notified Spirit of his decision not to stand for reelection at the Annual Meeting. Mr. Dunn will continue to serve as a director until the expiration of his term at the Annual Meeting.

 

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AUDIT COMMITTEE

Chair         Diana Laing                Members        Elizabeth Frank, Michelle Frymire

 

 

Roles and Responsibilities

The Audit Committee assists the Board in fulfilling its responsibilities relating to our accounting and financial reporting practices, including, but not limited to, oversight of:

 

• quality and integrity of our financial statements

 

• performance of our internal controls over financial reporting and disclosure controls and procedures

• our risk assessment and mitigation strategy, including our enterprise risk management

 

• our compliance with legal and regulatory requirements

• our policies and procedures with respect to cybersecurity and data privacy

 

• the independent registered public accounting firm’s qualifications, independence and performance

The Company’s management is responsible for establishing and maintaining accounting policies and procedures in accordance with U.S. generally accepted accounting principles (“GAAP”) and other applicable reporting and disclosure standards and for preparing the Company’s financial statements. The Company’s independent registered public accounting firm is responsible for performing audits of the Company’s annual consolidated financial statements and internal controls over financial reporting, and for issuing reports and expressing opinions thereon. The Audit Committee is responsible for the pre-approval of audit and non-audit services performed by the Company’s independent registered public accounting firm.

The Audit Committee maintains free and open communication with the Board, our independent registered public accounting firm, our internal auditor and our financial and accounting management. The Audit Committee regularly meets separately in executive session, outside the presence of management, with our independent registered public accounting firm and our internal auditor – generally, at each regularly scheduled meeting and at other times as necessary or desirable. Our Board has adopted procedures for reporting concerns under our Code of Business Conduct and Ethics and other Company policies, including complaints regarding accounting and auditing matters in accordance with Rule 10A-3 under the Exchange Act.

Members of the Audit Committee and the Chairperson are appointed annually by the Board and may be removed from the Committee by the Board in its discretion at any time. The Board has determined that all members of the Audit Committee are independent and have sufficient accounting and financial experience and ability to enable them to discharge their responsibilities pursuant to NYSE listing standards. Furthermore, the Board has determined that Ms. Laing is an audit committee financial expert as defined by the SEC.

AUDIT COMMITTEE REPORT*

The Audit Committee has reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2021 with the Company’s management and with Ernst & Young LLP, the Company’s independent registered public accounting firm. The Audit Committee discussed with Ernst & Young LLP the overall scope of and plan for the audit. The Audit Committee regularly met with Ernst & Young LLP, with and without management present, to discuss the results of its examination and the overall quality of the Company’s financial reporting. In the performance of their oversight function, the members of the Audit Committee necessarily relied upon the information, opinions, reports and statements presented to them by management of the Company and by Ernst & Young LLP. The Audit Committee has also discussed with Ernst & Young LLP the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 1301. The Audit Committee has received and reviewed the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding Ernst & Young LLP’s communications with the Audit Committee concerning independence and has discussed with Ernst & Young LLP its independence.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board to include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the United States Securities and Exchange Commission.

AUDIT COMMITTEE

Diana M. Laing, Chair

Elizabeth F. Frank

Michelle M. Frymire

 

 

*

The material in this report is not soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date of this Proxy Statement and irrespective of any general incorporation language in such filing.

 

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NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

Chair         Todd Dunn*                 Members        Nicholas Shepherd        Elizabeth Frank        Kristian Gathright

 

 

Roles and Responsibilities

The Nominating and Corporate Governance Committee is responsible for matters of corporate governance and matters relating to the practices, policies and procedures of the Board, including, but not limited to, the following:

 

• identifying individuals qualified for election and re-election as Board members and recommending director nominees to the Board for election by the shareholders or appointment by the Board, as the case may be

 

• assisting the Lead Independent Director with the annual review of the Chief Executive Officer

• making recommendations to the Board regarding committee structure and composition

 

• developing and recommending to the Board a set of corporate governance guidelines and the corporate code of ethics

• overseeing evaluation of the Board and Board committees

 

• overseeing key ESG-related issues and policies

• reviewing and approving or ratifying any transaction between the Company and a related person, which is required to be disclosed under the rules of the SEC

 

• generally advising the Board on corporate governance and related matters

The Nominating and Corporate Governance Committee regularly meets separately in executive session, outside the presence of management – generally at each regularly scheduled meeting and at other times as necessary or desirable. Members of the Nominating and Corporate Governance Committee and the Chairperson are appointed annually by the Board and may be removed from the Committee by the Board at any time in its discretion. The Board has determined that all members of the Nominating and Corporate Governance Committee are independent pursuant to NYSE listing standards.

 

*

In February 2022, Mr. Dunn notified Spirit of his decision not to stand for reelection at the Annual Meeting. Mr. Dunn will continue to serve as a director until the expiration of his term at the Annual Meeting.

PROCESS FOR CONSIDERING DIRECTOR NOMINEES

The Nominating and Corporate Governance Committee meets annually, at a minimum, to evaluate the Board and Committee self-assessments, as well as the performance of each current director. The Nominating and Corporate Governance Committee considers the results of such assessments and evaluations, as well as the collective mix of skills and experience necessary to properly oversee the interests of the Company for the following year, when determining whether to recommend the nomination of each director for an additional term.

We did not receive any shareholder recommendations for director candidates for election at the 2022 Annual Meeting in compliance with the procedures set forth below. However, if we do receive shareholder recommendations for director election, the Nominating and Corporate Governance Committee’s current process is to review and consider any candidate who has been recommended by shareholders in compliance with the procedures established from time to time by the committee.

At an appropriate time prior to each annual meeting at which directors are to be elected or re-elected, the Nominating and Corporate Governance Committee recommends to the Board for nomination by the Board, such candidates as the Nominating and Corporate Governance Committee, in its judgment, has found to be well qualified and willing and available to serve. At an appropriate time after a vacancy arises on the Board or a director advises the Board of his or her intention to resign, the Nominating and Corporate Governance Committee shall recommend to the Board for election by the Board to fill such vacancy, such prospective member of the Board as the Nominating and Corporate Governance Committee, in the exercise of its judgment, has found to be well qualified, willing and available to serve, and possessing the skills and experience desirable to complement the other Board members to effectively oversee the interests of the Company and its shareholders. In determining whether a prospective member is qualified to serve and appropriate for Board membership, the Nominating and Corporate Governance Committee will consider the information listed under “Nominees’ Skills, Experience and Qualifications.”

 

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NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

 

All shareholder recommendations for director candidates to be considered at the annual meeting of shareholders in 2023 must be submitted on or before December 9, 2022 to Investor Relations, Attention: Secretary, Spirit Realty Capital, Inc., 2727 North Harwood Street, Suite 300, Dallas, TX 75201, who will forward all recommendations to the Nominating and Corporate Governance Committee, and must include the following information: (a) the name and address of record of the shareholder; (b) representation that the shareholder is a record holder of our common stock or, if not a record holder, evidence of ownership in accordance with Rule 14a-8(b)(2) under the Securities Exchange Act of 1934; (c) name, age, business and residential address, educational background, current principal occupation or employment, and principal occupation or employment for the preceding five (5) full fiscal years of the proposed director candidate; (d) description of the qualifications and background of the proposed director candidate which addresses the items under “Nominees’ Skills, Experience and Qualifications,” as well as any minimum qualifications and other criteria for Board membership as may be approved by the Board from time to time; (e) description of all arrangements or understandings between the shareholder and the proposed director candidate; (f) consent of the proposed director candidate (1) to be named in the proxy statement relating to our annual meeting of shareholders and (2) to serve as a director if elected at such annual meeting; and (g) any other information regarding the proposed director candidate that is required to be included in a proxy statement filed pursuant to the rules of the SEC.

 

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COMPENSATION COMMITTEE

Chair         Kevin Charlton                 Members    Nicholas Shepherd    Richard Gilchrist    Thomas Sullivan

 

 

Roles and Responsibilities

The purpose of the Compensation Committee is to carry out the Board’s responsibilities related to compensation plans, policies and programs for the Company’s senior management team and non-employee directors, as well as any compensation program that delivers Company equity to participants as further described in the Compensation Committee charter. The Compensation Committee meets during the first quarter of each year to review the achievement of pre-established performance metrics for the prior year, to determine the appropriate annual and long-term incentive awards for our executive officers based on that prior-year performance and to approve grants of equity awards to our executive officers and, upon management’s recommendation, other employees.

Furthermore, the Compensation Committee has primary responsibility for:

 

• the design, review, approval and administration of all aspects of our executive compensation program

 

• overseeing the Company’s annual proxy-related shareholder engagement program and participating in meetings with select shareholders as determined by the Committee or the Committee Chair

• reviewing the performance of and making all compensation decisions for each of our Named Executive Officers other than our Chief Executive Officer, for which the performance review and compensation decisions are made by the independent members of the Board

 

• reviewing and approving any change in control agreements or any employment or severance agreements with executive level officers other than the CEO

• reviewing and approving the establishment of all annual bonus, incentive compensation, equity compensation and employee pension plans if any

 

• recommending to the Board for approval, and overseeing, the compensation program for non-executive directors

For 2021, the Compensation Committee elected to continue utilizing the services of FP to assist the Compensation Committee in the review and evaluation of our executive compensation program to ensure its continued close alignment with our compensation philosophy and business strategy. FP also provided assistance to the Compensation Committee in reviewing market data on compensation, understanding industry executive compensation trends, and determining and managing risks associated with elements of our executive compensation program. The Committee reviewed FP’s independence under Rule 10C-1 of the Exchange Act and NYSE listing standards and determined that there is no conflict of interest resulting from retaining FP.

Our senior management team provides support to the Compensation Committee by coordinating meeting logistics, preparing and disseminating relevant financial and non-financial Company information and relevant data concerning our peer competitors as a supplement to the comparative market data prepared by the independent compensation consultant, and making recommendations with respect to performance metrics and related goals. Our Chief Executive Officer attends meetings at the Compensation Committee’s request and recommends to the Compensation Committee compensation changes affecting the other members of our senior management team. However, our Chief Executive Officer plays no role in setting his own compensation. The Compensation Committee regularly meets separately in executive session, outside the presence of management – generally, at each regularly scheduled meeting and at other times as necessary or desirable.

Members of the Compensation Committee and the Chairperson are appointed annually by the Board and may be removed from the Compensation Committee by the Board at any time in its discretion. The Board has determined that all members of the Compensation Committee are independent pursuant to NYSE listing standards and qualify as “non-employee” directors under Rule 16b-3 of the Exchange Act.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the year ended December 31, 2021, Messrs. Charlton, Gilchrist, Shepherd and Sullivan served on the Compensation Committee. No member of the Compensation Committee is, or has been, employed by us or our subsidiaries or is an employee of any entity for which any of our Named Executive Officers serves on the board of directors.

 

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ADDITIONAL CORPORATE GOVERNANCE MATTERS

TRANSACTIONS WITH RELATED PERSONS

Our Board has a written policy requiring that any transaction between us and any of our officers, directors or their affiliates be approved by the Nominating and Corporate Governance Committee or the disinterested members of the Board. Our Code of Business Conduct and Ethics requires each of our officers and directors to disclose in writing to our General Counsel any existing or proposed transaction in which he or she has a personal interest, or in which there is or might appear to be a conflict of interest by reason of his or her connection to another business organization. Our General Counsel reviews these matters with the Chairperson of the Nominating and Corporate Governance Committee and the Lead Independent Director to determine whether the transaction raises a conflict of interest that warrants review and approval by the Nominating and Corporate Governance Committee or the disinterested members of the Board.

RISK MANAGEMENT

While management has primary responsibility for identifying and managing our exposure to risk, our Board plays an active role in overseeing the processes we establish to assess, monitor and mitigate that exposure. The Board, directly and indirectly through its committees, routinely discusses with management our significant enterprise risks and reviews the guidelines, policies and procedures we have in place to address those risks, such as our approval process for acquisitions, dispositions and other investments. Our Audit Committee specifically is tasked with oversight of the Company’s risk assessment and mitigation strategy, including oversight of the Company’s enterprise risk management which it reviews on a quarterly basis.

The Board also has an evaluation and approval role as to certain significant real estate acquisitions meeting thresholds defined in our Board Investment Approval Policy. In 2019, the Board formed the Board Investment Committee, consisting solely of independent members. The Board Investment Committee is responsible for assisting the Board in discharging its responsibilities as to the review and approval of certain real estate acquisitions. The members of the Board Investment Committee are appointed by the Board and may be removed by the Board at any time, with or without cause. In 2020, the Board appointed Richard Gilchrist, Kevin Charlton, and Diana Laing to serve as members of the Board Investment Committee. The Board Investment Committee members remained unchanged in 2021.

At Board and committee meetings, directors receive information and presentations from management and third-party experts regarding specific areas of risk identified in the process, from which they engage in further analyses and dialogue. This process enables the Board to focus on the strategic, financial, operational, legal, regulatory and other risks that are most significant to us and our business in terms of potential impact, and ensures that our enterprise risks are well understood, mitigated (to the extent reasonable), and consistent with the Board’s view of our risk profile and tolerance.

PROHIBITION ON HEDGING AND PLEDGING

We maintain a Hedging and Pledging Policy that prohibits our officers and directors from pledging our common stock as collateral to secure loans. Further, our officers, directors and employees are prohibited from engaging in “put” or “call” options or other “hedging” transactions.

PUBLIC POLICY MATTERS

We are committed to ethical business conduct and expect our directors, officers and employees to act with integrity and conduct themselves, and our business, in a way that protects our reputation for fairness and honesty. Consistent with these principles and our Code of Business Conduct and Ethics, we have established the policies and practices described below with respect to political contributions and other public policy matters.

INDIVIDUAL POLITICAL ACTIVITY

We believe that our directors, officers and employees have rights and responsibilities to participate in political activities as citizens, including voting in elections, keeping informed on political matters, serving on civic bodies and contributing financially to, and participating in, the campaigns of the political candidates of their choice. Accordingly, our directors, officers and employees are not constrained from engaging in political activities including: making political contributions, expressing political views or taking action on any political or legislative matter, so long as they are acting in their individual capacity, and on their own time and expense. Directors, officers and employees acting in their individual capacity must not give the impression that they are speaking on our behalf or representing Spirit in such activities.

 

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PUBLIC POLICY ADVOCACY

We do not have a political action committee; however, we may advocate a position, express a view, or take other appropriate action with respect to legislative or political matters affecting the Company and our interests. We may also ask our employees to make personal contact with governmental officials or write letters to present our position on specific issues. Any such advocacy must receive prior approval by the Chief Executive Officer and is done in compliance with applicable laws and regulations and subject to the review of the Nominating and Corporate Governance Committee.

 

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RELATED PARTY TRANSACTIONS

INDEMNIFICATION OF DIRECTORS AND OFFICERS

We have entered into indemnification agreements with each of our directors and Named Executive Officers.

DIRECTOR INDEPENDENCE

A majority of our directors meet the criteria for independence set forth under applicable securities laws, including the Exchange Act, applicable rules and regulations of the SEC and applicable rules and regulations of the NYSE.

The NYSE Listed Company Manual and corresponding listing standards provide that, in order to be considered independent, the Board must determine that a director has no material relationship with the Company other than as a director. The Board has reviewed the relationships between the Company, including its subsidiaries or affiliates, and each member of the Board (and each director’s immediate family members).

Based on its review, the Board determined Messrs. Charlton, Dunn, Gilchrist, Shepherd, Sullivan and Mses. Laing, Frank, Frymire, and Gathright do not currently have any material relationship with Spirit other than as a director and each is “independent” within the foregoing independence standards.

The Board has also determined that each member of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, respectively, is “independent” under the applicable listing standards of the NYSE and, with respect to members of the Audit Committee, the audit committee requirements of the SEC. None of the members of these committees is an officer, employee or former employee of the Company or any of the Company’s subsidiaries.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who own more than 10% of any registered class of the Company’s equity securities (collectively, “Insiders”), to file with the SEC initial reports of ownership and reports of changes in ownership of the Company’s common stock and other equity securities of the Company. Insiders are required by regulation of the SEC to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on a review of the copies of the Section 16(a) reports furnished to the Company by the Insiders or written representations from the Insiders that no other reports were required with respect to the year ended December 31, 2021, all Insiders timely filed all Section 16(a) reports required to be filed by them for 2021, with the exception of an untimely filing of a Form 4 for Mr. Hsieh reporting certain bona-fide gifts of common stock in 2020.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The following table sets forth certain information regarding the beneficial ownership of shares of our common stock for (1) each person who is a beneficial owner of 5% or more of our outstanding common stock, (2) each of our directors and executive officers, and (3) all of our directors and executive officers as a group, each as of March 14, 2022, unless otherwise indicated in the table below.

The SEC has defined “beneficial ownership” of a security to mean the possession, directly or indirectly, of voting power and/or investment power over such security. A shareholder is also deemed to be, as of any date, the beneficial owner of all securities that such shareholder has the right to acquire within 60 days after that date through (1) the exercise of any option, warrant or right, (2) the conversion of a security, (3) the power to revoke a trust, discretionary account or similar arrangement or (4) the automatic termination of a trust, discretionary account or similar arrangement. Each person named in the following table has sole voting and investment power with respect to all of the shares of our common stock shown as beneficially owned by such person, except as otherwise set forth in the notes to the table. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of our common stock subject to options or other rights held by that person that are exercisable as of March 14, 2022 or will become exercisable within 60 days thereafter, are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person.

Unless otherwise indicated, the address of each named person is c/o Spirit Realty Capital, Inc., 2727 North Harwood Street, Suite 300, Dallas, TX 75201. No shares beneficially owned by any executive officer, director or director nominee have been pledged as security.

 

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Name of Beneficial Owner

  

Number of Shares    

Beneficially Owned    

    

Percentage of    

All Shares (1)    

 

Greater than 5% Shareholders

     

The Vanguard Group (2)

     18,271,756        14.30

BlackRock, Inc. (3)

     17,020,701        13.32

Cohen & Steers, Inc. and affiliates (4)

     11,042,981        8.64

FMR LLC (5)

     10,050,278        7.87

Directors, Director Nominees and Executive Officers (6)

     

Jackson Hsieh (7)

     474,004        *  

Michael Hughes (8)

     62,697        *  

Ken Heimlich

     47,163        *  

Jay Young

     19,636        *  

Kevin Charlton

     21,625        *  

Todd Dunn (9)

     22,736        *  

Elizabeth Frank

     10,553        *  

Michelle Frymire

     4,772        *  

Kristian Gathright

     7,386        *  

Richard Gilchrist

     32,831        *  

Diana Laing

     10,413        *  

Nicholas Shepherd

     21,252        *  

Thomas Sullivan

     2,386        *  

All Directors and Executive Officers as a Group (13 persons)

     737,454        *  

 

*

Represents less than 1.0%.

 

(1)

Percentages are based on 127,747,162 shares of our common stock outstanding as of March 14, 2022.

 

(2)

Based solely on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February 10, 2022, The Vanguard Group (“Vanguard”) has sole power to vote or direct the vote of 0 shares of our common stock, and sole power to dispose or direct the disposition of 17,986,467 shares of our common stock, respectively; and has shared power to vote or direct the vote of 180,161 shares of our common stock, and shared power to dispose or direct the disposition of 285,289, respectively. As of February 10, 2022, Vanguard was the aggregate beneficial owner of 18,271,756 shares of the common stock of the Company which represents 14.30% of our outstanding shares of common stock as of March 14, 2022. The address for Vanguard is 100 Vanguard Blvd. Malvern, PA 19355.

 

(3)

Based solely on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on January 28, 2022, BlackRock, Inc. (“BlackRock”) has sole power to vote or direct the vote of 15,475,498, and sole power to dispose or direct the disposition of 17,020,701 shares of our common stock, respectively. As of January 28, 2022, BlackRock was the beneficial owner of 17,020,701 shares of the common stock of the Company which represents 13.32% of our outstanding shares of common stock as of March 14, 2022. The address for BlackRock is 55 East 52nd Street, New York, NY 10055.

 

(4)

Based solely on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February 14, 2022, this represents the number of shares of common stock beneficially owned by Cohen & Steers, Inc. (“Cohen & Steers”) either directly or through its affiliates. Cohen & Steers has sole power to vote or direct the vote of 6,370,996 shares of our common stock, and sole power to dispose or direct the disposition of 11,042,981 shares of our common stock, respectively. As of February 14, 2022, Cohen & Steers was the beneficial owner of 11,042,981 shares of the common stock of the Company. The number of shares beneficially owned by Cohen & Steers in the Schedule 13G/A also includes 11,017,072 reported as beneficially owned by Cohen & Steers Capital Management, Inc. (“Cohen & Steers Capital”) which represents 8.62% of our outstanding shares of common stock as of March 14, 2022. Cohen & Steers Capital has sole power to vote or direct the vote of 6,352,517 shares of our common stock, and sole power to dispose or direct the disposition of 11,017,072 shares of our common stock, respectively. The number of shares beneficially owned by Cohen & Steers in the Schedule 13G/A also includes 7,430 reported as beneficially owned by Cohen & Steers UK Ltd (“Cohen & Steers UK”) which represents .006% of our outstanding shares of common stock as of March 14, 2022. Cohen & Steers UK has sole power to vote or direct the vote of 0 shares of our common stock, and sole power to dispose or direct the disposition of 7,430 shares of our common stock, respectively. The principal address for Cohen & Steers and Cohen & Steers Capital is 280 Park Avenue, 10th Floor, New York, NY 10017. The principal address for Cohen & Steers UK is 50 Pall Mall, 7th Floor, London, United Kingdom SW1Y 5JH.

 

(5) 

Based solely on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February 9, 2022 jointly by FMR LLC and Abigail P. Johnson (Ms. Johnson is a director, the chairman and the chief executive officer of FMR LLC and may be deemed to have shared beneficial ownership of the common stock held by FMR, LLC). FMR LLC has sole power to vote or direct the vote of 3,857,345 shares of our common stock, and sole power to dispose or direct the disposition of 10,050,278 shares of our common stock, respectively. As of February 9, 2022, FMR LLC, was the beneficial owner of 10,050,278 shares of the common stock of the Company which represents 7.87% of our outstanding shares of common stock as of March 14, 2022. The principal address for FMR LLC is 245 Summer Street, Boston, Massachusetts 02210.

 

(6)

Number includes shares of time-vested restricted stock over which grantees generally have all rights other than transferability and which remain subject to forfeiture under the award agreements pursuant to which they were made. As of March 14, 2022, Messrs. Hsieh, Hughes, Heimlich and Young had unvested restricted shares of 12,527, 2,654, 2,227, and 2,095 respectively, excluding shares potentially awardable under performance share awards made to Messrs. Hsieh, Hughes, Heimlich, and Young.

 

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(7)

Number includes 82,353 shares of common stock that Mr. Hsieh has an indirect interest in through his spouse and 1,444 held through his sons.

 

(8) 

Number includes 240 shares of common stock that Mr. Hughes has an indirect interest in through his spouse, son and daughter (collectively), and 120 shares of common stock held in Mr. Hughes’ IRA.

 

(9)

In February 2022, Mr. Dunn formally notified Spirit of his decision not to stand for reelection at the Annual Meeting. Mr. Dunn will continue to serve as a director until the expiration of his term at the Annual Meeting.

 

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SOCIAL, HUMAN CAPITAL MANAGEMENT, COMMUNITY, AND ENVIRONMENTAL RESPONSIBILITY

At Spirit, we believe that doing the right thing for our employees, community, and environment leads to better results for our stakeholders and company as a whole. With the full support and oversight of our Board, we have implemented sound social, human capital management, and environmental practices and policies throughout the operation of our business, thereby demonstrating our solid commitment to be responsible and conscientious in everything that we do as we strive to drive long-term stakeholder value and make the communities in which we operate a better place to live and work. We have documented our commitment to social, human capital management, and environmental matters in the Corporate Responsibility pages of our website, as well as our Environmental Management System, DEI Policy, Anti-Corruption Policy, Human Rights Policy and our Code of Business Conduct and Ethics, each of which can be accessed on the Investor Relations page of our website at www.spiritrealty.com.

Our ESG efforts are overseen by our Board, and specifically our Nominating and Corporate Governance Committee. We have formed several internal working committees that focus on the design and implementation of our ESG initiatives. These committees report to our ELT, who then report to the Nominating and Corporate Governance Committee and Board. Our internal ESG committees include:

Diversity, Equity & Inclusion Council: We formed the DEI Council in 2020. The DEI Council is dedicated to:

 

 

Bringing meaningful change to the society we work in as it relates to diversity, equity and inclusion matters

 

 

Bringing awareness and fostering an environment and culture that promotes diversity and inclusion

 

 

Supporting Spirit’s leadership in developing strategies and best practices aimed at fostering a diverse and inclusive workforce through identifying opportunities to promote equity, social justice and inclusion

Women’s Leadership Council: We formed the Women’s Leadership Council (“WLC”) in 2019. The WLC is dedicated to empowering the women of Spirit in professional and personal growth, by building leaders, creating social connections and serving the community.

 

 

LOGO

 

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Spirit One Committee: We formed the Spirit One Committee in 2015. The Spirit One Committee is dedicated to planning and organizing civic involvement and charitable donation opportunities for our employees, as well as planning and executing on Company-wide social and team-building events.

Since its inception, the Spirit One Committee has organized donations and volunteer hours at several non-profit organizations including: Junior Achievement, Vogel Alcove, United Way, Genesis Women’s Shelter, The Family Place, and Trinity River Audubon Center, among others.

Think Green Committee: We formed the Think Green Committee in 2019. Our Think Green Committee is dedicated to making environmentally smart choices for Spirit and is also tasked with choosing at least one community service project or non-profit to donate to per year that has an environmental focus.

 

 

LOGO

ESG Task Force: We formed the ESG Task Force in 2021. The ESG Task Force is dedicated to researching and developing ESG-related goals and strategies for Spirit, as well as publishing Spirit’s annual ESG Report.

 

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SOCIAL, HUMAN CAPITAL MANAGEMENT, AND COMMUNITY ENGAGEMENT

At Spirit, we are “All One Team” – our growth and success depend on teamwork and the individual contribution of each and every person we employ. We are committed to attracting the best and brightest talent in the industry and retaining them through a culture of collaboration and mutual respect. To that end, we strive to ensure the well-being and development of our talented team, and we do so by focusing on multiple factors that we believe are critical to the success of our employees:

 

 

LOGO

Diversity and Inclusion – At Spirit, we are all different, we are all valued, and we are “All One Team.” A diverse and inclusive workforce, and a culture that respects and appreciates diversity of experience, idea and opinion, is critical to our success. In line with Company policy, we promote diversity and inclusion in many ways:

 

   

Equal employment opportunity for all individuals

 

   

Work environment free from discrimination and harassment

 

   

Diversity, Equity & Inclusion Council, dedicated to developing strategies and best practices for Spirit aimed at fostering a diverse and inclusive workforce, as well as bringing change to society as it relates to diversity, equity and inclusion matters

 

   

Women’s Leadership Council, formed by and for women within the company to promote and foster the career development of our female talent

 

   

Mandatory diversity and inclusion training and interactive workshops for all employees, at all levels

Our employee population is incredibly diverse: As of year-end 2021, approximately half of our employees were female, 26% were from racial or ethnic minority groups, and we have well-rounded age diversity.

 

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LOGO

Diversity, Equity & Inclusion Policy

In 2021, we formalized our efforts in the diversity and inclusion space by creating a Diversity, Equity & Inclusion Policy. In this policy, we:

 

   

Define what Diversity, Equity and Inclusion means to Spirit;

 

   

State our commitment to employees, our community, our tenants, and our shareholders;

 

   

Explain how we honor our commitment through:

 

  ¡   

Board Oversight and Senior Management Involvement

 

  ¡   

DEI Council

 

  ¡   

Women’s Leadership Council

 

  ¡   

Various Corporate Policies and Programs

 

  ¡   

Talent Development and Training

 

  ¡   

Community Involvement

 

  ¡   

Adoption of a “Rooney” style rule when hiring new employees of all levels, including executives, which requires the Company to use best efforts to interview at least one qualified female or ethnic or racial minority for any open position.

For review of the full policy, please visit our website at www.spiritrealty.com/corporate-information.    

Diversity, Equity & Inclusion Activities in 2021

In 2021, with the full support of the Board and the ELT, the DEI Council:

 

   

Commenced a partnership with Cristo Rey Dallas, a college preparatory high school and corporate work program serving a mostly minority and low household income population in South Dallas

 

   

Launched a 2-year partnership with Project Destined, a real estate training program providing empowerment, access and opportunity to scholars in underserved communities

 

   

Funded scholarships for three students from Historically Black Colleges and Universities in a total amount of $20,000

 

   

Held an internal speaker series focused on diversity, equity and inclusion, including speakers from LAMBDA Legal, a national non-profit committed to achieving full recognition of the civil rights of LGBTQ+ individuals, and J.P. Morgan Chase

 

   

Conducted significant employee outreach by providing team members with informative material on diversity, ranging from employee diversity spotlights to monthly awareness emails celebrating women and minorities

In addition, in 2021, the WLC hosted numerous events including:

 

   

A “real talk” conversation with the female members of the Company’s Board, who provided valuable insight and advice on attaining professional success and answered questions regarding issues that affect women in the workplace

 

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A Virtual Book Club open to all females at the Company, which provided an open forum to discuss literature surrounding leadership, personal and professional growth, and self-empowerment

 

   

Donations to Genesis Women’s Shelter and Dress for Success

Competitive Compensation and Benefits – Spirit is committed to awarding our employees compensation and benefits that are in line with those of our peers and competitors, including:

 

   

Fair and competitive living wages

 

   

Medical, dental, and vision insurance

 

   

Maternity and parental leave

 

   

Flexible work arrangements (most employees were 100% remote working in 2021 due to COVID-19)

 

   

Short and long-term disability

 

   

401(k) savings plan and company matching

 

   

Flexible Spending Accounts and Employee Discount Programs

 

   

Life and AD&D insurance

Mental and Physical Well-Being – The mental and physical well-being of our employees is an important piece of our business and overall success. Spirit supports its employees’ health and wellness by implementing the following:

 

   

100% remote work environment for most employees in 2021 due to COVID-19 and several health and safety enhancements at our offices for those working at our headquarters, which includes enhanced cleaning and sanitation protocols, social distancing, and thermal scanning and partitions

 

   

Regular employee surveys regarding satisfaction with topics such as corporate culture, work-life balance, and working from home and formed action plans based on responses

 

   

Annual health and wellness challenges

 

   

Physical work environment designed for health and well-being (sit-stand desks, ergonomic chairs, healthy snack options, maximized natural light at all workspaces, creative and collaborative workspaces)

 

   

Wellness screenings

Social Engagement – Spirit has a passion for creating a social, collaborative and engaged workforce. We firmly believe that regular social and team building events for our employees encourage socialization, collaboration, and relationship building among our Spirit family – all things that are vital for employee engagement. Our passion for a social and engaged workforce is evident through the following:

 

   

Our “Spirit One” committee is comprised of employees across all levels and departments who come together, collaborate, and create exciting programming for the entire Spirit team

 

   

Monthly “Coffee Talks” where smaller groups of employees enjoy their morning coffee virtually with one another and discuss “non-work” topics

 

   

Monthly “challenges” through our internal channels, such as a “middle school picture contest” where employees can post pictures of themselves and other employees guess “who is who” in exchange for “Spirit swag”

 

   

Annual company-wide social events, such as a crawfish boil, Halloween costume contest, and holiday party. In 2021, due to COVID-19, we elected not to host all of our typical events, but were still able to host virtual gatherings, such as our virtual Halloween costume contest and holiday party

 

   

Department-wide, Company sponsored lunches delivered to employees for scheduled virtual lunches between two to three departments that do not have as much cross-functionality as others

 

   

Department-specific team building events throughout the year

Recognition – Recognition of our employees’ accomplishments and hard work is a key component of our talent engagement strategy. We actively promote the recognition of our employees, including presenting a “game ball” to one employee or group of employees at each monthly “Town Hall” meeting to recognize their efforts on a particular project or transaction.

Furthermore, appreciation of our tenants is a crucial piece of continually building our tenant relationships and advancing our overall business strategy. We show appreciation for our tenants by hosting an annual Partner Appreciation Event in Dallas, Texas, and when we were not all able to meet in person, by inviting different tenants to our town halls to come and speak to our employees. These events are meant not only to show appreciation for our tenants, but to also give our employees a chance to meet our tenants in person, better understand their opportunities and challenges and connect the work we do to our core mission of funding the heart of American business.

 

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Development and Training – We are committed to attracting the best and brightest talent in the industry and retaining them through a culture of collaboration and mutual respect. We will continue to maintain high standards of excellence and expect the best of ourselves and our colleagues as we work to achieve our shared goals. We strive to offer various resources and training to our employees to better position them for success, such as:

 

   

Executive, officer and director-level individual coaching

 

   

Leadership training administered by a third-party consulting firm

 

   

Tuition Reimbursement

 

   

Lunch & Learn presentations on various business and legal topics

 

   

“Lunch with the CEO” where our CEO meets small groups of employees each month for open dialogue on a wide array of issues

 

   

Internship programs

 

   

Direct interactions between the Board of Directors and employees at least annually

 

   

Mandatory Diversity and Inclusion Training

 

   

Mandatory Information and Technology Security Training

 

   

Pryor Leaning Membership available for all employees

 

   

Monthly “Town Hall” meetings with the entire Company led by the CEO to discuss the current status and strategic objectives of the company

In addition to ensuring our employees have all the resources they need to excel, we evaluated best practices to allow employees to maximize their productivity and creativity. To that end, Spirit undertook a company-wide analysis of time spent in scheduled meetings and identified several areas for improvement and efficiency. As a result of this study, Spirit developed guidelines to reduce the number of scheduled meetings, reduce the number of required attendees, reduce the length of meetings and set guardrails for when meetings can be scheduled, allowing employees more time and space to accomplish professional and personal tasks and focus resources on creative thinking, problem solving and strategic initiatives.

COMMUNITY OUTREACH

Spirit is committed to being a good corporate citizen by supporting charitable organizations and by encouraging our employees to personally participate in volunteer activities. To that end, the Spirit One Committee engages not only in social planning, but is also dedicated to planning and organizing civic involvement for our employees with non-profit organizations and corporate donations. In addition, the DEI Council, WLC, and Think Green Committee have volunteered significant time and/or given monetary donations to various non-profit organizations dedicated to their respective focus areas.

Spirit is also committed to supporting and encouraging its employees’ contributions to charitable organizations outside of company organized service projects. To assist our employees with charitable giving and augment the impact of their charitable dollars, Spirit instituted an Employee Gift Matching Program. Under the Employee Gift Matching Program, Spirit will match, up to a certain dollar amount per employee, charitable contributions made by our employees to eligible organizations.

 

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In 2021, Spirit donated over $200,000 through corporate donations and employee gift matching:

 

 

LOGO

To ensure the health and safety of our employees and community during COVID-19, Spirit was not able to participate in many in-person community service projects in 2021, other than the Think Green service event with Groundwork Dallas which was outdoors. However, Spirit was still able to find ways to give back to its community through corporate donations and virtual events and sponsorships.

ENVIRONMENTAL SUSTAINABILITY

With fewer than 100 employees and managing a portfolio of properties where the day-to-day operations are managed by tenants, our environmental footprint is smaller than REITs that operate their properties, but sustainability is still embedded in our culture.

 

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Spirit recognizes that the ownership of commercial real estate can have a significant impact on the environment. As a result, Spirit is committed to implementing environmentally sustainable practices at our headquarters and considering environmental factors and risks in our investment decisions.

Environmental Focus of Tenants

As a net-lease real estate investment trust, we invest predominantly in single tenant real estate under absolute net-leases. Thus, Spirit’s tenants are generally responsible for maintaining the leased premises, including controlling their energy usage and implementation of environmentally sustainable practices at each location. While this dynamic does not give us direct control over these sustainability efforts at the properties, our goal is to be a leader in the net lease space by partnering with our tenants to define environmental opportunities. We currently manage and mitigate the environmental risk that may be associated with our net-lease properties by:

 

   

Adopting certain “green lease” clauses into our lease form, including:

 

  ¡ 

Addition of sustainability contacts at Spirit and the tenant to simplify connection on various sustainability issues such as energy efficient capital improvements;

 

  ¡ 

cost recovery clause allowing Spirit to recover capital costs of energy efficient improvements, if any; and

 

  ¡ 

clause requesting tenants provide energy and water consumption data to landlord on a periodic basis.

 

   

Including comprehensive environmental provisions in our leases which require the tenant to comply with applicable environmental laws and remediate or take other corrective action should any environmental issues arise;

 

   

For certain leases where Spirit maintains responsibility for capital improvements at the leased property or in common areas, considering energy efficiency, water consumption, and environmental impact when performing such improvements or repairs;

 

   

Seeking to inform tenants, via training or educational opportunities and information, about efficiency and resource conservation practices aimed at assisting tenants in operating their leased property in environmentally sound ways;

 

   

In appropriate circumstances, funding our tenant’s environmentally friendly capital improvement projects to demonstrate our alignment with our tenants on reducing the environmental footprint of our properties;

 

   

Maintaining comprehensive pollution insurance coverage for all properties, ensuring that should any environmental issues occur, there are resources available to ensure safe and timely remediation;

 

   

Preparing for natural disaster by carrying “All-Risk” property and rental value insurance to include fire, wind/hail, earthquake, flood and other extended coverage for our properties that we deem appropriate and adequate.

 

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Our Top Tenants Are Committed to Sustainability

 

 

LOGO

Activities at our Headquarters

Our commitment to sustainability and reducing our environmental footprint is largely demonstrated by how we manage our day-to-day activities in our corporate headquarters, including our:

 

   

Active recycling of materials such as aluminum, paper and plastic and use of recycled paper where possible

 

   

Reduced use of plastics by removing plasticware at the office and providing all employees with reusable cups and straws

 

   

Use of an automatic lighting control system

 

   

Use of ENERGY STAR certified computers, monitors, copiers, conference room displays and printers

 

   

Employee communications on ways to be more “green”

 

   

Use of “green” cleaning products and low VOC paint