0001722992-18-000023.txt : 20181109 0001722992-18-000023.hdr.sgml : 20181109 20181109161130 ACCESSION NUMBER: 0001722992-18-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 77 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181109 DATE AS OF CHANGE: 20181109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Spirit MTA REIT CENTRAL INDEX KEY: 0001722992 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38414 FILM NUMBER: 181173205 BUSINESS ADDRESS: STREET 1: 2727 N. HARWOOD ST. STREET 2: STE. 300 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 972-476-1900 MAIL ADDRESS: STREET 1: 2727 N. HARWOOD ST. STREET 2: STE. 300 CITY: DALLAS STATE: TX ZIP: 75201 10-Q 1 smta3q1810-q.htm 10-Q Q3 2018 Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 001-38414
___________________________________________________________
SPIRIT MTA REIT
(Exact name of registrant as specified in its charter)
_______________________________________________
Maryland
 
 
 
82-6712510
(State or other Jurisdiction of Incorporation)
 
 
 
(IRS Employer Identification No.)
 
 
 
 
 
2727 North Harwood Street, Suite 300
                 Dallas, Texas 75201     
 
 
 
(972) 476-1409
(Address of principal executive offices; zip code)
 
 
 
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)
__________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Yes  x   No   o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    
Yes  x       No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," “accelerated filer,” "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 Large accelerated filer o
Accelerated filer o
Non-accelerated filer   x 




Smaller reporting company o
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o No  x
As of November 7, 2018, there were 43,000,862 commons shares, par value $0.01, of Spirit MTA REIT outstanding.
 





EXPLANATORY NOTE
This quarterly report of Spirit MTA REIT includes the financial information of the Company as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017.
On May 31, 2018, the distribution date, Spirit Realty Capital, Inc. completed the previously announced Spin-Off of the assets that collateralize Master Trust 2014, all of its properties leased to Shopko, and certain other assets into an independent, publicly traded REIT, Spirit MTA REIT. The Spin-Off was effected by means of a pro rata distribution of one share of SMTA common stock for every ten shares of Spirit common stock held by each of Spirit's stockholders as of May 18, 2018, the record date.
The accompanying financial statements include the consolidated accounts of the Company and its wholly-owned subsidiaries for the period subsequent to the Spin-Off on May 31, 2018. The pre-spin financial statements were prepared on a carve-out basis and reflect the combined net assets and operations of the predecessor legal entities which formed the Company at the time of the Spin-Off. Accordingly, the results of operations for the nine months ended September 30, 2018 and 2017 reflect the aggregate operations and changes in cash flows and equity on a combined basis for all periods prior to May 31, 2018 and on a consolidated basis for all periods subsequent to May 31, 2018. The discussion of our results of operations, cash flows and financial condition set forth in this report is not necessarily indicative of the future results of operations, cash flows or financial condition as an independent, publicly traded company.





INDEX






GLOSSARY
 
2018 Incentive Award Plan
Spirit MTA REIT and Spirit MTA REIT, L.P. 2018 Incentive Award Plan
AFFO
Adjusted Funds From Operations. See definition in Management’s Discussion and Analysis of Financial Condition and Results of Operations
Annualized Contractual Rent
Contractual Rent multiplied by twelve
ASC
Accounting Standards Codification
Asset Management Agreement
Asset Management Agreement between Spirit Realty, L.P. and Spirit MTA REIT dated May 31, 2018
ASU
Accounting Standards Update
CMBS
Commercial Mortgage-Backed Securities
Code
Internal Revenue Code of 1986, as amended
Collateral Pool
Pool of collateral assets that are pledged to the indenture trustee for the benefit of the noteholders and secure obligations of issuers under Master Trust 2014
Contractual Rent
Monthly contractual cash rent, excluding percentage rents, from properties owned fee-simple or ground leased, recognized during the final month of the reporting period, adjusted to exclude amounts received from properties sold during that period and adjusted to include a full month of contractual rent for properties acquired during that period. We use Contractual Rent when calculating certain metrics that are useful to evaluate portfolio credit, asset type, industry, and geographic diversity and to manage risk.
CPI
Consumer Price Index
EBITDAre
EBITDAre is a non-GAAP financial measure and is computed in accordance with standards established by NAREIT. See definition in Management's Discussion and Analysis of Financial Condition and Results of Operations
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
FFO
Funds From Operations. See definition in Management’s Discussion and Analysis of Financial Condition and Results of Operations
GAAP
Generally Accepted Accounting Principles in the United States
Liquidity Reserve
Cash held on deposit until there is a cashflow shortfall as defined in the Master Trust 2014 agreements or a liquidation of Master Trust 2014 occurs
Manager
Spirit Realty, L.P., a wholly-owned subsidiary of Spirit
Master Trust 2014
The asset-backed securitization trust established in 2005, and amended and restated in 2014, which issues non-recourse net-lease mortgage notes collateralized by commercial real estate, net-leases and mortgage loans from time to time. Indirect special purpose entity subsidiaries of the Company are the borrowers.
NAREIT
National Association of Real Estate Investment Trusts
Occupancy
The number of economically yielding owned properties divided by total owned properties
Other Properties
One of two reportable segments consisting of all properties not included in the Master Trust 2014 Collateral Pool
Properties
Owned properties and mortgage loans receivable secured by properties
Property Management and Servicing Agreement
Second amended and restated agreement governing the management services and special services provided to Master Trust 2014 by Spirit Realty, L.P., dated as of May 20, 2014, as amended, supplemented, amended and restated or otherwise modified

3



Real Estate Investment Value
The gross acquisition cost, including capitalized transaction costs, plus improvements and less impairments, if any
REIT
Real Estate Investment Trust
Release Account
Proceeds from the sale of assets securing Master Trust 2014 held in a restricted account until a qualifying substitution is made or the funds are applied as prepayment of principal
Separation and Distribution Agreement
Separation and Distribution Agreement between Spirit Realty Capital, Inc. and Spirit MTA REIT dated May 21, 2018
SEC
Securities and Exchange Commission
Shopko
Specialty Retail Shops Holding Corp. and certain of its affiliates
SMTA
Spirit MTA REIT
Spirit
Spirit Realty Capital, Inc.
SubREIT
Spirit MTA SubREIT, Inc., a wholly-owned subsidiary of SMTA
U.S.
United States of America
Vacant
Owned properties that are not economically yielding

Unless otherwise indicated or unless the context requires otherwise, all references to the "Company," "Spirit MTA
REIT," “SMTA,” "we," "us" or "our" refer to Spirit MTA REIT and its wholly-owned subsidiaries.


4



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SPIRIT MTA REIT
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
(Unaudited)
 
September 30, 2018
 
December 31, 2017
Assets
 
 
 
Investments:
 
 
 
Real estate investments:
 
 
 
Land and improvements
$
971,444

 
$
973,231

Buildings and improvements
1,707,970

 
1,658,023

Total real estate investments
2,679,414

 
2,631,254

Less: accumulated depreciation
(588,194
)
 
(557,948
)
 
2,091,220

 
2,073,306

Loans receivable, net
66,950

 
32,307

Intangible lease assets, net
104,937

 
102,262

Real estate assets held for sale, net
22,106

 
28,460

Net investments
2,285,213

 
2,236,335

Cash and cash equivalents
16,188

 
6

Deferred costs and other assets, net
69,766

 
107,770

Goodwill
13,549

 
13,549

Total assets
$
2,384,716

 
$
2,357,660

Liabilities and equity
 
 
 
Liabilities:
 
 
 
Mortgages and notes payable, net
$
1,993,572

 
$
1,926,835

Intangible lease liabilities, net
22,222

 
23,847

Accounts payable, accrued expenses and other liabilities
32,885

 
16,060

Total liabilities
2,048,679

 
1,966,742

Commitments and contingencies (see Note 7)


 


Redeemable preferred equity:
 

 
 

SMTA Preferred Stock, $0.01 par value, $25 per share liquidation preference, 20,000,000 shares authorized: 6,000,000 and 0 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
150,000

 

SubREIT Preferred Stock, $0.01 par value, $1,000 per share liquidation preference, 50,000,000 shares authorized: 5,000 and 0 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
5,000

 

Total redeemable preferred equity
155,000

 

Stockholders' equity and parent company equity:
 
 
 
Net parent investment

 
390,918

Common stock, $0.01 par value, 750,000,000 shares authorized; 43,000,862 and 10,000 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
430

 

Capital in excess of common stock par value
200,448

 

Accumulated deficit
(19,841
)
 

Total stockholders' equity and parent company equity
181,037

 
390,918

Total liabilities and equity
$
2,384,716

 
$
2,357,660

See accompanying notes.

5



SPIRIT MTA REIT
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In Thousands, Except Share and Per Share Data)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rentals
$
59,769

 
$
55,257

 
$
178,040

 
$
167,645

Interest income on loans receivable
1,131

 
217

 
1,964

 
622

Tenant reimbursement income
518

 
691

 
1,499

 
1,841

Other income
993

 
2,994

 
1,934

 
4,144

Total revenues
62,411

 
59,159

 
183,437

 
174,252

Expenses:
 

 
 

 
 
 
 
General and administrative
1,795

 
4,862

 
11,221

 
18,593

Related party fees
8,369

 
1,411

 
13,450

 
4,150

Transaction costs
78

 
1,733

 
8,620

 
2,100

Property costs (including reimbursable)
1,909

 
2,189

 
5,369

 
6,210

Interest
27,672

 
18,733

 
83,427

 
56,324

Depreciation and amortization
20,969

 
19,891

 
63,071

 
60,776

Impairments
9,343

 
15,436

 
15,415

 
27,348

Total expenses
70,135

 
64,255

 
200,573

 
175,501

Loss before other income (loss) and income tax expense
(7,724
)
 
(5,096
)
 
(17,136
)
 
(1,249
)
Other income (loss):
 

 
 

 
 
 
 
(Loss) gain on debt extinguishment

 

 
(363
)
 
1

Gain (loss) on disposition of real estate assets
4,210

 
(1,382
)
 
7,464

 
18,196

Total other income (loss)
4,210

 
(1,382
)
 
7,101

 
18,197

(Loss) income before income tax expense
(3,514
)
 
(6,478
)
 
(10,035
)
 
16,948

Income tax expense
(60
)
 
(45
)
 
(139
)
 
(135
)
Net (loss) income and total comprehensive (loss) income
(3,574
)
 
(6,523
)
 
(10,174
)
 
16,813

Preferred dividends
(3,975
)
 

 
(5,300
)
 

Net (loss) income attributable to common stockholders
$
(7,549
)
 
$
(6,523
)
 
$
(15,474
)
 
$
16,813

 
 
 
 
 
 
 
 
Net (loss) income per share attributable to common stockholders
 
 
 
 
 
 
 
Basic
$
(0.18
)
 
$
(0.15
)
 
$
(0.36
)
 
$
0.39

Diluted
$
(0.18
)
 
$
(0.15
)
 
$
(0.36
)
 
$
0.39

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
42,851,010

 
42,851,010

 
42,851,010

 
42,851,010

Diluted
42,851,010

 
42,851,010

 
42,851,010

 
42,851,010

 
 
 
 
 
 
 
 
Dividends declared per common share issued
$
0.33

 
N/A
 
$
0.33

 
N/A
See accompanying notes.

6



SPIRIT MTA REIT
Consolidated Statement of Changes in Equity
(In Thousands, Except Share and Per Share Data)
(Unaudited)
 
Redeemable Preferred Equity
 
Stockholders' Equity and Parent Company Equity
 
SMTA Preferred Stock
 
SubREIT Preferred Stock
 
 
 
Common Stock
 
 
 
 
 
Shares
 
Par Value and Capital in Excess of Par Value
 
Shares
 
Par Value and Capital in Excess of Par Value
 
Total Redeemable Preferred Equity
 
Shares
 
Par 
Value
 
Capital in
Excess of
Par Value
 
Accumulated
Earnings
 
Net Parent Investment
 
Total Stockholders' Equity and Parent Company Equity
Balances, December 31, 2017

 
$

 

 
$

 
$

 

 
$

 
$

 
$

 
$
390,918

 
$
390,918

Net loss

 

 

 

 

 

 

 

 
(351
)
 
(9,823
)
 
(10,174
)
Contributions from parent company

 

 

 

 

 

 

 

 

 
174,515

 
174,515

Distributions to parent company

 

 

 

 

 

 

 

 

 
(200,183
)
 
(200,183
)
Issuance of shares of common stock, net

 

 

 

 

 
42,851,010

 
429

 
199,998

 

 
(200,427
)
 

Issuance of shares of preferred stock, net
6,000,000

 
150,000

 
5,000

 
5,000

 
155,000

 

 

 

 

 
(155,000
)
 
(155,000
)
Dividends declared on preferred stock

 

 

 

 

 

 

 

 
(5,300
)
 

 
(5,300
)
Dividends declared on common stock

 

 

 

 

 

 

 

 
(14,190
)
 

 
(14,190
)
Stock-based compensation, net

 

 

 

 
 
 
149,852

 
1

 
450

 

 

 
451

Balances, September 30, 2018
6,000,000

 
$
150,000

 
5,000

 
$
5,000

 
$
155,000

 
43,000,862

 
$
430

 
$
200,448

 
$
(19,841
)
 
$

 
$
181,037

See accompanying notes.


7



SPIRIT MTA REIT
Consolidated Statements of Cash Flows
(In Thousands, Unaudited)
 
Nine Months Ended September 30,
 
2018
 
2017
Operating activities
 

 
 

Net (loss) income
$
(10,174
)
 
$
16,813

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
63,071

 
60,776

Impairments
15,415

 
27,348

Amortization of deferred financing costs
2,581

 
984

Amortization of debt discounts
5,291

 
3,207

Stock based compensation expense
2,875

 
5,101

Loss (gain) on debt extinguishment, net
363

 
(1
)
Gain on disposition of real estate assets
(7,464
)
 
(18,196
)
Non-cash revenue
(2,145
)
 
(2,554
)
Bad debt expense and other
500

 
2,105

Changes in operating assets and liabilities:
 

 
 

Deferred costs and other assets, net
(5,551
)
 
3,636

Accounts payable, accrued expenses and other liabilities
1,970

 
1,843

Net cash provided by operating activities
66,732

 
101,062

Investing activities
 

 
 

Acquisitions of real estate
(112,694
)
 
(27,058
)
Capitalized real estate expenditures
(2,634
)
 
(1,169
)
Collections of principal on loans receivable
3,741

 
8,008

Proceeds from dispositions of real estate and other assets
68,862

 
128,746

Net cash (used in) provided by investing activities
(42,725
)
 
108,527

Financing activities
 

 
 

Borrowings under mortgages and notes payable
92,216

 

Repayments under mortgages and notes payable
(31,935
)
 
(11,959
)
Debt extinguishment costs
(363
)
 

Deferred financing costs
(1,415
)
 

Preferred stock dividends paid
(5,300
)
 

Common stock dividends paid

 

Contributions from parent company
91,662

 
89,421

Distributions to parent company
(198,038
)
 
(249,865
)
Net cash used in financing activities
(53,173
)
 
(172,403
)
Net (decrease) increase in cash, cash equivalents and restricted cash
(29,166
)
 
37,186

Cash, cash equivalents and restricted cash, beginning of period
66,510

 
12,688

Cash, cash equivalents and restricted cash, end of period
$
37,344

 
$
49,874

 
Nine Months Ended September 30,
 
2018
 
2017
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
 
 
 
Investment contribution from parent
$
80,429

 
$

Investment distribution to parent
2,144

 
1,183

Financing provided in connection with the disposition of assets
2,888

 

Preferred equity issuance
155,000

 

Distributions declared and unpaid
14,190

 


 
 
 
 
Supplemental Cash Flow Disclosures:
 

 
 

Interest paid
$
74,265

 
$
52,185

Taxes paid
$
280

 
$
250

See accompanying notes.  

8

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)


Note 1. Organization
Spirit MTA REIT ("SMTA" or the "Company") operates as an externally managed REIT that seeks to generate and deliver sustainable and attractive returns for stockholders by primarily investing in and managing a portfolio of single-tenant, operationally essential real estate throughout the U.S. that is generally leased on a long-term, triple-net basis to tenants operating within retail, office, and industrial property types. Single tenant, operationally essential real estate generally refers to free-standing, commercial real estate facilities where tenants conduct activities that are essential to the generation of their sales and profits.
The Company's portfolio includes (i) an asset-backed securitization trust which issues non-recourse asset-backed securities collateralized by commercial real estate, net-leases and mortgage loans (“Master Trust 2014”), (ii) a portfolio of properties leased to Specialty Retail Shops Holding Corp. ("Shopko") and its subsidiaries, (iii) a single distribution center property leased to a sporting goods tenant encumbered with CMBS debt, and (iv) a portfolio of unencumbered properties.
The Company began operations through predecessor legal entities which were wholly-owned subsidiaries of Spirit Realty Capital, Inc. ("Spirit"). On May 31, 2018, Spirit completed the Spin-Off that resulted in the Company's establishment as an independent, publicly traded company. The Spin-Off was effected by means of a pro rata distribution of SMTA common shares to Spirit stockholders of record as of the close of business on the record date. In conjunction with the Spin-Off, SMTA and Spirit Realty, L.P. (the "Manager"), a wholly-owned subsidiary of Spirit, entered into an Asset Management Agreement under which Spirit Realty, L.P. provides external management of SMTA.
Costs associated with the Spin-Off incurred in the three months ended September 30, 2018 and 2017 totaled $0.1 million and $1.7 million, respectively, and in the nine months ended September 30, 2018 and 2017 totaled $8.6 million and $2.1 million, respectively. These are reflected as transaction costs on the accompanying consolidated statements of operations and comprehensive income (loss).
Note 2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the SEC. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the consolidated financial statements include the normal, recurring adjustments necessary for a fair presentation of the information required to be set forth therein.
The results for interim periods are not necessarily indicative of the results for the entire year. Certain information and note disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted from these statements pursuant to SEC rules and regulations and, accordingly, these financial statements should be read in conjunction with the audited combined financial statements for the year ended December 31, 2017 included in the Company's registration statement on Form 10 filed with the SEC.
Subsequent to the Spin-Off on May 31, 2018, the consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The pre-spin consolidated financial statements were prepared on a carve-out basis and reflect significant assumptions and allocations.
For the periods prior to the Spin-Off, the financial position and results of operations reflect a combination of entities under common control that have been “carved out” from Spirit’s consolidated financial statements and present Spirit's historical carrying values of the assets and liabilities, consistent with accounting for spin-off transactions in accordance with GAAP. Since the Company prior to the Spin-Off did not represent one entity, a separate capital structure did not exist. As a result, the combined net assets of the predecessor legal entities have been reflected in the consolidated financial statements as net parent investment for periods prior to the Spin-Off. All transactions between Spirit and the predecessor legal entities are considered effectively settled through equity in the consolidated financial statements at the time the transaction is recorded, other than certain mortgages as discussed in Note 6. The settlement of these transactions is reflected as contributions from and distributions to parent in the consolidated statement of changes in equity and contributions from and distributions to parent in the consolidated statements of cash flows as a financing activity.

9

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

Through May 31, 2018, the pre-spin consolidated financial statements include expense allocations related to certain Spirit corporate general and administrative functions. These expenses have been allocated based on direct usage or benefit where specifically identifiable, with the remainder allocated pro rata based on property count. All the expense allocations were deemed to have been incurred and settled through net parent investment in the period in which the costs were incurred. Management considers the expense allocation methodology and results to be reasonable. However, the allocations may not be indicative of the actual expense that would have been incurred had the Company operated as an independent, publicly traded company for the periods presented prior to May 31, 2018. At time of the Spin-Off, SMTA entered into an Asset Management Agreement with Spirit to provide these corporate functions.
These consolidated financial statements include certain special purpose entities that were formed to acquire and hold real estate encumbered by indebtedness (see Note 4). Each special purpose entity is a separate legal entity and is the sole owner of its assets and responsible for its liabilities. The assets of these special purpose entities are not available to pay, or otherwise satisfy obligations to, the creditors of any affiliate or owner of another entity unless the special purpose entities have expressly agreed and are permitted under their governing documents. As of September 30, 2018 and December 31, 2017, net assets totaling $1.86 billion and $1.82 billion, respectively, were held and net liabilities totaling $2.02 billion and $1.96 billion, respectively, were owed by these encumbered special purpose entities included in the accompanying consolidated balance sheets.
Use of Estimates     
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes its estimates are reasonable, actual results could differ from those estimates.
Segment Reporting
The Company views its operations in two segments—Master Trust 2014 and all other properties ("Other Properties"), see Note 11 for further discussion on these segments. The Company has no other reportable segments.
Allowance for Doubtful Accounts
The Company reviews its rent and other tenant receivables for collectability on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates, and economic conditions in the area in which the tenant operates. If the collectability of a receivable with respect to any tenant is in doubt, a provision for uncollectible amounts will be established or a direct write-off of the specific receivable will be made. The Company’s reserves for uncollectible amounts totaled $6.8 million and $3.5 million as of September 30, 2018 and December 31, 2017, respectively, against accounts receivable balances of $12.2 million and $5.0 million, respectively. Receivables are recorded within deferred costs and other assets, net in the accompanying consolidated balance sheets. Receivables are written off against the reserves for uncollectible amounts when all possible means of collection have been exhausted.
For rental revenues related to the straight-line method of reporting rental revenue, the collectability review includes management’s estimates of amounts that will not be realized based on an assessment of the risks inherent in the portfolio, considering historical experience. The Company established a reserve for losses of $0.3 million and $1.0 million as of September 30, 2018 and December 31, 2017, respectively, against straight-line rental revenue receivables of $27.2 million and $24.9 million, respectively. These receivables are recorded within deferred costs and other assets, net in the accompanying consolidated balance sheets.
Goodwill
Goodwill arises from business combinations and represents the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the identifiable assets acquired and the liabilities assumed. Spirit recorded goodwill as a result of its merger with Cole Credit Property II, Inc. (“Cole”) on July 17, 2013. Goodwill was allocated to the Company based on the fair value of the Cole assets attributable to the Company relative to the total fair value of Cole assets acquired through the merger. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Goodwill has been allocated to each reporting unit based

10

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

upon the relative fair value of each reporting unit, resulting in $7.0 million allocated to Master Trust 2014 and $6.5 million allocated to Other Properties. No impairment was recorded for the periods presented.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash and highly liquid investment securities with maturities at acquisition of three months or less. The Company invests cash primarily in money market funds of major financial institutions with fund investments consisting of highly-rated money market instruments and other short-term instruments. Restricted cash is classified within deferred costs and other assets, net in the accompanying consolidated balance sheets. Cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows consisted of the following (in thousands):
 
September 30, 2018
 
December 31, 2017
 
September 30, 2017
Cash and cash equivalents
$
16,188

 
$
6

 
$
6

Restricted cash:
 
 
 
 
 
Release Account (1)
9,313

 
61,001

 
49,868

Liquidity Reserve (2)
5,570

 
5,503

 

Lender controlled accounts (3)
4,725

 

 

Other (4)
1,548

 

 

Total cash, cash equivalents and restricted cash
$
37,344

 
$
66,510

 
$
49,874

(1) Release Account cash consists of proceeds from the sales of assets pledged as collateral under Master Trust 2014 and is held on deposit until a qualifying substitution is made or the funds are applied as prepayment of principal.
(2) 
Liquidity Reserve cash was placed on deposit in conjunction with the issuance of additional series of notes under Master Trust 2014 and is held until there is a cashflow shortfall, as defined in the Master Trust 2014 agreements, or a liquidation of Master Trust 2014 occurs.
(3) 
Funds held in lender controlled accounts released after scheduled debt service requirements are met. As of September 30, 2018, $4.2 million of this balance was rent-related receipts associated with Master Trust 2014.
(4) 
Funds held in escrow accounts until the related purchase/sale transaction closes.
Income Taxes
For the period prior to the Spin-Off, the Company applies the provisions of FASB ASC Topic 740, Income Taxes, and computes the provision for income taxes on a separate return basis. The separate return method applies the accounting guidance for income taxes to the stand-alone consolidated financial statements as if the Company was a separate taxpayer and a stand-alone enterprise for the periods presented.
The Company was wholly-owned by the Manager prior to the Spin-Off and was disregarded for federal income tax purposes. The Manager is wholly-owned by Spirit through certain direct and indirect ownership interests and is taxed as a partnership for Federal income tax purposes. Spirit has elected to be taxed as a REIT under the applicable provisions of the Code and, as a result, will not be subject to federal income tax as long as it distributes 100% of its taxable income and satisfies certain other requirements. Therefore, no provision for federal income tax has been made in the accompanying consolidated financial statements for the period prior to the Spin-Off.
For the period subsequent to the Spin-Off, the Company intends to elect to be taxed as a REIT under the Code beginning with its initial tax year ending December 31, 2018. As a REIT, the Company generally will not be subject to federal income tax provided it continues to satisfy certain tests concerning the Company’s sources of income, the nature of its assets, the amounts distributed to its stockholders, and the ownership of Company stock. Management believes the Company has qualified and will continue to qualify as a REIT and therefore, no provision has been made for federal income taxes in the accompanying consolidated financial statements. Even if the Company qualifies for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income tax and excise tax on its undistributed income.
The Company is subject to certain other taxes which are reflected as income tax expense in the consolidated statements of operations and comprehensive income (loss). Franchise taxes are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

11

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606. This new guidance establishes a principles-based approach for accounting for revenue from contracts with customers and is effective for annual reporting periods beginning after December 15, 2017, with early application permitted for annual reporting periods beginning after December 15, 2016. The Company adopted the new revenue recognition standard effective January 1, 2018 under the modified retrospective method, and elected to apply the standard only to contracts that were not completed as of the date of adoption (i.e., January 1, 2018). In evaluating the impact of this new standard, the Company identified that lease contracts covered by Leases (Topic 840) are excluded from the scope of this new guidance. As such, this ASU had no material impact on the Company's reported revenues, results of operations, financial position, cash flows and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. Leases pursuant to which the Company is the lessee primarily consists of ground leases. The amendments in this ASU are effective for the fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company has elected to use all of the practical expedients available for adoption of this ASU except for the hindsight expedient, which would require the re-evaluation of the lease term on all leases using current facts and circumstances. The Company has begun implementation of the ASU and is currently evaluating the overall impact of this ASU on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which requires more timely recognition of credit losses associated with financial assets. ASU 2016-13 requires financial assets (or a group of financial assets) measured at an amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
Note 3. Investments
Real Estate Investments
As of September 30, 2018, the Company’s gross investment in real estate properties and loans totaled approximately $2.9 billion, representing investments in 884 owned properties and eight properties securing mortgage loans. The gross investment is comprised of land, buildings, lease intangible assets and lease intangible liabilities, as adjusted for any impairment, and the carrying amount of loans receivable and real estate assets held for sale. The portfolio is geographically dispersed throughout 45 states with Texas, at 11.9%, as the only state with a Real Estate Investment Value greater than 10.0% of the Real Estate Investment Value of the Company’s entire portfolio.

12

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

During the nine months ended September 30, 2018, the Company had the following real estate and loan activity, net of accumulated depreciation and amortization:
 
Number of Properties 
 
Dollar Amount of Investments 
 
Owned 
 
Financed
 
Total 
 
Owned 
 
Financed 
 
Total 
 
 
 
 
 
 
 
(In Thousands)
Gross balance, December 31, 2017
907

 
11

 
918

 
$
2,838,285

 
$
32,307

 
$
2,870,592

Acquisitions/improvements (1)
19

 
2

 
21

 
169,564

 
37,888

 
207,452

Dispositions of real estate (2)(3)
(42
)
 

 
(42
)
 
(90,442
)
 

 
(90,442
)
Principal payments and payoffs

 
(5
)
 
(5
)
 

 
(4,031
)
 
(4,031
)
Impairments

 

 

 
(15,415
)
 

 
(15,415
)
Write-off of gross lease intangibles

 

 

 
(23,122
)
 

 
(23,122
)
Loan premium amortization and other

 

 

 
(267
)
 
786

 
519

Gross balance, September 30, 2018
884

 
8

 
892

 
$
2,878,603

 
$
66,950

 
$
2,945,553

Accumulated depreciation and amortization
 

 
 

 
 

 
(682,940
)
 

 
(682,940
)
Other non-real estate assets held for sale
 

 
 

 
 

 
378

 

 
378

Net balance, September 30, 2018
 

 
 

 
 

 
$
2,196,041

 
$
66,950

 
$
2,262,991

(1) Includes investments of $1.7 million in revenue producing capitalized expenditures, as well as $0.7 million of non-revenue producing capitalized expenditures as of September 30, 2018.
(2) The total accumulated depreciation and amortization associated with dispositions of real estate was $23.0 million as of September 30, 2018.
(3) For the nine months ended September 30, 2018, the total loss on disposal of assets on held and used properties was $4.1 million and on held for sale properties was $3.4 million.
Scheduled minimum future contractual rent to be received under the remaining non-cancelable term of the operating leases (including contractual fixed rent increases occurring on or after October 1, 2018) are as follows (in thousands):
 
September 30, 2018
2018 Remainder
$
58,888

2019
232,126

2020
222,310

2021
215,388

2022
202,488

Thereafter
1,290,455

Total future minimum rentals
$
2,221,655

Because lease renewal periods are exercisable at the option of the lessee, the preceding table presents future minimum lease payments due during the initial lease term only. In addition, the future minimum rentals do not include any contingent rent based on a percentage of the lessees’ gross sales or lease escalations based on future changes in the CPI or other stipulated reference rate.

13

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

Loans Receivable
The following table details loans receivable, net of premium and allowance for loan losses (in thousands):
 
September 30, 2018
 
December 31, 2017
Mortgage loans-principal
$
31,517

 
$
32,665

Mortgage loans-premium, net of amortization

 
31

Allowance for loan losses

 
(389
)
Mortgage loans, net
31,517

 
32,307

Other note receivables - principal
35,000

 

Other notes receivables-discount, net of amortization
433

 

Total loans receivable, net
$
66,950

 
$
32,307

The mortgage loans are secured by single-tenant commercial properties and generally have fixed interest rates over the term of the loans.
On April 30, 2018, Spirit contributed to the Company a $35.0 million B-1 Term Loan, included in the table above in other notes, as part of a syndicated loan and security agreement with Shopko as borrower and several banks as lenders. The B-1 Term Loan bears interest at a rate of 12% per annum and matures on June 19, 2020. Principal will be repaid in quarterly installments of $0.6 million commencing on November 1, 2018, while interest will be paid monthly. The loan is secured by Shopko’s assets in its $784 million asset-backed lending facility and is subordinate to other loans made under the syndicated loan and security agreement.
Lease Intangibles, Net
The following table details lease intangible assets and liabilities, net of accumulated amortization (in thousands):
 
September 30, 2018
 
December 31, 2017
In-place leases
$
183,957

 
$
191,557

Above-market leases
23,864

 
24,691

Less: accumulated amortization
(102,884
)
 
(113,986
)
Intangible lease assets, net
$
104,937

 
$
102,262

 
 
 
 
Below-market leases
$
38,099

 
$
39,274

Less: accumulated amortization
(15,877
)
 
(15,427
)
Intangible lease liabilities, net
$
22,222

 
$
23,847

The amounts amortized as a net increase to rental revenue for capitalized above and below-market leases were $175 thousand and $63 thousand for the three months ended September 30, 2018 and 2017, respectively, and $501 thousand and $456 thousand for the nine months ended September 30, 2018 and 2017, respectively. The value of in place leases amortized and included in depreciation and amortization expense was $2.8 million and $2.6 million for the three months ended September 30, 2018 and 2017, respectively, and $8.1 million and $10.5 million for the nine months ended September 30, 2018 and 2017, respectively.

14

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

Real Estate Assets Held for Sale
The following table shows the activity in real estate assets held for sale for the nine months ended September 30, 2018 (dollars in thousands): 
 
Number of
Properties
 
 
Carrying
Value
 
Balances, December 31, 2017
7

 
$
28,460

Transfers from real estate investments
14

 
38,685

Sales
(6
)
 
(19,263
)
Transfers to real estate investments held and used
(5
)
 
(24,880
)
Impairments

 
(896
)
Balances, September 30, 2018
10

 
$
22,106

Impairments
The following table summarizes total impairment losses recognized on the accompanying consolidated statements of operations and comprehensive income (loss) (in thousands):  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Real estate and intangible asset impairment
$
9,305

 
$
14,550

 
$
15,435

 
$
26,876

Write-off of lease intangibles, net
38

 
886

 
(4
)
 
472

Recovery of loans receivable, previously reserved

 

 
(16
)
 

Total impairment loss
$
9,343

 
$
15,436

 
$
15,415

 
$
27,348

Impairments for the three months ended September 30, 2018 were comprised of $9.3 million on properties classified as held and used. Impairments for the three months ended September 30, 2017 were comprised of $11.7 million on properties classified as held and used and $3.7 million on properties classified as held for sale. Impairments for the nine months ended September 30, 2018 were comprised of $14.5 million on properties classified as held and used and $0.9 million on properties classified as held for sale. Impairments for the nine months ended September 30, 2017 were comprised of $20.4 million on properties classified as held and used and $6.9 million on properties classified as held for sale.
Note 4. Debt
Master Trust 2014
The Company has access to an asset-backed securitization platform, Master Trust 2014, to raise capital through the issuance of non-recourse asset-back securities collateralized by commercial real estate, net-leases and mortgage loans. Master Trust 2014 has five bankruptcy-remote, special purpose entities as issuers or co-issuers of the notes.
On January 23, 2018, the Company re-priced a private offering of the Master Trust 2014 Series 2017-1 notes with an aggregate principal amount of $674.4 million. As a result, the interest rate on the Class B Notes was reduced from 6.35% to 5.49%, while the other terms of the Class B Notes remained unchanged. The terms of the Class A Notes were unaffected by the repricing. In connection with the repricing, the Company received $8.2 million in additional proceeds that reduced the debt discount. The additional proceeds were distributed to Spirit.
During the nine months ended September 30, 2018, the Company extinguished $6.3 million of Master Trust 2014 debt as a result of principal pre-payments, resulting in approximately $0.4 million in losses on debt extinguishment attributable to the pre-payment premiums paid. During the same period, scheduled principal payments of $24.9 million were made on the Master Trust 2014 notes.

15

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

The Master Trust 2014 notes are summarized below:
 
Stated
Rates 
(1)
 
Maturity
 
September 30, 2018
 
December 31, 2017
 
 
 
(in Years)
(in Thousands)
Series 2014-1 Class A2
5.4%
 
1.8
 
$
243,632

 
$
252,437

Series 2014-2
5.8%
 
2.5
 
230,541

 
234,329

Series 2014-3
5.7%
 
3.5
 
309,884

 
311,336

Series 2014-4 Class A1
3.5%
 
1.3
 
149,484

 
150,000

Series 2014-4 Class A2
4.6%
 
11.3
 
345,200

 
358,664

Series 2017-1 Class A
4.4%
 
4.2
 
539,163

 
542,400

Series 2017-1 Class B
5.5%
 
4.2
 
132,000

 
132,000

Total Master Trust 2014 notes
4.9%
 
4.6
 
1,949,904

 
1,981,166

Debt discount, net
 
 
 
(22,834
)
(36,342
)
Deferred financing costs, net
 
 
 
(15,749
)
(17,989
)
Total Master Trust 2014, net
 
 
 
 
$
1,911,321

 
$
1,926,835

(1) Represents the individual series stated interest rates as of September 30, 2018 and the weighted average stated rate of the total Master Trust 2014 notes, based on the collective series outstanding principal balances as of September 30, 2018.
As of September 30, 2018, the Master Trust 2014 notes were secured by 790 owned and financed properties. The notes issued under Master Trust 2014 are cross-collateralized by the assets of all issuers within this trust.
CMBS
On January 22, 2018, the Company entered into a new non-recourse loan agreement with Société Générale and Barclays Bank PLC as lenders, which is collateralized by a single distribution center property located in Katy, Texas. The loan has a stated interest rate of 5.14% and an effective interest rate of 5.42% as of September 30, 2018. As a result of the issuance, the Company received approximately $84.0 million in proceeds. The Company distributed all of the proceeds to Spirit. As of September 30, 2018, the loan had an outstanding principal balance of $83.3 million, after $0.7 million in scheduled principal payments, unamortized deferred financing costs of $1.1 million and a remaining maturity of 9.3 years.
Debt Maturities
As of September 30, 2018, scheduled debt maturities of Master Trust 2014 and CMBS debt are as follows (in thousands):
 
Scheduled
Principal
 
 
Balloon
Payment
  
 
Total  
2018 Remainder
$
8,900

 
$

 
$
8,900

2019
36,403

 

 
36,403

2020
40,743

 
364,645

 
405,388

2021
23,620

 
219,964

 
243,584

2022
23,227

 
971,453

 
994,680

Thereafter
182,612

 
161,664

 
344,276

Total
$
315,505

 
$
1,717,726

 
$
2,033,231


16

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

Interest Expense
The following table is a summary of the components of interest expense related to the Company’s borrowings (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Interest expense
$
25,160

 
$
17,325

 
$
75,555

 
$
52,133

Non-cash interest expense:
 

 
 

 
 
 
 
Amortization of deferred financing costs
855

 
331

 
2,581

 
984

Amortization of debt discount
1,657

 
1,077

 
5,291

 
3,207

Total interest expense
$
27,672

 
$
18,733

 
$
83,427

 
$
56,324


Note 5. Stockholders' Equity and Redeemable Preferred Equity
The Company's declaration of trust authorizes it to issue 750,000,000 common shares of beneficial interest, $0.01 par value per share, and 20,000,000 preferred shares of beneficial interest, $0.01 par value per share. The Board of Trustees has the power, without shareholder approval, to increase or decrease the number of common shares the Company is authorized to issue.
Issuance of Common Stock
SMTA was originally capitalized on November 17, 2017 with the issuance of 10,000 shares of common stock of beneficial interest ($0.01 par value per share) for a total of $10,000.
On May 31, 2018, the distribution date, Spirit completed the Spin-Off of SMTA. On the distribution date, Spirit distributed on a pro rata basis one share of SMTA common stock for every ten shares of Spirit common stock held by each of Spirit's stockholders as of May 18, 2018, the record date. As a result, 42,851,010 shares of SMTA common stock were issued on May 31, 2018.
During the quarter ended September 30, 2018, the Company declared $14.2 million in SMTA Common Stock dividends and had 43,000,862 shares of Common Stock outstanding as of September 30, 2018.
Issuance of SMTA Preferred Stock
In conjunction with the Spin-Off, SMTA issued to the Manager and one of its affiliates, also a wholly-owned subsidiary of Spirit, 6.0 million shares of Series A preferred stock with an aggregate liquidation preference of $150.0 million (the "SMTA Preferred Stock"). Redemption value of the SMTA Preferred Stock is equal to the liquidation preference plus any accrued and unpaid dividends and redemption is under the control of the issuer unless a change of control event occurs, as defined in the SMTA Preferred Stock agreements. Therefore, as redemption may occur outside the control of the issuer, the SMTA Preferred Stock is classified as temporary equity.
The SMTA Preferred Stock pays cash dividends at the rate of 10.0% per annum on the liquidation preference of $25.00 per share (equivalent to $0.625 per share on a quarterly basis and $2.50 per share on an annual basis). During the quarter ended September 30, 2018, the Company paid $3.8 million in SMTA Preferred Stock dividends and had 6.0 million shares of 10.0% SMTA Preferred Stock outstanding as of September 30, 2018.
Issuance of SubREIT Preferred Stock
Prior to the Spin-Off, in exchange for property, SubREIT issued to the Manager 5,000 shares of Series A preferred stock with an aggregate liquidation preference of $5.0 million (the "SubREIT Preferred Stock"). Redemption value of the SubREIT Preferred Stock is equal to the liquidation preference plus any accrued and unpaid dividends and redemption is under the control of the issuer unless a change of control event occurs, as defined in the SubREIT Preferred Stock agreements. Therefore, as redemption may occur outside the control of the issuer, the SubREIT Preferred Stock is classified as temporary equity. In conjunction with the Spin-Off, the Manager sold the SubREIT Preferred Stock to a third-party.

17

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

The SubREIT Preferred Stock pays cash dividends at the rate of 18.0% per annum on the liquidation preference of $1,000.00 per share (equivalent to $45.00 per share on a quarterly basis and $180.00 per share on an annual basis). During the quarter ended September 30, 2018, the Company paid $225 thousand in SubREIT Preferred Stock dividends and had 5,000 shares of the SubREIT Preferred Stock outstanding as of September 30, 2018.
Dividends Declared
For the nine months ended September 30, 2018, the Company's Board of Trustees declared the following stock dividends for SMTA Preferred Stock and SMTA Common Stock and SubREIT's Board of Directors declared the following stock dividends for SubREIT Preferred Stock:
 
Declaration Date
 
Dividend Per Share
 
Record Date
 
Total Amount
(in thousands)
 
Payment Date
Preferred Stock
 
 
 
 
 
 
 
 
 
SMTA Preferred Stock (1)
Jun 19, 2018
 
$
0.2083

 
Jun 19, 2018
 
$
1,250

 
Jun 29, 2018
SubREIT Preferred Stock (1)
Jun 14, 2018
 
$
15.0000

 
Jun 19, 2018
 
$
75

 
Jun 29, 2018
SMTA Preferred Stock
Aug 9, 2018
 
$
0.6250

 
Sep 14, 2018
 
$
3,750

 
Sep 28, 2018
SubREIT Preferred Stock
Aug 9, 2018
 
$
45.0000

 
Sep 14, 2018
 
$
225

 
Sep 28, 2018
Common Stock
 
 
 
 
 
 
 
 
 
 
Aug 9, 2018
 
$
0.3300

 
Sep 28, 2018
 
$
14,190

 
Oct 15, 2018
(1) Dividend was prorated for the period from June 1, 2018 to June 30, 2018.
The Common Stock dividend declared on August 9, 2018 was paid on October 15, 2018 and is included in accounts payable, accrued expenses and other liabilities as of September 30, 2018.
Note 6. Related Party Transactions
Related Party Transfers and Acquisitions
The financial statements include transfers of properties between the Company and Spirit and its wholly-owned subsidiaries prior to the Spin-Off. During the nine months ended September 30, 2018, the Company transferred three properties to Spirit with a net book value of $2.1 million and during the nine months ended September 30, 2018 Spirit contributed ten properties to the Company with an aggregate net book value of $44.9 million and a $35.0 million B-1 Term Loan with Shopko as borrower, all of which are reflected as non-cash activity in the consolidated statement of cash flows. For the nine months ended September 30, 2017, the Company purchased one property from Spirit for $16.0 million, which is reflected in the consolidated statement of cash flows as acquisitions of real estate. For these transactions, due to all entities being under common control at the time of transaction, no gain or loss was recognized by the Company and the acquired properties are accounted for by the Company at their historical cost basis to Spirit. The amount paid in excess of historical cost basis was recognized as distribution to parent company.
During the third quarter of 2018, Spirit acquired a portfolio of properties and subsequently assigned three of the acquired properties to SMTA. In conjunction with the assignment, the Company paid a $392.5 thousand equalization payment to Spirit to ensure a consistent capitalization rate for the acquired properties between the Company and Spirit.
Related Party Loans Receivable
SMTA has four mortgage loans receivable where wholly-owned subsidiaries of Spirit are the borrower, and the loans are secured by six single-tenant commercial properties. These mortgage loans, which have a weighted average stated interest rate of 1.0%, were entered into by entities under common control of Spirit in conjunction with the issuance of the Series 2014 notes of Master Trust 2014 because the underlying properties did not qualify to be held directly as collateral by Master Trust 2014 under its governing agreements. In total, these mortgage notes had outstanding principal of $28.6 million and $30.8 million at September 30, 2018 and December 31, 2017, respectively, which is included in loans receivable, net on the consolidated balance sheets. The mortgage notes generated $72.2 thousand and $79.6 thousand of income for the three months ended September 30, 2018 and 2017, respectively, and $222.5 thousand and $244.7 thousand for the nine months ended September 30, 2018 and 2017, respectively, which is included in interest income on loans receivable in the consolidated statements of operations and comprehensive income (loss).

18

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

As specified in the original loan agreements dated May 20, 2014, these mortgage notes have maturity dates between June 1, 2027 and April 1, 2028, with a weighted average maturity of 9.5 years at September 30, 2018.
Related Party Notes Payable
In conjunction with the Series 2017-1 notes issuance completed in December 2017, the Manager, as sponsor of the issuance, retained a 5% economic interest in the Master Trust 2014 Series 2017-1 notes as required by the risk retention rules issued under 17 CFR Part 246. The principal amount due to the Manager under the notes was $33.6 million and $33.7 million at September 30, 2018 and December 31, 2017, respectively, and is included in mortgages and notes payable, net on the consolidated balance sheets. The notes have a weighted average stated interest rate of 4.6% with a weighted average term of 4.2 years to expected maturity as of September 30, 2018. Interest expense on the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2018 includes $0.4 million and $1.2 million of interest expense, respectively, paid to the Manager in relation to these notes.
Related Party Property Management and Servicing Agreement
The Manager provides property management services and special services for Master Trust 2014. The property management fees accrue daily at 0.25% per annum of the collateral value of the Master Trust 2014 Collateral Pool less any specially serviced assets, and the special servicing fees accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement dated May 20, 2014. During the three months ended September 30, 2018 and 2017, property management fees of $1.6 million and $1.1 million, respectively, were incurred and during the nine months ended September 30, 2018 and 2017, property management fees of $4.6 million and $3.4 million, respectively, were incurred. Special servicing fees of $0.2 million and $0.3 million were incurred during the three months ended September 30, 2018 and 2017, respectively, and $0.5 million and $0.7 million were incurred in the nine months ended September 30, 2018 and 2017, respectively. The property management fees and special servicing fees are included in related party fees in the consolidated statements of operations and comprehensive income (loss). As of September 30, 2018, the Company had an accrued payable balance of $0.4 million related to these fees.
Related Party Asset Management Agreement
In conjunction with the Spin-Off, SMTA and the Manager entered into the Asset Management Agreement pursuant to which the Manager will provide various services subject to the supervision of SMTA's Board of Trustees, including, but not limited to: (i) performing all of SMTA's day-to-day functions, (ii) sourcing, analyzing and executing on investments and dispositions, (iii) determining investment criteria, (iv) performing investment and liability management duties, including financing and hedging, and (v) performing financial and accounting management. As compensation for these services, SMTA will pay $20 million per annum, payable monthly in arrears. Additionally, the Manager may be entitled to, under certain circumstances, a promoted interest fee based on the total shareholder return of SMTA's common shares during the relevant period, as well as a termination fee. $1.6 million in expense for the promoted interest fee has been recognized as of September 30, 2018. The fair value of the promote fee was calculated using a Monte Carlo simulation model, which incorporated the initial 30-day volume weighted average share price of SMTA of $10.01, a projected volatility rate for SMTA, a risk-free rate, and other variables over the 36 month service period as defined in the Asset Management Agreement. The resulting total estimated fair value of the promote is $14.6 million and is amortized over the service period. During the three and nine months ended September 30, 2018, asset management fees of $5.0 million and $6.7 million were incurred, respectively, which are included in related party fees in the consolidated statements of operations and comprehensive income (loss). Asset management fees of $1.7 million and promote fees of $1.6 million were accrued at September 30, 2018 and are included in accounts payable, accrued expenses and other liabilities in the accompanying balance sheet.
Related Party Cost Sharing Arrangements and Other Accrued Balances
In conjunction with the Spin-Off, SMTA and Spirit entered into certain agreements, including the Separation and Distribution Agreement, Tax Matters Agreement, Registration Rights Agreement and Insurance Sharing Agreement. These agreements provide a framework for the relationship between the Company and Spirit after the Spin-Off, by which Spirit may incur certain expenses on behalf of SMTA that SMTA must reimburse in a timely manner. As part of the Separation and Distribution Agreement, Spirit contributed $3.0 million of cash to SMTA at the time of the Spin-Off. Additionally, in relation to rental payments received by SMTA subsequent to the Spin-Off that relate to rents prior to the Spin-Off, SMTA was required to reimburse $2.0 million to Spirit within 60 days of the Spin-Off, which was reimbursed

19

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

to Spirit during the quarter ended September 30, 2018. There was $0.1 million payable to Spirit and $0.4 million receivable from Spirit in connection with these arrangements at September 30, 2018.
Expense Allocations
As described in Note 2, the accompanying consolidated financial statements present the operations of the Company as "carved out" from the financial statements of Spirit through the date of the Spin-Off. General and administrative expenses and transaction costs were first specifically identified based on direct usage or benefit. The remaining general and administrative expenses and transaction costs for the period prior to the Spin-Off have been allocated to the Company based on relative property count, which the Company believes to be a reasonable methodology. These allocated expenses are centralized corporate costs borne by Spirit for management and other services, including, but not limited to, executive oversight, asset management, property management, treasury, finance, human resources, tax, accounting, financial reporting, information technology and investor relations, as well as transaction costs incurred in connection with the Spin-Off. A summary of the amounts allocated by property count is provided below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Allocated corporate expenses:
 
 
 
 
 
 
 
Cash compensation and benefits
$

 
$
1,710

 
$
3,965

 
$
6,388

Stock compensation

 
866

 
2,424

 
5,101

Professional fees

 
881

 
1,013

 
2,759

Other corporate expenses

 
504

 
1,068

 
1,734

Total corporate expenses

 
3,961

 
8,470

 
15,982

Transaction Costs

 
545

 
3,957

 
575

Total allocated costs
$

 
$
4,506

 
$
12,427

 
$
16,557

Corporate expenses have been included within general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).
Note 7. Commitments and Contingencies
The Company is periodically subject to claims or litigation in the ordinary course of business, including claims generated from business conducted by tenants on real estate owned by the Company. In these instances, the Company is typically indemnified by the tenant against any losses that might be suffered, and the Company and/or the tenant are insured against such claims.
As of September 30, 2018, there were no outstanding claims against the Company that are expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
As of September 30, 2018, the Company had commitments totaling $2.6 million, all of which relate to funding improvements on properties the Company currently owns. The Company expects to be fund these commitments by the end of fiscal year 2019.
The Company estimates future costs for known environmental remediation requirements when it is probable that the Company has incurred a liability and the related costs can be reasonably estimated. The Company considers various factors when estimating its environmental liabilities, and adjustments are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues. When only a wide range of estimated amounts can be reasonably established and no other amount within the range is better than another, the low end of the range is recorded in the consolidated financial statements. As of September 30, 2018, no accruals have been made.

20

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

Note 8. Fair Value Measurements
Nonrecurring Fair Value Measurements
Fair value measurement of an asset on a nonrecurring basis occurs when events or changes in circumstances related to an asset indicate that the carrying amount of the asset is no longer recoverable. Real estate and the related intangible assets are evaluated for impairment based on certain indicators including, but not limited to: the asset being held for sale, vacant, non-operating or the lease on the asset expiring in 60 days or less. The fair values of impaired real estate and intangible assets were determined by using the following information, depending on availability, in order of preference: signed purchase and sale agreements or letters of intent; recently quoted bid or ask prices, or market prices for comparable properties; estimates of cashflow, which consider, among other things, contractual and forecasted rental revenues, leasing assumptions, and expenses based upon market conditions; and expectations for the use of the real estate. Based on these inputs, the Company determined that its valuation of the impaired real estate and intangible assets falls within Level 3 of the fair value hierarchy.
The following table sets forth the Company’s assets that were accounted for at fair value on a nonrecurring basis as of September 30, 2018 and December 31, 2017 (in thousands):
 
 
 
Fair Value Hierarchy Level 
Description 
Fair Value
 
Level 1  
 
Level 2 
 
Level 3 
September 30, 2018
 
 
 
 
 
 
 
Long-lived assets held and used
$
24,999

 
$

 
$

 
$
24,999

Long-lived assets held for sale
$
3,299

 
$

 
$

 
$
3,299

 
 
 
 
 
 
 
 
December 31, 2017
 
 
 

 
 

 
 

Long-lived assets held and used
$
11,077

 
$

 
$

 
$
11,077

Long-lived assets held for sale
$
30,956

 
$

 
$

 
$
30,956


During the nine months ended September 30, 2018 and for the year ended December 31, 2017, we determined that 17 and five long-lived assets held and used, respectively, were impaired.
For four of the held and used properties impaired during the nine months ended September 30, 2018 and four of the held and used properties impaired during the year ended December 31, 2017, the Company estimated property fair value using the price per square foot of comparable properties. The following table provides information about the price per square foot of comparable properties used as inputs (price per square foot in dollars):
 
September 30, 2018
 
December 31, 2017
 
Range 
 
Weighted
Average
 
 
Square
Footage
 
 
Range 
 
Weighted
Average
 
 
Square
Footage
Long-lived assets held and used by asset type
Retail
$53.49 - $499.17
 

$113.49

 
46,427
 
$18.40 - $285.98
 

$72.04

 
68,871
Office
$

 
$

 
 
$81.61 - $244.86
 

$149.49

 
19,821

21

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

For the 13 held and used properties impaired during the nine months ended September 30, 2018 and one held and used property impaired during the year ended December 31, 2017, the Company estimated property fair value using the price per square foot based on a listing price or a broker opinion of value. The following table provides information about the price per square foot based on a listing price and a broker opinion of value used as inputs (price per square foot in dollars):
 
September 30, 2018
 
December 31, 2017
 
Range 
 
Weighted
Average
 
 
Square
Footage
 
 
Range  
 
Weighted
Average
 
 
Square
Footage
 
Long-lived assets held and used by asset type
Retail
$57.50 - $109.79
 
$86.43
 
222,531
 
$88.89
 
$88.89
 
22,500
For the nine months ended September 30, 2018 and year ended December 31, 2017, we determined that one and six long-lived assets held for sale, respectively, were impaired. The Company estimated fair value of held for sale properties using price per square foot from signed purchase and sale agreements as follows (price per square foot in dollars):
 
September 30, 2018
 
December 31, 2017
 
Range  
 
Weighted
Average
 
 
Square
Footage
 
 
Range  
 
Weighted
Average
 
 
Square
Footage
 
Long-lived assets held for sale by asset type
Retail
$38.87
 
$38.87
 
90,334
 
$55.30 - $346.23
 
$299.89
 
87,248
Industrial
$

 
$

 
 
$54.21
 
$54.21
 
96,845
Estimated Fair Value of Financial Instruments
Financial assets and liabilities for which the carrying values approximate their fair values include cash and cash equivalents, restricted cash and escrow deposits, and accounts receivable and payable. Generally, these assets and liabilities are short-term in duration and are recorded at cost, which approximates fair value, on the accompanying consolidated balance sheets.
In addition to the disclosures for assets and liabilities required to be measured at fair value at the balance sheet date, companies are required to disclose the estimated fair values of all financial instruments, even if they are not carried at their fair values. The fair values of financial instruments are estimates based upon market conditions and perceived risks at September 30, 2018 and December 31, 2017. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities.
The estimated fair values of the following financial instruments have been derived based on market quotes for comparable instruments or discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. These measurements are classified as Level 2 of the fair value hierarchy. The following table discloses fair value information for these financial instruments (in thousands):
 
September 30, 2018
 
December 31, 2017
 
Carrying
Value
  
 
Estimated
Fair Value
 
 
Carrying
Value
 
 
Estimated
Fair Value
 
Loans receivable, net
$
66,950

 
$
67,507

 
$
32,307

 
$
29,076

Mortgages and notes payable, net (1)
$
1,993,572

 
$
2,041,280

 
$
1,926,835

 
$
2,030,191

(1) The carrying value of the debt instruments are net of unamortized deferred financing costs and certain debt discounts/premiums.
Note 9. Significant Credit and Revenue Concentration
As of September 30, 2018 and December 31, 2017, the Company's real estate investments were operated by 205 and 201 tenants, respectively, that operate within retail, office and industrial property types across various industries throughout the U.S. Shopko operates in the general merchandise industry and is the Company's largest tenant as a percentage of rental revenue. Total rental revenues from properties leased to Shopko for the three months ended

22

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

September 30, 2018 and 2017 contributed 18.9% and 22.1% of the rental revenue presented in the accompanying consolidated statements of operations and comprehensive income (loss). No other tenant contributed 5% or more of the rental revenue during any of the periods presented. As of both September 30, 2018 and December 31, 2017, the Company's net investment in Shopko properties represents approximately 14.0% and 15.8%, respectively, of the Company's total assets presented in the accompanying consolidated balance sheets. Additionally, the Company holds a B-1 Term Loan that was issued by Shopko in April 2018, see Note 3 for further discussion. This B-1 Term Loan contributed 89.4% of the interest income on loans receivable presented in the accompanying consolidated statement of operations and comprehensive income (loss) for the three months ended September 30, 2018. As of September 30, 2018, the B-1 Term Loan represents approximately 1.5% of the Company's total assets presented in the accompanying consolidated balance sheet.
Note 10. Income (Loss) Per Share
Income (loss) per share has been computed using the two-class method, which is computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of shares of common stock outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both shares of common stock and any participating securities based on the weighted average shares outstanding during the period. Under the two-class method, any earnings attributable to unvested restricted shares are deducted from income (loss) from continuing operations in the computation of net income (loss) attributable to common stockholders.
The shares of common stock outstanding at the Spin-Off date are reflected as outstanding for all periods prior to the Spin-Off. The table below is a reconciliation of the numerator and denominator used in the computation of basic and diluted net income (loss) per share computed using the two-class method (dollars in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Basic and diluted (loss) income:
 
 
 
 
 
 
 
Net (loss) income and total comprehensive (loss) income
$
(3,574
)
 
$
(6,523
)
 
$
(10,174
)
 
$
16,813

Less: dividends paid to preferred stockholders
(3,975
)
 

 
(5,300
)
 

Less: income attributable to unvested restricted stock
(49
)
 

 
(49
)
 

Net (loss) income attributable to common stockholders used in basic and diluted (loss) income per share
$
(7,598
)
 
$
(6,523
)
 
$
(15,523
)
 
$
16,813

 


 
 
 
 
 
 
Basic weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding
42,974,801

 
42,851,010

 
42,892,727

 
42,851,010

Less: Unvested weighted average shares of restricted stock
(123,791
)
 

 
(41,717
)
 

Weighted average shares of common stock outstanding used in basic (loss) income per share
42,851,010

 
42,851,010

 
42,851,010

 
42,851,010

Net (loss) income per share attributable to common stockholders
$
(0.18
)
 
$
(0.15
)
 
$
(0.36
)
 
$
0.39

 
 
 
 
 
 
 
 
Dilutive weighted average shares of common stock (1):
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding used in diluted (loss) income per share
42,851,010

 
42,851,010

 
42,851,010

 
42,851,010

Net (loss) income per share attributable to common stockholders - diluted
$
(0.18
)
 
$
(0.15
)
 
$
(0.36
)
 
$
0.39

 
 
 
 
 
 
 
 
Total potentially dilutive shares of common stock (1)

 

 

 

(1) As of September 30, 2018 and 2017, there were no adjustments to the weighted average shares of common stock outstanding used in the diluted calculation given there were no potentially dilutive shares.

23

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

Note 11. Segments
Management views the operations of the Company as two separate segments—Master Trust 2014 and Other Properties—and makes operating decisions based on these two reportable segments. The business strategy for the Company as a whole is (i) to grow and reinforce Master Trust 2014 and (ii) to monetize the Other Properties to distribute proceeds to stockholders or redeploy into assets that can be added to the Collateral Pool of Master Trust 2014.
Master Trust 2014 is an asset-backed securitization platform, see Note 4, with specific criteria for operating the Collateral Pool, including restrictions on use of Release Account cash, concentration thresholds which cannot be exceeded, and a minimum debt service coverage ratio which must be met. Operations for the Other Properties are focused on monetization of the assets through dispositions, or could include redevelopment or outparcel development where prudent.
Segment results are comprised of revenues, property management and servicing fees, property expenses (which include property costs, depreciation and amortization, and impairments), and interest expense. General and administrative expenses, asset management fees under the Asset Management Agreement, transaction costs, and income taxes are not allocated to individual segments for purposes of assessing segment performance. The Company believes that segment results serve as a useful supplement to net (loss) income because they allow investors and management to measure the Company's progress against its stated strategy.
The performance of the reportable segments is not comparable with the Company's consolidated results and is not necessarily comparable with similar information for any other REITs. Additionally, because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.
Segment results for the three and nine months ended September 30, 2018 and 2017 are as follows (in thousands):
 
 
Three Months Ended September 30, 2018
 
Three Months Ended September 30, 2017
 
 
Master Trust 2014
 
Other Properties
 
Total
 
Master Trust 2014
 
Other Properties
 
Total
Segment Results:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
46,174

 
$
16,237

 
$
62,411

 
$
43,451

 
$
15,708

 
$
59,159

Property Management and Servicing Fees (1)
 
(1,750
)
 

 
(1,750
)
 
(1,411
)
 

 
(1,411
)
Property expenses
 
(20,660
)
 
(11,561
)
 
(32,221
)
 
(28,306
)
 
(9,210
)
 
(37,516
)
Interest expense
 
(26,551
)
 
(1,121
)
 
(27,672
)
 
(18,733
)
 

 
(18,733
)
Gain (loss) on disposition of assets
 
1,386

 
2,824

 
4,210

 
(185
)
 
(1,197
)
 
(1,382
)
Segment (loss) income
 
$
(1,401
)
 
$
6,379

 
$
4,978

 
$
(5,184
)
 
$
5,301

 
$
117

Non-allocated expenses
 
 
 
 
 
(8,552
)
 
 
 
 
 
(6,640
)
Net loss
 
 
 
 
 
$
(3,574
)
 
 
 
 
 
$
(6,523
)
 
 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
 
 
Master Trust 2014
 
Other Properties
 
Total
 
Master Trust 2014
 
Other Properties
 
Total
Segment Results:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
136,170

 
$
47,267

 
$
183,437

 
$
126,237

 
$
48,015

 
$
174,252

Property Management and Servicing Fees (1)
 
(5,164
)
 

 
(5,164
)
 
(4,150
)
 

 
(4,150
)
Property expenses
 
(58,717
)
 
(25,138
)
 
(83,855
)
 
(66,114
)
 
(28,220
)
 
(94,334
)
Interest expense
 
(80,348
)
 
(3,079
)
 
(83,427
)
 
(56,324
)
 

 
(56,324
)
(Loss) gain on debt extinguishment
 
(363
)
 

 
(363
)
 

 
1

 
1

(Loss) gain on disposition of assets
 
(757
)
 
8,221

 
7,464

 
5,527

 
12,669

 
18,196

Segment (loss) income
 
$
(9,179
)
 
$
27,271

 
$
18,092

 
$
5,176

 
$
32,465

 
$
37,641

Non-allocated expenses
 
 
 
 
 
(28,266
)
 
 
 
 
 
(20,828
)
Net (loss) income
 
 
 
 
 
$
(10,174
)
 
 
 
 
 
$
16,813

(1) Property Management and Servicing Fees are included in related party fees in the consolidated statements of operations and comprehensive income (loss). Asset Management Fees, the other component of related party fees, are included in non-allocated expenses above.

24

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

Assets and liabilities by reportable segment are as follows (in thousands):
 
 
September 30, 2018
 
December 31, 2017
 
 
Master Trust 2014
 
Other Properties
 
Total
 
Master Trust 2014
 
Other Properties
 
Total
Net investments
 
$
1,750,855

 
$
534,358

 
$
2,285,213

 
$
1,721,583

 
$
514,752

 
$
2,236,335

Restricted cash
 
19,034

 
2,122

 
21,156

 
66,504

 

 
66,504

Segment assets
 
$
1,769,889

 
$
536,480

 
$
2,306,369

 
$
1,788,087

 
$
514,752

 
$
2,302,839

Other assets
 
 
 
 
 
78,347

 
 
 
 
 
54,821

Total assets
 
 
 
 
 
$
2,384,716

 
 
 
 
 
$
2,357,660

 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages and notes payable, net
 
$
1,911,321

 
$
82,251

 
$
1,993,572

 
$
1,926,835

 
$

 
$
1,926,835

Intangible lease liabilities, net
 
17,593

 
4,629

 
22,222

 
19,725

 
4,122

 
23,847

Segment liabilities
 
$
1,928,914

 
$
86,880

 
$
2,015,794

 
$
1,946,560

 
$
4,122

 
$
1,950,682

Other liabilities
 
 
 
 
 
32,885

 
 
 
 
 
16,060

Total liabilities
 
 
 
 
 
$
2,048,679

 
 
 
 
 
$
1,966,742

Dispositions by reportable segment are as follows (dollars in thousands):
 
 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
 
 
Properties(1)
 
Gross Proceeds(1)
 
Properties
 
Gross Proceeds
Master Trust 2014
 
29

 
$
31,796

 
42

 
$
62,463

Other Properties
 
10

 
44,022

 
22

 
73,158

Total
 
39

 
$
75,818

 
64

 
$
135,621

(1) Excludes three properties transfered to Spirit prior to the Spin-Off, see Note 6.
Note 12. 2018 Incentive Award Plan
During the nine months ended September 30, 2018, the Company granted 149.9 thousand restricted shares under the 2018 Incentive Award Plan to members of the Board of Trustees, all of which were unvested as of September 30, 2018. The Company recorded $1.7 million in deferred compensation associated with these grants, which will be recognized over the service period of the awards.
For both the three and nine months ended September 30, 2018, the Company recognized $451.2 thousand in stock-based compensation expense, which is included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).
As of September 30, 2018, the remaining unamortized stock-based compensation expense totaled $1.2 million, all of which is related to restricted stock awards. Amortization is recognized on a straight-line basis over the service period of the awards.

25

SPIRIT MTA REIT
Notes to Consolidated Financial Statements
(Unaudited)

Note 13. Subsequent Events
CMBS Loan
On November 1, 2018, SMTA closed on a $165.0 million non-recourse financing loan secured by our remaining 85 Shopko assets in our Other Properties portfolio. The loan is pre-payable, in whole or in part, without penalty and bears interest at a rate of one month LIBOR plus 750 basis points. The loan is subject to scheduled amortization payments of $1.0 million per month. The initial maturity is November 15, 2019, with two one-year extension options, subject to certain conditions. 
Variable Funding Note
On November 1, 2018, SMTA closed on a $50.0 million variable funding note ("VFN") within Master Trust 2014, which is secured by properties of Master Trust 2014 and has an anticipated repayment date of November 1, 2021. Interest on the VFN will be payable at a rate per annum equal to the CP Rate, Base Rate or Eurodollar Rate, each as defined in the Note Purchase Agreement. There is a commitment fee on the unused portion of the VFN of 0.5% per annum. No funds have been drawn on the VFN as of November 7, 2018.


26



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the meaning of the federal securities laws. When used in this quarterly report, the words “estimate,” “anticipate,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “seek,” “approximately” or “plan,” or the negative of these words or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management.
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all).
The following risks and uncertainties, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
industry and economic conditions;
volatility and uncertainty in the financial markets, including potential fluctuations in the CPI;
our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate, integrate and manage diversifying acquisitions or investments;
the financial performance of our retail tenants and the demand for retail space, particularly with respect to challenges being experienced by general merchandise retailers;
our ability to diversify our tenant base and reduce the concentration of our significant tenant;
the nature and extent of future competition;
increases in our costs of borrowing as a result of changes in interest rates and other factors;
our ability to access debt and equity capital markets;
our ability to pay down, refinance, restructure and/or extend our indebtedness as it becomes due;
our ability and willingness to renew our leases upon expiration and to reposition our properties on the same or better terms upon expiration in the event such properties are not renewed by tenants or we exercise our rights to replace existing tenants upon default;
the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us or our major tenants;
our ability to manage our expanded operations;
our ability and willingness to maintain our qualification as a REIT;
our relationship with our Manager and its ability to retain qualified personnel;
potential conflicts of interest with our Manager or Spirit;
our ability to achieve the intended benefits from our Spin-Off from Spirit; and
other risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters, illiquidity of real estate investments and potential damages from natural disasters.
The factors included in this quarterly report, including the documents incorporated by reference and documents we subsequently file with the SEC and incorporate by reference, are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional risk factors, see the factors included under the caption “Risk Factors” in our Information Statement filed as Exhibit 99.1 to our Form 10 filed on May 4, 2018. All forward-looking statements are based on information that was available, and speak only, as of the date on which they were made. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.

27



OVERVIEW AND BASIS OF PRESENTATION
SMTA was formed for the purpose of receiving, via contribution from Spirit, the legal entities which held (i) Master Trust 2014, an asset-backed securitization trust which issues non-recourse asset-back securities collateralized by commercial real estate, net-leases and mortgage loans, (ii) all of Spirit's properties leased to Shopko, (iii) a single distribution center property leased to a sporting goods tenant encumbered with CMBS debt, and (iv) a portfolio of unencumbered properties, as well as newly formed legal entities that hold ten additional properties contributed to SMTA with an aggregate net book value of $44.9 million, a $35.0 million B-1 Term Loan with Shopko as borrower, and a cash contribution of $3.0 million. The activities of the newly formed legal entities are not reflected in the accompanying financial statements balances or results of operations prior to May 31, 2018, but the ten additional properties, the B-1 Term Loan and cash are reflected as contributions within the three and nine months ended September 30, 2018 as of their respective legal dates of transfer.
On May 31, 2018, the distribution date, Spirit completed the Spin-Off of SMTA. On the distribution date, Spirit distributed on a pro rata basis one share of SMTA common stock for every ten shares of Spirit common stock held by each of Spirit's stockholders as of May 18, 2018, the record date. As a result, 42,851,010 shares of SMTA common were issued on May 31, 2018.
In connection with the Spin-Off, SMTA entered into an Asset Management Agreement with Spirit Realty, L.P. (our "Manager"), a wholly-owned subsidiary of Spirit, under which Spirit Realty, L.P. provides various services including, but not limited to: active portfolio management (including underwriting and risk management), financial reporting, and SEC compliance. The fees for these services are a flat rate of $20 million per annum. Additionally, Spirit Realty, L.P. continues as the property manager and special servicer of Master Trust 2014, under which Spirit Realty, L.P. receives property management fees which accrue daily at 0.25% per annum of the collateral value of the Master Trust 2014 Collateral Pool less any specially serviced assets, and special servicing fees which accrue daily at 0.75% per annum of the collateral value of any assets deemed to be specially serviced per the terms of the Property Management and Servicing Agreement. SMTA and Spirit also entered into a Separation and Distribution Agreement, an Insurance-Sharing Agreement, a Tax Matters Agreement, and a Registration Rights Agreement in connection with the Spin-Off.
SMTA expects to operate in a manner intended to enable it to qualify as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended. To maintain REIT status, SMTA must meet a number of organizational and operational requirements, including a requirement to distribute annually to shareholders at least 90% of SMTA’s REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. Management believes the Company has qualified and will continue to qualify as a REIT and therefore, no provision has been made for federal income taxes for the period presented subsequent to the Spin-Off. For the period presented prior to the Spin-Off, the Company was disregarded for federal income tax purposes, so no provision for federal income tax was made. SMTA is subject to certain other taxes, including state taxes, which have been reflected as income tax expense in the consolidated statements of operations and comprehensive income (loss).
The accompanying financial statements include the consolidated accounts of the C