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Edited Transcript of SMTA.N earnings conference call or presentation 12-Aug-19 10:59am GMT

Q2 2019 Spirit MTA REIT Earnings Call

Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Spirit MTA REIT earnings conference call or presentation Monday, August 12, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Cara Smith

Spirit MTA REIT - IR Officer

* Ricardo Jonas Rodriguez

Spirit MTA REIT - CEO, President, CFO & Treasurer

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Presentation

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Cara Smith, Spirit MTA REIT - IR Officer [1]

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Hello, and welcome to the Spirit MTA REIT second quarter earnings call.

Before we get started, I would like to remind everyone that this presentation contains forward-looking statements. Although the company believes these forward-looking statements are based upon reasonable assumptions, they are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated due to a number of factors. I would refer you to the safe harbor in today's earnings release as well as most of our recent filings with the SEC for a detailed discussion of the risk factors relating to these forward-looking statements.

This presentation also contains certain non-GAAP measures and reconciliations of non-GAAP financial measures to most directly comparable GAAP measures. They are included in today's earnings release, which is available on the Investor Relations page of the company's website at www.spiritmastertrust.com.

I will now turn the call over to Ricardo Rodriguez, Chief Executive Officer of SMTA. Ricardo?

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Ricardo Jonas Rodriguez, Spirit MTA REIT - CEO, President, CFO & Treasurer [2]

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Thank you, Cara. Hello, everyone, and thank you for your interest in Spirit MTA REIT, otherwise known as SMTA.

I will begin my remarks with some brief highlights of our second quarter activity, as well as events subsequent to quarter end. And then I will describe our current cash position and some of the changes to the presentation of our financial statements and other related matters of disclosure. To conclude, I will discuss the next steps on the pending portfolio sales to HPT and the related shareholder vote on that transaction on September 4 of this year.

I will start with portfolio activity. In terms of dispositions, during the second quarter, we disposed of 9 properties for $10.9 million in net proceeds, all of which were in the Master Trust. I would like to highlight that under the terms of the agreement with HPT, net cash proceeds from the sales of properties in the Master Trust that occur after the end of the first quarter of this year will be credited to HPT at closing of that transaction.

In addition, subsequent to the end of the second quarter, we disposed of the property leased to Crown Distributing and this disposition generated $11.7 million of net proceeds. Since this property was not held in the Master Trust, and therefore, is not part of the HPT transaction, the net proceeds of the sale will remain with SMTA. We do not have any acquisition activity to report for the second quarter.

Now turning to our balance sheet for a moment. As of August 8, we held $105.1 million in unrestricted cash and also $55.7 million in restricted cash. This restricted cash relates to our Master Trust and Academy assets. And I would like to point out that any of this restricted cash could be retained by SMTA, subsequent to the announced Master Trust and Academy sales has already been included in our calculations of expected net proceeds for each of those transactions, which I will mention momentarily.

Our income statement now includes a line item called Shopko-related expenses, which totals $10.6 million for the second quarter. This line item includes costs incurred in seeking recovery under the Shopko B-1 term loan, other legal, accounting and advisory costs related to Shopko and the foreclosure and costs incurred in connection with the settlement of the Shopko CMBS loan agreements and related dispute with the lenders. Though still subject to the uncertainties of the bankruptcy proceedings, we expect to recover a portion of these Shopko-related expenses from the Shopko bankruptcy case.

Finally, the Shopko-related expenses were already taken into account when we provided the expected cash distribution ranges in the definitive proxy statement filed on August 5, 2019, and therefore, these expenditures do not affect these provided ranges of $8.50 to $9.35 per share in aggregate liquidating distributions.

Moving further into our earnings press release for this quarter, we have included the updated components of NAV, bearing in mind the pending asset sales for the Master Trust and for the Academy asset. Please note that activity subsequent to quarter end is not part of this table. Also, we are no longer providing annualized CAD information in the earnings release. We have provided a detailed table with information for all the assets outside of the Master Trust, which we believe is better disclosure for our shareholders as it describes the assets not included in the HPT sale agreement.

As previously reported, subsequent to quarter end, we continued our efforts to enhance our cash position in anticipation of a liquidation process. We have recovered year-to-date $25.5 million from Shopko on our B-1 term loan, and we will continue to seek recovery in court of the remaining amounts owed to us at the Shopko debtor. We will continue to provide relevant updates on this front as they occur.

Further, we continue the efforts to sell the assets held outside of the Master Trust. As discussed, we completed the sale of the Crown Distribution property, which was not part of the HPT transaction. Also, and as reported earlier, after an extensive marketing process, we entered into an agreement in July to sell our Academy Sports Distribution Center property for $94 million. As of now, we expect to receive approximately $7 million in net proceeds from this sale after bearing in mind deal structures that may be acceptable to the lender. Nonetheless, we would note that this sale remains contingent on the CMBS lenders' final approval and both the time of that closing and the acceptance of terms by the lender are still to be determined.

With respect to our dividend, on closing of our transaction with HPT, we expect to make distributions as articulated in our proxy statement. Having not declared a dividend since the $0.33 special dividend that was paid to our shareholders on July 15th, our intention is to make future distributions following the closing of the transaction with HPT.

Now let me provide an overview of the HPT transaction. Having evaluated multiple paths to maximize value for our shareholders and after an extensive marketing effort by Barclays Bank, we've reached an agreement at the beginning of June to sell the properties in the Master Trust, plus 3 other assets owned by our manager, Spirit Realty Capital, to Hospitality Properties Trust, otherwise known as HPT. The total cash consideration for portfolio sale is $2.4 billion, of which $55 million will be used to acquire the 3 travel center assets from Spirit Realty Capital.

In connection with the closing of the sale, the Master Trust ABS notes will be redeemed, and HPT will pay any make-whole premium owed to ABS debtholders as a result of the early redemption of these ABS notes.

Upon closing with HPT, after various adjustments and bearing in mind the outstanding ABS debt and closing expenses, SMTA expects to receive approximately $450 million in net proceeds. Following the closing, we will then repurchase all of the 150 million in preferred shares held by Spirit at par value, plus any accrued unpaid dividends. We will also repurchase our approximately 5.1 million of SubREIT preferred shares, plus any accrued and unpaid dividends in any related make-whole payments.

Additionally, our current asset management agreement with Spirit will terminate, and as previously announced, SMTA will pay a termination fee in accordance with the existing agreement of approximately $48 million to Spirit. However, Spirit has agreed to release SMTA from the current asset management agreement without the previously required 180-day notice period or the cost of the 8-month transition period, which would have aggregated approximately $23 million and also forfeit its right to any future promote payment.

Concurrent with the closing and repayments just mentioned, we will enter into a new asset management agreement with Spirit at a significantly reduced annual fee of $1 million for the initial 1 year term and $4 million annually thereafter, with rights to terminate at any time without penalty. We believe this new arrangement greatly benefits SMTA shareholders given our plan to liquidate quickly remaining assets of the company.

I want to remind everyone that on August 5, 2019, we filed a definitive proxy statement, setting a special meeting of shareholders to vote on the sale of the Master Trust and other assets to HPT and a plan of voluntary liquidation for SMTA. The transaction requires approval from the majority of shareholders of SMTA and this special meeting will be held on September 4, 2019, at 8:30 a.m. Central Time in our corporate offices in Dallas. We encourage all shareholders to vote their shares on this important transaction, which, if approved, is expected to close as early as September 20, given that the timing of the closing must coincide with the payment date of the ABS notes, which generally is on the 20th date of any given month.

For further details, including information on how to vote your shares, please refer to the definitive proxy statement filed with the SEC.

In closing, we would like to emphasize that we are making all efforts to move through this process efficiently and rapidly, removing obstacles and resolving any major impediments that could get in the way of us winding up our company in a timely manner while maximizing proceeds for our shareholders. We will continue to make every effort to communicate updates and milestones as appropriate, and we are very grateful for the support of our shareholders. Thank you.