Spirit Realty, L.P. -- Moody's affirms Spirit Realty's Baa3 rating; outlook revised to positive

Rating Action: Moody's affirms Spirit Realty's Baa3 rating; outlook revised to positiveGlobal Credit Research - 03 Feb 2021New York, February 03, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the ratings of Spirit Realty Capital, Inc., including the Baa3 senior unsecured rating of its main operating subsidiary, Spirit Realty, L.P. The rating affirmation reflects the REIT's modest leverage, mostly unencumbered property portfolio, as well as its large, well-occupied portfolio of assets supported by long-term triple-net leases. The positive outlook reflects Moody's expectation that Spirit's high-quality assets will continue to generate relatively stable earnings despite a difficult macroeconomic environment. The outlook also reflects our expectation that the REIT will maintain its conservative financial profile, while executing profitable strategic growth that will continue to improve asset quality and scale.The following ratings were affirmed:Issuer: Spirit Realty, L.P.- Backed senior unsecured, Affirmed Baa3- Backed senior unsecured shelf, Affirmed (P)Baa3Issuer: Spirit Realty Capital, Inc.- Preferred stock, Affirmed Ba1- Preferred stock shelf, Affirmed (P)Ba1Outlook Actions:Issuer: Spirit Realty, L.P.- Outlook, changed to Positive from StableIssuer: Spirit Realty Capital, Inc.- Outlook, changed to Positive from StableRATINGS RATIONALESpirit's Baa3 senior unsecured rating reflects its high portfolio occupancy and history of stable cash flows derived from long-term, triple-net leases. The REIT's portfolio is large and well-diversified by tenant, industry and geography. Spirit also benefits from modest leverage, low secured debt and a mostly unencumbered property portfolio. The REIT adheres to a consistent financial policy that includes public leverage targets as it executes strategic growth. Moody's also notes that the REIT has overhauled its asset management and underwriting investment platform in recent years, with critical upgrades that have improved the predictability of its earnings through market cycles. The strength of its platform and tenant credit profiles is evidenced by high rent collection rates through the pandemic, reaching 93% for October and November of 2020.Key challenges include Spirit's exposure to industries facing disruption from the coronavirus pandemic and weak macroeconomic environment, including health and fitness (7% of base rents), casual dining (6%), movie theaters (5%), and entertainment venues (4%). Spirit also has a high proportion of middle-market tenants that generally have a higher risk profile, although about 50% are public tenants.Spirit's liquidity is adequate considering its upcoming funding needs. As of October 30, 2020, the REIT had $1.1 billion of liquidity including $800 million available on its unsecured revolver, $130 million of forward equity and cash balances. Upcoming maturities include $190 million coming due in 2021 and $178 million in 2022. Moody's expects that Spirit will continue to fund new investments with a mix of long-term unsecured debt and common equity.The positive outlook reflects Moody's expectation that Spirit's high-quality assets will continue to generate relatively stable earnings despite a difficult macroeconomic environment. The outlook also reflects our expectation that the REIT will maintain its conservative financial profile, while executing profitable strategic growth that will continue to improve asset quality and scale.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpward rating movement would likely reflect maintenance of Net Debt/EBITDA in the mid-5x range, continued earnings stability with fixed charge coverage above 3.5x, secured debt below 10% of gross assets and unencumbered assets above 75% of gross assets.A downgrade is unlikely over the next 12 to 18 months given the positive outlook, but would likely reflect Net Debt/EBITDA approaching 6.5x, secured debt above 25% of gross assets, or fixed charge coverage below 2.7x with diminished financial flexibility.Spirit Realty Capital [NYSE: SRC] is a net-lease real estate investment trust (REIT) that invests in and manages a portfolio primarily of single-tenant, operationally essential real estate throughout the United States. As of March 31, 2020, the REIT had gross assets of $7.0 billion.The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Lori Marks VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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