IPO Preview: Spirit Realty Capital (SRC)

| About: Spirit Realty (SRC)
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Based in Scottsdale, AZ, Spirit Realty Capital (NYSE:SRC) scheduled a $459 million IPO with a market capitalization of $1.3 billion at a price range mid-point of $17 to Thursday, September 20, 2012.

Seven IPOs are scheduled for the week of September 17. Full IPO calendar available here.

SRC S-11 filed September 10, 2012.

Manager / Joint Managers: Morgan Stanley.

Co Managers: Macquarie Capital/ UBS / Deutsche Bank / RBC Capital / Raymond James / Sandler O'Neill / Stifel Nicolaus Weisel.

SUMMARY

SRC, a REIT, owns over 1000 single tenant properties in the U.S., and leases them on a triple-net basis, which means the tenant is responsible for almost everything.

As of June 30, 2012, 96% of leases (based on annual rent) provided for increases in future annual base rent.

SRC expected annualized distribution rate of 7.4% at the price range mid-point of $17. SRC estimates that this initial annual distribution rate will represent 92.2% of estimated cash available for distribution for the 12 months ending June 30, 2013.

CONCLUSION

SRC provides a relatively stable, visible distribution stream with some limited growth. For investors interested in dividend paying IPOs, IPOdesktop believes SRC is a good candidate that could edge up over time, if priced lower than the price range mid-point of $17, but won't show much of a pop if any on the IPO.

IPOdesktop is therefore neutral on the SRC IPO at the price range mid-point of $17.

BUSINESS

SRC owns single-tenant real estate that is rented out under a triple-net lease, where the tenant is typically responsible for all improvements and is contractually obligated to pay all property operating expenses, such as real estate taxes, insurance premiums and repair and maintenance costs.

As of June 30, 2012, SRC's owned properties were 98.2% occupied (based on number of properties), and SRC leases had a weighted average non-cancelable remaining lease term (based on annual rent) of 11.4 years.

GROWTH PLAN

SRC leases are generally long-term, with non-cancelable initial terms typically of 15 to 20 years and tenant renewal options for additional terms. As of June 30, 2012, 96% of leases (based on annual rent) provided for increases in future annual base rent.

PORTFOLIO

SRC's portfolio of 1,096 owned properties was leased to 165 tenants as of June 30, 2012.

In February 2012, two of SRC's general merchandising tenants, Shopko Stores Operating Co., LLC, or Shopko, and Pamida Stores Operating Co. LLC, or Pamida, completed a merger.

As a result, the combined company, or Shopko/Pamida, contributed 30.2% of SRC's annual rent as of June 30, 2012. No other tenant contributed more than 10% of SRC's annual rent as of June 30, 2012.

SRC tenants operate in 18 different industries, including: general, specialty and discount retail; restaurants; movie theaters; automotive dealers; educational and recreational facilities; and supermarkets.

SRC properties are geographically diversified across 47 states, with only 4 states contributing more than 5.0% of annual rent.

HISTORY

SRC was formed as a Maryland corporation in 2003 under the name "Spirit Finance Corporation" and, in May 2012, changed its name to "Spirit Realty Capital, Inc." SRC became a public company in December 2004 and we was subsequently taken private in August 2007 in a transaction that was structured and led by an affiliate of Macquarie Capital (NYSE:USA) Inc., one of the underwriters of this IPO

Following SRC's privatization, SRC initially continued to execute its business plan and grow its portfolio. However, during 2008, in response to deteriorating economic conditions, SRC shifted focus to reducing indebtedness and managing its portfolio.

From January 1, 2008 to June 30, 2012, SRC reduced its indebtedness by $627.6 million. The vast majority of the owned properties in SRC's portfolio as of June 30, 2012 were acquired prior to SRC's privatization.

GREATER THAN 5% SHAREHOLDERS

Macquarie Group (US) Holdings No. 1, 8.7%

Entities affiliated with TPG-Axon, 8.7%

Isis Investments Limited, 6.9%

Entities affiliated with Highland Capital Management, 5%

Entities affiliated with GoldenTree Asset Management LP, 5.9%

Midtown Acquisitions L.P., 5.2%

EMPLOYEES: 37

DISTRIBUTION POLICY

SRC intends to make a pro rata distribution with respect to the period commencing upon the completion of this offering and ending on December 31, 2012, based on a distribution rate of $0.3125 per share of common stock for a full quarter.

On an annualized basis, that's $1.25 per share of common stock, or an annualized distribution rate of approximately 7.4% based on the mid-point of the $17 price range.

SRC estimates that this initial annual distribution rate will represent 92.2% of estimated cash available for distribution for the 12 months ending June 30, 2013.

USE OF PROCEEDS

SRC expects to net $418 million from its IPO. Proceeds are allocated to repay debt.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.