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Spirit Realty Files to Spin-Off ShopKo Assets into New REIT

Shopko, Spirit Realty’s Most Significant Tenant, is Getting Roughed Up as More General Merchandise Shoppers Shift to Online Buying
March 7, 2018
Net-lease REIT SpirSpirit Realty Capital Inc. (NYSE:SRC) filed paperwork to launch a separate REIT called Spirit MTA REIT following plans announced last summer to spin-off its ShopKo store-leased real estate and other properties into a separate publicly traded REIT.

The new Spirit MTA REIT is expected to own investments in a portfolio of 901 properties, about 58% of which are operated under master leases.

As of year-end 2017, the properties had an occupancy of 99.1%, and include about 115 properties leased to ShopKo Stores and more than 800 other properties that collateralize in Spirit’s Master Trust 2014 (part of its asset-backed securitization program). The spinoff is expected to have approximately $220 million in annualized contractual rent.

Currently, Shopko is Spirit Realty’s most significant tenant -- and one that is getting roughed up by investors as more general merchandise shoppers shift to online buying. In the first fiscal quarter, ending in April 2017 Spirit owned Shopko same-store sales were down 2.9%, according to Spirit Realty.

ShopKo represents about 8.2% of Spirit Realty’s rental revenue. Spirit has been taking steps in the last three years to reduce its exposure from more than 10%. In the new REIT, the Shopko assets will initially account for 20% of rental revenue.

Spirit Realty said transferring the Shopko properties to the new Spirit MTA will enable it to pursue sales, out parcel development and redevelopment opportunities. Spirit Realty plans to use proceeds from dispositions of Shopko Assets to fund new acquisitions, which in turn will serve as collateral for future issuances under Master Trust 2014, according to the filing.

Following completion of the transaction, Spirit is expected to own over 1,540 properties, with a gross real estate investment of $5.4 billion and investment grade equivalent tenancy of 45%. Spirit is expected to have approximately $395 million in annualized contractual rent, with no tenant representing more than 5% of that total.

For the new REIT, the Shopko stores are designed to be a primary source of new investment capital, as the plan is to dispose of most of the properties.

The spin-off is currently anticipated to be completed in the first half of 2018.
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