SFC Spirit Fin Corp

Spirit Finance Corporation (NYSE: SFC), a real estate investment trust (REIT) focused on single tenant, operationally essential real estate, today announced results for the second quarter and six months ended June 30, 2006. Second Quarter Financial Highlights Second quarter 2006 funds from operations (FFO) reached a record $19.8 million, or $0.24 per diluted share -- a 41% per share increase year-over-year. Net income increased to $11.2 million, or $0.14 per diluted share, up 27% on a per share basis from $7.5 million, or $0.11 per share, in the comparable quarter of 2005. Revenue from continuing operations increased 150% to $43.1 million as compared to $17.2 million in 2005. The solid growth in operating results is primarily attributable to the significant volume of real estate acquisitions the Company achieved over the past year. A reconciliation of net income, calculated in accordance with U.S. generally accepted accounting principles, to FFO is included in the accompanying tables. Mr. Christopher H. Volk, President and Chief Executive Officer, stated, "We continue to see significant real estate investment opportunity in our market across virtually all the single tenant property types we address. We owe our record performance to our ability to add real value to our customers by employing our unique platform to lower their cost of capital." Six Month Highlights Net income for the six months ended June 30, 2006 increased to $19.4 million, or $0.24 per diluted share, as compared to net income of $14.3 million, or $0.21 per share, for the same period in 2005. Total revenue from continuing operations grew appreciably to $77.1 million versus $31.6 million achieved for the same period in 2005. Spirit Finance generated FFO of $36.3 million, or $0.46 per diluted share -- a 44% per share increase as compared to $0.32 per share in 2005. Portfolio Highlights Spirit Finance completed a record $881.3 million of investments in real estate properties and loans related to 195 property locations throughout the U.S. in the second quarter of 2006. This brings the year-to-date investment activity to more than $1.0 billion. The second quarter investment activity included 178 ShopKo and Pamida retail properties purchased on May 31, 2006. The full earnings benefit of the second quarter acquisitions will be realized in the third quarter. The Company's real estate investment portfolio totaled $2.5 billion at June 30, 2006, and represented 897 owned or financed properties, including $67 million of mortgage loans secured by real estate and other loans primarily secured by equipment used in the operation of properties owned by the Company. The Company's properties are generally leased under long-term, triple-net leases, with a weighted average remaining noncancelable lease term of approximately 16 years. The largest individual tenant was ShopKo Stores Operating Co., LLC, at 29%, with no other individual tenant representing greater than 4% of the total investment portfolio. The Company's real estate portfolio is diversified geographically throughout 42 states and among various property types. Only two states, Wisconsin (13%) and Texas (11%), accounted for 10% or more of the total dollar value of the real estate investment portfolio at June 30, 2006. Spirit's three largest property types as a percentage of the total investment portfolio were general and discount retailers (33%), restaurants (20%) and specialty retailers (9%). The Company's real estate investments also include movie theaters, educational facilities, automotive dealers, parts and service facilities, recreational facilities, industrial properties and supermarkets. Additional Second Quarter 2006 Events In June, the Company issued approximately 17.3 million common shares which raised aggregate proceeds of $176.0 million, after deducting the underwriters' discount and offering expenses. A portion of these proceeds were used to pay down $117.4 million of borrowings outstanding under the Company's secured credit facilities. As of June 30, 2006, the Company had approximately 99.1 million shares of common stock outstanding. Guidance Assuming additional real estate transactions are completed during 2006, the timing of which will determine how much of the acquisitions will contribute to 2006 FFO, management confirms its previous FFO per diluted share guidance for 2006 in a range of $0.99 to $1.04. Dividend A second quarter 2006 dividend of $0.21 per common share was paid on July 25, 2006 to stockholders of record as of July 15, 2006. Conference Call Spirit Finance will hold a conference call and webcast to discuss the Company's second quarter results at 5:00 p.m. (Eastern time) today. Hosting the call will be Morton Fleischer, Chairman, Christopher Volk, President and Chief Executive Officer, and Catherine Long, Chief Financial Officer. The call will be webcast live over the Internet at www.spiritfinance.com under the section entitled "Investors." Participants should follow the instructions provided on the website for the download and installation of audio applications necessary to join the webcast. The call can also be accessed live over the phone by dialing (800) 811-0667 for U.S. callers or (913) 981-4901 for international callers. A replay of the call will be available one hour after the call and can be accessed by dialing (888) 203-1112 or (719) 457-0820 for international callers; the password is 2405153. The replay will be available from August 3, 2006 through August 10, 2006 and will be archived for a limited time on Spirit Finance Corporation's website. About Spirit Finance Corporation Spirit Finance Corporation provides customized, flexible sale/leaseback financing solutions for single tenant, operationally essential real estate assets that are vital to the operations of retail, service and distribution companies. The Company's core markets include free-standing automotive dealers, parts and service facilities, drugstores, educational facilities, movie theatres, restaurants, supermarkets, and other retail, distribution and service businesses. Additional information about Spirit Finance Corporation is available on the Company's website. Forward-Looking and Cautionary Statements Statements contained in this press release which are not historical facts are forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of words such as "expects," "plans," "estimates," "projects," "intends," "believes," "guidance," and similar expressions that do not relate to historical matters. These forward-looking statements are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated, due to a number of factors which include, but are not limited to, continued ability to source new investments, changes in interest rates and/or credit spreads, changes in the real estate markets, and other risk factors discussed in Spirit Finance Corporation's Annual Report on Form 10-K and other documents filed by the Company with the Securities and Exchange Commission from time to time. All forward-looking statements in this press release are made as of today, based upon information known to management as of the date hereof, and the Company assumes no obligations to update or revise any of its forward-looking statements even if experience or future changes show that indicated results or events will not be realized. -0- *T Spirit Finance Corporation Consolidated Statements of Operations Unaudited (dollars in thousands, except per share data) Quarters Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Revenues: Rentals $ 40,162 $ 16,008 $ 72,061 $ 29,073 Interest income on loans receivable 1,655 958 3,154 1,888 Other interest income 1,287 274 1,925 629 ----------- ----------- ----------- ----------- Total revenues 43,104 17,240 77,140 31,590 ----------- ----------- ----------- ----------- Expenses: General and administrative 4,046 3,240 8,324 5,825 Depreciation and amortization 9,827 3,999 17,995 7,090 Interest 19,569 3,341 33,265 5,877 ----------- ----------- ----------- ----------- Total expenses 33,442 10,580 59,584 18,792 ----------- ----------- ----------- ----------- Income from continuing operations 9,662 6,660 17,556 12,798 Discontinued operations (a): Income from discontinued operations 160 534 534 1,272 Net gains on sales of real estate 1,400 284 1,267 227 ----------- ----------- ----------- ----------- Total discontinued operations 1,560 818 1,801 1,499 ----------- ----------- ----------- ----------- Net income $ 11,222 $ 7,478 $ 19,357 $ 14,297 =========== =========== =========== =========== Net income per common share: Basic: Continuing operations $ 0.12 $ 0.10 $ 0.22 $ 0.19 Discontinued operations 0.02 0.01 0.02 0.02 ----------- ----------- ----------- ----------- Net income $ 0.14 $ 0.11 $ 0.24 $ 0.21 =========== =========== =========== =========== Diluted: Continuing operations $ 0.12 $ 0.10 $ 0.22 $ 0.19 Discontinued operations 0.02 0.01 0.02 0.02 ----------- ----------- ----------- ----------- Net income $ 0.14 $ 0.11 $ 0.24 $ 0.21 =========== =========== =========== =========== Weighted average outstanding common shares (b): Basic 81,944,688 67,305,458 79,194,207 67,168,949 Diluted 82,183,382 67,461,430 79,478,452 67,371,783 Dividends declared per common share $ 0.21 $ 0.19 $ 0.42 $ 0.38 (a) Periodically, Spirit Finance may sell real estate properties. The Company considers these occasional sales of real estate properties to be an integral part of its overall business strategy in acquiring a diversified real estate investment portfolio. Proceeds from the sales of real estate investments are reinvested in real estate properties such that cash flows from ongoing operations are not negatively affected by sales of individual properties. Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," requires that gains and losses from any such dispositions of properties and all operations from these properties be reported as "discontinued operations." As a result, previously reported "income from continuing operations" will be updated each time a property is sold. This presentation has no impact on net income. (b) The increase in the number of weighted average shares outstanding from 2005 to 2006 is primarily the result of public stock offerings, completed during 2006, totaling approximately 31 million common shares. Spirit Finance Corporation Consolidated Balance Sheets (dollars in thousands) June 30, December 31, 2006 2005 ------------- ------------- ASSETS (Unaudited) Investments: Real estate investments, net $ 2,360,738 $ 1,382,853 Loans receivable 66,851 59,008 ------------- ------------- Net investments 2,427,589 1,441,861 Cash and cash equivalents 87,547 30,536 Lease intangibles, net (a) 20,792 21,395 Other assets 25,423 19,633 ------------- ------------- Total assets $ 2,561,351 $ 1,513,425 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Debt obligations: Secured credit facilities $ - $ 229,855 Mortgages and notes payable 1,613,694 664,929 ------------- ------------- Total debt obligations 1,613,694 894,784 Dividends payable 20,810 14,209 Other liabilities 15,742 11,639 ------------- ------------- Total liabilities 1,650,246 920,632 Stockholders' equity 911,105 592,793 ------------- ------------- Total liabilities and stockholders' equity $ 2,561,351 $ 1,513,425 ============= ============= (a) Lease intangibles represent the value of in-place leases and arise from the allocation of the purchase price of the real estate properties acquired to their tangible and intangible asset values. Spirit Finance Corporation Reconciliation of Non-GAAP Financial Measures Unaudited (dollars in thousands, except per share data) Quarters Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Net income $ 11,222 $ 7,478 $ 19,357 $ 14,297 Add: Portfolio depreciation and amortization expense (a) 9,821 4,176 18,031 7,534 Less: Net gains on sales of real estate held for investment (b) (1,264) (284) (1,131) (227) ----------- ----------- ----------- ----------- Funds from operations (FFO) 19,779 11,370 36,257 21,604 Less: Straight-line rental revenue, net of allowance (400) (263) (759) (510) ----------- ----------- ----------- ----------- Adjusted funds from operations (AFFO) $ 19,379 $ 11,107 $ 35,498 $ 21,094 =========== =========== =========== =========== Net income per diluted share $ 0.14 $ 0.11 $ 0.24 $ 0.21 FFO per diluted share $ 0.24 $ 0.17 $ 0.46 $ 0.32 AFFO per diluted share $ 0.24 $ 0.16 $ 0.45 $ 0.31 Weighted average outstanding common shares (diluted) 82,183,382 67,461,430 79,478,452 67,371,783 (a) Includes depreciation and amortization expense related to discontinued operations. (b) Excludes the gain on sale related to six development properties totaling $136,000, net of tax, for both the quarter and six months ended June 30, 2006. *T Non-GAAP Financial Measures Included in this press release are certain "non-GAAP financial measures," which are measures of the Company's historical or future financial performance that are different from measures calculated and presented in accordance with generally accepted accounting principles (GAAP). Non-GAAP financial measures used in this press release include funds from operations (FFO) and adjusted funds from operations (AFFO). Spirit Finance calculates FFO consistent with the definition used by the National Association of Real Estate Investment Trusts (NAREIT), adopted to promote an industry-wide standard measure of REIT operating performance. Spirit Finance uses FFO as a measure of performance to adjust for certain non-cash expenses such as depreciation and amortization because historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. FFO also excludes gains (or includes losses) on dispositions of real estate held for investment. Spirit Finance further adjusts FFO to remove the effects of straight-line rental revenue. The Company believes this calculation, called AFFO, is an appropriate measure that is useful for investors because it more closely reflects the cash rental payments received by the Company and provides investors with an understanding of the Company's ability to pay dividends. Spirit Finance uses FFO and AFFO as measures to evaluate performance and to facilitate comparisons between the Company and other REITs, although FFO, AFFO and the related per share amounts may not be calculated in the same manner by other REITs and thus may not be directly comparable to those measures reported by other REITs. Neither FFO nor AFFO should be considered an alternative to net income determined in accordance with GAAP as a measure of profitability, nor should these measures be considered an equivalent to cash flows provided by operating activities determined in accordance with GAAP as a measure of liquidity. Spirit expects FFO per diluted share for 2006 to range from $0.99 to $1.04. FFO for 2006 is based on an estimated net income per diluted share range of $0.48 to $0.53, adjusted (in accordance with NAREIT's definition of FFO) for estimated real estate depreciation of $0.51 per diluted share.