SMTA Spirit MTA REIT

PART II

On September 4, 2020, the Liquidating Trust terminated its relationship with Spirit Realty, Inc., its Initial Manager, and WTR became the Liquidating Trust’s sole manager.

On November 2, 2020, the Liquidating Trust distributed $0.50 per Trust Unit to the Trust Unit holders, for an aggregate payment of approximately $21.6 million to all Trust Unit holders.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our accounting policies are determined in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that are subjective in nature and, as a result, our actual results could differ materially from our estimates. Prior to the adoption of the Plan of Liquidation, estimates and assumptions include, among other things, subjective judgments regarding the fair values and useful lives of our properties for depreciation and lease classification purposes, the collectability of receivables and asset impairment analysis. On September 1, 2019, we adopted the liquidation basis of accounting in connection with the approval of the Plan of Liquidation. Subsequent to the adoption of the Plan of Liquidation, we are required to estimate all expenses and income we expect to incur and earn through the end of liquidation including the estimated amount of cash we expect to collect on the disposal of our assets and the estimated costs to dispose of our assets. See Note 3 to the consolidated financial statements for further details.

Basis of Accounting—Liquidation Basis

As a result of the approval of the Plan of Liquidation by SMTA’s shareholders, we adopted the liquidation basis of accounting as of September 1, 2019 and for the periods subsequent to September 1, 2019 in accordance with GAAP. Accordingly, on September 1, 2019 assets were adjusted to their estimated net realizable value, or liquidation value, which represents the estimated amount of cash that we expect to collect. Estimated costs to dispose of assets have been presented separately from the real estate assets, net in the consolidated statement of net assets. Liabilities are carried at their contractual amounts due or estimated settlement amounts. The liquidation value of our net assets is presented on an undiscounted basis.

We accrue expenses and income that we expect to incur and earn through the end of liquidation to the extent it has a reasonable basis for estimation. These amounts are classified as a liability for estimated expense in excess of estimated income during liquidation on the consolidated statement of net assets. Actual expenses and income may differ from amounts reflected in the financial statements because of inherent uncertainty in estimating future events. These differences may be material.

Net assets in liquidation represents the estimated liquidation value available to shareholders upon liquidation. Due to the uncertainty in the timing of the anticipated sale dates and the estimated cash flows, actual operating results and sale proceeds may differ materially from the amounts estimated.

Purchase Accounting and Acquisition of Real Estate; Lease Intangibles

We use a number of sources to estimate fair value of real estate acquisitions, including building age, building location, building condition, rent comparables from similar properties, and terms of in-place leases, if any. Lease intangibles, if any, acquired in conjunction with the purchase of real estate represent the value of in-place leases and above or below-market leases. In-place lease intangibles are valued based on our estimates of costs related to tenant acquisition and the carrying costs that would be incurred during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases at the time of the acquisition. We then allocate the purchase price (including acquisition and closing costs) to land, building, improvements and equipment based on their relative fair values. For properties acquired with in-place leases, we allocate the purchase price of real estate to the tangible and intangible assets and liabilities acquired based on their estimated fair values. Above and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition of the real estate and our estimate of current market lease rates for the property, measured over a period equal to the remaining initial term of the lease.

Impairment

We review our real estate investments and related lease intangibles periodically for indicators of impairment, including the asset being held for sale, vacant or non-operating, tenant bankruptcy or delinquency, and leases expiring in 60 days or less. For assets with indicators of impairment, we then evaluate if its carrying amount may not be recoverable. We consider factors such as expected future undiscounted cash flows, estimated residual value, market trends (such as the effects of leasing demand and competition) and other factors in making this assessment. An asset is considered impaired if its carrying value exceeds its estimated undiscounted cash flows.

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Impairment is then calculated as the amount by which the carrying value exceeds the estimated fair value, or for assets held for sale, as the amount by which the carrying value exceeds fair value less costs to sell. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results. Key assumptions used in estimating future cash flows and fair values include, but are not limited to, revenue growth rates, interest rates, discount rates, capitalization rates, lease renewal probabilities, tenant vacancy rates and other factors.

Impairment and Allowance for Loan Losses

We periodically evaluate the collectability of our loans receivable, including accrued interest, by analyzing the underlying property-level economics and trends, collateral value and quality, and other relevant factors in determining the adequacy of its allowance for loan losses. A loan is determined to be impaired when, in management’s judgment based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Specific allowances for loan losses are provided for impaired loans on an individual loan basis in the amount by which the carrying value exceeds the estimated fair value of the underlying collateral less disposition costs. Delinquent loans receivable are written off against the allowance when all possible means of collection have been exhausted.

A loan is placed on non-accrual status when the loan has become 60 days past due, or earlier if management determines that full recovery of the contractually specified payments of principal and interest is doubtful. While on non-accrual status, interest income is recognized only when received.

REIT Status

SMTA elected to be taxed as a REIT for federal income tax purposes commencing with its taxable year ended December 31, 2018. We believe SMTA was organized and operated in a manner that allowed it to qualify as a REIT until January 1, 2020 when SMTA was dissolved. To maintain its REIT status, SMTA was required to annually distribute to its shareholders at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of share ownership. Provided that SMTA qualified for taxation as a REIT, it was generally not subject to corporate level federal income tax on the earnings distributed to its shareholders that it derived from its REIT qualifying activities. SMTA was still subject to state and local income and franchise taxes and to federal income and excise tax on its undistributed income. If the Internal Revenue Service were to determine that SMTA failed to qualify as a REIT in any taxable year, and it was unable to avail itself of certain savings provisions set forth in the Code, all of its taxable income would be subject to federal income tax at the regular corporate rates.

For our three remaining properties, the net realizable value was derived using a range of values, including brokers’ and the Liquidating Trustees’ opinions of value. We reduced the liquidation value of investments in real estate by $1.4 million during 2020 to reflect the actual sales prices achieved and our estimate for our remaining three properties. The actual timing and amount of these future sales proceeds may differ materially from our current projection. For example, the impact of potential risks, or public perception of risks, related to COVID-19 could have a material impact on the liquidation value of remaining properties and timing of liquidation. The affiliate tenants of the remaining properties are early childcare centers, and particularly vulnerable to risks related to COVID-19. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our operations, including timing and amount of future sales proceeds, will depend on future developments, which are highly uncertain and cannot be predicted. See “Risk Factors” under Part 1A of this Annual Report on Form 10-K.

Net realizable value of other assets and liabilities

Upon adoption of the Plan of Liquidation, the evaluation of the remaining assets for collectability and remaining liabilities for expected settlement amount resulted in a net write-off of $24.1 million. This was driven by a $29.0 million write-off of straight-line rent receivables and a $3.8 million write-off of lease-incentive intangibles. This was partially offset by the accrual of a $5.2 million tax refund receivable of which $1.7 million was collected during the fiscal year ended December 31, 2020 and a $1.6 million write-off of property tax liability for the transfer of the liability to SVC in conjunction with the Master Trust 2014 Sale. The remaining other assets balance of $3.5 million and $5.3 million at December 31, 2020 and December 31, 2019, respectively, is primarily attributable to the tax refund receivable. The remaining accounts payable and other liabilities balance of $0.5 million and $5.9 million is primarily attributable to accrued general and administrative expenses which were incurred in 2020 and 2019 and reclassified from estimated expense in excess of estimated income during liquidation to accounts payable and other liabilities as of December 31, 2020 and 2019, respectively, as they are no longer estimated.

Estimated expense in excess of estimated income during liquidation

As a basis for our assumptions, at December 31, 2020, we expect to sell the remaining three properties during 2021 and to complete our liquidation by June 30, 2022, although there can be no assurance that we will meet the expected timing. The amounts estimated below may vary significantly due to, among other things, the timing of property sales, costs incurred to complete sales, timing and amounts associated with discharging liabilities and costs associated with the winding-up of our operations. Based on the foregoing, we accrued the following:

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Due to the adoption of the Plan of Liquidation, we no longer report funds from operations or adjusted funds from operations as we no longer consider these to be key performance measures.

Changes in Liquidity

In the year ended December 31, 2020, our primary source of cash flow was net proceeds of $21.0 million from the sale of eight of the properties that were transferred to the Liquidating Trust in connection with the Plan of Liquidation, collection of $1.7 million in tax withholding and $1.7 million of cash rent collected. This was offset by:

Liquidating Distributions

The actual amount and timing of, and record dates for, future liquidating distributions on our Trust Units will be determined by the Liquidating Trustees and will depend upon the timing and proceeds of the sales of our assets and the amounts deemed necessary by the Liquidating Trustees to pay or provide for our liabilities and obligations. Any such liquidating distributions on the Trust Units will be deemed a return of capital until the applicable holder has received liquidating distributions totaling its cost basis.

Off-Balance Sheet Arrangements

As of December 31, 2020, we did not have any material off-balance sheet arrangements.

See accompanying notes

See accompanying notes

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See accompanying notes.

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See accompanying notes.

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See accompanying notes.

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SMTA LIQUIDATING TRUST

(Formerly known as Spirit MTA REIT)

following the Master Trust 2014 Sale, which occurred on September 20, 2019. The Plan of Voluntary Liquidation enables the Company to sell any and all of its assets without further approval of the shareholders and provides that liquidating distributions be made to the shareholders as determined by the board of trustees. On January 1, 2020, the Company transferred and assigned its remaining assets to the Liquidating Trust. The Liquidating Trust expects to pay or provide for all of the Company’s liabilities and distribute any remaining net proceeds from the sale of its remaining assets to the holders of interests in the Liquidating Trust.

The dissolution process and the amount and timing of distributions to shareholders involves significant risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to shareholders, and no assurance can be given that the distributions will equal or exceed the estimate of net assets presented in the consolidated statement of net assets.

Note 3. Summary of Significant Accounting Policies

As a result of the approval of the Plan of Liquidation in September 2019, the Company’s financial position and results of operations for the year ended December 31, 2019 have been presented using two different presentations. The Company adopted the liquidation basis of accounting as of September 1, 2019 and for the period subsequent to September 1, 2019. As a result, a consolidated statement of net assets is presented, which represents the estimated amount of net cash that the Company reasonably expects to collect as it carries out its Plan of Liquidation. In addition, a consolidated statement of changes in net assets reflects changes in net assets from the original estimated values as of September 1, 2019 through the most recent periods presented, as further described below.

All financial results and disclosures up through August 31, 2019, prior to adopting the liquidation basis of accounting, will be presented based on a going concern basis, which contemplated the realization of assets and liabilities in the normal course of business. As a result, the consolidated statement of operations, the consolidated statements of changes in (deficit) equity and the consolidated statement of cash flow for the eight months ended August 31, 2019 used the going concern basis presentation consistent with the Company’s Annual Report on Form 10-K for prior reporting periods, as further described below.

Basis of Accounting—Going Concern Basis

The accompanying consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the SEC. In the opinion of management, the consolidated financial statements include the normal, recurring adjustments necessary for a fair presentation of the information required to be set forth therein. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

These consolidated financial statements include certain special purpose entities that were formed to acquire and hold real estate encumbered by indebtedness (see Note 7). Each special purpose entity is a separate legal entity and is the sole owner of its assets and responsible for its liabilities. The assets of these special purpose entities are not available to pay, or otherwise satisfy obligations to, the creditors of any affiliate or owner of another entity unless the special purpose entities have expressly agreed and are permitted under their governing documents. As of December 31, 2019, there were no encumbered special purpose entities.

Basis of Accounting—Liquidation Basis

As a result of the approval of the Plan of Liquidation by SMTA’s shareholders, the Company adopted the liquidation basis of accounting as of September 1, 2019 and for the periods subsequent to September 1, 2019 in accordance with GAAP. Accordingly, on September 1, 2019 assets were adjusted to their estimated net realizable value, or liquidation value, which represents the estimated amount of cash that the Company reasonably expects to collect. Estimated costs to dispose of assets have been presented separately from the real estate assets, net in the consolidated statement of net assets. Liabilities are carried at their contractual amounts due or estimated settlement amounts. The liquidation value of the Company’s net assets is presented on an undiscounted basis.

The Company accrues expenses and income that it expects to incur and earn through the end of liquidation to the extent it has a reasonable basis for estimation. These amounts are classified as a liability for estimated expense in excess of estimated income during liquidation on the consolidated statement of net assets. Actual expenses and income may differ from amounts reflected in the financial statements because of inherent uncertainty in estimating future events. These differences may be material. See Note 4 for further discussion.

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Net assets in liquidation represents the estimated liquidation value available to shareholders upon liquidation. Due to the uncertainty in the timing of the anticipated sale dates and the estimated cash flows, actual operating results and sale proceeds may differ materially from the amounts estimated. These uncertainties are potentially more significant due to the COVID-19 pandemic.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes its estimates are reasonable, actual results could differ from those estimates.

Segment Reporting

The Company views its operations in two segments-Master Trust 2014 and all other properties (“Other Properties”). The Master Trust 2014 segment was sold on September 20, 2019.

Revenue Recognition—Going Concern Basis

Rental Income: Cash and Straight-line Rent

The Company primarily leased real estate to its tenants under long-term, triple-net leases that were classified as operating leases. To evaluate lease classification, the Company assessed the terms and conditions of the lease to determine the appropriate lease term. For the majority of our operating leases, the lease included one or more options to extend, typically for a period of five to ten years per renewal option. The Company’s operating leases sometimes also included an option to terminate or to purchase. The Company did not include these options in its evaluation for lease classification purposes or for recognizing rental income unless the Company was reasonably certain the tenant would exercise the option.

Another component of lease classification which required significant assumptions and judgment was the amount expected to be derived from the property at the end of the lease term. Generally, the Company assumed a value equal to net book value of the property at the date of the assessment, as the Company generally expected fair value to be equal to or greater than net book value. The Company sought to protect residual value through its underwriting of acquisitions, as well as lease structures where the lessee was responsible for maintenance of the property, including insurance protecting any damage to the property. To further protect residual value, the Company supplemented the tenant insurance policy with a master policy covering all properties owned by the Company. Additionally, the Company occasionally invested in capital improvements on properties, re-leasing properties to new tenants or extending lease terms to protect residual value.

The Company’s leases sometimes provided for contingent rent based on a percentage of the tenant’s gross sales, in which case the Company recognized contingent rental revenue when the change in the factor on which the contingent lease payment was based actually occurred.

The Company’s leases generally provided for rent escalations throughout the lease terms. For leases that had contingent rent escalators indexed to future changes in the CPI, rent increased at a multiple of any increase in the CPI over a specified period. Because of the volatility and uncertainty with respect to future changes in the CPI, increases in rental revenue from leases with this type of escalator were recognized when the changes in the rental rates occurred.

For leases that provided for fixed contractual escalations, rental revenue was recognized on a straight-line basis so as to produce a constant periodic rent over the term of the lease. Accordingly, accrued rental revenue, calculated as the aggregate difference between the rental revenue recognized on a straight-line basis and scheduled rents, represented unbilled rent receivables that the Company would receive only if the tenants made all rent payments required through the expiration of the initial term of the leases.

Rental income was subject to an evaluation for collectability, which included management’s estimates of amounts that would not be realized based on an assessment of the risks inherent in the portfolio, considering historical experience, as well as the tenant’s payment history and financial condition. The Company recorded a provision for losses against rental income for amounts that were not probable of collection.

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Rental Income: Tenant Reimbursement Revenue

Under a triple-net lease, 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. Certain leases contained additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, which were non-lease components. The Company elected to combine all of its non-lease components, which were determined to have the same pattern of transfer as the related operating lease component, into a single combined lease component. Tenant reimbursement revenue was variable and recognized as revenue in the period in which the related expenses were incurred, with the related expense included in property costs (including reimbursable). Tenant receivables were carried net of any allowances for amounts that were not probable of collection.

Rental Income: Intangible Amortization

Initial direct costs associated with the origination of a lease were deferred and amortized over the related lease term as an adjustment to rental revenue. In-place lease intangibles were amortized on a straight-line basis over the remaining initial term of the related lease and included in depreciation and amortization expense. Above-market lease intangibles were amortized over the remaining initial terms of the respective leases as a decrease in rental revenue. Below-market lease intangibles were amortized as an increase to rental revenue over the remaining initial term of the respective leases, or over the initial term plus renewal periods when the Company was reasonably certain the tenant would exercise the renewal options. If the Company was reasonably certain a lease would terminate early, the unamortized portion of any related lease intangible was immediately recognized in impairments in the Company’s consolidated statements of operations and comprehensive income (loss).

Allowance for Doubtful Accounts—Going Concern Basis

Under going concern basis, the Company reviewed its rent and other tenant receivables for collectability on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operated, and economic conditions in the area in which the tenant operated. If the collectability of a receivable with respect to any tenant was in doubt, a provision for uncollectible amounts was established or a direct write-off of the specific receivable was made. Receivables were written off against the reserves for uncollectible amounts when all possible means of collection had been exhausted. Receivables are presented within deferred costs and other assets, net in the accompanying consolidated balance sheet.

For receivable balances related to the straight-line method of reporting rental revenue, the collectability was assessed in conjunction with the evaluation of rental income as described above.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents were $9.7 million and $17.2 million at December 31, 2020 and 2019, respectively, and include cash and highly liquid investment securities with maturities at acquisition of three months or less. The Company invests cash primarily in operating accounts in major financial institutions, money market funds of major financial institutions with fund investments consisting of highly-rated money market instruments and other short-term instruments. At December 31, 2020 and 2019, the Company had no restricted cash.

Goodwill

Goodwill arises from business combinations and represents the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the identifiable assets acquired and the liabilities assumed. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Spirit recorded goodwill as a result of its merger with Cole Credit Property II, Inc. (“Cole”) on July 17, 2013. Goodwill was allocated to the Company based on the fair value of the Cole assets attributable to the Company relative to the total fair value of Cole assets acquired by Spirit through its merger. Goodwill then was initially allocated to each reporting unit of the Company based upon the relative fair value of each reporting unit, resulting in $7.0 million allocated to Master Trust 2014 and $6.5 million allocated to Other Properties. The goodwill related to the Other Properties segment was fully impaired in 2018. The goodwill allocated to the Master Trust 2014 segment was relieved in conjunction with the Master Trust 2014 Sale in September 2019.

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Income Taxes

For the period prior to the Spin-Off, the Company applied the provisions of FASB ASC Topic 740, Income Taxes, and computed the provision for income taxes on a separate return basis. The separate return method applied the accounting guidance for income taxes to the stand-alone consolidated financial statements as if the Company was a separate taxpayer and a stand-alone enterprise for the periods presented.

The Company was wholly-owned by Spirit prior to the Spin-Off and was disregarded for federal income tax purposes. The Manager is wholly-owned by Spirit through certain direct and indirect ownership interests and is taxed as a partnership for Federal income tax purposes. Spirit has elected to be taxed as a REIT under the applicable provisions of the Code and, as a result, will not be subject to federal income tax as long as it distributes 100% of its taxable income and satisfies certain other requirements. Therefore, no provision for federal income tax was made in the accompanying consolidated financial statements for the period prior to the Spin-Off.

For the period subsequent to the Spin-Off, the Company elected to be taxed as a REIT under the Code beginning with its initial tax year ended December 31, 2018 through the transfer of its remaining assets to the Liquidating Trust on January 1, 2020. As a REIT, the Company generally was not subject to federal income tax provided it continued to satisfy certain tests concerning the Company’s sources of income, the nature of its assets, the amounts distributed to its shareholders, and the ownership of Company shares. Management believes the Company qualified as a REIT beginning with its initial tax year ended December 31, 2018 through the transfer of its remaining assets to the Liquidating Trust on January 1, 2020 and therefore, no provision has been made for federal income taxes in the accompanying consolidated financial statements. Even if the Company qualified for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income tax and excise tax on its undistributed income.

The Company is subject to certain other taxes which are reflected as income tax expense in the consolidated statements of operations and comprehensive income (loss). Franchise taxes are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss) and estimated future taxes are included in liability for estimated expense in excess of estimated income during liquidation in the accompanying consolidated statement of net assets.

Earnings Per Share—Going Concern Basis

The Company’s unvested restricted common shares, which contain non-forfeitable rights to receive dividends, are considered participating securities requiring the two-class method of computing earnings per share. Under the two class method, earnings attributable to unvested restricted shares are deducted from income from continuing operations in the computation of net income (loss) attributable to common shareholders. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on their respective weighted average shares outstanding during the period. Under the terms of the 2018 Incentive Award Plan and the related restricted share awards, losses are not allocated to participating securities including undistributed losses as a result of dividends declared exceeding net income. The Company uses income or loss from continuing operations as the basis for determining whether potential common shares are dilutive or anti-dilutive and undistributed net income or loss as the basis for determining whether undistributed earnings are allocable to participating securities.

New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for the fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, and as such, the Company adopted ASU 2016-02 effective January 1, 2019. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief as follows:

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As a lessor, our recognition of rental income remained consistent with previous guidance, apart from expanded disclosure requirements. As such, the Company concluded that the overall impact of the ASU had no material impact on the Company’s reported revenues, results of operations or financial position.

Note 4. Liability for Estimated Expense in Excess of Estimated Income During Liquidation

The liquidation basis of accounting requires the Company to estimate net cash flows from operations and to accrue all income and expenses associated with implementing and completing the Plan of Liquidation. As a basis for our assumptions, although there can be no assurance that we will meet such timing, we currently expect to sell the remaining properties during 2021 and to complete our liquidation by June 30, 2022, although, with the impact that the recent pandemic has had on asset values, tenant liquidity and capital markets, there can be no assurance that we will be able to do so. The Company currently estimates that it will have expenses in excess of income during the liquidation. These amounts can vary significantly due to, among other things, the timing of property sales, direct costs incurred to complete the sales, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with the winding up of operations. These amounts are estimated and are anticipated to be paid out and collected over the liquidation period.

Upon transition to the liquidation basis of accounting on September 1, 2019, the Company accrued the following income and expenses expected to be incurred during liquidation, had the following cash payments (receipts) in the four months ended December 31, 2019 and the fiscal year ended December 31, 2020 and has reclassified income earned, not yet received, to other assets and expenses incurred, not yet paid, to accounts payable and other liabilities in the accompanying consolidated statement of net assets (in thousands):

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The net realizable value of investments in real estate for the Master Trust 2014 Sale, the sale of the property leased to Academy and one other property were adjusted to the signed sales agreements, which resulted in a net increase of $667.0 million. All three of these sales were completed in September 2019. In conjunction with these sales, the Master Trust 2014 debt was retired and the CMBS debt on the Academy property was assumed by the buyer. The net realizable value of the remaining 11 properties as of September 1, 2019 was derived using the sales comparable approach and the income capitalization approach, resulting in no change in value. Eight of the 11 properties were valued utilizing the sales comparable approach, specifically vacant sales comparables, using price per square foot ranging from $26.86 to $141.47. The remaining three assets were valued as of September 2019 utilizing the direct income capitalization rate approach, using capitalization rates ranging from 5.75% to 8.41%.

The adjustment of assets and liabilities to net realizable value was primarily comprised of a $29.0 million write-off of straight-line rent receivables and a $3.8 million write-off of lease-incentive intangibles, which were partially offset by the accrual of $5.2 million tax refund receivable of which $1.7 million was collected in 2020 and a $1.6 million write-off of property tax liability for the transfer of the liability to SVC in conjunction with the Master Trust 2014 Sale.

The decrease due to obligation to redeem preferred shares was comprised of $2.8 million of dividends and pre-payment premiums for the Series A SubREIT Preferred Shares, $0.8 million of dividends for the SMTA Preferred Shares and $16 thousand of dividends and pre-payment premiums for the Series B SubREIT Preferred Shares.

See Note 4 for detail on the liability for estimated expense in excess of estimated income during liquidation.

Changes in Net Assets

During the period from September 1, 2019 through December 31, 2019, $345.4 million, or $8.00 per share, of the net assets were distributed to common shareholders. Real estate assets were remeasured, resulting in an $11.7 million increase to the estimated net realizable value of the remaining 11 properties. For two of the remaining properties, the properties sold subsequent to December 31, 2019, the executed sales agreement was used for remeasurement in determining the net realizable value. For the remaining nine properties, the net realizable value was derived using broker opinions of value, with prices per square foot ranging from $27.93 to $587.50. The estimated liquidation values of our remaining properties as of December 31, 2019 were based on market conditions and assumptions as of that date, which preceded the global outbreak of a novel coronavirus (COVID-19) and its impact on the economy and real estate markets. The estimated liquidation value of our three remaining properties at December 31, 2020 was derived using a range of values, including brokers’ and the Liquidating Trustees’ opinions of value. The actual timing and amount of these future sales proceeds may differ materially from our current estimates, particularly because of the uncertainties surrounding COVID-19’s continuing impact on the operations of our tenants and real estate markets generally.

Also, during the period from September 1, 2019 through December 31, 2019, other assets and liabilities were remeasured, resulting in a $0.6 million increase. There was a $0.6 million increase in net assets related to the liability for estimated expense in excess of estimated income during liquidation, see Note 4. There was also a $0.5 million increase related to interest earned on cash and cash equivalents. These increases were partially offset by a $0.5 million increase in accounts payable, accrued expenses and other liabilities as a result of increased property taxes on the remaining properties held and an increase in liabilities incurred in connection with the Master Trust 2014 sale.

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During the fiscal year ended December 31, 2020, eight of the 11 properties held at December 31, 2019 were sold for $21.0 million, and the three remaining properties were devalued due to the impact of COVID-19. This resulted in a remeasurement decrease in real estate assets of $1.4 million. The master lease for the 3 remaining properties was terminated and three new leases were executed with affiliates of the former tenant. An amount representing past due rent and real estate tax reserves was agreed upon and paid at the signing of the new leases. The new leases provide for a reduced base rent in addition to percentage rent for the period July 1, 2020 through December 1, 2020. Effective January 1, 2021, the full base rent is due. As of December 31, 2020, the tenants were current with their rent obligations pursuant to these leases.

Rental income was remeasured by $2.8 million to reflect the rents and reimbursed taxes received, the settlement payment received and to reflect the rental income and reimbursed taxes per the lease terms to be collected through the end of the liquidation period. General and administrative expenses were increased by $1.0 million related to costs in connection with the extended time line to sell the remaining three properties and liquidate the Trust such as increased legal, accounting, tax, consulting, contingency, rent reserve, management, trustee, insurance and other related fees. Property costs were decreased by $0.3 million. Related party fees were reduced by $0.2 million due to termination of the Interim Management Agreement and cost of real estate sales was reduced by $0.5 million to reflect the actual costs incurred and estimated costs of sales for the three remaining properties. The result was a net increase in liquidation value at December 31, 2020 of $1.4 million

The remaining undistributed net assets in liquidation of $44.1 million as of December 31, 2019 and $23.9 million at December 31, 2020 would result in liquidating distributions of approximately $1.02 and $0.55 per Trust Unit respectively. A return of capital distribution in the amount of $21.6 million or $0.50 per Trust Unit was made to holders of trust units on November 2, 2020. This estimate of liquidating distributions includes projections of timing and amounts of future sales, as well as costs and expenses to be incurred during the period required to complete the Plan of Liquidation as described in Note 4. There is inherent uncertainty with these projections, and they could change materially based on the timing and amount of the sales, the performance of the underlying assets and any changes in the underlying assumptions of the projected cash flows.

Note 6. Investments

Real Estate Investments

As of December 31, 2019, the Company’s net investment in real estate totaled approximately $37.5 million, representing investments in 11 owned properties.

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As of December 31, 2019 and December 31, 2020, all remaining assets are considered held for sale under liquidation basis of accounting.

The mortgage loans were secured by single-tenant commercial properties and generally had fixed interest rates over the term of the loans. Other notes consisted of the Shopko B-1 Term Loan. A loan was placed on non-accrual status when the loan had become 60 days past due, or earlier if management determined that full recovery of the contractually specified payments of principal and interest was doubtful. While on non-accrual status, interest income was recognized only when received. In connection with Shopko’s bankruptcy filing in January 2019, Shopko filed pleadings asserting that any recovery under the Shopko B-1 Term Loan will be limited and may be impaired in full. Therefore, the Company recorded a full allowance for the Shopko B-1 Term Loan and placed the loan on non-accrual status as of December 31, 2018. The Company recovered the full principal balance owed during the eight months ended August 31, 2019. During the eight months ended August 31, 2019, the Company recorded interest income on loans receivable of $2.5 million on the B-1 Term Loan. There were no loans receivable outstanding in 2020.

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Note 7. Debt

Master Trust 2014

The Company had access to an asset-backed securitization platform, Master Trust 2014, to raise capital through the issuance of non-recourse, asset-back securities collateralized by commercial real estate, net-leases and mortgage loans. Master Trust 2014 had five bankruptcy-remote, special purpose entities as issuers or co-issuers of the notes. In December 2017, the existing issuers under Master Trust 2014, completed the issuance of $674.4 million aggregate principal amount of Series 2017-1 net-lease mortgage notes comprised of $542.4 million of 4.36%, Class A, amortizing notes and $132.0 million of 6.35%, Class B, interest only notes. In conjunction with the issuance, the Company pre-paid the Series 2014-1 Class A1 notes, resulting in a loss on debt extinguishment of approximately $2.2 million primarily related to the pre-payment premium. On November 1, 2018, SMTA closed on variable funding notes within Master Trust 2014 with up to $50.0 million in borrowing capacity. During the year ended December 31, 2018, the Company extinguished $6.3 million of Master Trust 2014 debt as a result of unscheduled principal pre-payments, resulting in approximately $0.4 million in losses on debt extinguishment attributable to the pre-payment premiums paid. As of December 31, 2018, the notes had an outstanding principal balance of $1.94 billion, unamortized debt discount of $21.2 million and unamortized deferred financing costs of $14.9 million. During the eight months ended August 31, 2019, pre-payments of principal of $3.0 million were made, resulting in a loss on debt extinguishment of $0.1 million due to pre-payment premiums. On September 20, 2019, the Company completed the sale of the entities that comprise Master Trust 2014 to SVC, which included 769 owned and financed properties. Upon closing the Master Trust 2014 Sale, all of the outstanding classes and series of the notes issued under the Master Trust 2014 were repaid in full, and the related pre-payment premium of $82 million was paid by SVC.

CMBS

Academy CMBS

On January 22, 2018, the Company entered into a non-recourse loan agreement, which was collateralized by a single distribution center property located in Katy, Texas leased to Academy Sports + Outdoors. As a result of the issuance, the Company received approximately $84.0 million in proceeds, which were distributed to Spirit. As of December 31, 2018, the loan had an outstanding principal balance of $83.0 million and unamortized deferred financing costs of $1.1 million. On September 27, 2019, the Company sold the distribution center, and the outstanding CMBS debt and restricted cash associated with the property was assumed by the buyer.

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Shopko CMBS

On November 1, 2018, SMTA, through four indirectly wholly-owned, property-owning subsidiaries, entered into a $165.0 million non-recourse mortgage loan agreement and, on November 27, 2018, $40.0 million of the loan was carved out into a separate mezzanine loan agreement. These Shopko CMBS Loan Agreements were secured by the equity of the entity that owned the four property-owning subsidiaries, which collectively held 85 assets (83 owned properties and two seller-financed notes on properties) that were leased to Shopko. As of December 31, 2018, the loans had an outstanding principal balance of $157.4 million, unamortized deferred financing costs of $5.9 million and a remaining maturity of 0.9 years.

On January 16, 2019, the Company’s indirect wholly-owned subsidiaries as borrowers under the Shopko CMBS Loan Agreements defaulted on the loans when those entities ceased to make interest payments as a result of Shopko ceasing to pay its rent obligations following its bankruptcy filing. Upon the default, the full balance of principal outstanding under the loans immediately became due and payable and interest began accruing at the default rate of LIBOR plus 12.50% on the $125.0 million portion and LIBOR plus 18.00% on the $40.0 million mezzanine portion. On March 1, 2019, the Shopko Lenders foreclosed on the equity of the entity that owned the four property-owning subsidiaries. As a result of the foreclosure, the Company recognized a loss on debt extinguishment of $21.3 million during the eight months ended August 31, 2019. The components of the loss on debt extinguishment were $161.3 million of net investments and $21.2 million of restricted cash foreclosed, offset by $155.9 million of net debt and $5.3 million of accrued payables relieved.

Note 8. Shareholders’ Equity and Redeemable Preferred Equity

The Company’s declaration of trust authorized it to issue 750,000,000 common shares of beneficial interest, $0.01 par value per share, and 20,000,000 preferred shares of beneficial interest, $0.01 par value per share. The board of trustees had the power, without shareholder approval, to increase or decrease the number of common shares the Company is authorized to issue. The Company became a Liquidating Trust on January 1, 2020 and the Company’s declaration of trust was no longer in effect.

Common Shares

SMTA was originally capitalized on November 17, 2017 with the issuance of 10,000 common shares of beneficial interest ($0.01 par value per share) for a total of $10,000.

On May 31, 2018, the distribution date, Spirit completed the Spin-Off of SMTA. On the distribution date, Spirit distributed on a pro rata basis one SMTA common share for every ten shares of Spirit common stock held by each of Spirit’s stockholders as of May 18, 2018, which was the record date. As a result, 42,851,010 SMTA common shares were issued on May 31, 2018.

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On January 1, 2020, all of the outstanding common shares of SMTA were cancelled and are no longer outstanding. Also on January 1, 2020 each shareholder received one Trust Unit for each common share of SMTA then held of record by such shareholder. See Note 1 for further discussion.

SMTA Preferred Shares

In conjunction with the Spin-Off, SMTA issued to the Manager and one of its affiliates, also a wholly-owned subsidiary of Spirit, 6.0 million Series A preferred shares with an aggregate liquidation preference of $150.0 million (the “SMTA Preferred Shares”). Redemption value of the SMTA Preferred Shares is equal to the liquidation preference plus any accrued and unpaid dividends and redemption is under the control of SMTA unless a change of control event occurs, as defined in the SMTA Preferred Shares agreements. Therefore, as redemption may occur outside the control of SMTA, the SMTA Preferred Shares are classified as temporary equity.

The SMTA Preferred Shares pay cash dividends at the rate of 10.0% per annum on the liquidation preference of $25.00 per share (equivalent to $0.625 per share on a quarterly basis and $2.50 per share on an annual basis). In September 2019, all 6.0 million shares of 10.0% SMTA Preferred Shares were repurchased for the full liquidation preference of $150.0 million.

SubREIT Preferred Shares

Prior to the Spin-Off, in exchange for property, SubREIT issued to the Manager 5,000 shares of Series A preferred shares with an aggregate liquidation preference of $5.0 million (the “SubREIT Preferred Shares”). The Series A SubREIT Preferred Shares pay cash dividends at the rate of 18.0% per annum on the liquidation preference of $1,000.00 per share (equivalent to $45.00 per share on a quarterly basis and $180.00 per share on an annual basis). On December 19, 2018, SubREIT issued 125 Shares of Series B SubREIT Preferred Shares with an aggregate liquidation preference of $125 thousand. Series B SubREIT Preferred Shares pay cash dividends at the rate of 12.0% per annum on the liquidation preference of $1,000.00 per share (equivalent to $30.00 per share on a quarterly basis and $120.00 per share on an annual basis).

Redemption value of the SubREIT Preferred Shares is equal to the liquidation preference plus any accrued and unpaid dividends and redemption is under the control of SubREIT unless a change of control event occurs, as defined in the SubREIT Preferred Shares agreements. Therefore, as redemption may occur outside the control of SubREIT, the SubREIT Preferred Shares are classified as temporary equity. In conjunction with the Spin-Off, the Manager sold the SubREIT Preferred Shares to a third-party. On September 30, 2019, SMTA caused the funding for all the Series B SubREIT Preferred Shares to be redeemed by SMTA at their full liquidation preference of $125 thousand, plus $16 thousand for pre-payment penalties and accrued but unpaid dividends, which was effective on October 1, 2019. In October 2019, all Series A SubREIT Preferred Shares were redeemed by SMTA at their full liquidation preference, plus a pre-payment premium and accrued but unpaid dividends.

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Note 9. Commitments and Contingencies

The Company is periodically subject to claims or litigation in the ordinary course of business, including claims generated from business conducted by tenants on real estate owned by the Company. In these instances, the Company is typically indemnified by the tenant against any losses that might be suffered, and the Company and/or the tenant are insured against such claims.

On March 4, 2019, SMTA received a demand notice from the Shopko Lenders seeking repayment of the loans under the Shopko CMBS Loan Agreements pursuant to SMTA’s guaranty of the loans in which the Shopko Lenders allege, among other things, fraud and intentional misrepresentations by the borrowers. While SMTA believes the allegations were without merit, on July 29, 2019, SMTA resolved the dispute with the Shopko Lenders and reached a confidential settlement. The Company has recorded the cost of the settlement in Shopko-related expenses in the consolidated statements of operations and comprehensive income (loss) for the eight months ended August 31, 2019.

The Company was a lessee under five long-term, non-cancelable ground leases under which it is obligated to pay monthly rent as of December 31, 2018. Total rental expense included in property costs (including reimbursable) amounted to $0.3 million for the eight months ended August 31, 2019. Certain of the ground lease rental expenses were reimbursed by unrelated third parties, and the corresponding rental revenue was recorded in rentals on the accompanying consolidated statements of operations and comprehensive income (loss). Four of these ground leases were included in the foreclosure of the Shopko entities and the remaining obligation transferred. The remaining ground lease obligation was included in the Master Trust 2014 Collateral Pool and sold on September 20, 2019.

As of December 31, 2020, there were no outstanding claims against the Company that are expected to have a material adverse effect on the Company’s financial position.

As of December 31, 2020, the Company had no outstanding commitments to fund improvements or construction on properties the Company currently owns, nor any commitments to acquire new properties.

The Company estimates future costs for known environmental remediation requirements when it is probable that the Company has incurred a liability and the related costs can be reasonably estimated. The Company considers various factors when estimating its environmental liabilities, and adjustments are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues. When only a wide range of estimated amounts can be reasonably established and no other amount within the range is better than another, the low end of the range is recorded in the consolidated financial statements. As of December 31, 2020, no accruals have been made.

Note 10. Segments

Prior to the completion of the Master Trust 2014 Sale in September 2019, management viewed the operations of the Company as two separate segments-Master Trust 2014 and Other Properties-and made operating decisions based on these two reportable segments. Subsequent to the adoption of the Plan of Liquidation, the Company no longer makes operating decisions or assesses performance in separate segments as all remaining assets and liabilities are held for sale.

Master Trust 2014 was an asset-backed securitization platform, see Note 7, with specific criteria for operating the Collateral Pool, including restrictions on use of Release Account cash, concentration thresholds which could not be exceeded, and a minimum debt service coverage ratio which had to be met. On September 20, 2019, the Company completed the Master Trust 2014 Sale. Accordingly, as of December 31, 2019, all remaining assets and liabilities are related to the Other Properties segment.

For periods prior to the completion of the Master Trust 2014 Sale, segment results are comprised of revenues, property management and servicing fees, property costs, depreciation and amortization, impairments, and interest expense. General and administrative expenses, asset management fees under the Asset Management Agreement, transaction costs, and income taxes are not allocated to individual segments for purposes of assessing segment performance.

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The performance of the reportable segments prior to the Master Trust 2014 Sale was not comparable with the Company’s consolidated results, nor necessarily comparable with similar information for any other REITs. Additionally, because of the interrelationship of the segments prior to the Master Trust 2014 Sale, the information presented is not indicative of how the segments would perform if they operated as independent entities.

Segment results for the eight months ended August 31, 2019 are as follows (in thousands):

Dispositions by reportable segment are as follows (dollars in thousands):

Note 11. 2018 Incentive Award Plan

Restricted Common Shares

During the year ended December 31, 2019, the Company granted approximately 164 thousand restricted shares under the 2018 Incentive Award Plan to the principal executive officer of the Company and members of the board of trustees. Prior to the shareholder approval of the Master Trust 2014 Sale and Plan of Liquidation, the Company had 145 thousand unvested restricted shares outstanding. These outstanding restricted shares vested in connection with the aforementioned shareholder meeting and approval, and there were no outstanding restricted shares as of December 31, 2019.

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The following table summarizes restricted share activity under the 2018 Incentive Award Plan:

Market-Based Awards

During the year ended December 31, 2019, the Company granted approximately 32 thousand shares under market-based awards to the principal executive officer of the Company. The performance period of these grants runs through December 31, 2021. Awards vest in three annual tranches beginning December 31, 2019 and ending December 31, 2021. Potential common shares that the participant is eligible to receive is based on performance goals related to total shareholder return achieved by the Company during the performance period. During the year ended December 31, 2019, the market-based awards were accelerated in conjunction with shareholder approval of the Master Trust 2014 Sale and were earned at 200% of the target amount, which resulted in 64 thousand market-based awards issued. The Company had no outstanding market-based awards as of December 31, 2019.

Share-based Compensation Expense

For the eight months ended August 31, 2019, the Company recognized $1.4 million in stock-based compensation expense from restricted share and market-based awards. Of this amount, $0.9 million related to restricted shares awarded to members of the board of trustees and is included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss). The remaining $0.5 million related to restricted shares and market-based awards granted to the principal executive officer of the Company, an employee of the Manager. This expense is considered a component of the Company’s management fees under the Asset Management Agreement and is included in related party fees in the accompanying consolidated statements of operations and comprehensive income (loss).

As of December 31, 2020 and 2019, the Company had no remaining unamortized share-based compensation expense as all restricted share awards and market-based awards had vested and paid out.

Note 12. Loss Per Share

Loss per share has been computed using the two-class method, which is computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and any participating securities based on the weighted average shares outstanding during the period. Under the two-class method, any earnings attributable to unvested restricted shares are deducted from loss from continuing operations in the computation of net loss attributable to common shareholders.

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The table below is a reconciliation of the numerator and denominator used in the computation of basic and diluted net loss per share computed using the two-class method (dollars in thousands):

Note 13. Related Party Transactions

Cost Sharing Arrangements

In conjunction with the Spin-Off, the Company entered into certain agreements, including the Separation and Distribution Agreement, Tax Matters Agreement, Registration Rights Agreement and Insurance Sharing Agreement. These agreements provide a framework for the relationship between the Company and Spirit after the Spin-Off, by which Spirit may incur certain expenses on behalf of the Company that the Company must reimburse in a timely manner. These agreements, except for the Tax Matters Agreement, were terminated in conjunction with the termination of the Asset Management Agreement. At December 31, 2019, the Company had immaterial accrued payable and accrued receivable balances in connection with these arrangements.

Asset Management Agreement

In conjunction with the Spin-Off, the Company entered into the Asset Management Agreement pursuant to which the Manager provided various services subject to the supervision of SMTA’s board of trustees, including, but not limited to: (i) performing all of SMTA’s day-to-day functions, (ii) sourcing, analyzing and executing on investments and dispositions, (iii) determining investment criteria, (iv) performing investment and liability management duties, including financing and hedging, and (v) performing financial and accounting management. As compensation for these services, the Manager was entitled to a management fee of $20 million per annum, payable monthly in arrears. Under certain circumstances, the Manager was also entitled to a promoted interest fee based on the total shareholder return of SMTA’s common shares during the relevant period, as well as a termination fee. On June 2, 2019, concurrently with the execution of the agreement for the Master Trust 2014 Sale, the Company entered into a termination agreement of the Asset Management Agreement, which became effective on September 20, 2019. Pursuant to the termination agreement, the Company paid the Manager a termination fee of $48.2 million and the Manager waived its right to receive any promoted interest fee as otherwise provided for under the Asset Management Agreement, resulting in a net reversal of $0.8 million in promoted interest expense for the eight months ended August 31, 2019. The Manager also waived its rights to receive management fees for a 180-day notice period and subsequent eight-month transition services period provided for in the Asset Management Agreement. On June 2, 2019, the Company and the Manager also entered into an Interim Management Agreement, which became effective September 20, 2019, which provides that the Manager is entitled to an annual management fee of $1 million for the initial one-year thereof, plus certain cost reimbursements. The Interim Management Agreement was terminable at any time by the Company and, upon a six month notice period, at any time after March 18, 2020 by the Manager, in each case without payment of a termination fee. On March 18, 2020, the Manager notified the Liquidating Trust that it intended to terminate the Interim Asset Management Agreement on September 14, 2020. Asset management fees of $13.3 million were incurred during the eight months ended August 31, 2019, which are included in related party fees in the consolidated statements of operations and comprehensive income (loss). Additionally, under the terms of the Asset

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Management Agreement, the Company recognized related party fees of $0.5 million for stock compensation awarded by SMTA to its principal executive officer for the eight months ended August 31, 2019. At December 31, 2019, asset management fees of $0.1 million are included in accounts payable and $0.9 million are included in the liability for estimated expense in excess of estimated receipts during liquidation in the accompanying statement of net assets. During the fiscal year ended December 31, 2020, $0.7 million of this amount was paid and $0.2 million was reduced in a remeasurement upon the termination of the Interim Management Agreement on September 4, 2020. Walker, Truesdell, Roth & Associates, Inc. became the manager effective September 4, 2020. See Note 1 for more information.

Property Management and Servicing Agreement

The Manager provided property management services and special services for Master Trust 2014 under the terms of the Property Management and Servicing Agreement dated May 20, 2014. The property management fees accrued daily at 0.25% per annum of the collateral value of the Master Trust 2014 Collateral Pool other than specially serviced assets, which accrued daily at 0.75% per annum. Property management fees of $4.0 million were incurred during the eight months ended August 31, 2019. Additionally, special servicing fees of $1.1 million were incurred during the eight months ended August 31, 2019. The property management fees and special servicing fees are included in related party fees in the consolidated statements of operations and comprehensive income (loss). In conjunction with the Master Trust 2014 Sale, the notes were satisfied and discharged on September 20, 2019 and the Property Management and Servicing Agreement was terminated.

Related Party Loans Receivable

Prior to September 20, 2019, the Company had four mortgage loans receivable where wholly-owned subsidiaries of Spirit were the borrower, and the loans were secured by six single-tenant commercial properties. These mortgage loans, which had a weighted average stated interest rate of 1.00%, were entered into by entities under common control of Spirit in conjunction with the issuance of the Series 2014 notes of Master Trust 2014 because the underlying properties did not qualify to be held directly as collateral by Master Trust 2014 under its governing agreements. The mortgage notes generated $0.2 million of interest income for the eight months ended August 31, 2019, which is included in interest income on loans receivable in the consolidated statements of operations and comprehensive income (loss). In conjunction with the Master Trust 2014 Sale, the remaining balance of the related party loans payable was repaid to the Company in full.

Related Party Notes Payable

In conjunction with the Series 2017-1 notes issuance completed in December 2017, a subsidiary of Spirit, as sponsor of the issuance, retained a 5% economic interest in the Master Trust 2014 Series 2017-1 notes as required by the risk retention rules issued under 17 CFR Part 246. Interest expense on the consolidated statements of operations and comprehensive income (loss) includes $1.1 million for the eight months ended August 31, 2019. In conjunction with the Master Trust 2014 Sale, the outstanding principal balance of $33.5 million was paid in full, plus an early repayment premium of $0.9 million was paid by SVC to the Manager in relation to these notes.

Related Party Transfers and Acquisitions

There were no related party transfers during the years ended December 31, 2020 and 2019.

Note 14. Engagement Letter with WTR

The Engagement Agreement with WTR provides that WTR receive a fee of $25,000 per month for each of the first three months to act as manager of the Liquidating Trust and $20,000 per month thereafter, with certain services being charged on an hourly rate to be paid in addition to the $20,000 base monthly payment. The Liquidating Trustees and WTR subsequently agreed that the Liquidating Trust would pay a flat fee of $25,000 per month after the first three months in lieu of having WTR charge hourly for certain other services. The Engagement Agreement may be terminated by WTR or the Liquidating Trust on 30 days’ written notice.

Under the terms of the Engagement Agreement, WTR has responsibility for our day-to-day affairs, administers our accounting and bookkeeping functions, serves as a consultant in connection with policy decisions to be made by the Liquidating Trustees, manages our remaining properties and renders other services deemed appropriate by the Liquidating Trustees. We do not have any employees. The individuals who perform services under the Engagement Agreement are employees of, or consultants retained by, WTR or its affiliates. This description of our Engagement Agreement is qualified in its entirety by the text of the Engagement Agreement, which has been included as an exhibit to this Annual Report.

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