UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2022, or
☐Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 001-39529
BROADSTONE NET LEASE, INC.
(Exact name of registrant as specified in its charter)
Maryland
26-1516177
(State or other jurisdiction ofincorporation or organization)
(I.R.S. EmployerIdentification No.)
800 Clinton Square
Rochester, New York
14604
(Address of principal executive offices)
(Zip Code)
(585) 287-6500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, $0.00025 par value
BNL
The New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 173,115,020 shares of the Registrant's Common Stock, $0.00025 par value per share, outstanding as of August 2, 2022.
TABLE OF CONTENTS
Page
Part I - FINANCIAL INFORMATION
1
Item 1.
Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
2
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
3
Condensed Consolidated Statements of Cash Flows (Unaudited)
5
Notes to the Condensed Consolidated Financial Statements (Unaudited)
6
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
24
Cautionary Note Regarding Forward-Looking Statements
Regulation FD Disclosures
Explanatory Note and Certain Defined Terms
Overview
25
Real Estate Portfolio Information
26
Results of Operations
34
Liquidity and Capital Resources
39
Derivative Instruments and Hedging Activities
42
Cash Flows
Non-GAAP Measures
43
Critical Accounting Policies and Estimates
46
Impact of Recent Accounting Pronouncements
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
47
Part II - OTHER INFORMATION
48
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
49
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Broadstone Net Lease, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share amounts)
June 30,2022
December 31,2021
Assets
Accounted for using the operating method:
Land
$
731,208
655,374
Land improvements
320,513
295,329
Buildings and improvements
3,503,478
3,242,618
Equipment
10,422
11,870
Total accounted for using the operating method
4,565,621
4,205,191
Less accumulated depreciation
(479,952
)
(430,141
Accounted for using the operating method, net
4,085,669
3,775,050
Accounted for using the direct financing method
28,584
28,782
Accounted for using the sales-type method
571
Investment in rental property, net
4,114,824
3,804,403
Cash and cash equivalents
16,813
21,669
Accrued rental income
124,297
116,874
Tenant and other receivables, net
2,069
1,310
Prepaid expenses and other assets
22,916
17,275
Interest rate swap, assets
26,562
—
Goodwill
339,769
Intangible lease assets, net
316,119
303,642
Debt issuance costs – unsecured revolving credit facility, net
6,956
4,065
Leasing fees, net
9,117
9,641
Total assets
4,979,442
4,618,648
Liabilities and equity
Unsecured revolving credit facility
320,657
102,000
Mortgages, net
95,453
96,846
Unsecured term loans, net
587,098
646,671
Senior unsecured notes, net
844,178
843,801
Interest rate swap, liabilities
27,171
Accounts payable and other liabilities
42,923
38,038
Dividends payable
49,541
45,914
Accrued interest payable
6,086
6,473
Intangible lease liabilities, net
66,864
70,596
Total liabilities
2,012,800
1,877,510
Commitments and contingencies (See Note 18)
Equity
Broadstone Net Lease, Inc. stockholders' equity:
Preferred stock, $0.001 par value; 20,000 shares authorized, no shares issued or outstanding
Common stock, $0.00025 par value; 500,000 shares authorized, 172,023 and 162,383 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
41
Additional paid-in capital
3,125,377
2,924,168
Cumulative distributions in excess of retained earnings
(350,127
(318,476
Accumulated other comprehensive income (loss)
23,397
(28,441
Total Broadstone Net Lease, Inc. stockholders' equity
2,798,690
2,577,292
Non-controlling interests
167,952
163,846
Total equity
2,966,642
2,741,138
Total liabilities and equity
The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statements of Income and Comprehensive Income
For the Three Months Ended June 30,
For the Six Months Ended June 30,
2022
2021
Revenues
Lease revenues, net
98,013
84,759
191,854
167,457
Operating expenses
Depreciation and amortization
35,511
31,225
69,801
61,938
Property and operating expense
4,696
4,572
9,740
9,177
General and administrative
9,288
8,655
18,116
19,288
Provision for impairment of investment in rental properties
1,380
2,012
Total operating expenses
50,875
44,452
99,037
92,415
Other income (expenses)
Interest income
11
Interest expense
(17,888
(15,430
(34,784
(31,538
Cost of debt extinguishment
(126
Gain on sale of real estate
4,071
3,838
5,267
8,571
Income taxes
(401
(301
(813
(714
Change in fair value of earnout liability
(5,604
(4,480
Other income
2,632
4
1,506
14
Net income
35,552
22,820
63,993
46,780
Net income attributable to non-controlling interests
(2,036
(1,606
(3,719
(3,343
Net income attributable to Broadstone Net Lease, Inc.
33,516
21,214
60,274
43,437
Weighted average number of common shares outstanding
Basic
169,555
146,119
166,698
145,728
Diluted
180,256
157,430
177,346
157,115
Net earnings per share attributable to common stockholders
Basic and diluted
0.20
0.14
0.36
0.30
Comprehensive income
Other comprehensive income
Change in fair value of interest rate swaps
18,772
(2,911
53,733
25,769
Realized loss (gain) on interest rate swaps
695
(42
1,354
(83
55,019
19,867
119,080
72,466
Comprehensive income attributable to non-controlling interests
(3,151
(1,399
(6,941
(5,212
Comprehensive income attributable to Broadstone Net Lease, Inc.
51,868
18,468
112,139
67,254
Condensed Consolidated Statements of Stockholders' Equity
CommonStock
AdditionalPaid-inCapital
CumulativeDistributionsin Excess ofRetainedEarnings
AccumulatedOtherComprehensiveIncome (Loss)
Non-controllingInterests
TotalStockholders'Equity
Balance, January 1, 2022
26,758
1,683
28,441
Issuance of 6,427 shares of common stock
136,825
136,826
Offering costs, discounts, and commissions
(2,218
Stock-based compensation, net of one share of restricted stock forfeited
929
Retirement of 59 shares of common stock
(1,301
Distributions declared ($0.265 per share and OP Unit)
(45,270
(2,845
(48,115
Change in fair value of interest rate swap agreements
32,893
2,068
34,961
Realized loss on interest rate swap agreements
620
659
Adjustment to non-controlling interests
(1,843
(45
1,888
Balance, March 31, 2022
3,056,560
(336,988
5,027
166,679
2,891,320
2,036
Issuance of 3,281 shares of common stock
69,420
69,421
(992
Stock-based compensation, net of eight shares of restricted stock forfeited
1,381
Distributions declared ($0.270 per share and OP Unit)
(46,655
(2,852
(49,507
17,697
1,075
655
40
18
974
Balance, June 30, 2022
Condensed Consolidated Statements of Stockholders' Equity - Continued
Class A Common Stock
AccumulatedOtherComprehensiveLoss
Balance, January 1, 2021
27
9
2,624,997
(259,673
(66,255
179,976
2,479,081
22,223
1,737
23,960
Issuance of 211 shares of common stock
233
(500
Stock-based compensation
1,769
Retirement of 45 shares of common stock
(832
Conversion of 37,000 Class A common stock to 37,000 shares of common stock
(9
Conversion of 38 OP Units to 38 shares of common stock
606
(606
Distributions declared ($0.250 per share and OP Unit)
(36,690
(2,963
(39,653
26,602
2,078
28,680
Realized gain on interest rate swap agreements
(39
(2
(41
(953
1,008
(55
Balance, March 31, 2021
36
2,625,320
(274,140
(38,684
180,165
2,492,697
1,606
Issuance of 11,659 shares of common stock
264,795
264,799
Issuance of 248 OP Units
(11,013
951
Retirement of 16 shares of common stock
(309
Conversion of 1,127 OP Units to 1,127 shares of common stock
17,859
(17,859
Distributions declared ($0.255 per share and OP Unit)
(40,696
(2,788
(43,484
(2,708
(203
(38
(4
(7,472
(466
7,938
Balance, June 30, 2021
2,890,131
(293,622
(41,896
168,855
2,723,508
Condensed Consolidated Statements of Cash Flows
(in thousands)
Operating activities
Adjustments to reconcile net income including non-controlling interests to net cash provided by operating activities:
Depreciation and amortization including intangibles associated with investment in rental property
67,476
60,570
Amortization of debt issuance costs and original issuance discount charged to interest expense
1,704
1,799
Stock-based compensation expense
2,310
2,720
Straight-line rent, direct financing and sales-type lease adjustments
(8,513
(9,609
126
(5,267
(8,571
4,480
Other non-cash items
628
139
Changes in assets and liabilities, net of acquisition:
Tenant and other receivables
(326
986
1,040
1,088
(6,079
(3,367
(387
(138
Net cash provided by operating activities
117,959
99,015
Investing activities
Acquisition of rental property accounted for using the operating method
(377,966
(284,300
Capital expenditures and improvements
(18,289
(1,336
Proceeds from disposition of rental property, net
16,402
43,144
Change in deposits on investments in rental property
(118
(220
Net cash used in investing activities
(379,971
(242,712
Financing activities
Proceeds from issuance of common stock, net of $3,229 and $10,842 offering costs, discounts, and commissions in 2022 and 2021, respectively
202,628
253,647
Principal payments on mortgages and unsecured term loans
(61,389
(51,593
Borrowings on unsecured revolving credit facility
380,783
175,600
Repayments on unsecured revolving credit facility
(161,000
(175,600
Cash distributions paid to stockholders
(88,361
(73,278
Cash distributions paid to non-controlling interests
(5,647
(5,927
Cash paid for earnout liability
(1,926
Debt issuance and extinguishment costs paid
(3,795
(946
Net cash provided by financing activities
263,219
119,977
Net increase (decrease) in cash and cash equivalents and restricted cash
1,207
(23,720
Cash and cash equivalents and restricted cash at beginning of period
27,769
110,728
Cash and cash equivalents and restricted cash at end of period
28,976
87,008
Reconciliation of cash and cash equivalents and restricted cash
Cash and cash equivalents at beginning of period
100,486
Restricted cash at beginning of period
6,100
10,242
Cash and cash equivalents at end of period
78,987
Restricted cash at end of period
12,163
8,021
1. Business Description
Broadstone Net Lease, Inc. (the "Corporation") is a Maryland corporation formed on October 18, 2007, that elected to be taxed as a real estate investment trust ("REIT") commencing with the taxable year ended December 31, 2008. The Corporation focuses on investing in income-producing, net leased commercial properties, primarily in the United States. The Corporation leases industrial, healthcare, restaurant, retail, and office commercial properties under long-term lease agreements. At June 30, 2022, the Corporation owned a diversified portfolio of 764 individual commercial properties with 757 properties located in 44 U.S. states and seven properties located in four Canadian provinces.
Broadstone Net Lease, LLC (the Corporation's operating company, or the "OP"), is the entity through which the Corporation conducts its business and owns (either directly or through subsidiaries) all of the Corporation's properties. The Corporation is the sole managing member of the OP. The membership units not owned by the Corporation are referred to as OP Units or non-controlling interests. As the Corporation conducts substantially all of its operations through the OP, it is structured as what is referred to as an umbrella partnership real estate investment trust ("UPREIT"). The Corporation, the OP, and its consolidated subsidiaries are collectively referred to as the "Company."
Pursuant to the Corporation's initial public offering ("IPO"), a new class of common stock ("Class A Common Stock") was issued. On March 20, 2021, each share of Class A Common Stock automatically converted into one share of common stock, and effective March 22, 2021, all shares of common stock were listed and freely tradeable on the NYSE under the symbol "BNL."
The following table summarizes the outstanding equity and economic ownership interest of the Corporation and the OP:
June 30, 2022
December 31, 2021
Shares of Common Stock
OP Units
Total DilutedShares
Ownership interest
172,023
10,323
182,346
162,383
172,706
Percent ownership of OP
94.3
%
5.7
100.0
94.0
6.0
Refer to Note 16 for further discussion regarding the calculation of weighted average shares outstanding.
2. Summary of Significant Accounting Policies
Interim Information
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information (Accounting Standards Codification ("ASC") 270, Interim Reporting) and Article 10 of the Securities and Exchange Commission's ("SEC") Regulation S-X. Accordingly, the Corporation has omitted certain footnote disclosures which would substantially duplicate those contained within the audited consolidated financial statements for the year ended December 31, 2021, included in the Company's 2021 Annual Report on Form 10-K, filed with the SEC on February 23, 2022. Therefore, the readers of this quarterly report should refer to those audited consolidated financial statements, specifically Note 2, Summary of Significant Accounting Policies, for further discussion of significant accounting policies and estimates. The Corporation believes all adjustments necessary for a fair presentation have been included in these interim Condensed Consolidated Financial Statements (which include only normal recurring adjustments).
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts and operations of the Company. All intercompany balances and transactions have been eliminated in consolidation.
To the extent the Corporation has a variable interest in entities that are not evaluated under the variable interest entity ("VIE") model, the Corporation evaluates its interests using the voting interest entity model. The Corporation has complete responsibility for the day-to-day management of, authority to make decisions for, and control of the OP. Based on consolidation guidance, the Corporation has concluded that the OP is a VIE as the members in the OP do not possess kick-out rights or substantive participating rights. Accordingly, the Corporation consolidates its interest in the OP. However, because the Corporation holds the majority voting interest in the OP and certain other conditions are met, it qualifies for the exemption from providing certain disclosure requirements associated with investments in VIEs.
The portion of the OP not owned by the Corporation is presented as non-controlling interests as of and during the periods presented.
Basis of Accounting
The Condensed Consolidated Financial Statements have been prepared in accordance with GAAP.
Use of Estimates
The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include, but are not limited to, the allocation of purchase price between tangible and intangible assets acquired and liabilities assumed, the value of long-lived assets and goodwill, the provision for impairment, the depreciable lives of rental property, the amortizable lives of intangible assets and liabilities, the probability of collecting outstanding and future lease payments, the fair value of the earnout liability, the fair value of assumed debt, the fair value of the Company's interest rate swap agreements, and the determination of any uncertain tax positions. Accordingly, actual results may differ from those estimates.
Long-lived Asset Impairment
The Company reviews long-lived assets to be held and used for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If, and when, such events or changes in circumstances are present, an impairment exists to the extent the carrying value of the long-lived asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the long-lived asset or asset group and its eventual disposition. Such cash flows include expected future operating income, as adjusted for trends and prospects, as well as the effects of demand, competition, and other factors. An impairment loss is measured as the amount by which the carrying amount of the long-lived asset or asset group exceeds its fair value. Significant judgment is made to determine if and when impairment should be taken. The Company's assessment of impairment as of June 30, 2022 and 2021 was based on the most current information available to the Company. Certain of the Company's properties may have fair values less than their carrying amounts. However, based on the Company's plans with respect to each of those properties, the Company believes that their carrying amounts are recoverable and therefore, no impairment charges were recognized other than those described below. If the operating conditions mentioned above deteriorate or if the Company's expected holding period for assets changes, subsequent tests for impairments could result in additional impairment charges in the future.
7
Inputs used in establishing fair value for real estate assets generally fall within Level 3 of the fair value hierarchy, which are characterized as requiring significant judgment as little or no current market activity may be available for validation. The main indicator used to establish the classification of the inputs is current market conditions, as derived through the use of published commercial real estate market information. The Company determines the valuation of impaired assets using generally accepted valuation techniques including discounted cash flow analysis, income capitalization, analysis of recent comparable sales transactions, actual sales negotiations, and bona fide purchase offers received from third parties. Management may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of its real estate.
The following table summarizes the Company's impairment charges, resulting primarily from changes in the Company's long-term hold strategy, with respect to the individual properties:
(in thousands, except number of properties)
Number of properties
Impairment charge
Restricted Cash
Restricted cash includes escrow funds the Company maintains pursuant to the terms of certain mortgages, lease agreements, and undistributed proceeds from the sale of properties under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"), and is reported within Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets. Restricted cash consisted of the following:
June 30,
December 31,
Escrow funds and other
6,634
Undistributed 1031 proceeds
5,529
Rent Received in Advance
Rent received in advance represents tenant payments received prior to the contractual due date, and is included in Accounts payable and other liabilities on the Condensed Consolidated Balance Sheets. Rent received in advance consisted of the following:
Rent received in advance
13,533
15,162
Fair Value Measurements
Recurring Fair Value Measurements
The balances of financial instruments measured at fair value on a recurring basis are as follows (see Note 11):
Total
Level 1
Level 2
Level 3
(27,171
8
Long-term Debt – The fair value of the Company's debt was estimated using Level 1, Level 2, and Level 3 inputs based on recent secondary market trades of the Company's 2031 Senior Unsecured Public Notes (see Note 9), recent financing transactions, estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, current London Interbank Offered Rate ("LIBOR"), U.S. Treasury obligation interest rates, and discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect the Company's judgment as to the approximate current lending rates for loans or groups of loans with similar maturities and assumes that the debt is outstanding through maturity. Market information, as available, or present value techniques were utilized to estimate the amounts required to be disclosed. Since such amounts are estimates that are based on limited available market information for similar transactions and do not acknowledge transfer or other repayment restrictions that may exist on specific loans, it is unlikely that the estimated fair value of any such debt could be realized by immediate settlement of the obligation.
The following table summarizes the carrying amount reported on the Condensed Consolidated Balance Sheets and the Company's estimate of the fair value of the unsecured revolving credit facility, mortgages, unsecured term loans, and senior unsecured notes which reflects the fair value of interest rate swaps:
Carrying amount
1,856,377
1,699,160
Fair value
1,758,160
1,785,701
Non-recurring Fair Value Measurements
The Company's non-recurring fair value measurements at June 30, 2022 and December 31, 2021 consisted of the fair value of impaired real estate assets that were determined using Level 3 inputs.
Stock-Based Compensation
The Company has issued restricted stock awards ("RSAs") and performance-based restricted stock units ("PRSUs") under its 2020 Omnibus Equity and Incentive Plan (the "Equity Incentive Plan"). Subject to any adjustment as provided in the Equity Incentive Plan, up to 9,000,000 shares may be issued to awards granted under the Equity Incentive Plan. The Company accounts for stock-based incentives in accordance with ASC 718, Compensation – Stock Compensation, which requires that such compensation be recognized in the financial statements based on the award's estimated grant date fair value. The value of such awards is recognized as compensation expense in General and administrative expenses in the Condensed Consolidated Statements of Income and Comprehensive Income over the appropriate vesting period on a straight-line basis or at the cumulative amount vested at each balance sheet date, if greater. The Company records forfeitures during the period in which they occur by reversing all previously recorded stock compensation expense associated with the forfeited shares. Dividends declared on RSAs issued under the Equity Incentive Plan are recorded as Cumulative distributions in excess of retained earnings on the Condensed Consolidated Balance Sheets. Accumulated dividends related to forfeited RSAs are reversed through compensation expense in the period the forfeiture occurs. Dividends accrued on the PRSUs are recorded as Cumulative distributions in excess of retained earnings on the Condensed Consolidated Balance Sheets. Accumulated dividends accrued related to forfeited PRSUs are reversed in the period the forfeiture occurs.
Recently Adopted Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The guidance in ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in ASU 2020-06 also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity's Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments. The amendments in ASU 2020-06 were effective for the Company beginning January 1, 2022. The Company uses the two-class method of computing basic and diluted earnings per share. Based on the nature of the Company's potentially dilutive instruments, the treasury stock method is not used in computing dilutive earnings per share. Accordingly, the adoption of ASU 2020-06 did not have a material impact on the Company.
3. Related-Party Transactions
Prior to the Company's internalization on February 7, 2020, the Company was externally managed by Broadstone Real Estate, LLC ("BRE") and Broadstone Asset Management, LLC (the "Asset Manager") subject to the direction, oversight, and approval of the Company's board of directors (the "Board of Directors"). As part of the internalization the Asset Manager and BRE merged into the Company. Accordingly, both BRE and the Asset Manager were related parties of the Company.
Earnout Consideration
In connection with the Company's internalization, the Company incurred a contingent obligation that would be payable to certain members of the Board of Directors and employees who had previously been owners and/or employees of BRE, upon the occurrence of certain events (see Note 4). On June 16, 2021, the Company achieved the earnout milestone applicable to tranche 1 of the earnout. As a result, the Company issued 145,195 shares of common stock, 247,899 OP Units and paid $1.9 million of cash during the three and six months ended June 30, 2021. The Company achieved the remaining volume-weighted average price ("VWAP") milestones and paid all earnout tranches (see Note 4) during the year ended December 31, 2021. As such, there was no such activity during the three and six months ended June 30, 2022.
Conversion of OP Units to Common Stock
During the three and six months ended June 30, 2021, in a non-cash transaction (see Note 17), the Company converted 1,019,874 OP Units held by an affiliated third party to 1,019,874 shares of common stock at a total conversion value of $16.2 million. There were no OP Units converted to common stock during the three and six months ended June 30, 2022.
4. Internalization
On February 7, 2020, the Company completed an internalization where the Company's management team and corporate staff, who were previously employed by BRE, became employees of an indirect subsidiary of the OP. The effect of the internalization has been reflected in the Company's operating results beginning on February 7, 2020.
In accordance with the Company's internalization, the Company was required to pay additional earnout consideration of up to $75.0 million payable in four tranches of $10.0 million, $15.0 million, $25.0 million, and $25.0 million if certain milestones related to the 40-day volume-weighted average price of a share of the Company's common stock ("VWAP per REIT Share") were achieved. The consideration consisted of a combination of cash, shares of the Company's common stock, and OP Units, based on the same proportions paid in the base consideration.
As of December 31, 2021, the Company achieved all four VWAP milestones, thereby triggering the payout of all earnout tranches. Below is a summary of the shares of common stock and OP Units issued, and cash paid for each earnout tranche:
Shares of
40-Day
Common Stock
VWAP of a
Tranche
Issued
Cash Paid
REIT Share
Achievement Date
145
248
1,926
(a)
22.50
June 16, 2021
218
371
2,888
23.75
July 14, 2021
363
4,117
24.375
September 21, 2021
25.00
10
5. Acquisitions of Rental Property
The Company closed on the following acquisitions during the six months ended June 30, 2022:
Number of
Real Estate
Date
Property Type
Properties
Acquisition Price
January 7, 2022
Retail
2,573
February 10, 2022
Industrial
21,733
February 15, 2022
1,341
February 28, 2022
5,678
March 4, 2022
79,061
March 31, 2022
Restaurant
16
99,587
April 12, 2022
1,680
7,522
April 13, 2022
16,250
April 19, 2022
1,780
May 16, 2022
2,264
June 7, 2022
11,510
June 13, 2022
1,638
June 15, 2022
1,884
June 21, 2022
78,500
June 29, 2022
Healthcare
12,467
29,500
374,968
The Company closed on the following acquisitions during the six months ended June 30, 2021:
February 5, 2021
4,843
February 26, 2021
(b)
181
March 11, 2021
13
26,834
March 30, 2021
41,324
March 31, 2021
14,140
June 4, 2021
19,420
June 9, 2021
8,500
106,578
June 25, 2021
12,131
June 28, 2021
15,300
June 30, 2021
1,279
30,750
62
281,280
(c)
The Company allocated the purchase price of these properties to the fair value of the assets acquired and liabilities assumed. The following table summarizes the purchase price allocation for completed real estate acquisitions:
77,088
48,477
26,002
15,844
253,500
197,064
Acquired in-place leases(d)
29,585
22,729
Acquired above-market lease (e)
211
Acquired below-market lease (f)
(76
Non-real estate liabilities assumed
(8,051
378,048
(g)
284,325
The above acquisitions were funded using a combination of available cash on hand, and proceeds from equity issuances and revolving credit facility borrowings. All real estate acquisitions closed during the six months ended June 30, 2022 and 2021, qualified as asset acquisitions and, as such, acquisition costs have been capitalized.
Subsequent to June 30, 2022, the Company closed on the following acquisitions (see Note 19):
July 1, 2022
3,052
July 7, 2022
2,171
July 8, 2022
75,000
80,223
6. Sale of Real Estate
The Company closed on the following sales of real estate, none of which qualified as discontinued operations:
Number of properties disposed
19
Aggregate sale price
11,889
22,276
17,101
45,338
Aggregate carrying value
(7,311
(17,201
(11,135
(34,573
Additional sales expenses
(507
(1,237
(699
(2,194
12
7. Investment in Rental Property and Lease Arrangements
The Company generally leases its investment rental property to established tenants in the industrial, healthcare, restaurant, retail, and office property types. At June 30, 2022, the Company had 764 real estate properties, 751 of which were leased under leases that have been classified as operating leases, 10 that have been classified as direct financing leases, one that has been classified as a sales-type lease, and two that were vacant. Of the 10 leases classified as direct financing leases, three include land portions which are accounted for as operating leases. The sales-type lease includes a land portion which is accounted for as an operating lease. Most leases have initial terms of 10 to 20 years. The Company's leases generally provide for limited increases in rent as a result of fixed increases, increases in the Consumer Price Index ("CPI"), or increases in the tenant's sales volume. Generally, tenants are also required to pay all property taxes and assessments, substantially maintain the interior and exterior of the building, and maintain property and liability insurance coverage. The leases also typically provide for one or more multiple year renewal options, at the election of the tenant, and are subject to generally the same terms and conditions as the initial lease.
Investment in Rental Property – Accounted for Using the Operating Method
Depreciation expense on investment in rental property was as follows:
Depreciation
27,730
24,144
54,388
47,887
Estimated lease payments to be received under non-cancelable operating leases with tenants at June 30, 2022 are as follows:
Remainder of 2022
178,218
2023
359,960
2024
357,102
2025
350,807
2026
341,436
Thereafter
2,695,940
4,283,463
Since lease renewal periods are exercisable at the option of the tenant, the above amounts only include future lease payments due during the initial lease terms. Such amounts exclude any potential variable rent increases that are based on changes in the CPI or future variable rents which may be received under the leases based on a percentage of the tenant's gross sales. Additionally, certain of our leases provide tenants with the option to terminate their leases in exchange for termination penalties, or that are contingent upon the occurrence of a future event. Future lease payments within the table above have not been adjusted for these termination rights.
Investment in Rental Property – Direct Financing Leases
The Company's net investment in direct financing leases was comprised of the following:
Undiscounted estimated lease payments to be received
40,983
42,602
Estimated unguaranteed residual values
15,203
Unearned revenue
(27,473
(28,893
Reserve for credit losses
(129
(130
Net investment in direct financing leases
Undiscounted estimated lease payments to be received under non-cancelable direct financing leases with tenants at June 30, 2022 are as follows:
1,622
3,304
3,361
3,475
3,547
25,674
The above rental receipts do not include future lease payments for renewal periods, potential variable CPI rent increases, or variable percentage rent payments that may become due in future periods.
The following table summarizes amounts reported as Lease revenues, net on the Condensed Consolidated Statements of Income and Comprehensive Income:
Contractual rental amounts billed for operating leases
87,505
75,011
171,901
148,256
Adjustment to recognize contractual operating lease billings on a straight-line basis
5,090
4,724
10,111
9,533
Net write-offs of accrued rental income
(1,326
(442
Variable rental amounts earned
291
114
477
205
Earned income from direct financing leases
721
728
1,444
1,458
Interest income from sales-type leases
15
29
Operating expenses billed to tenants
4,263
4,196
8,998
8,584
Other income from real estate transactions
134
28
176
33
Adjustment to revenue recognized for uncollectible rental amounts billed, net
(6
(57
44
(199
Total lease revenues, net
8. Intangible Assets and Liabilities
The following is a summary of intangible assets and liabilities and related accumulated amortization:
Lease intangibles:
Acquired above-market leases
46,772
47,147
Less accumulated amortization
(18,052
(16,807
Acquired above-market leases, net
28,720
30,340
Acquired in-place leases
407,993
380,766
(120,594
(107,464
Acquired in-place leases, net
287,399
273,302
Total intangible lease assets, net
Acquired below-market leases
105,293
105,310
(38,429
(34,714
Leasing fees
14,650
14,786
(5,533
(5,145
Amortization of intangible lease assets and liabilities was as follows:
Intangible
Financial Statement Presentation
Acquired in-place leases and leasing fees
7,749
7,058
15,350
14,005
Above-market and below-market leases
1,170
665
2,331
1,418
Estimated future amortization of intangible assets and liabilities at June 30, 2022 is as follows:
13,338
26,512
25,752
24,455
23,105
145,210
258,372
9. Unsecured Credit Agreements
The following table summarizes the Company's unsecured credit agreements:
Outstanding Balance
(in thousands, except interest rates)
InterestRate
MaturityDate
Applicable reference rate + 0.85% (a) (b) (c)
Mar. 2026
Unsecured term loans:
2022 Unsecured Term Loan
60,000
one-month LIBOR + 1.00% (c)
Feb. 2022 (d)
2024 Unsecured Term Loan
190,000
Jun. 2024
2026 Unsecured Term Loan
400,000
Feb. 2026
Total unsecured term loans
590,000
650,000
Unamortized debt issuance costs, net
(2,902
(3,329
Total unsecured term loans, net
Senior unsecured notes:
2027 Senior Unsecured Notes - Series A
150,000
4.84%
Apr. 2027
2028 Senior Unsecured Notes - Series B
225,000
5.09%
Jul. 2028
2030 Senior Unsecured Notes - Series C
100,000
5.19%
Jul. 2030
2031 Senior Unsecured Public Notes
375,000
2.60%
Sep. 2031
Total senior unsecured notes
850,000
Unamortized debt issuance costs and original issuance discount, net
(5,822
(6,199
Total senior unsecured notes, net
Total unsecured debt, net
1,751,933
1,592,472
At June 30, 2022, the weighted average interest rate on all outstanding borrowings was 3.33%, exclusive of interest rate swap agreements.
The Company is subject to various financial and operational covenants and financial reporting requirements pursuant to its unsecured credit agreements. These covenants require the Company to maintain certain financial ratios, including leverage, fixed charge coverage, debt service coverage, aggregate debt ratio, consolidated income available for debt to annual debt service charge, total unencumbered assets to total unsecured debt, and secured debt ratio, among others. As of June 30, 2022, and for all periods presented the Company believes it was in compliance with all of its loan covenants. Failure to comply with the covenants would result in a default which, if the Company were unable to cure or obtain a waiver from the lenders, could accelerate the repayment of the obligations. Further, in the event of default, the Company may be restricted from paying dividends to its stockholders in excess of dividends required to maintain its REIT qualification. Accordingly, an event of default could have a material and adverse impact on the Company.
On January 28, 2022, the Company amended and restated the unsecured revolving credit facility to increase the available borrowings to $1.0 billion and extend the maturity date to March 31, 2026. In addition to USD, borrowings under the unsecured revolving credit facility can be made in Pound Sterling, Euros or Canadian Dollars ("CAD") up to an aggregate amount of $500.0 million. Prior to the amendment, borrowings under the credit facility were subject to interest at variable rates based on LIBOR plus a margin based on the Company's current credit rating ranging between 0.825% to 1.55% per annum. Borrowings under the amended credit facility are subject to interest only payments at variable rates equal to the applicable reference rate plus a margin based on the Company's credit rating, ranging between 0.725% and 1.400%. In addition, the amended credit facility is subject to a facility fee on the amount of the revolving commitments, based on the Company's credit rating. The applicable facility fee is 0.200% per annum.
For the six months ended June 30, 2022, the Company incurred $3.8 million in debt issuance costs associated with the unsecured revolving credit facility. For the six months ended June 30, 2021, the Company incurred $1.0 million in debt issuance costs associated with the amended 2026 Unsecured Term Loan. The Company did not incur debt issuance costs during the three months ended June 30, 2022 and 2021.
For each separate debt instrument, on a lender by lender basis, in accordance with ASC 470-50, Debt Modifications and Extinguishment, the Company performed an assessment of whether the transaction was deemed to be new debt, a modification of existing debt, or an extinguishment of existing debt. Debt issuance costs are either deferred and amortized over the term of the associated debt or expensed as incurred.
With respect to the unsecured revolving credit facility amendment, the transaction was deemed to be new debt and therefore, the debt issuance costs incurred during the six months ended June 30, 2022, have been deferred and are being amortized over the term of the associated debt. With respect to the amended 2026 Unsecured Term Loan, the transaction was deemed to be a modification of existing debt and therefore the $0.9 million of debt issuance costs paid to lenders were deferred and are being amortized over the term of the associated debt. The remaining debt issuance costs of $0.1 million were expensed as incurred during the six months ended June 30, 2021.
Debt issuance costs and original issuance discounts are amortized as a component of Interest expense in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income. The following table summarizes debt issuance cost and original issuance discount amortization:
Debt issuance costs and original issuance discount amortization
900
956
1,756
1,870
10. Mortgages
The Company's mortgages consist of the following:
Origination
Maturity
Interest
Lender
(Month/Year)
Rate
Wilmington Trust National Association
Apr-19
Feb-28
4.92%
46,142
46,760
(a) (b) (c) (d)
Jun-18
Aug-25
4.36%
19,355
19,557
(a) (b) (c) (e)
PNC Bank
Oct-16
Nov-26
3.62%
16,886
17,094
(b) (c)
T2 Durham I, LLC
Jul-21
Jul-24
Greater of Prime + 1.25% or 5.00%
7,500
(b) (f)
Aegon
Apr-12
Oct-23
6.38%
5,837
6,249
(b) (g)
Total mortgages
95,720
97,160
Debt issuance costs, net
(267
(314
At June 30, 2022, investment in rental property of $159.5 million was pledged as collateral against the Company's mortgages.
Estimated future principal payments to be made under the above mortgages and the Company's unsecured credit agreements (see Note 9) at June 30, 2022 are as follows:
1,466
7,582
199,760
20,195
737,500
889,874
Certain of the Company's mortgages provide for prepayment fees and can be terminated under certain events of default as defined under the related agreements. These prepayment fees are not reflected as part of the table above.
11. Interest Rate Swaps
Interest rate swaps were entered into with certain financial institutions in order to mitigate the impact of interest rate variability over the term of the related debt agreements. The interest rate swaps are considered cash flow hedges. In order to reduce counterparty concentration risk, the Company has a diversification policy for institutions that serve as swap counterparties. Under these agreements, the Company receives monthly payments from the counterparties on these interest rate swaps equal to the related variable interest rates multiplied by the outstanding notional amounts. Certain interest rate swaps amortize on a monthly basis. In turn, the Company pays the counterparties each month an amount equal to a fixed rate multiplied by the related outstanding notional amounts. The intended net impact of these transactions is that the Company pays a fixed interest rate on its variable-rate borrowings.
The following is a summary of the Company's outstanding interest rate swap agreements:
Counterparty
Maturity Date
FixedRate
NotionalAmount
Fair Value
Wells Fargo Bank, N.A.
October 2024
2.72
15,000
110
(702
Capital One, National Association
December 2024
1.58
510
(241
Bank of Montreal
January 2025
1.91
25,000
672
(649
Truist Financial Corporation
April 2025
2.20
520
(905
July 2025
2.32
459
(1,049
1.99
697
(767
December 2025
2.30
517
(1,125
January 2026
1.92
833
(760
2.05
40,000
1,162
(1,415
2.08
35,000
980
(1,274
1.93
826
(768
April 2026
2.68
121
(941
July 2026
1.32
2,076
(205
December 2026
2.33
10,000
(538
941
(936
Toronto-Dominion Bank
March 2027
2.46
15,531
660
April 2027
170
(1,887
December 2027
2.37
637
(1,570
616
(1,575
January 2028
1,864
(4,741
May 2029
2.09
1,195
(1,316
Regions Bank
2.11
1,143
(1,356
June 2029
2.03
1,265
(1,222
U.S. Bank National Association
1,284
(1,220
August 2029
1.35
2,407
March 2032
2.69
1,103
2.70
1,126
March 2034
2.81
31,064
2,435
717,657
640,000
At June 30, 2022, the weighted average fixed rate on all outstanding interest rate swaps was 2.11%.
17
The total amounts recognized, and the location in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income, from converting from variable rates to fixed rates under these agreements were as follows:
Amount of Gain (Loss)
Reclassification from
Total Interest Expense
Recognized in
Accumulated Other
Presented in the Condensed
Comprehensive Income (Loss)
Consolidated Statements of
Comprehensive
Amount of
Income and Comprehensive
Income (Loss)
Location
Loss
Income
3,122
17,888
4,039
15,430
Amount of Gain
6,987
34,784
8,055
31,538
Amounts related to the interest rate swaps expected to be reclassified out of Accumulated other comprehensive income (loss) to Interest expense during the next twelve months are estimated to be a gain of $4.8 million. The Company is exposed to credit risk in the event of non-performance by the counterparties of the swaps. The Company minimizes the risk exposure by limiting counterparties to only major banks who meet established credit and capital guidelines.
12. Non-Controlling Interests
The following table summarizes OP Units exchanged for shares of common stock:
OP Units exchanged for shares of common stock
1,127
1,165
Value of units exchanged
18,465
On June 16, 2021, the Company achieved the VWAP milestone applicable to tranche 1 of the earnout (see Note 4). As a result, the OP issued 247,899 non-controlling OP Units on June 22, 2021. There were no OP Units issued during the three and six months ended June 30, 2022.
13. Credit Risk Concentrations
The Company maintained bank balances that, at times, exceeded the federally insured limit during the six months ended June 30, 2022. The Company has not experienced losses relating to these deposits and management does not believe that the Company is exposed to any significant credit risk with respect to these amounts.
For the three and six months ended June 30, 2022 and 2021, the Company had no individual tenants or common franchises that accounted for more than 10% of Lease revenues, net.
14. Equity
The Company established an at-the-market common equity offering program ("ATM Program"), through which it may, from time to time, publicly offer and sell shares of common stock having an aggregate gross sales price of up to $400.0 million. The ATM Program provides for forward sale agreements, enabling the Company to set the price of shares upon pricing the offering, while delaying the issuance of shares and the receipt of the net proceeds. As of June 30, 2022, the Company has issued common stock with an aggregate gross sales price of $234.0 million under the ATM Program and could issue additional common stock with an aggregate sales price of up to $166.0 million under the ATM Program.
The following table presents information about the Company's ATM Program activity:
For the Three Months Ended
For the Six Months Ended
Number of common shares issued
3,236
9,509
Weighted average sale price per share
21.42
21.69
Net proceeds
68,321
202,647
Gross proceeds
69,313
205,857
There was no ATM Program activity during the three and six months ended June 30, 2021.
On June 28, 2021, the Corporation completed its first public follow-on equity offering and issued 11,500,000 shares of Common Stock, including shares issued pursuant to the underwriters' full exercise of their over-allotment option, at $23.00 per share. The net proceeds, after deducting underwriting discounts and commissions of $10.6 million and $0.4 million of other expenses, were $253.5 million. The Company used the net proceeds to repay the remaining $160.6 million principal due under the Company's revolving credit facility. The remaining net proceeds will be used for general business purposes, including acquisitions.
On June 16, 2021, the Company achieved the VWAP milestone applicable to tranche 1 of the earnout (see Note 4). As a result, the Company issued 145,195 shares of common stock on June 22, 2021. There was no such activity during the three and six months ended June 30, 2022.
15. Stock-Based Compensation
Restricted Stock Awards
During the three and six months ended June 30, 2022, the Company awarded 32,868 and 174,913 shares of RSAs, respectively, to officers, employees and non-employee directors, under the Equity Incentive Plan. During the three and six months ended June 30, 2021, the Company issued 1,665 and 201,095 shares of RSAs, respectively. The holder of RSAs is generally entitled at all times on and after the date of issuance of the restricted common shares to exercise the rights of a stockholder of the Company, including the right to vote the shares and the right to receive dividends on the shares. The RSAs vest over a one, three, or four year period from the date of the grant and are subject to the holder's continued service through the applicable vesting dates and in accordance with the terms of the individual award agreements. The weighted average value of awards granted during the three and six months ended June 30, 2022, were $20.23 and $21.39, respectively, which were based on the market price per share of the Company's common stock on the grant date. The weighted average value of awards granted during the three and six months ended June 30, 2021, were $19.76 and $18.66, respectively.
The following table presents information about the Company's RSAs:
Compensation cost (a)
877
1,487
2,423
Dividends declared on unvested RSAs
106
97
203
201
Fair value of shares vested during the period
774
3,209
3,296
(in thousands, except recognition period)
Unamortized value of RSAs
6,794
4,715
Weighted average amortization period (in years)
2.5
2.4
The following table presents information about the Company's RSA activity:
Number of Shares
Weighted Average Grant Date Fair Value per Share
Unvested at beginning of period
367
20.33
416
19.62
Granted
20.23
19.76
Vested
(40
19.81
Forfeited
(8
19.95
Unvested at end of period
392
378
19.60
372
341
20.50
175
21.39
18.67
(146
19.80
(164
20.15
20.06
Performance-based Restricted Stock Units
The Company issued target grants of 121,883 and 132,189 PRSUs, during the six months ended June 30, 2022 and 2021, respectively, under the Equity Incentive Plan to the officers of the Company. There were no PRSUs granted during the three months ended June 30, 2022 and 2021, respectively. The awards are non-vested restricted stock units where the vesting percentages and the ultimate number of units vesting will be measured 50% based on the relative total shareholder return ("rTSR") of the Company's common stock as compared to the rTSR of peer companies, as identified in the grant agreements, over a three-year period, and 50% based on the rTSR of the Company's common stock as compared to the rTSR of the MSCI US REIT Index over a three year measurement period. Vesting percentages range from 0% to 200% with a target of 100%. rTSR means the percentage appreciation in the fair market value of one share over the three year measurement period beginning on the date of grant, assuming the reinvestment of dividends on the ex-dividend date. The target number of units is based on achieving a rTSR equal to the 55th percentile of the peer companies and MSCI US REIT Index. Dividends accrue during the measurement period and will be paid on the PRSUs ultimately earned at the end of the measurement period in either cash or common stock, at the direction of the Board's Compensation Committee. The grant date fair value of the PRSUs was measured using a Monte Carlo simulation model based on assumptions including share price volatility.
The following tables present information about the Company's PRSUs:
Compensation cost
504
223
823
297
Unamortized value of PRSUs
4,490
1,931
2.3
2.2
20
The following table presents information about the Company's PRSU activity:
232
26.25
24.40
(1
27.93
231
122
132
(22
16. Earnings per Share
The following table summarizes the components used in the calculation of basic and diluted earnings per share ("EPS"):
Basic earnings:
Net earnings attributable to Broadstone Net Lease, Inc. common shareholders
Less: earnings allocated to unvested restricted shares
(105
(97
(202
(201
Net earnings used to compute basic earnings per common share
33,411
21,117
60,072
43,236
Diluted earnings:
Net earnings used to compute basic earnings per share
Net earnings attributable to non-controlling interests
3,719
3,343
Net earnings used to compute diluted earnings per common share
35,447
22,723
63,791
46,579
169,933
146,506
167,072
146,089
Less: weighted average unvested restricted shares (a)
(378
(374
(361
Weighted average number of common shares outstanding used in basic earnings per common share
Effects of restricted stock units (b)
219
325
147
Effects of convertible membership units (c)
11,092
11,240
Weighted average number of common shares outstanding used in diluted earnings per common share
Basic earnings per share
Diluted earnings per share
21
17. Supplemental Cash Flow Disclosures
Cash paid for interest was $32.1 million and $30.0 million for the six months ended June 30, 2022 and 2021, respectively. Cash paid for income taxes was $1.0 million and $0.7 million for the six months ended June 30, 2022 and 2021, respectively.
The following are non-cash transactions and have been excluded from the accompanying Condensed Consolidated Statements of Cash Flows:
18. Commitments and Contingencies
Litigation
From time to time, the Company is a party to various litigation matters incidental to the conduct of the Company's business. While the resolution of such matters cannot be predicted with certainty, based on currently available information, the Company does not believe that the final outcome of any of these matters will have a material effect on its consolidated financial position, results of operations, or liquidity.
Property and Acquisition Related
In connection with ownership and operation of real estate, the Company may potentially be liable for cost and damages related to environmental matters. The Company is not aware of any non-compliance, liability, claim, or other environmental condition that would have a material effect on its consolidated financial position, results of operations, or liquidity.
The Company had a commitment to fund a building expansion project related to a previous acquisition for a total of $17.4 million, in exchange for an increase in base rent. In June 2022, the Company fulfilled this commitment and the base rent increased accordingly.
The Company is a party to three separate tax protection agreements with the contributing members of three distinct UPREIT transactions and to the Founding Owners' Tax Protection Agreement in connection with the internalization. The tax protection agreements require the Company to indemnify the beneficiaries in the event of a sale, exchange, transfer, or other disposal of the contributed property, and in the case of the Founding Owners' Tax Protection Agreement, the entire Company, in a taxable transaction that would cause such beneficiaries to recognize a gain that is protected under the agreements, subject to certain exceptions. The Company is required to allocate an amount of nonrecourse liabilities to each beneficiary that is at least equal to the minimum liability amount, as contained in the agreements. The minimum liability amount and the associated allocation of nonrecourse liabilities are calculated in accordance with applicable tax regulations, are completed at the OP level, and do not represent GAAP accounting. Therefore, there is no impact to the Condensed Consolidated Financial Statements. Based on values as of June 30, 2022, taxable sales of the applicable properties would trigger liability under the agreements of approximately $22.3 million. Based on information available, the Company does not believe that the events resulting in damages as detailed above have occurred or are likely to occur in the foreseeable future.
In the normal course of business, the Company enters into various types of commitments to purchase real estate properties. These commitments are generally subject to the Company's customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated to purchase the properties.
19. Subsequent Events
On July 15, 2022, the Company paid distributions totaling $49.2 million.
On July 28, 2022, the Board of Directors declared a quarterly distribution of $0.270 per share on the Company's common stock and OP Units for the third quarter of 2022, which will be payable on or before October 14, 2022 to stockholders and OP unitholders of record as of September 30, 2022.
Subsequent to June 30, 2022, the Company continued to expand its operations through the acquisition of additional rental property and associated intangible assets and liabilities. The Company acquired approximately $80.2 million of rental property and associated intangible assets and liabilities (see Note 5).
22
On August 1, 2022, the Company entered into two new unsecured bank term loans, including a $200.0 million, five year term loan that matures in 2027 (the "2027 Unsecured Term Loan"), and a $300.0 million, seven year term loan that matures in 2029 (the "2029 Unsecured Term Loan"). Borrowings on the new term loans bear interest at variable rates based on the Secured Overnight Financing Rate plus a margin based on the Company's credit rating, ranging between 0.80% and 1.60% per annum for the 2027 Unsecured Term Loan, and 1.15% and 2.20% per annum for the 2029 Unsecured Term Loan. The applicable margin is 0.95% and 1.25% for the 2027 Unsecured Term Loan and 2029 Unsecured Term Loan, respectively. Proceeds from the loans were used to repay in full the $190.0 million unsecured term loan set to mature in 2024, including accrued interest, and a portion of the outstanding balance on the unsecured revolving credit facility.
Subsequent to June 30, 2022, the Company paid down $318.0 million, and borrowed $94.0 million on the unsecured revolving credit facility, the proceeds of which were used to fund acquisitions and for other general corporate purposes.
Through August 3, 2022, the Company issued 962,200 shares of common stock at a weighted average sale price of $21.44 per share under the ATM Program. The net proceeds, after deducting $0.3 million of commissions and other offering costs, were $20.3 million.
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Except where the context suggests otherwise, as used in this Quarterly Report on Form 10-Q, the terms "BNL," "we," "us," "our," and "our company" refer to Broadstone Net Lease, Inc., a Maryland corporation incorporated on October 18, 2007, and, as required by context, Broadstone Net Lease, LLC, a New York limited liability company, which we refer to as the or our "OP," and to their respective subsidiaries.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand our results of operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying Notes to the Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views regarding our business, financial performance, growth prospects and strategies, market opportunities, and market trends, that are intended to be made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "approximately," "projects," "predicts," "intends," "plans," "estimates," "anticipates," or the negative version of these words or other comparable words. All of the forward-looking statements included in this Quarterly Report on Form 10-Q are subject to various risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results, performance, and achievements could differ materially from those expressed in or by the forward-looking statements and may be affected by a variety of risks and other factors. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from such forward-looking statements.
Important factors that could cause results to differ materially from the forward-looking statements are described in Item 1. "Business," Item 1A. "Risk Factors," and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Annual Report on Form 10-K, as filed with the SEC on February 23, 2022. The "Risk Factors" of our 2021 Annual Report should not be construed as exhaustive and should be read in conjunction with other cautionary statements included elsewhere in this Quarterly Report on Form 10-Q.
You are cautioned not to place undue reliance on any forward-looking statements included in this Quarterly Report on Form 10-Q. All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results, performance, and achievements will differ materially from the expectations expressed in or referenced by this Quarterly Report on Form 10-Q will increase with the passage of time. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by law.
We use any of the following to comply with our disclosure obligations under Regulation FD: SEC filings, press releases, public conference calls, or our website. We routinely post important information on our website at www.Broadstone.com, including information that may be deemed material. We encourage our shareholders and others interested in our company to monitor these distribution channels for material disclosures. Our website address is included in this Quarterly Report as a textual reference only and the information on the website is not incorporated by reference in this Quarterly Report.
Unless the context otherwise requires, the following terms and phrases are used throughout this MD&A as described below:
We are an internally-managed real estate investment trust ("REIT") that acquires, owns, and manages primarily single-tenant commercial real estate properties that are net leased on a long-term basis to a diversified group of tenants. Since our inception in 2007, we have selectively invested in net leased assets in the industrial, healthcare, restaurant, retail, and office property types. During the six months ended June 30, 2022, we invested $392.4 million, excluding capitalized acquisition costs, in 42 properties at a weighted average initial cash capitalization rate of 6.1%. The acquisitions included properties in industrial (47.2% of the total volume acquired during the six months ended June 30, 2022, based on ABR), restaurant (25.4%), retail (23.8%), and healthcare (3.6%) asset classes located across 21 U.S. states and four Canadian provinces with a weighted average initial lease term and minimum annual rent increases of 19.6 years and 1.8%, respectively. As of June 30, 2022, our portfolio has grown to 764 properties, with 757 properties located in 44 U.S. states and seven properties located in four Canadian provinces.
We focus on investing in real estate that is operated by creditworthy single tenants in industries characterized by positive business drivers and trends. We target properties that are an integral part of the tenants' businesses and are therefore opportunities to secure long-term net leases. Through long-term net leases, our tenants are able to retain operational control of their strategically important locations, while allocating their debt and equity capital to fund core business operations rather than real estate ownership.
The following charts summarize our portfolio diversification by property type, tenant, brand, industry, and geographic location as of June 30, 2022. The percentages below are calculated based on our ABR of $360.0 million as of June 30, 2022.
Diversification by Property Type
# Properties
ABR($'000s)
ABR as a % ofTotal Portfolio
Square Feet('000s)
SF as a % ofTotal Portfolio
Manufacturing
69
55,116
15.3
10,046
29.2
Distribution & Warehouse
51,375
14.3
9,526
27.7
Food Processing
24,200
6.7
2,730
7.9
Flex and R&D
17,296
4.8
1,457
4.3
Cold Storage
12,724
3.5
933
2.7
Industrial Services
10,765
3.0
587
1.7
Industrial Total
166
171,476
47.6
25,279
73.5
Clinical
52
26,770
7.4
1,091
3.2
Healthcare Services
12,528
463
1.3
Animal Health Services
10,437
2.9
405
1.2
Surgical
10,274
329
0.9
Life Science
7,722
2.1
549
1.6
Untenanted
0.1
Healthcare Total
129
67,731
18.8
2,855
8.3
Casual Dining
101
26,738
675
2.0
Quick Service Restaurants
146
24,787
6.9
499
1.4
Restaurant Total
247
51,525
1,174
3.4
General Merchandise
23,924
6.6
1,802
5.2
Automotive
66
12,196
771
Home Furnishings
7,030
797
Retail Total
206
43,150
12.0
3,404
9.9
Office
Corporate Headquarters
10,429
679
Strategic Operations
9,806
615
1.8
Call Center
5,902
391
1.1
Office Total
26,137
7.3
1,685
4.9
764
360,019
34,397
Diversification by Tenant
Tenant
ABR as a % of Total Portfolio
SF as a % of Total Portfolio
Jack's Family Restaurants LP*
7,166
0.4
Joseph T. Ryerson & Son, Inc
6,395
1,537
4.5
Red Lobster Hospitality & Red Lobster Restaurants LLC*
6,361
0.5
J. Alexander's, LLC*
6,025
131
Axcelis Technologies, Inc.
5,991
417
Hensley & Company*
5,871
577
Dollar General Corporation
57
5,636
1.5
531
BluePearl Holdings, LLC**
5,451
165
Tractor Supply Company
5,279
Outback Steakhouse of Florida LLC*1
5,278
140
Total Top 10 Tenants
207
59,453
16.5
4,228
12.3
AHF, LLC*
Distribution & Warehouse/Manufacturing
5,142
982
2.8
Krispy Kreme Doughnut Corporation
Quick Service Restaurants/Food Processing
5,034
156
Big Tex Trailer Manufacturing, Inc.*
Automotive/Distribution & Warehouse/Manufacturing/ Corporate Headquarters
4,957
1,302
3.8
Siemens Medical Solutions USA, Inc. & Siemens Corporation
Manufacturing/Flex and R&D
4,936
545
Carvana, LLC*
4,510
230
0.7
Santa Cruz Valley Hospital
Healthcare Facilities
4,500
148
Nestle' Dreyer's Ice Cream Company
4,476
310
Arkansas Surgical Hospital
4,366
American Signature, Inc.
4,224
474
Fresh Express Incorporated
4,144
335
1.0
Total Top 20 Tenants
270
105,742
29.4
8,839
25.7
1Tenant's properties include 20 Outback Steakhouse restaurants and two Carrabba's Italian Grill restaurants.
*Subject to a master lease.
** Includes properties leased by multiple tenants, some, not all, of which are subject to master leases.
Diversification by Brand
Brand
Jack's Family Restaurants*
Ryerson
Red Lobster*
Axcelis
Hensley*
Dollar General
BluePearl Veterinary Partners**
Bob Evans Farms*1
Casual Dining/Food Processing
5,352
281
Tractor Supply Co.
AHF Products*
Total Top 10 Brands
195
58,644
16.2
5,220
15.2
Krispy Kreme
Big Tex Trailers*
Automotive/Distribution & Warehouse/Manufacturing/Corporate Headquarters
Siemens
Outback Steakhouse*
4,566
Carvana*
Nestle'
Wendy's**
4,320
83
0.2
Value City Furniture
Total Top 20 Brands
301
104,533
29.0
8,723
25.4
1 Brand includes one BEF Foods, Inc. property and 20 Bob Evans Restaurants, LLC properties.
**Includes properties leased by multiple tenants, some, not all, of which are subject to master leases.
Diversification by Industry
Industry
Square Feet ('000s)
102
53,633
14.9
2,029
5.9
250
52,296
14.5
1,217
Packaged Foods & Meats
17,698
1,914
5.6
Distributors
15,699
4.4
2,695
7.8
Food Distributors
14,678
4.1
1,786
Specialty Stores
31
13,930
3.9
1,338
Auto Parts & Equipment
12,672
2,387
Home Furnishings Retail
12,459
1,858
5.4
Specialized Consumer Services
12,218
722
Metal & Glass Containers
9,898
2,206
6.4
9,213
2.6
515
General Merchandise Stores
90
9,011
817
Aerospace & Defense
8,694
952
Internet & Direct Marketing Retail
6,881
1.9
447
Electronic Components
6,806
466
Other (42 industries)
104,233
28.9
12,996
37.7
Untenanted properties
Diversification by Geographic Location
State /Province
TX
70
37,549
10.4
3,636
10.6
LA
3,401
194
0.6
IL
21,566
2,002
5.8
NE
3,037
0.8
509
WI
35
20,744
2,163
6.3
MD
2,987
293
MI
17,130
1,633
4.7
NM
2,815
96
0.3
FL
16,122
844
MS
2,774
334
OH
38
15,786
1,416
IA
2,754
622
CA
15,622
1,493
SC
2,494
308
IN
30
15,035
4.2
WV
2,486
109
MN
14,600
4.0
2,285
CO
2,459
TN
13,995
866
UT
2,379
280
NC
13,742
1,425
CT
1,758
55
AZ
13,213
3.7
909
MT
1,563
AL
53
11,950
3.3
873
NV
1,336
81
GA
11,356
3.1
1,576
4.6
DE
1,154
133
NY
10,718
680
ND
943
MA
10,456
1,026
VT
420
AR
8,767
544
WY
307
OK
7,597
977
OR
136
0.0
KY
7,486
946
SD
PA
7,080
1,037
Total US
757
351,970
97.8
33,967
98.8
MO
6,064
1,136
BC
4,633
253
KS
5,489
648
ON
2,085
VA
204
AB
981
51
NJ
4,904
366
MB
350
WA
4,264
150
Total Canada
8,049
430
Grand Total
Our Leases
We typically lease our properties pursuant to long-term net leases that often have renewal options. Substantially all of our leases are net, meaning our tenants are generally obligated to pay all expenses associated with the leased property (such as real estate taxes, insurance, maintenance, repairs, and capital costs).
As of June 30, 2022, approximately 99.8% of our portfolio, representing all but two of our properties, was subject to a lease. Because substantially all of our properties are leased under long-term leases, we are not currently required to perform significant ongoing leasing activities on our properties.
As of June 30, 2022, the ABR weighted average remaining term of our leases was approximately 10.6 years. Less than 5% of the properties in our portfolio are subject to leases without at least one renewal option. Approximately 67.4% of our ABR was derived from leases that will expire in 2030 and after, and no more than 6.5% of our ABR was derived from leases that expire in any single year prior to 2030. The following chart sets forth our lease expirations based upon the terms of the leases in place as of June 30, 2022.
The following table presents certain information based on lease expirations by year. Amounts are in thousands, except for number of properties.
Expiration Year
# Leases
1,566
5,412
538
14,036
1,689
8,527
698
32
19,235
1,413
2027
23,531
6.5
2,019
2028
23,061
2,291
2029
71
22,061
6.1
2,711
2030
53,636
5,110
14.8
2031
8,547
805
2032
59
30,701
8.5
3,437
10.0
2033
18,360
5.1
1,575
2034
6,240
409
2035
12,494
1,927
2036
86
25,732
7.2
2,854
2037
17,762
1,369
2038
6,842
306
2039
6,860
803
2040
5,744
312
2041
19,850
5.5
1,731
5.0
29,822
2,302
448
Substantially all of our leases provide for periodic contractual rent escalations. As of June 30, 2022, leases contributing 97.3% of our ABR provided for increases in future ABR, generally ranging from 1.5% to 2.5% annually, with an ABR weighted average annual minimum increase equal to 2.0% of base rent. Generally, our rent escalators increase rent on specified dates by a fixed percentage. Our escalations provide us with a source of organic revenue growth and a measure of inflation protection. Additional information on lease escalation frequency and weighted average annual escalation rates as of June 30, 2022 is displayed below:
Lease Escalation Frequency
% of ABR
Weighted Average Annual Minimum Increase (a)
Annually
78.2
Every 2 years
Every 3 years
Every 4 years
Every 5 years
8.0
Other escalation frequencies
7.0
Flat
Total/Weighted Average (b)
The escalation provisions of our leases (by percentage of ABR) as of June 30, 2022, are displayed in the following chart:
The following discussion includes the results of our operations for the periods presented.
Three Months Ended June 30, 2022 Compared to Three Months Ended March 31, 2022
Lease Revenues, net
March 31,
Increase/(Decrease)
84,396
3,109
5,021
1,326
(100.0
)%
186
105
56.5
723
(0.3
7.1
4,735
(472
(10.0
92
>100.0
50
(56
<(100.0
Total Lease revenues, net
93,841
4,172
The increase in Lease revenues, net was primarily attributable to growth in our real estate portfolio through property acquisitions. As we acquire properties throughout the period, the full benefit of lease revenues from newly acquired properties will not be realized in the quarter of acquisition. During the first quarter of 2022, we invested $210.0 million, excluding capitalized acquisition costs, in 27 properties at a weighted average initial cash capitalization rate of 5.7%. Most of these acquisitions closed during the month of March 2022, and therefore did not materially contribute to Lease revenues, net for the three months ended March 31, 2022. The increase was also partially attributable to our $182.4 million of acquisitions during the second quarter of 2022 at a 6.4% weighted average initial cash capitalization rate, the full benefit of which we anticipate will be realized during the third quarter of 2022. Additionally, we did not record any write-offs of accrued rental income during the three months ended June 30, 2022.
Operating Expenses
34,290
1,221
3.6
5,044
(348
(6.9
8,828
460
48,162
2,713
The increase in depreciation and amortization for the three months ended June 30, 2022 was primarily due to growth in our real estate portfolio.
During the three months ended June 30, 2022 we recognized $1.4 million of impairment on our investments in rental properties due to change in our long-term hold strategy for a single property, compared to no impairment recognized during the three months ended March 31, 2022. The following table presents the impairment charges for the respective periods:
Carrying value prior to impairment charge
3,674
2,294
The timing and amount of impairment fluctuates from period to period depending on the specific facts and circumstances.
(16,896
992
1,196
2,875
(412
(11
(2.7
(1,126
(3,758
The increase in interest expense reflects an increase in our weighted average cost of borrowings combined with increased average outstanding borrowings during the three months ended June 30, 2022 compared to during the three months ended March 31, 2022. During the second quarter we increased total outstanding borrowings by $53.8 million to partially fund our acquisitions. Of our $1.9 billion of total outstanding indebtedness, approximately $200.5 million, or 10.8% is variable, and therefore subject to the impact of fluctuations in interest rates.
Our recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market. During the three months ended June 30, 2022, we recognized a gain of $4.1 million on the sale of three properties, compared to a gain of $1.2 million on the sale of one property during the three months ended March 31, 2022. Our proactive asset management strategy includes determining to sell any of our properties where we believe the risk profile has changed and become misaligned with our then current risk-adjusted return objectives.
The change in other income (expenses) during the three months ended June 30, 2022 was primarily due to $2.6 million of an unrealized foreign exchange gain recognized on the quarterly remeasurement of our $100 million CAD revolver borrowings, compared to a $1.1 million unrealized foreign exchange loss recognized during the three months ended March 31, 2022.
Net income and Net earnings per diluted share
(in thousands, except per share data)
7,111
25.0
Net earnings per diluted share
0.16
0.04
The increase in net income is primarily attributable to a $4.2 million increase in lease revenue associated with growth in our real estate portfolio, a $3.8 million increase in unrealized foreign exchange gains, and a $2.9 million increase in gain on sale of real estate, partially offset by a $1.4 million increase in impairment of investment in rental properties, a $1.2 million increase in depreciation and amortization, and a $1.0 million increase in interest expense.
GAAP net income includes items such as gain or loss on sale of real estate and provisions for impairment, among others, which can vary from quarter to quarter and impact period-over-period comparisons.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
23,645
15.9
578
(884
272
(14
(1.0
414
143
243
24,397
14.6
The increase in Lease revenues, net was primarily attributable to growth in our real estate portfolio through property acquisitions closed since June 30, 2021. During the twelve months ended June 30, 2022, we invested $765.8 million, excluding capitalized acquisition costs, in 96 properties at a weighted average initial cash capitalization rate of 6.2%.
7,863
12.7
563
(1,172
(6.1
(632
(31.4
6,622
The increase in depreciation and amortization for the six months ended June 30, 2022 was primarily due to growth in our real estate portfolio.
The decrease in general and administrative expenses mainly reflects decreased severance expense. During the six months ended June 30, 2021, we recognized severance associated with the departure of a named executive officer.
During the six months ended June 30, 2022, we recognized $1.4 million of impairment on our investments in rental properties, compared to $2.0 million during the six months ended June 30, 2021. The following table presents the impairment charges for the respective periods:
2,818
806
37
3,246
10.3
(3,304
(38.5
99
13.9
1,492
The increase in interest expense reflects an increase in our weighted average cost of borrowings combined with increased average outstanding borrowings during the six months ended June 30, 2022 compared to during the six months ended June 30, 2021. Since June 30, 2021 we increased total outstanding borrowings by $360.4 million to partially fund our acquisitions. Of our $1.9 billion of total outstanding indebtedness, approximately $200.5 million, or 10.8% is variable, and therefore subject to the impact of fluctuations in interest rates.
Our recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market. During the six months ended June 30, 2022, we recognized a gain of $5.3 million on the sale of four properties, compared to a gain of $8.6 million on the sale of 19 properties during the six months ended June 30, 2021. Our proactive asset management strategy includes determining to sell any of our properties where we believe the risk profile has changed and become misaligned with our then current risk-adjusted return objectives.
The fair value of the earnout liability was remeasured each reporting period, with changes recorded as Change in fair value of earnout liability in the Condensed Consolidated Statements of Income and Comprehensive Income. All earnout milestones were achieved during the year ended December 31, 2021, therefore there is no change in the fair value of the earnout liability during the six months ended June 30, 2022. The change in the fair value of the earnout liability during the six months ended June 30, 2021 reflected an increase in our share price as compared to December 31, 2020.
The increase in other income during the six months ended June 30, 2022 was primarily due to a $1.5 million unrealized foreign exchange gain recognized on the quarterly remeasurement of our $100 million CAD revolver borrowings. The specific CAD revolver borrowings were drawn during the first quarter of 2022, with no similar activity during the six months ended June 30, 2021.
17,213
36.8
0.06
20.0
The increase in net income is primarily due to revenue growth of $24.4 million, a $4.5 million increase in change in fair value of earnout liability, a $1.5 million increase in unrealized foreign exchange gain, and a $1.2 million decrease in general and administrative expenses. These factors were partially offset by a $7.9 million increase in depreciation and amortization, a $3.3 million decrease on gain on sale of real estate, and a $3.2 million increase in interest expense.
General
We acquire real estate using a combination of debt and equity capital and with cash from operations that is not otherwise distributed to our stockholders. Our focus is on maximizing the risk-adjusted return to our stockholders through an appropriate balance of debt and equity in our capital structure. We are committed to maintaining an investment grade balance sheet through active management of our leverage profile and overall liquidity position. We believe our leverage strategy has allowed us to take advantage of the lower cost of debt while simultaneously strengthening our balance sheet, as evidenced by our current investment grade credit ratings of 'BBB' from S&P Global Ratings ("S&P") and 'Baa2' from Moody's Investors Service ("Moody's"). We manage our leverage profile using a ratio of Net Debt to Annualized Adjusted EBITDAre, a non-GAAP financial measure, which we believe is a useful measure of our ability to repay debt and a relative measure of leverage, and is used in communications with lenders and with rating agencies regarding our credit rating. We seek to maintain on a sustained basis a Net Debt to Annualized Adjusted EBITDAre ratio that is generally less than 6.0x. As of June 30, 2022, we had total debt outstanding of $1.9 billion, Net Debt of $1.8 billion, and a Net Debt to Annualized Adjusted EBITDAre ratio of 5.3x.
Net Debt and Annualized Adjusted EBITDAre are non-GAAP financial measures, and Annualized Adjusted EBITDAre is calculated based upon EBITDA, EBITDAre, and Adjusted EBITDAre, each of which is also a non-GAAP financial measure. Refer to Non-GAAP Measures below for further details concerning our calculation of non-GAAP measures and reconciliations to the comparable GAAP measure.
Liquidity/REIT Requirements
Liquidity is a measure of our ability to meet potential cash requirements, including our ongoing commitments to repay debt, fund our operations, acquire properties, make distributions to our stockholders, and other general business needs. As a REIT, we are required to distribute to our stockholders at least 90% of our REIT taxable income determined without regard to the dividends paid deduction and excluding net capital gains, on an annual basis. As a result, it is unlikely that we will be able to retain substantial cash balances to meet our long-term liquidity needs, including repayment of debt and the acquisition of additional properties, from our annual taxable income. Instead, we expect to meet our long-term liquidity needs primarily by relying upon external sources of capital.
Short-term Liquidity Requirements
Our short-term liquidity requirements consist primarily of funds necessary to pay for our operating expenses, including our general and administrative expenses as well as interest payments on our outstanding debt, to pay distributions, and to fund our acquisitions that are under control or expected to close within a short time period. We do not currently anticipate making significant capital expenditures or incurring other significant property costs, including as a result of inflationary pressures in the current economic environment, because of the strong occupancy levels across our portfolio and the net lease nature of our leases. We expect to meet our short-term liquidity requirements primarily from cash and cash equivalents balances and net cash provided by operating activities, supplemented by borrowings under our Revolving Credit Facility. We intend to match fund our acquisitions with an appropriate mix of debt and equity capital. We use cash on hand and borrowings under our Revolving Credit Facility to initially fund acquisitions, which are subsequently repaid or replaced with proceeds from our equity and debt capital markets activities.
As detailed in the contractual obligations table below, we have approximately $36.0 million of expected obligations due throughout the remainder of 2022, primarily consisting of $34.1 million of interest expense due, including the impact of our interest rate swaps, and $1.5 million of mortgage maturities. We expect our cash provided by operating activities, as discussed below, will be sufficient to pay for our current obligations including interest expense on our borrowings. We expect to either repay the maturing mortgages with available cash on hand generated from our results of operations or borrowings under our Revolving Credit Facility, or refinance with property-level borrowings.
Long-term Liquidity Requirements
Our long-term liquidity requirements consist primarily of funds necessary to repay debt and invest in additional revenue generating properties. We expect to source debt capital from unsecured term loans from commercial banks, revolving credit facilities, private placement senior unsecured notes, and public bond offerings.
The source and mix of our debt capital in the future will be impacted by market conditions as well as our continued focus on lengthening our debt maturity profile to better align with our portfolio's long-term leases, staggering debt maturities to reduce the risk that a significant amount of debt will mature in any single year in the future, and managing our exposure to interest rate risk. As of June 30, 2022, we have $679.3 million of available capacity under our Revolving Credit Facility.
We expect to meet our long-term liquidity requirements primarily from borrowings under our Revolving Credit Facility, future debt and equity financings, and proceeds from limited sales of our properties. Our ability to access these capital sources may be impacted by unfavorable market conditions, particularly in the debt and equity capital markets, that are outside of our control. In addition, our success
will depend on our operating performance, our borrowing restrictions, our degree of leverage, and other factors. Our acquisition growth strategy significantly depends on our ability to obtain acquisition financing on favorable terms. We seek to reduce the risk that long-term debt capital may be unavailable to us by strengthening our balance sheet by investing in real estate with creditworthy tenants and lease guarantors, and by maintaining an appropriate mix of debt and equity capitalization. We also, from time to time, obtain or assume non-recourse mortgage financing from banks and insurance companies secured by mortgages on the corresponding specific property. Mortgages, however, are not currently a strategic focus of the active management of our capital structure.
Equity Capital Resources
Our equity capital is primarily provided through our at-the-market common equity offering program ("ATM Program"), as well as follow-on equity offerings. Under the terms of our ATM Program we may, from time to time, publicly offer and sell shares of our common stock having an aggregate gross sales price of up to $400 million. The ATM Program provides for forward sale agreements, enabling us to set the price of shares upon pricing the offering while delaying the issuance of shares and the receipt of the net proceeds. As of June 30, 2022, we have issued common stock with an aggregate gross sales price of $234.0 million under the ATM Program and could issue additional common stock with an aggregate sales price of up to $166.0 million.
Our public offerings have been used to repay debt, fund acquisitions, and for other general corporate purposes.
As we continue to invest in accretive real estate properties, we expect to balance our debt and equity capitalization, while maintaining a Net Debt to Annualized Adjusted EBITDAre ratio below 6.0x on a sustained basis, through the anticipated use of follow-on equity offerings and the ATM Program.
Unsecured Indebtedness and Capital Markets Activities as of and for the Six Months Ended June 30, 2022
The following table sets forth our outstanding Revolving Credit Facility, Unsecured Term Loans and Senior Unsecured Notes at June 30, 2022.
Applicable reference rate + 0.85% (a)
one-month LIBOR + 1.00%
Total unsecured debt
1,760,657
On January 28, 2022, we amended and restated the Revolving Credit Facility, upsizing the capacity to $1.0 billion, extending the maturity date to March 2026 and reducing the applicable margin to 0.85% per annum.
On February 25, 2022, we repaid the $60.0 million 2022 Unsecured Term Loan with borrowings under our Revolving Credit Facility.
As of June 30, 2022, we had $320.7 million outstanding on our Revolving Credit Facility. We have $679.3 million of remaining capacity on our Revolving Credit Facility as of June 30, 2022.
Subsequent to quarter end, on August 1, 2022, we entered into two new unsecured bank term loans, including a $200 million, five year term loan that matures in 2027 (the "2027 Unsecured Term Loan"), and a $300 million, seven year term loan that matures in 2029 (the
"2029 Unsecured Term Loan"). Borrowings on the new term loans bear interest at variable rates based on the Secured Overnight Financing Rate ("SOFR") plus a margin based on our credit rating ranging between 0.80% and 1.60% per annum for the 2027 Unsecured Term Loan, and 1.15% and 2.20% per annum for the 2029 Unsecured Term Loan. The initial applicable margin was 0.95% and 1.25% for the 2027 Unsecured Term Loan and 2029 Unsecured Term Loan, respectively. Proceeds from the loans were used to repay in full our $190 million unsecured term loan set to mature in 2024, including accrued interest, and a portion of the outstanding balance on our Revolver.
Debt Covenants
We are subject to various covenants and financial reporting requirements pursuant to our debt facilities, which are summarized below. As of June 30, 2022, we believe we were in compliance with all of our covenants on all outstanding borrowings. In the event of default, either through default on payments or breach of covenants, we may be restricted from paying dividends to our stockholders in excess of dividends required to maintain our REIT qualification. For each of the previous three years, we paid dividends out of our cash flows from operations in excess of the distribution amounts required to maintain our REIT qualification.
Covenants
Requirements
Leverage Ratio
≤ 0.60 to 1.00
Secured Indebtedness Ratio
≤ 0.40 to 1.00
Unencumbered Coverage Ratio
≥ 1.75 to 1.00
Fixed Charge Coverage Ratio
≥ 1.50 to 1.00
Total Unsecured Indebtedness to Total Unencumbered Eligible Property Value
Dividends and Other Restricted Payments
Only applicable in case of default
Aggregate Debt Ratio
Consolidated Income Available for Debt to Annual Debt Service Charge
Total Unencumbered Assets to Total Unsecured Debt
Secured Debt Ratio
Contractual Obligations
The following table provides information with respect to our contractual commitments and obligations as of June 30, 2022 (in thousands). Refer to the discussion in the Liquidity and Capital Resources section above for further discussion over our short and long-term obligations.
Year ofMaturity
Term Loans
Revolving CreditFacility (a)
SeniorNotes
Mortgages
InterestExpense (b)
TenantImprovementAllowances
Operating Leases
34,078
424
36,025
67,463
705
75,750
9,760
64,088
320
264,168
60,660
326
81,181
16,843
42,122
332
779,954
39,874
88,769
3,739
982,382
357,180
5,846
2,219,460
At June 30, 2022 investment in rental property of $159.5 million was pledged as collateral against our mortgages.
Additionally, we are a party to three separate tax protection agreements with the contributing members of three distinct UPREIT transactions and we entered into the Founding Owners' Tax Protection Agreement in connection with the Internalization. The tax protection agreements require us to indemnify the beneficiaries in the event of a sale, exchange, transfer, or other disposal of the contributed property, and in the case of the Founding Owners' Tax Protection Agreement, the entire Company, in a taxable transaction that would cause such beneficiaries to recognize a gain that is protected under the agreements, subject to certain exceptions. Based on values as of June 30, 2022, taxable sales of the applicable properties would trigger liability under the four agreements of approximately $22.3 million. Based on information available, we do not believe that the events resulting in damages as detailed above have occurred or are likely to occur in the foreseeable future. Accordingly, we have excluded these commitments from the contractual commitments table above.
In the normal course of business, we enter into various types of commitments to purchase real estate properties. These commitments are generally subject to our customary due diligence process and, accordingly, a number of specific conditions must be met before we are obligated to purchase the properties.
We are exposed to interest rate risk arising from changes in interest rates on the floating-rate borrowings under our unsecured credit facilities and a certain mortgage. Borrowings pursuant to our unsecured credit facilities bear interest at floating rates based on LIBOR plus an applicable margin. Accordingly, fluctuations in market interest rates may increase or decrease our interest expense, which will in turn, increase or decrease our net income and cash flow.
We attempt to manage the interest rate risk on variable rate borrowings by entering into interest rate swaps. As of June 30, 2022, we had 28 interest rate swaps outstanding in an aggregate notional amount of $717.7 million. Under these agreements, we receive monthly payments from the counterparties equal to the related variable interest rates multiplied by the outstanding notional amounts. In turn, we pay the counterparties each month an amount equal to a fixed interest rate multiplied by the related outstanding notional amounts. The intended net impact of these transactions is that we pay a fixed interest rate on our variable-rate borrowings. The interest rate swaps have been designated by us as cash flow hedges for accounting purposes and are reported at fair value. We assess, both at inception and on an ongoing basis, the effectiveness of our qualifying cash flow hedges. We have not entered, and do not intend to enter, into derivative or interest rate transactions for speculative purposes.
In addition, we own investments in Canada, and as a result are subject to risk from the effects of exchange rate movements in the Canadian dollar, which may affect future costs and cash flows. We funded a significant portion of our Canadian investments through Canadian dollar borrowings under our Revolving Credit Facility, which is intended to act as a natural hedge against our Canadian dollar investments. The Canadian dollar revolving borrowings are remeasured each reporting period, with the unrealized foreign currency gains and losses flowing through earnings. These unrealized foreign currency gains and losses do not impact our cash flows from operations until settled, and are expected to directly offset the changes in the value of our net investments as a result of changes in the Canadian dollar. Our Canadian investments are recorded at their historical exchange rates, and therefore are not impacted by changes in the value of the Canadian dollar.
Cash and cash equivalents and restricted cash totaled $29.0 million and $87.0 million at June 30, 2022 and June 30, 2021, respectively. The table below shows information concerning cash flows for the six months ended June 30, 2022 and 2021:
(In thousands)
Increase (decrease) in cash and cash equivalents and restricted cash
The increase in net cash provided by operating activities during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, was mainly due to growth in our real estate portfolio and associated incremental net lease revenues.
The increase in cash used in investing activities during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, was mainly due to increased acquisition volume and decreased disposition volume during the six months ended June 30, 2022.
The increase in net cash provided by financing activities during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, mainly reflects an increased borrowings on the unsecured revolving credit facility to fund the increased acquisition volume.
FFO, Core FFO, and AFFO
We compute Funds From Operations ("FFO") in accordance with the standards established by the Board of Governors of Nareit, the worldwide representative voice for REITs and publicly traded real estate companies with an interest in the U.S. real estate and capital markets. Nareit defines FFO as GAAP net income or loss adjusted to exclude net gains (losses) from sales of certain depreciated real estate assets, depreciation and amortization expense from real estate assets, gains and losses from change in control, and impairment charges related to certain previously depreciated real estate assets. FFO is used by management, investors, and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers, primarily because it excludes the effect of real estate depreciation and amortization and net gains (losses) on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions.
We compute Core Funds From Operations ("Core FFO") by adjusting FFO, as defined by Nareit, to exclude certain GAAP income and expense amounts that we believe are infrequently recurring, unusual in nature, or not related to its core real estate operations, including write-offs or recoveries of accrued rental income, lease termination fees, the change in fair value of our earnout liability, cost of debt extinguishments, unrealized and realized gains or losses on foreign currency transactions, severance, and other extraordinary items. Exclusion of these items from similar FFO-type metrics is common within the equity REIT industry, and management believes that presentation of Core FFO provides investors with a metric to assist in their evaluation of our operating performance across multiple periods and in comparison to the operating performance of our peers, because it removes the effect of unusual items that are not expected to impact our operating performance on an ongoing basis.
We compute Adjusted Funds From Operations ("AFFO"), by adjusting Core FFO for certain non-cash revenues and expenses, including straight-line rents, amortization of lease intangibles, amortization of debt issuance costs, amortization of net mortgage premiums, (gain) loss on interest rate swaps and other non-cash interest expense, stock-based compensation, and other specified non-cash items. We believe that excluding such items assists management and investors in distinguishing whether changes in our operations are due to growth or decline of operations at our properties or from other factors. We use AFFO as a measure of our performance when we formulate corporate goals, and is a factor in determining management compensation. We believe that AFFO is a useful supplemental measure for investors to consider because it will help them to better assess our operating performance without the distortions created by non-cash revenues or expenses.
Specific to our adjustment for straight-line rents, our leases include cash rents that increase over the term of the lease to compensate us for anticipated increases in market rental rates over time. Our leases do not include significant front-loading or back-loading of payments, or significant rent-free periods. Therefore, we find it useful to evaluate rent on a contractual basis as it allows for comparison of existing rental rates to market rental rates. In situations where we granted short-term rent deferrals as a result of the COVID-19 pandemic, and such deferrals were probable of collection and expected to be repaid within a short term, we continued to recognize the same amount of GAAP lease revenues each period. Consistent with GAAP lease revenues, the short-term deferrals associated with COVID-19, and the corresponding payments, did not impact our AFFO.
FFO, Core FFO, and AFFO may not be comparable to similarly titled measures employed by other REITs, and comparisons of our FFO, Core FFO and AFFO with the same or similar measures disclosed by other REITs may not be meaningful.
Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments to FFO that we use to calculate Core FFO and AFFO. In the future, the SEC, Nareit or another regulatory body may decide to standardize the allowable adjustments across the REIT industry and in response to such standardization we may have to adjust our calculation and characterization of Core FFO and AFFO accordingly.
The following table reconciles net income (which is the most comparable GAAP measure) to FFO, Core FFO, and AFFO:
June 30,2021
Real property depreciation and amortization
35,479
34,259
69,738
61,892
(4,071
(1,196
Provision for impairment on investment in rental properties
FFO
68,340
61,504
129,844
102,113
442
Severance
278
120
398
1,275
Other (income) expenses (a)
(2,632
(1,506
Core FFO
65,986
64,076
130,062
108,422
Straight-line rent adjustment
(4,965
(4,934
(9,899
(10,053
Adjustment to provision for credit losses
Amortization of debt issuance costs
856
Amortization of net mortgage premiums
(25
(27
(52
(72
Loss (gain) on interest rate swaps and other non-cash interest expense
Amortization of lease intangibles
(1,167
(1,158
(2,325
(1,369
AFFO
62,804
60,401
123,205
101,434
EBITDA, EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre
We compute EBITDA as earnings before interest, income taxes and depreciation and amortization. EBITDA is a measure commonly used in our industry. We believe that this ratio provides investors and analysts with a measure of our performance that includes our operating results unaffected by the differences in capital structures, capital investment cycles and useful life of related assets compared to other companies in our industry. We compute EBITDAre in accordance with the definition adopted by Nareit, as EBITDA excluding gains (losses) from the sales of depreciable property and provisions for impairment on investment in real estate. We believe EBITDA and EBITDAre are useful to investors and analysts because they provide important supplemental information about our operating performance exclusive of certain non-cash and other costs. EBITDA and EBITDAre are not measures of financial performance under GAAP, and our EBITDA and EBITDAre may not be comparable to similarly titled measures of other companies. You should not consider our EBITDA and EBITDAre as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.
We are focused on a disciplined and targeted acquisition strategy, together with active asset management that includes selective sales of properties. We manage our leverage profile using a ratio of Net Debt to Annualized Adjusted EBITDAre, each discussed further below, which we believe is a useful measure of our ability to repay debt and a relative measure of leverage, and is used in communications with our lenders and rating agencies regarding our credit rating. As we fund new acquisitions using our unsecured Revolving Credit Facility, our leverage profile and Net Debt will be immediately impacted by current quarter acquisitions. However, the full benefit of EBITDAre from newly acquired properties will not be received in the same quarter in which the properties are acquired. Additionally, EBITDAre for the quarter includes amounts generated by properties that have been sold during the quarter. Accordingly, the variability in EBITDAre caused by the timing of our acquisitions and dispositions can temporarily distort our leverage ratios. We adjust EBITDAre ("Adjusted EBITDAre") for the most recently completed quarter (i) to recalculate as if all acquisitions and dispositions had occurred at the beginning of the quarter, (ii) to exclude certain GAAP income and expense amounts that are either non-cash, such as cost of debt extinguishments, realized or unrealized gains and losses on foreign currency transactions, or the change in fair value of our earnout liability, or that we believe are one time, or unusual in nature because they relate to unique circumstances or transactions that had not previously occurred and which we do not anticipate occurring in the future, and (iii) to eliminate the impact of lease termination fees and other items that are not a result of normal operations. We then annualize quarterly Adjusted EBITDAre by multiplying it by four ("Annualized Adjusted EBITDAre"). You should not unduly rely on this measure as it is based on assumptions and estimates that may prove to be inaccurate. Our actual reported EBITDAre for future periods may be significantly different from our Annualized Adjusted EBITDAre. Adjusted EBITDAre and Annualized Adjusted EBITDAre are not measurements of performance under GAAP, and our Adjusted EBITDAre and Annualized Adjusted EBITDAre may not be comparable to similarly titled measures of other companies. You should not consider our Adjusted EBITDAre and Annualized Adjusted EBITDAre as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.
The following table reconciles net income (which is the most comparable GAAP measure) to EBITDA, EBITDAre, and Adjusted EBITDAre. Information is also presented with respect to Annualized EBITDAre and Annualized Adjusted EBITDAre:
16,896
401
412
EBITDA
89,352
80,039
69,776
(3,838
EBITDAre
86,661
78,843
65,938
Adjustment for current quarter acquisition activity (a)
2,780
3,225
2,761
Adjustment for current quarter disposition activity (b)
(141
(79
(353
Adjustment to exclude change in fair value of earnout liability
5,604
Adjustment exclude net write-offs of accrued rental income
Adjustment to exclude realized / unrealized foreign exchange (gain) loss
1,125
Adjusted EBITDAre
86,668
84,440
73,950
Annualized EBITDAre
346,642
315,375
263,761
Annualized Adjusted EBITDAre
346,672
337,759
295,808
45
Net Debt, Net Debt to Annualized EBITDAre and Net Debt to Annualized Adjusted EBITDAre
We define Net Debt as gross debt (total reported debt plus debt issuance costs) less cash and cash equivalents and restricted cash. We believe that the presentation of Net Debt to Annualized EBITDAre and Net Debt to Annualized Adjusted EBITDAre is useful to investors and analysts because these ratios provide information about gross debt less cash and cash equivalents, which could be used to repay debt, compared to our performance as measured using EBITDAre, and is used in communications with lenders and rating agencies regarding our credit rating. The following table reconciles total debt (which is the most comparable GAAP measure) to Net Debt, and presents the ratio of Net Debt to Annualized EBITDAre and Net Debt to Annualized Adjusted EBITDAre, respectively:
Debt
266,118
586,884
910,994
843,990
472,637
96,141
105,748
Debt issuance costs
8,991
9,419
6,625
Gross Debt
1,802,552
1,496,004
(16,813
(54,103
(78,987
Restricted cash
(12,163
(11,444
(8,021
Net Debt
1,827,401
1,737,005
1,408,996
Net Debt to Annualized EBITDAre
5.3x
5.5x
Net Debt to Annualized Adjusted EBITDAre
5.1x
4.8x
This Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses as well as other disclosures in the financial statements. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and assumptions; however, actual results may differ from these estimates and assumptions, which in turn could have a material impact on our financial statements. A summary of our significant accounting policies and procedures are included in Note 2, "Summary of Significant Accounting Policies," in the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. We believe there have been no significant changes during the six months ended June 30, 2022, to the items that we disclosed as our critical accounting policies and estimates in our 2021 Annual Report on Form 10-K.
For information on the impact of recent accounting pronouncements on our business, see Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to certain market risks, one of the most predominant of which is a change in interest rates. Increases in interest rates can result in increased interest expense under our Revolving Credit Facility and other variable-rate debt. Increases in interest rates can also result in increased interest expense when our fixed rate debt matures and needs to be refinanced. We attempt to manage interest rate risk by entering into long-term fixed rate debt or by entering into interest rate swaps to convert certain variable-rate debt to a fixed rate. The interest rate swaps have been designated by us as cash flow hedges for accounting purposes and are reported at fair value. We have not entered, and do not intend to enter, into derivative or interest rate transactions for speculative purposes. Further information concerning our interest rate swaps can be found in Note 11 in our Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report on Form 10-Q.
Our fixed-rate debt includes our Senior Unsecured Notes, mortgages, and variable-rate debt converted to a fixed rate with the use of interest rate swaps. Our fixed-rate debt had a carrying value and fair value of approximately $1.7 billion and $1.6 billion, respectively, as of June 30, 2022. Changes in market interest rates impact the fair value of our fixed-rate debt, but they have no impact on interest incurred or on cash flows. For instance, if interest rates were to increase 1%, and the fixed-rate debt balance were to remain constant,
we would expect the fair value of our debt to decrease, similar to how the price of a bond decreases as interest rates rise. A 1% increase in market interest rates would have resulted in a decrease in the fair value of our fixed-rate debt of approximately $82.4 million as of June 30, 2022.
Borrowings pursuant to our Revolving Credit Facility and other variable-rate debt bear interest at rates based on the applicable reference rate plus an applicable margin, and totaled $918.2 million as of June 30, 2022, of which $717.7 million was swapped to a fixed rate by our use of interest rate swaps. Taking into account the effect of our interest rate swaps, a 1% increase or decrease in interest rates would have a corresponding $2.0 million increase or decrease in interest expense annually.
With the exception of our interest rate swap transactions, we have not engaged in transactions in derivative financial instruments or derivative commodity instruments.
Foreign Currency Exchange Rate Risk
We own investments in Canada, and as a result are subject to risk from the effects of exchange rate movements in the Canadian dollar, which may affect future costs and cash flows. We funded a significant portion of our Canadian investments through Canadian dollar borrowings under our Revolving Credit Facility, which is intended to act as a natural hedge against our Canadian dollar investments. To the extent that currency fluctuations increase or decrease rental revenues, as translated to U.S. dollars, the change in debt service (comprised of interest payments), as translated to U.S. dollars, will partially offset the effect of fluctuations in revenue and, to some extent, mitigate the risk from changes in foreign currency exchange rates. We believe the foreign currency exchange rate risk on the remaining cash flows is immaterial.
Additionally, our Canadian dollar revolving borrowings are remeasured each reporting period, with the unrealized foreign currency gains and losses flowing through earnings. These unrealized foreign currency gains and losses do not impact our cash flows from operations until settled, and are expected to directly offset the changes in the value of our net investments as a result of changes in the Canadian dollar. Our Canadian investments are recorded at their historical exchange rates, and therefore are not impacted by changes in the value of the Canadian dollar.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of and for the quarter ended June 30, 2022, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are subject to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of our business. We are not currently a party to legal proceedings that we believe would reasonably be expected to have material adverse effect on our business, financial condition, or results of operations. We are not aware of any material legal proceedings to which we or any of our subsidiaries are a party or to which any of our property is subject, nor are we aware of any such legal proceedings contemplated by government agencies.
Item 1A. Risk Factors.
There have been no material changes from the risk factors set forth in our 2021 Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities.
None.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Item 6. Exhibits
No.
Description
Articles of Incorporation of Broadstone Net Lease, Inc. (filed as Exhibit 3.1 to the Corporation's Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
Articles of Amendment of Broadstone Net Lease, Inc. (filed as Exhibit 3.1 to the Corporation's Current Report on Form 8-K filed September 18, 2020 and incorporated herein by reference)
Articles Supplementary of Broadstone Net Lease, Inc. (filed as Exhibit 3.2 to the Corporation's Current Report on Form 8-K filed September 18, 2020 and incorporated herein by reference)
Articles of Amendment of Broadstone Net Lease, Inc. (filed as Exhibit 3.3 to the Corporation's Current Report on Form 8-K filed September 18, 2020 and incorporated herein by reference)
Second Amended and Restated Bylaws of Broadstone Net Lease, Inc., adopted March 23, 2020 (filed as Exhibit 3.1 to the Corporation's Current Report on Form 8-K filed March 25, 2020 and incorporated herein by reference)
Indenture, dated as of September 15, 2021, among the Issuer, the Company and the Trustee, including the form of the Guarantee (filed as Exhibit 4.1 to the Corporation's Current Report on Form 8-K filed September 10, 2021 and incorporated herein by reference)
First Supplemental Indenture, dated as of September 15, 2021, among the Issuer, the Company and the Trustee, including the form of the Notes (filed as Exhibit 4.2 to the Corporation's Current Report on Form 8-K filed September 10, 2021 and incorporated herein by reference)
10.1*
Broadstone Net Lease, Inc. Change in Control Severance Protection Policy
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*†
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*†
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
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Inline XBRL Taxonomy Extension Presentation Linkbase Document
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* Filed herewith.
†In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 4, 2022
/s/ Christopher J. Czarnecki
Christopher J. Czarnecki
Chief Executive Officer and President
/s/ Ryan M. Albano
Ryan M. Albano
Executive Vice President and Chief Financial Officer