ck1424182-10q_20200930.htm

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 September 30, 2020, 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 of incorporation or organization)	(I.R.S. Employer Identification 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 Exchange Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00025 par value ¹

BNL

New York Stock Exchange

Class A Common Stock, $0.00025 par value¹

BNL

New York Stock Exchange

¹ Each share of Class A Common Stock will automatically convert to one share of Common Stock on March 20, 2021, the date that is 180 days after the completion of the initial public offering of the Class A Common Stock. The Common Stock will be listed and tradeable on the New York Stock Exchange on March 22, 2021.

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 107,786,452 shares of the Registrant’s Common Stock, $0.00025 par value per share, and 37,000,000 shares of the Registrant’s Class A Common Stock, $0.00025 par value per share, outstanding as of November 5, 2020.

BROADSTONE NET LEASE, INC.

TABLE OF CONTENTS

		Page
Part I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited)	2
	Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine 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	32
	Cautionary Note Regarding Forward-Looking Statements	32
	Explanatory Note and Certain Defined Terms	32
	Overview	33
	Recent Developments – Stock Split and Initial Public Offering	33
	COVID-19 Pandemic Update	34
	Real Estate Portfolio Information	39
	Results of Operations	45
	Liquidity and Capital Resources	47
	Cash Flows	50
	Distributions and Distribution Reinvestment	51
	Impact of Inflation	52
	Off-Balance Sheet Arrangements	52
	Contractual Obligations	52
	Non-GAAP Measures	53
	Critical Accounting Policies	56
	Impact of Recent Accounting Pronouncements	56
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4.	Controls and Procedures	57
Part II - OTHER INFORMATION		58
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60

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)

	September 30, 2020			December 31, 2019
Assets
Accounted for using the operating method, net of accumulated depreciation	$	3,304,002		$	3,415,400
Accounted for using the direct financing method		30,902			41,890
Investment in rental property, net		3,334,904			3,457,290
Cash and cash equivalents		101,787			12,455
Accrued rental income		97,517			84,534
Tenant and other receivables, net		3,957			934
Prepaid expenses and other assets		19,522			12,613
Interest rate swap, assets		—			2,911
Goodwill		339,769			—
Intangible lease assets, net		288,971			331,894
Debt issuance costs – unsecured revolving credit facility, net		7,027			2,380
Leasing fees, net		11,015			12,847
Total assets	$	4,204,469		$	3,917,858

Liabilities and equity
Unsecured revolving credit facility	$	—		$	197,300
Mortgages and notes payable, net		108,752			111,793
Unsecured term notes, net		1,433,495			1,672,081
Interest rate swap, liabilities		81,326			24,471
Earnout liability		13,177			—
Accounts payable and other liabilities		55,339			37,377
Accrued interest payable		9,453			3,594
Intangible lease liabilities, net		81,220			92,222
Total liabilities		1,782,762			2,138,838

Commitments and contingencies (See Note 17)

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; 440,000 shares authorized, 107,773 shares issued and outstanding at September 30, 2020; 320,000 shares authorized, 104,006 shares issued and outstanding at December 31, 2019		27			26
Class A common stock, $0.00025 par value; 60,000 shares authorized, 33,500 shares issued and outstanding at September 30, 2020; no shares authorized, issued or outstanding at December 31, 2019		8			—
Additional paid-in capital		2,506,008			1,895,935
Cumulative distributions in excess of retained earnings		(239,520	)		(208,261	)
Accumulated other comprehensive loss		(74,729	)		(20,086	)
Total Broadstone Net Lease, Inc. stockholders’ equity		2,191,794			1,667,614
Non-controlling interests		229,913			111,406
Total equity		2,421,707			1,779,020
Total liabilities and equity	$	4,204,469		$	3,917,858

The accompanying notes are an integral part of these condensed consolidated financial statements.

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Loss)

(Unaudited)

(in thousands, except per share amounts)

	For the three months ended September 30,						For the nine months ended September 30,
	2020			2019			2020			2019
Revenues
Lease revenues, net	$	80,744		$	76,401		$	239,346		$	213,884

Operating expenses
Depreciation and amortization		31,363			28,392			102,503			77,989
Asset management fees		—			5,610			2,461			16,048
Property management fees		—			2,098			1,275			5,918
Property and operating expense		4,187			3,855			12,492			11,497
General and administrative		7,214			1,315			18,756			3,807
Provision for impairment of investment in rental properties		14,732			2,435			17,399			3,452
Total operating expenses		57,496			43,705			154,886			118,711

Other income (expenses)
Interest income		—			5			20			6
Interest expense		(18,511	)		(18,465	)		(59,015	)		(51,025	)
Cost of debt extinguishment		(392	)		(455	)		(414	)		(1,176	)
Gain on sale of real estate		1,060			12,585			9,725			16,772
Income taxes		(129	)		(405	)		(1,080	)		(1,153	)
Internalization expenses		(1,929	)		(923	)		(3,523	)		(1,195	)
Change in fair value of earnout liability		6,362			—			8,506			—
Other gains (losses)		2			—			(22	)		—
Net income		9,711			25,038			38,657			57,402
Net income attributable to non-controlling interests		(961	)		(1,650	)		(3,738	)		(3,942	)
Net income attributable to Broadstone Net Lease, Inc.	$	8,750		$	23,388		$	34,919		$	53,460

Weighted average number of common shares outstanding
Basic		111,155			98,568			108,228			93,575
Diluted		123,381			105,516			119,747			100,523
Net earnings per share attributable to common stockholders
Basic and diluted	$	0.08		$	0.24		$	0.32		$	0.57
Comprehensive income (loss)
Net income	$	9,711		$	25,038		$	38,657		$	57,402
Other comprehensive income (loss)
Change in fair value of interest rate swaps		4,352			(16,380	)		(59,766	)		(52,182	)
Realized gain on interest rate swaps		(42	)		(41	)		(125	)		(163	)
Comprehensive income (loss)		14,021			8,617			(21,234	)		5,057
Comprehensive (income) loss attributable to non-controlling interests		(1,387	)		(557	)		1,510			(315	)
Comprehensive income (loss) attributable to Broadstone Net Lease, Inc.	$	12,634		$	8,060		$	(19,724	)	$	4,742

The accompanying notes are an integral part of these condensed consolidated financial statements.

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity

(Unaudited)

(in thousands, except per share amounts)

	Common Stock		Class A Common Stock		Additional Paid-in Capital			Cumulative Distributions in Excess of Retained Earnings			Accumulated Other Comprehensive Loss			Non- controlling Interests		Total Stockholders' Equity			Mezzanine Equity Common Stock		Mezzanine Equity Non- controlling Interests		Total Mezzanine Equity
Balance, January 1, 2020	$	26	$	—	$	1,895,935		$	(208,261	)	$	(20,086	)	$	111,406	$	1,779,020		$	—	$	—	$	—
Cumulative effect of accounting change (see Note 2)		—		—		—			(323	)		—			—		(323	)		—		—		—
Net income		—		—		—			10,816			—			710		11,526			—		322		322
Issuance of 293 shares of common stock and 3,124 shares of mezzanine equity common stock		—		—		6,097			—			—			—		6,097			66,376		—		66,376
Issuance of 5,278 mezzanine non-controlling interests		—		—		—			—			—			—		—			—		112,159		112,159
Adjustment to carrying value of mezzanine equity non-controlling interests		—		—		(2,416	)