10-Q 1 ck1424182-10q_20200331.htm 10-Q ck1424182-10q_20200331.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 March 31, 2020, or 

Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 000-55774

 

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

None

 

 

 

 

 

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 26,855,508.755 shares of the Registrant’s common stock, $0.001 par value per share, outstanding as of May 7, 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 (Loss) Income (Unaudited)

2

 

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity (Unaudited)

3

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

4

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

 

Cautionary Note Regarding Forward-Looking Statements

28

 

Explanatory Note and Certain Defined Terms

29

 

Overview

29

 

Recent Developments – COVID-19 Pandemic

30

 

Recent Developments – Internalization

35

 

Results of Operations

35

 

Liquidity and Capital Resources

40

 

Cash Flows

44

 

Impact of Inflation

45

 

Off-Balance Sheet Arrangements

45

 

Contractual Obligations

45

 

Critical Accounting Policies

45

 

Impact of Recent Accounting Pronouncements

46

 

Determined Share Value

46

 

Distributions and Distribution Reinvestment

47

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

49

Part II - OTHER INFORMATION

50

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

50

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults upon Senior Securities

53

Item 4.

Mine Safety Disclosures

53

Item 5.

Other Information

53

Item 6.

Exhibits

54

 

 


 

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)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Accounted for using the operating method, net of accumulated depreciation

 

$

3,367,566

 

 

$

3,415,400

 

Accounted for using the direct financing method

 

 

39,961

 

 

 

41,890

 

Investment in rental property, net

 

 

3,407,527

 

 

 

3,457,290

 

Cash and cash equivalents

 

 

93,151

 

 

 

12,455

 

Accrued rental income

 

 

84,932

 

 

 

84,534

 

Tenant and other receivables, net

 

 

1,287

 

 

 

934

 

Prepaid expenses and other assets

 

 

12,397

 

 

 

12,613

 

Interest rate swap, assets

 

 

 

 

 

2,911

 

Goodwill

 

 

339,769

 

 

 

 

Intangible lease assets, net

 

 

320,418

 

 

 

331,894

 

Debt issuance costs – unsecured revolving credit facility, net

 

 

2,081

 

 

 

2,380

 

Leasing fees, net

 

 

12,492

 

 

 

12,847

 

Total assets

 

$

4,274,054

 

 

$

3,917,858

 

 

 

 

 

 

 

 

 

 

Liabilities, mezzanine equity and equity

 

 

 

 

 

 

 

 

Unsecured revolving credit facility

 

$

353,300

 

 

$

197,300

 

Mortgages and notes payable, net

 

 

110,464

 

 

 

111,793

 

Unsecured term notes, net

 

 

1,672,587

 

 

 

1,672,081

 

Interest rate swap, liabilities

 

 

79,622

 

 

 

24,471

 

Earnout liability

 

 

44,296

 

 

 

 

Accounts payable and other liabilities

 

 

35,835

 

 

 

37,377

 

Accrued interest payable

 

 

9,764

 

 

 

3,594

 

Intangible lease liabilities, net

 

 

89,673

 

 

 

92,222

 

Total liabilities

 

 

2,395,541

 

 

 

2,138,838

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (See Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mezzanine equity

 

 

 

 

 

 

 

 

Common stock, 781 shares issued and outstanding at March 31, 2020

 

 

66,376

 

 

 

 

Non-controlling interests

 

 

112,158

 

 

 

 

Total mezzanine equity

 

 

178,534

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Broadstone Net Lease, Inc. stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 20,000 shares authorized, no shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 80,000 shares authorized, 26,074 and 26,001 shares

   issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

26

 

 

 

26

 

Additional paid-in capital

 

 

1,899,616

 

 

 

1,895,935

 

Cumulative distributions in excess of retained earnings

 

 

(233,067

)

 

 

(208,261

)

Accumulated other comprehensive loss

 

 

(73,138

)

 

 

(20,086

)

Total Broadstone Net Lease, Inc. stockholders’ equity

 

 

1,593,437

 

 

 

1,667,614

 

Non-controlling interests

 

 

106,542

 

 

 

111,406

 

Total equity

 

 

1,699,979

 

 

 

1,779,020

 

Total liabilities, mezzanine equity and equity

 

$

4,274,054

 

 

$

3,917,858

 

 

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

 

 

1


 

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive (Loss) Income

(Unaudited)

(in thousands, except per share amounts)

 

 

 

For the three months ended

March 31,

 

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

 

Lease revenues, net

 

$

78,231

 

 

$

68,430

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

31,219

 

 

 

24,310

 

Asset management fees

 

 

2,461

 

 

 

5,120

 

Property management fees

 

 

1,275

 

 

 

1,885

 

Property and operating expense

 

 

4,115

 

 

 

4,390

 

General and administrative

 

 

5,842

 

 

 

1,103

 

Provision for impairment of investment in rental properties

 

 

2,133

 

 

 

1,017

 

Total operating expenses

 

 

47,045

 

 

 

37,825

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

Interest income

 

 

9

 

 

 

1

 

Interest expense

 

 

(20,991

)

 

 

(15,828

)

Cost of debt extinguishment

 

 

(22

)

 

 

(713

)

Gain on sale of real estate

 

 

7,619

 

 

 

1,400

 

Income taxes

 

 

(549

)

 

 

(443

)

Internalization expenses

 

 

(1,205

)

 

 

 

Change in fair value of earnout liability

 

 

(4,177

)

 

 

 

Other losses

 

 

(22

)

 

 

 

Net income

 

 

11,848

 

 

 

15,022

 

Net income attributable to non-controlling interests

 

 

(1,032

)

 

 

(1,084

)

Net income attributable to Broadstone Net Lease, Inc.

 

$

10,816

 

 

$

13,938

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

26,527

 

 

 

22,335

 

Diluted

 

 

29,053

 

 

 

24,072

 

Net earnings per common share

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.41

 

 

$

0.62

 

Comprehensive (loss) income

 

 

 

 

 

 

 

 

Net income

 

$

11,848

 

 

$

15,022

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

Change in fair value of interest rate swaps

 

 

(58,062

)

 

 

(12,624

)

Realized gain on interest rate swaps

 

 

(42

)

 

 

(81

)

Comprehensive (loss) income

 

 

(46,256

)

 

 

2,317

 

Comprehensive loss (income) attributable to non-controlling interests

 

 

4,020

 

 

 

(167

)

Comprehensive (loss) income attributable to Broadstone Net Lease, Inc.

 

$

(42,236

)

 

$

2,150

 

 

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

 

 

2


 

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity

(Unaudited)

(in thousands, except per share amounts)

 

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Subscriptions

Receivable

 

 

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 73 shares of common stock and 781

   shares of mezzanine equity common stock

 

 

 

 

 

6,097

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,097

 

 

 

 

66,376

 

 

 

 

 

 

66,376

 

Issuance of 1,320 mezzanine non-controlling

   interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

112,159

 

 

 

112,159

 

Adjustment to carrying value of mezzanine equity

   non-controlling interest

 

 

 

 

 

(2,416

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,416

)

 

 

 

 

 

 

 

2,416

 

 

 

2,416

 

Distributions declared ($0.44 per share

   January 2020 through March 2020)

 

 

 

 

 

 

 

 

 

 

 

(35,299

)

 

 

 

 

 

(2,100

)

 

 

(37,399

)

 

 

 

 

 

 

(1,161

)

 

 

(1,161

)

Change in fair value of interest rate

   swap agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(53,014

)

 

 

(3,472

)

 

 

(56,486

)

 

 

 

 

 

 

(1,576

)

 

 

(1,576

)

Realized gain on interest rate swap agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

(2

)

 

 

(40

)

 

 

 

 

 

 

(2

)

 

 

(2

)

Balance, March 31, 2020

 

$

26

 

 

$

1,899,616

 

 

$

 

 

$

(233,067

)

 

$

(73,138

)

 

$

106,542

 

 

$

1,699,979

 

 

 

$

66,376

 

 

$

112,158

 

 

$

178,534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Subscriptions

Receivable

 

 

Cumulative

Distributions

in Excess of

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income

 

 

Non-

controlling

Interests

 

 

Total Stockholders' Equity

 

 

 

Mezzanine Equity Common Stock

 

 

Mezzanine Equity Non-controlling Interests

 

 

Total Mezzanine Equity

 

Balance, January 1, 2019

 

$

22

 

 

$

1,557,421

 

 

$

 

 

$

(155,150

)

 

$

14,806

 

 

$

111,821

 

 

$

1,528,920

 

 

 

$

 

 

$

 

 

$

 

Net income

 

 

 

 

 

 

 

 

 

 

 

13,938

 

 

 

 

 

 

1,084

 

 

 

15,022

 

 

 

 

 

 

 

 

 

 

 

Issuance of 883 shares of common stock

 

 

1

 

 

 

75,099

 

 

 

(225

)

 

 

 

 

 

 

 

 

 

 

 

74,875

 

 

 

 

 

 

 

 

 

 

 

Other offering costs

 

 

 

 

 

(300

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(300

)

 

 

 

 

 

 

 

 

 

 

Distributions declared ($0.43 per share

   January 2019, $0.44 per share February

   through March 2019)

 

 

 

 

 

 

 

 

 

 

 

(29,635

)

 

 

 

 

 

(2,348

)

 

 

(31,983

)

 

 

 

 

 

 

 

 

 

 

Change in fair value of interest rate

   swap agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,713

)

 

 

(911

)

 

 

(12,624

)

 

 

 

 

 

 

 

 

 

 

Realized gain on interest rate swap agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(75

)

 

 

(6

)

 

 

(81

)

 

 

 

 

 

 

 

 

 

 

Redemption of 21 shares of common stock

 

 

 

 

 

(1,803

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,803

)

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2019

 

$

23

 

 

$

1,630,417

 

 

$

(225

)

 

$

(170,847

)

 

$

3,018

 

 

$

109,640

 

 

$

1,572,026

 

 

 

$

 

 

$

 

 

$

 

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

 

3


 

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

For the three months ended

March 31,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

11,848

 

 

$

15,022

 

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

 

 

30,081

 

 

 

23,572

 

Provision for impairment of investment in rental properties

 

 

2,133

 

 

 

1,017

 

Amortization of debt issuance costs charged to interest expense

 

 

853

 

 

 

517

 

Straight-line rent and financing lease adjustments

 

 

(1,610

)

 

 

(5,143

)

Cost of debt extinguishment

 

 

22

 

 

 

713

 

Gain on sale of real estate

 

 

(7,619

)

 

 

(1,400

)

Change in fair value of earnout liability

 

 

4,177

 

 

 

 

Leasing fees paid

 

 

 

 

 

(258

)

Adjustment to provision for credit losses

 

 

(17

)

 

 

 

Other non-cash items

 

 

194

 

 

 

92

 

Changes in assets and liabilities, net of acquisition:

 

 

 

 

 

 

 

 

Tenant and other receivables

 

 

(353

)

 

 

(350

)

Prepaid expenses and other assets

 

 

291

 

 

 

(442

)

Accounts payable and other liabilities

 

 

(5,851

)

 

 

(315

)

Accrued interest payable

 

 

6,170

 

 

 

(1,386

)

Net cash provided by operating activities

 

 

40,319

 

 

 

31,639

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Acquisition of rental property accounted for using the operating method

 

 

 

 

 

(75,080

)

Cash paid for Internalization

 

 

(30,861

)

 

 

 

Capital expenditures and improvements

 

 

(48

)

 

 

(256

)

Proceeds from disposition of rental property, net

 

 

35,383

 

 

 

10,612

 

Increase in tenant and capital reserves

 

 

 

 

 

(13

)

Change in deposits on investments in rental property

 

 

 

 

 

100

 

Net cash provided by (used in) investing activities

 

 

4,474

 

 

 

(64,637

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

 

131

 

 

 

59,869

 

Redemptions of common stock

 

 

 

 

 

(1,803

)

Cash paid for deferred offering costs

 

 

(811

)

 

 

 

Borrowings on unsecured term notes

 

 

60,000

 

 

 

300,000

 

Principal payments on mortgages, notes payable and unsecured term notes

 

 

(151,781

)

 

 

(306,970

)

Borrowings on unsecured revolving credit facility

 

 

167,000

 

 

 

43,800

 

Repayments on unsecured revolving credit facility

 

 

(11,000

)

 

 

(45,000

)

Cash distributions paid to stockholders

 

 

(29,148

)

 

 

(14,495

)

Cash distributions paid to non-controlling interests

 

 

(2,681

)

 

 

(2,330

)

Debt issuance and extinguishment costs paid

 

 

(102

)

 

 

(5,902

)

Net cash provided by financing activities

 

 

31,608

 

 

 

27,169

 

Net increase (decrease) in cash and cash equivalents and restricted cash

 

 

76,401

 

 

 

(5,829

)

Cash and cash equivalents and restricted cash at beginning of period

 

 

20,311

 

 

 

18,989

 

Cash and cash equivalents and restricted cash at end of period

 

$

96,712

 

 

$

13,160

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash and cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$

12,455

 

 

$

18,612

 

Restricted cash at beginning of period

 

 

7,856

 

 

 

377

 

Cash and cash equivalents and restricted cash at beginning of period

 

$

20,311

 

 

$

18,989

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

93,151

 

 

$

11,726

 

Restricted cash at end of period

 

 

3,561

 

 

 

1,434

 

Cash and cash equivalents and restricted cash at end of period

 

$

96,712

 

 

$

13,160

 

 

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

 

4


 

Broadstone Net Lease, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(in thousands)

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, office, retail, and other commercial properties under long-term lease agreements. At March 31, 2020, the Corporation owned a diversified portfolio of 635 individual commercial properties located in 41 states throughout the continental United States and one property in British Columbia, Canada.

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 remaining membership units in the OP (“OP Units”), which are referred to as non-controlling interests, are held by members who acquired their interest by contributing real estate properties or other assets to the OP in exchange for OP Units. 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”. The following table summarizes the outstanding equity and economic ownership interest of the Corporation and the OP:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

(in thousands)

 

Shares of Common Stock

 

 

OP Units

 

 

Total Diluted Shares

 

 

Shares of Common Stock

 

 

OP Units

 

 

Total Diluted Shares

 

Permanent equity

 

 

26,074

 

 

 

1,737

 

 

 

27,811

 

 

 

26,001

 

 

 

1,737

 

 

 

27,738

 

Mezzanine equity

 

 

781

 

 

 

1,320

 

 

 

2,101

 

 

 

 

 

 

 

 

 

 

Total

 

 

26,855

 

 

 

3,057

 

 

 

29,912

 

 

 

26,001

 

 

 

1,737

 

 

 

27,738

 

Percent Ownership of OP

 

 

89.9

%

 

 

10.1

%

 

 

100.0

%