10-Q 1 ck1424182-10q_20200630.htm 10-Q ck1424182-10q_20200630.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 June 30, 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 26,858,342.567 shares of the Registrant’s common stock, $0.001 par value per share, outstanding as of August 1, 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

31

 

Cautionary Note Regarding Forward-Looking Statements

31

 

Explanatory Note and Certain Defined Terms

32

 

Overview

32

 

Recent Developments – COVID-19 Pandemic

33

 

Recent Developments – Internalization

38

 

Results of Operations

38

 

Liquidity and Capital Resources

43

 

Cash Flows

47

 

Impact of Inflation

47

 

Off-Balance Sheet Arrangements

48

 

Contractual Obligations

48

 

Critical Accounting Policies

48

 

Impact of Recent Accounting Pronouncements

49

 

Determined Share Value

49

 

Distributions and Distribution Reinvestment

51

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

52

Item 4.

Controls and Procedures

52

Part II - OTHER INFORMATION

53

Item 1.

Legal Proceedings

53

Item 1A.

Risk Factors

53

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

53

Item 3.

Defaults upon Senior Securities

54

Item 4.

Mine Safety Disclosures

54

Item 5.

Other Information

54

Item 6.

Exhibits

55

 

 


 

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,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Accounted for using the operating method, net of accumulated depreciation

 

$

3,346,792

 

 

$

3,415,400

 

Accounted for using the direct financing method

 

 

30,953

 

 

 

41,890

 

Investment in rental property, net

 

 

3,377,745

 

 

 

3,457,290

 

Cash and cash equivalents

 

 

9,241

 

 

 

12,455

 

Accrued rental income

 

 

90,545

 

 

 

84,534

 

Tenant and other receivables, net

 

 

5,045

 

 

 

934

 

Prepaid expenses and other assets

 

 

9,819

 

 

 

12,613

 

Interest rate swap, assets

 

 

 

 

 

2,911

 

Goodwill

 

 

339,769

 

 

 

 

Intangible lease assets, net

 

 

298,741

 

 

 

331,894

 

Debt issuance costs – unsecured revolving credit facility, net

 

 

1,782

 

 

 

2,380

 

Leasing fees, net

 

 

11,368

 

 

 

12,847

 

Total assets

 

$

4,144,055

 

 

$

3,917,858

 

 

 

 

 

 

 

 

 

 

Liabilities, mezzanine equity and equity

 

 

 

 

 

 

 

 

Unsecured revolving credit facility

 

$

248,300

 

 

$

197,300

 

Mortgages and notes payable, net

 

 

109,512

 

 

 

111,793

 

Unsecured term notes, net

 

 

1,673,092

 

 

 

1,672,081

 

Interest rate swap, liabilities

 

 

85,678

 

 

 

24,471

 

Earnout liability

 

 

37,975

 

 

 

 

Accounts payable and other liabilities

 

 

25,550

 

 

 

37,377

 

Accrued interest payable

 

 

4,144

 

 

 

3,594

 

Intangible lease liabilities, net

 

 

83,157

 

 

 

92,222

 

Total liabilities

 

 

2,267,408

 

 

 

2,138,838

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (See Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mezzanine equity

 

 

 

 

 

 

 

 

Common stock, 781 shares issued and outstanding at June 30, 2020

 

 

66,376

 

 

 

 

Non-controlling interests

 

 

112,159

 

 

 

 

Total mezzanine equity

 

 

178,535

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 26,077 and 26,001 shares

   issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

26

 

 

 

26

 

Additional paid-in capital

 

 

1,899,751

 

 

 

1,895,935

 

Cumulative distributions in excess of retained earnings

 

 

(229,531

)

 

 

(208,261

)

Accumulated other comprehensive loss

 

 

(78,613

)

 

 

(20,086

)

Total Broadstone Net Lease, Inc. stockholders’ equity

 

 

1,591,633

 

 

 

1,667,614

 

Non-controlling interests

 

 

106,479

 

 

 

111,406

 

Total equity

 

 

1,698,112

 

 

 

1,779,020

 

Total liabilities, mezzanine equity and equity

 

$

4,144,055

 

 

$

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 Income (Loss)

(Unaudited)

(in thousands, except per share amounts)

 

 

 

For the three months ended

June 30,

 

 

For the six months ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease revenues, net

 

$

80,371

 

 

$

69,053

 

 

$

158,602

 

 

$

137,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

39,921

 

 

 

25,287

 

 

 

71,140

 

 

 

49,597

 

Asset management fees

 

 

 

 

 

5,318

 

 

 

2,461

 

 

 

10,438

 

Property management fees

 

 

 

 

 

1,935

 

 

 

1,275

 

 

 

3,820

 

Property and operating expense

 

 

4,190

 

 

 

3,252

 

 

 

8,305

 

 

 

7,642

 

General and administrative

 

 

5,700

 

 

 

1,389

 

 

 

11,542

 

 

 

2,492

 

Provision for impairment of investment in rental properties

 

 

534

 

 

 

 

 

 

2,667

 

 

 

1,017

 

Total operating expenses

 

 

50,345

 

 

 

37,181

 

 

 

97,390

 

 

 

75,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

11

 

 

 

 

 

 

20

 

 

 

1

 

Interest expense

 

 

(19,513

)

 

 

(16,732

)

 

 

(40,504

)

 

 

(32,560

)

Cost of debt extinguishment

 

 

 

 

 

(8

)

 

 

(22

)

 

 

(721

)

Gain on sale of real estate

 

 

1,046

 

 

 

2,787

 

 

 

8,665

 

 

 

4,187

 

Income taxes

 

 

(402

)

 

 

(305

)

 

 

(951

)

 

 

(748

)

Internalization expenses

 

 

(389

)

 

 

(272

)

 

 

(1,594

)

 

 

(272

)

Change in fair value of earnout liability

 

 

6,321

 

 

 

 

 

 

2,144

 

 

 

 

Other losses

 

 

(2

)

 

 

 

 

 

(24

)

 

 

 

Net income

 

 

17,098

 

 

 

17,342

 

 

 

28,946

 

 

 

32,364

 

Net income attributable to non-controlling interests

 

 

(1,745

)

 

 

(1,208

)

 

 

(2,777

)

 

 

(2,292

)

Net income attributable to Broadstone Net Lease, Inc.

 

$

15,353

 

 

$

16,134

 

 

$

26,169

 

 

$

30,072

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

26,856

 

 

 

23,204

 

 

 

26,691

 

 

 

22,770

 

Diluted

 

 

29,912

 

 

 

24,941

 

 

 

29,482

 

 

 

24,507

 

Net earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.57

 

 

$

0.70

 

 

$

0.98

 

 

$

1.32

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

17,098

 

 

$

17,342

 

 

$

28,946

 

 

$

32,364

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of interest rate swaps

 

 

(6,056

)

 

 

(23,178

)

 

 

(64,118

)

 

 

(35,802

)

Realized gain on interest rate swaps

 

 

(41

)

 

 

(41

)

 

 

(83

)

 

 

(122

)

Comprehensive income (loss)

 

 

11,001

 

 

 

(5,877

)

 

 

(35,255

)

 

 

(3,560

)

Comprehensive (income) loss attributable to non-controlling interests

 

 

(1,123

)

 

 

409

 

 

 

2,897

 

 

 

242

 

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

 

$

9,878

 

 

$

(5,468

)

 

$

(32,358

)

 

$

(3,318

)

 

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

 

 

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 interests

 

 

 

 

 

(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

 

Net income

 

 

 

 

 

 

 

 

15,353

 

 

 

 

 

 

992

 

 

 

16,345

 

 

 

 

 

 

 

753

 

 

 

753

 

Issuance of three shares of common stock

 

 

 

 

 

232

 

 

 

 

 

 

 

 

 

 

 

 

232

 

 

 

 

 

 

 

 

 

 

 

Adjustment to carrying value of mezzanine equity

   non-controlling interests

 

 

 

 

 

(97

)

 

 

 

 

 

 

 

 

 

 

 

(97

)

 

 

 

 

 

 

97

 

 

 

97

 

Distributions declared ($0.44 per share in

   April 2020)

 

 

 

 

 

 

 

 

(11,817

)

 

 

 

 

 

(701

)

 

 

(12,518

)

 

 

 

 

 

 

(581

)

 

 

(581

)

Change in fair value of interest rate

   swap agreements

 

 

 

 

 

 

 

 

 

 

 

(5,438

)

 

 

(351

)

 

 

(5,789

)

 

 

 

 

 

 

(267

)

 

 

(267

)

Realized gain on interest rate swap agreements

 

 

 

 

 

 

 

 

 

 

 

(37

)

 

 

(3

)

 

 

(40

)

 

 

 

 

 

 

(1

)

 

 

(1

)

Balance, June 30, 2020

 

$

26

 

 

$

1,899,751

 

 

$

(229,531

)

 

$

(78,613

)

 

$

106,479

 

 

$

1,698,112

 

 

 

$

66,376

 

 

$

112,159

 

 

$

178,535

 

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

 

3


 

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

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

 

 

 

$

 

 

$

 

 

$

 

Net income

 

 

 

 

 

 

 

 

 

 

 

16,134

 

 

 

 

 

 

1,208

 

 

 

17,342

 

 

 

 

 

 

 

 

 

 

 

Issuance of 892 shares of common stock

 

 

1

 

 

 

76,004

 

 

 

225

 

 

 

 

 

 

 

 

 

 

 

 

76,230

 

 

 

 

 

 

 

 

 

 

 

Other offering costs

 

 

 

 

 

(300

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(300

)

 

 

 

 

 

 

 

 

 

 

 

Distributions declared ($0.44 per share April

   through June 2019)

 

 

 

 

 

 

 

 

 

 

 

(30,934

)

 

 

 

 

 

(2,297

)

 

 

(33,231

)

 

 

 

 

 

 

 

 

 

 

Change in fair value of interest rate

   swap agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,564

)

 

 

(1,614

)

 

 

(23,178

)

 

 

 

 

 

 

 

 

 

 

Realized gain on interest rate swap agreements