UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
BROADSTONE NET LEASE, INC.
TABLE OF CONTENTS
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Item 1. |
1 |
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1 |
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Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited) |
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Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity (Unaudited) |
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5 |
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Notes to the Condensed Consolidated Financial Statements (Unaudited) |
6 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
46 |
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)
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June 30, |
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December 31, |
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Assets |
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Accounted for using the operating method, net of accumulated depreciation |
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$ |
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$ |
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Accounted for using the direct financing method |
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Accounted for using the sales-type method |
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Investment in rental property, net |
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Cash and cash equivalents |
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Accrued rental income |
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Tenant and other receivables, net |
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Prepaid expenses and other assets |
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Goodwill |
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Intangible lease assets, net |
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Debt issuance costs – unsecured revolving credit facility, net |
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Leasing fees, net |
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Total assets |
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$ |
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$ |
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Liabilities and equity |
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Unsecured revolving credit facility |
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$ |
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$ |
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Mortgages, net |
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Unsecured term notes, net |
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Interest rate swap, liabilities |
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Earnout liability |
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Accounts payable and other liabilities |
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Accrued interest payable |
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Intangible lease liabilities, net |
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Total liabilities |
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Equity |
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Broadstone Net Lease, Inc. stockholders' equity: |
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Preferred stock, $ |
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Common stock, $ |
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Class A common stock, $ |
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Additional paid-in capital |
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Cumulative distributions in excess of retained earnings |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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Total Broadstone Net Lease, Inc. stockholders’ equity |
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Non-controlling interests |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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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)
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For the Three Months Ended |
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For the Six Months Ended |
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2021 |
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2020 |
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2021 |
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2020 |
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Revenues |
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Lease revenues, net |
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$ |
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$ |
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$ |
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$ |
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Operating expenses |
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Depreciation and amortization |
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Asset management fees |
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Property management fees |
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Property and operating expense |
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General and administrative |
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Provision for impairment of investment in rental properties |
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Total operating expenses |
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Other income (expenses) |
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Interest income |
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Interest expense |
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Cost of debt extinguishment |
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Gain on sale of real estate |
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Income taxes |
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Internalization expenses |
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( |
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Change in fair value of earnout liability |
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( |
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Other income (expenses) |
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( |
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( |
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Net income |
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Net income attributable to non-controlling interests |
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( |
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( |
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( |
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Net income attributable to Broadstone Net Lease, Inc. |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares outstanding |
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Basic |
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Diluted |
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Net earnings per share attributable to common stockholders |
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Basic and diluted |
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$ |
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$ |
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$ |
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$ |
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Comprehensive income (loss) |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss) |
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Change in fair value of interest rate swaps |
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( |
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( |
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( |
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Realized gain on interest rate swaps |
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( |
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( |
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( |
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( |
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Comprehensive income (loss) |
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( |
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Comprehensive (income) loss attributable to non-controlling interests |
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( |
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( |
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( |
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Comprehensive income (loss) attributable to Broadstone Net Lease, Inc. |
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$ |
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$ |
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$ |
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$ |
( |
) |
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)
|
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Common |
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Class A |
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Additional |
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Cumulative |
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Accumulated |
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Non- |
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Total |
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Balance, January 1, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Net income |
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Issuance of |
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Offering costs, discounts and commissions |
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( |
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( |
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Stock-based compensation |
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Retirement of |
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Conversion of |
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Conversion of |
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( |
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Distributions declared ($ |
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( |
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( |
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( |
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Change in fair value of interest rate swap agreements |
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Realized gain on interest rate swap agreements |
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( |
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( |
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( |
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Adjustment to non-controlling interests |
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( |
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( |
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Balance, March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Net income |
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Issuance of |
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Issuance of |
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Offering costs, discounts and commissions |
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( |
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( |
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Stock-based compensation |
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Retirement of 16 shares of restricted common stock |
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( |
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Conversion of |
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Distributions declared ($ |
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( |
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( |
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Change in fair value of interest rate swap agreements |
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( |
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( |
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Realized gain on interest rate swap agreements |
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( |
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( |
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Adjustment to non-controlling interests |
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( |
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( |
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Balance, June 30, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
|
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)
|
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Common |
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Class A |
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Additional |
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Cumulative |
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Accumulated |
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Non- |
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Total |
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Mezzanine |
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Mezzanine |
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Total |
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Balance, January 1, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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$ |
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Cumulative effect of accounting change |
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( |
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( |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Issuance of |
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— |
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— |
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— |
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— |
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— |
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Issuance of |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Adjustment to carrying value of mezzanine equity |
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( |
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( |
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— |
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Distributions declared ($ |
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( |
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( |
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( |
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( |
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( |
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Change in fair value of interest rate swap agreements |
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( |
) |
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( |
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( |
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( |
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( |
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Realized gain on interest rate swap agreements |
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( |
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( |
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( |
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( |
) |
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( |
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Balance, March 31, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
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$ |
|
|
$ |
|
|
$ |
|
||||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||||
Issuance of |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Adjustment to carrying value of mezzanine equity |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
(97 |
) |
|
|
|
— |
|
|
|
|
|
|
|
|||||||
Distributions declared ($ |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Change in fair value of interest rate swap agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Realized gain on interest rate swap agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Balance, June 30, 2020 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Broadstone Net Lease, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
For the Six Months Ended |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Operating activities |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income including non-controlling interests to net cash provided by |
|
|
|
|
|
|
||
Depreciation and amortization including intangibles associated with investment in rental property |
|
|
|
|
|
|
||
Provision for impairment of investment in rental properties |
|
|
|
|
|
|
||
Amortization of debt issuance costs charged to interest expense |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Straight-line rent, financing and sales-type lease adjustments |
|
|
( |
) |
|
|
( |
) |
Cost of debt extinguishment |
|
|
|
|
|
|
||
Gain on sale of real estate |
|
|
( |
) |
|
|
( |
) |
Change in fair value of earnout liability |
|
|
|
|
|
( |
) |
|
Leasing fees paid |
|
|
( |
) |
|
|
|
|
Adjustment to provision for credit losses |
|
|
( |
) |
|
|
( |
) |
Other non-cash items |
|
|
|
|
|
|
||
Changes in assets and liabilities, net of acquisition: |
|
|
|
|
|
|
||
Tenant and other receivables |
|
|
|
|
|
( |
) |
|
Prepaid expenses and other assets |
|
|
|
|
|
( |
) |
|
Accounts payable and other liabilities |
|
|
( |
) |
|
|
( |
) |
Accrued interest payable |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Investing activities |
|
|
|
|
|
|
||
Acquisition of rental property accounted for using the operating method |
|
|
( |
) |
|
|
|
|
Cash paid for Internalization |
|
|
|
|
|
( |
) |
|
Capital expenditures and improvements |
|
|
( |
) |
|
|
( |
) |
Proceeds from disposition of rental property, net |
|
|
|
|
|
|
||
Change in deposits on investments in rental property |
|
|
( |
) |
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||
Financing activities |
|
|
|
|
|
|
||
Proceeds from issuance of common stock and Class A common stock, net of $ |
|
|
|
|
|
|
||
Cash paid for deferred offering costs |
|
|
|
|
|
( |
) |
|
Borrowings on unsecured term notes |
|
|
|
|
|
|
||
Principal payments on mortgages and unsecured term notes |
|
|
( |
) |
|
|
( |
) |
Borrowings on unsecured revolving credit facility |
|
|
|
|
|
|
||
Repayments on unsecured revolving credit facility |
|
|
( |
) |
|
|
( |
) |
Cash distributions paid to stockholders |
|
|
( |
) |
|
|
( |
) |
Cash distributions paid to non-controlling interests |
|
|
( |
) |
|
|
( |
) |
Cash paid for earnout liability |
|
|
( |
) |
|
|
|
|
Debt issuance and extinguishment costs paid |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
Net decrease in cash and cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Reconciliation of cash and cash equivalents and restricted cash |
|
|
|
|
|
|
||
Cash and cash equivalents at beginning of period |
|
$ |
|
|
$ |
|
||
Restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash at beginning of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
Restricted cash at end of period |
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Broadstone Net Lease, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except per share amounts)
1. Business Description
Broadstone Net Lease, Inc. (the “Corporation”) is a Maryland corporation formed on
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 were issued OP Units pursuant to the Internalization (defined below) or in exchange for their interests in properties acquired by the OP. 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.”
Prior to February 7, 2020, the Corporation 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”). The Asset Manager was a wholly owned subsidiary of BRE and all of the Corporation’s officers were employees of BRE. Accordingly, both BRE and the Asset Manager were related parties of the Company. Refer to Note 3 for further discussion concerning related parties and related party transactions.
On February 7, 2020, the Corporation, the OP, BRE, and certain of their respective subsidiaries and affiliates, completed through a series of mergers (the “Mergers”) the internalization of the external management functions previously performed for the Corporation and the OP by BRE and the Asset Manager (such transactions, collectively, the “Internalization”). Upon consummation of the Internalization, the Company’s management team and corporate staff, who were previously employed by BRE, became employees of an indirect subsidiary of the OP and the Company became internally managed. Upon Internalization, the prior Property Management Agreement and Asset Management Agreement were terminated. The Internalization was not considered a “Termination Event” under the terms of the agreements and therefore
On September 18, 2020, the Corporation effected a
On September 21, 2020, the Corporation completed its initial public offering (“IPO”) and issued an aggregate of
The following table summarizes the outstanding equity and economic ownership interest of the Corporation and the OP:
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||||||||||||||||||
(in thousands) |
|
Shares of |
|
|
OP Units |
|
|
Total Diluted |
|
|
Shares of |
|
|
OP Units |
|
|
Total Diluted |
|
||||||
Ownership interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Percent ownership of OP |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
Refer to Note 16 for further discussion regarding the calculation of weighted average shares outstanding.
6
2. Summary of Significant Accounting Policies
Interim Information
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.
Basis of Accounting
Use of Estimates
Long-lived Asset Impairment
The Company reviews long-lived assets, other than goodwill, 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 asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the 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 asset or asset group exceeds the fair value of the asset or asset group. A significant judgment is made as to if and when impairment should be taken. The Company’s assessment of impairment as of June 30, 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, under applicable GAAP guidance,
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.
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands, except number of properties) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Number of properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Impairment charge |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Restricted Cash
Restricted cash includes escrow funds the Company maintains pursuant to the terms of certain mortgages, and 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, |
|
||
(in thousands) |
|
2021 |
|
|
2020 |
|
||
Escrow funds and other |
|
$ |
|
|
$ |
|
||
Undistributed 1031 proceeds |
|
|
— |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
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 is as follows:
(in thousands) |
|
June 30, |
|
|
December 31, |
|
||
Rent received in advance |
|
$ |
|
|
$ |
|
Provision for Uncollectible Rent
In accordance with ASC 842, Leases, provisions for uncollectible rent are recorded as an offset to Lease revenues, net on the accompanying Consolidated Statements of Income and Comprehensive Income (Loss).
The following table summarizes the changes in the provision for uncollectible rent:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for uncollectible rent |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Write-offs |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Fair Value Measurements
Recurring Fair Value Measurements
Earnout Liability – In connection with the Internalization, the Company recognized an earnout liability that will be due and payable to the former owners of BRE if certain milestones are achieved during specified periods of time following the closing of the Internalization (the “Earnout Periods”). Under the terms of the agreement, the milestones related to either (a) the 40-day dollar volume-weighted
8
average price of a share of the Company’s common stock (“VWAP per REIT Share”), following the completion of an IPO of the Company’s common stock, or (b) the Company’s AFFO per share, prior to the completion of an IPO.
The Company utilizes third-party valuation experts to assist in estimating the fair value of the earnout liability, and develops estimates by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis. These estimates require the Company to make various assumptions about share price volatility and, prior to the IPO, about the timing of an IPO and net asset prices, each of which are unobservable and considered Level 3 inputs in the fair value hierarchy. A change in these inputs to a different amount might result in a significantly higher or lower fair value measurement at the reporting date. Specifically, advancements in the estimated IPO date assumption increased the earnout liability’s fair value given the earnout’s fixed time horizon. Peer share price volatilities are used to estimate the Company’s expected share price volatility, and the Company’s corresponding ability to achieve the earnout targets. Increases in the volatility assumption would increase the earnout liability’s fair value. Increases in net asset values would also increase the earnout liability’s fair value.
The table below provides a summary of the significant unobservable inputs used to estimate the fair value of the earnout liability as of June 30, 2021:
Significant Unobservable Inputs |
|
Weighted Average |
|
Range |
Peer stock price volatility |
|
|
|
The table below provides a summary of the significant unobservable inputs used to estimate the fair value of the earnout liability as of June 30, 2020:
Significant Unobservable Inputs |
|
Weighted Average Assumption Used |
|
|
Range |
|
Expected IPO date |
|
|
|
|||
Peer stock price volatility |
|
|
|
|||
Company's net asset value per diluted share |
|
$ |
|
|
(a) |
(a) The Company’s net asset value per diluted share was primarily based on the fair value of its real estate investment portfolio, together with the fair value of its other assets and liabilities. The fair value of the Company’s real estate investment portfolio as of the measurement date was determined using market capitalization rates that ranged between
The table below provides a summary of the significant unobservable inputs used to estimate the fair value of the earnout liability as of February 7, 2020, the transaction date:
Significant Unobservable Inputs |
|
Weighted Average Assumption Used |
|
|
Range |
|
Expected IPO date |
|
|
|
|||
Peer stock price volatility |
|
|
|
|||
Company's net asset value per diluted share |
|
$ |
|
|
(b) |
(b) The Company’s net asset value per diluted share was primarily based on the fair value of its real estate investment portfolio, together with the fair value of its other assets and liabilities. The fair value of the Company’s real estate investment portfolio as of the measurement date was determined using market capitalization rates that ranged between
The following table presents a reconciliation of the change in the earnout liability:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Allocation of Internalization purchase price at |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Change in fair value subsequent to Internalization |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Payout of tranches earned |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The changes in fair value were driven primarily by fluctuations in the Company's share price.
9
The balances of financial instruments measured at fair value on a recurring basis are as follows:
|
|
June 30, 2021 |
|
|||||||||||||
(in thousands) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Interest rate swap, liabilities |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Earnout liability |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
December 31, 2020 |
|
|||||||||||||
(in thousands) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Interest rate swap, liabilities |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
Earnout liability |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Long-term Debt – The fair value of the Company’s debt was estimated using Level 2 and Level 3 inputs based on 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 on the 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 Mortgages, net, Unsecured term notes, net, and Unsecured revolving credit facility, which reflects the fair value of interest rate swaps:
(in thousands) |
|
June 30, |
|
|
December 31, |
|
||
Carrying amount |
|
$ |
|
|
$ |
|
||
Fair value |
|
|
|
|
|
|
Non-recurring Fair Value Measurements
The Company’s non-recurring fair value measurements at June 30, 2021 and December 31, 2020 consisted of the fair value of impaired real estate assets that were determined using Level 3 inputs.
Right-of-Use Assets and Lease Liabilities
The Company is a lessee under non-cancelable operating leases associated with its corporate headquarters and other office spaces as well as with leases of land (“ground leases”). The Company records right-of-use assets and lease liabilities associated with these leases. The lease liability is equal to the net present value of the future payments to be made under the lease, discounted using estimates based on observable market factors. The right-of-use asset is generally equal to the lease liability plus initial direct costs associated with the leases. The Company includes in the recognition of the right-of-use asset and lease liability those renewal periods that are reasonably certain to be exercised, based on the facts and circumstances that exist at lease inception. Amounts associated with percentage rent provisions are considered variable lease costs and are not included in the initial measurement of the right-of-use asset or lease liability. The Company has made an accounting policy election, applicable to all asset types, not to separate lease from nonlease components when allocating contract consideration related to operating leases.
Right-of-use assets and lease liabilities associated with operating leases were included in the accompanying Condensed Consolidated Balance Sheets as follows:
|
|
|
|
June 30, |
|
|
December 31, |
|
||
(in thousands) |
|
Financial Statement Presentation |
|
2021 |
|
|
2020 |
|
||
Right-of-use assets |
|
Prepaid expenses and other assets |
|
$ |
|
|
$ |
|
||
Lease liabilities |
|
Accounts payable and other liabilities |
|
|
|
|
|
|
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”). 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 (Loss) over the appropriate
10
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 will be 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 January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of ASC 848, to include all derivative contracts subject to a transition for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest (PAI) as a result of reference rate reform (the “discounting transition”). ASU 2021-01 gives market participants the ability to apply certain aspects of the contract modification and hedge accounting expedients to derivative contracts affected by a discounting transition. ASU 2021-01 permits an entity to elect certain hedging relief if it has designated a derivative as a hedging instrument in a hedging relationship and the terms of the derivative have changed as a result of the discounting transition. The Company will apply the amendments in ASU 2021-01 related to contract modifications and hedging relationships prospectively.
Other Recently Issued Accounting Standards
In August 2020, the FASB issued 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 and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments in ASU 2020-06 are effective for the Company for fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this new guidance.
3. Related-Party Transactions
Prior to the Internalization on February 7, 2020, BRE, a related party in which certain directors of the Corporation had either a direct or indirect ownership interest, and the Asset Manager were considered to be related parties.
Earnout Consideration
In connection with the Internalization, the Company incurred a contingent obligation that would be payable to certain members of the Company’s Board of Directors and employees who had previously been owners and/or employees of BRE, upon the occurrence of certain events (see Note 4). During the three and six months ended June 30, 2021, the Company achieved the earnout milestone applicable to tranche 1 of the earnout (see Note 4). As a result, the Company issued
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
4. Internalization
On February 7, 2020, the Company completed the Internalization and 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 Internalization, the Company is required to pay additional earnout consideration of up to $
11
The consideration will consist 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.
On June 16, 2021, the Company achieved a 40-day VWAP of $
For t
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Number of |
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Shares and |
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40-Day |
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(in thousands, except per share amounts) |
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OP Units |
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Approximate |
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VWAP of a |
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|||||
Tranche |
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Earnout Target(a) |
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Payable(b) |
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Amount of Cash (c) |
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REIT Share |
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Applicable Earnout Period |
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2 |
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$ |
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$ |
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$ |
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3 |
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$ |
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$ |
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$ |
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4 |
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$ |
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$ |
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$ |
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(a) Initial contractual value of applicable earnout tranche based on a $
actual per share price of common stock and OP Units at the time an applicable earnout tranche may be earned and paid.
(b) Calculated based on $21.25 price per share/unit of common stock and OP Units.
(c) Excludes dividends declared on tranche 2. Tranches 3 and 4 do not accrue dividends as they are declared.
On July 14, 2021 the Company achieved a 40-day VWAP of $
Condensed Pro Forma Financial Information (Unaudited)
The following pro forma information summarizes selected financial information from the Company’s combined results of operations, as if the Internalization had occurred on January 1, 2019. These results contain certain adjustments totaling $
The condensed pro forma financial information is as follows:
|
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For the Three Months Ended |
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For the Six Months Ended |
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(in thousands) |
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June 30, 2020 |
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June 30, 2020 |
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Revenues |
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$ |
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$ |
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Net income |
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12
5. Acquisitions of Rental Property
The Company closed on the following acquisitions during the six months ended June 30, 2021:
(in thousands, except number of properties) |
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Number of |
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Real Estate |
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Date |
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Property Type |
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Properties |
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Acquisition Price |
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February 5, 2021 |
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$ |
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February 26, 2021 |
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(a) |
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March 11, 2021 |
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March 30, 2021 |
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March 31, 2021 |
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June 4, 2021 |
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June 9, 2021 |
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June 9, 2021 |
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June 25, 2021 |
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June 28, 2021 |
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June 30, 2021 |
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June 30, 2021 |
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$ |
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(b) |
(a) Acquisition of additional land adjacent to an existing property.
(b) Acquisition price does not include capitalized acquisition costs of $
The Company did
The Company allocated the purchase price of these properties to the fair value of the assets acquired and liabilities assumed.
|
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For the Six Months Ended |
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(in thousands) |
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June 30, 2021 |
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Land |
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$ |
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Land improvements |
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Buildings and improvements |
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Acquired in-place leases(c) |
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Acquired above-market lease (d) |
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$ |
|
(c) The weighted average amortization period for acquired in-place leases is
(d) The weighted average amortization period for acquired above-market leases is
The above acquisitions were funded using a combination of available cash on hand and revolving credit facility borrowings. All real estate acquisitions closed during the six months ended June 30, 2021, qualified as asset acquisitions and, as such, acquisition costs have been capitalized.
13
Subsequent to June 30, 2021, the Company closed on the following acquisitions (see Note 19):
(in thousands, except number of properties) |
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Number of |
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|
Real Estate |
|
||||
Date |
|
Property Type |
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Properties |
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Acquisition Price |
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July 2, 2021 |
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(e) |
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$ |
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July 21, 2021 |
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July 29, 2021 |
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July 29, 2021 |
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July 30, 2021 |
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$ |
|
(e) Acquisition of land related to an existing property.
6. Sale of Real Estate
The Company closed on the following sales of real estate, none of which qualified as discontinued operations:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands, except number of properties) |
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2021 |
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2020 |
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2021 |
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2020 |
|
||||
Number of properties disposed |
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Aggregate sale price |
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$ |
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$ |
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$ |
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$ |
|
||||
Aggregate carrying value |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Additional sales expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gain on sale of real estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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, and other industries. At June 30, 2021, the Company had
Investment in Rental Property – Accounted for Using the Operating Method
Rental property subject to non-cancelable operating leases with tenants was as follows:
(in thousands) |
|
June 30, |
|
|
December 31, |
|
||
Land |
|
$ |
|
|
$ |
|
||
Land improvements |
|
|
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|
||
Buildings and improvements |
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Equipment |
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|
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Less accumulated depreciation |
|
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( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
Depreciation expense on investment in rental property was as follows:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Depreciation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
14
Estimated lease payments to be received under non-cancelable operating leases with tenants at June 30, 2021 are as follows:
(in thousands) |
|
|
|
|
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
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2024 |
|
|
|
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2025 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
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. During the three months ended June 30, 2021, the Company executed a lease amendment that provides a tenant the option, but not the obligation, to early terminate its lease in exchange for a termination payment representing approximately
Investment in Rental Property – Direct Financing Leases
The Company’s net investment in direct financing leases was comprised of the following:
(in thousands) |
|
June 30, |
|
|
December 31, |
|
||
Undiscounted estimated lease payments to be received |
|
$ |
|
|
$ |
|
||
Estimated unguaranteed residual values |
|
|
|
|
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|
||
Unearned revenue |
|
|
( |
) |
|
|
( |
) |
Reserve for credit losses |
|
|
( |
) |
|
|
( |
) |
Net investment in direct financing leases |
|
$ |
|
|
$ |
|
Undiscounted estimated lease payments to be received under non-cancelable direct financing leases with tenants at June 30, 2021 are as follows:
(in thousands) |
|
|
|
|
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
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.
15
The following table summarizes amounts reported as Lease revenues, net on the Condensed Consolidated Statements of Income and Comprehensive Income (Loss):
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Contractual rental amounts billed for operating leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Adjustment to recognize contractual operating lease billings on a |
|
|
|
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|
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|
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|
||||
Variable rental amounts earned |
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|
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|
||||
Earned income from direct financing leases |
|
|
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|
||||
Earned income from sales-type leases |
|
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|
||||
Operating expenses billed to tenants |
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|
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|
||||
Other income from real estate transactions |
|
|
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|
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|
||||
Adjustment to revenue recognized for uncollectible rental amounts |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total Lease revenues, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
8. Intangible Assets and Liabilities
The following is a summary of intangible assets and liabilities and related accumulated amortization:
(in thousands) |
|
June 30, |
|
|
December 31, |
|
||
Lease intangibles: |
|
|
|
|
|
|
||
Acquired above-market leases |
|
$ |
|
|
$ |
|
||
Less accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Acquired above-market leases, net |
|
|
|
|
|
|
||
Acquired in-place leases |
|
|
|
|
|
|
||
Less accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Acquired in-place leases, net |
|
|
|
|
|
|
||
Total intangible lease assets, net |
|
$ |
|
|
$ |
|
||
Acquired below-market leases |
|
$ |
|
|
$ |
|
||
Less accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Intangible lease liabilities, net |
|
$ |
|
|
$ |
|
||
Leasing fees |
|
$ |
|
|
$ |
|
||
Less accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Leasing fees, net |
|
$ |
|
|
$ |
|
Amortization of intangible lease assets and liabilities was as follows:
(in thousands) |
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
Intangible |
|
Financial Statement Presentation |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Acquired in-place leases and leasing fees |
|
Depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Above-market and below-market leases |
|
Lease revenues, net |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
Amortization expense for the three and six months ended June 30, 2020, includes $
Estimated future amortization of intangible assets and liabilities at June 30, 2021 is as follows:
(in thousands) |
|
|
|
|
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
16
9. Unsecured Credit Agreements
The following table summarizes the Company’s unsecured credit agreements:
|
|
Outstanding Balance |
|
|
|
|
|
|||||
(in thousands, except interest rates) |
|
June 30, |
|
|
December 31, |
|
|
Interest |
|
Maturity |
||
Unsecured revolving credit facility(a) |
|
$ |
|
|
$ |
|
|
(e) (f) |
|
|||
2022 Unsecured Term Loan(a) |
|
|
|
|
|
|
|
|
||||
2023 Unsecured Term Loan(a) |
|
|
|
|
|
|
|
|
||||
2024 Unsecured Term Loan(a) |
|
|
|
|
|
|
|
|
||||
2026 Unsecured Term Loan(a) |
|
|
|
|
|
|
|
|
||||
Senior Notes(a) |
|
|
|
|
|
|
|
|
|
|
||
Series A |
|
|
|
|
|
|
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|
||||
Series B |
|
|
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|
||||
Series C |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||
Total unsecured debt |
|
|
|
|
|
|
|
|
|
|
||
Debt issuance costs, net(b) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Total unsecured debt, net |
|
$ |
|
|
$ |
|
|
|
|
|
(a) The Company believes it was in compliance with all financial covenants for all periods presented.
(b) Amounts presented include debt issuance costs, net, related to the unsecured term notes and senior notes only.
(c) At June 30, 2021 and December 31, 2020, one-month LIBOR was
(d) In January 2021, the Company received a credit rating of BBB, changing the applicable margin on variable rate unsecured debt effective February 1, 2021.
(e) At June 30, 2021, borrowings on the revolving credit facility were subject to interest at one-month LIBOR plus
(f) At December 31, 2020, interest rate was one-month LIBOR plus
(g) At December 31, 2020, interest rate was one-month LIBOR plus
(h) At December 31, 2020, interest rate was one-month LIBOR plus
(i) At December 31, 2020, interest rate was one-month LIBOR plus
At June 30, 2021, the weighted average interest rate on all outstanding borrowings was
On March 12, 2021, the Company amended the 2026 Unsecured Term Loan and made a $
For the six months ended June 30, 2021, the Company paid $
Additionally, $
Debt issuance costs are amortized as a component of interest expense in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss).
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Debt issuance costs amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
17
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, and debt service coverage, among others. As of June 30, 2021, 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.
10. Mortgages
The Company’s mortgages consist of the following:
|
|
Origination |
|
Maturity |
|
|
|
|
|
|
|
|
|
|
||
(in thousands, except interest rates) |
|
Date |
|
Date |
|
Interest |
|
June 30, |
|
|
December 31, |
|
|
|
||
Lender |
|
(Month/Year) |
|
(Month/Year) |
|
Rate |
|
2021 |
|
|
2020 |
|
|
|
||
Wilmington Trust National Association |
|
|
|
|
$ |
|
|
$ |
|
|
(a) (b) (c) (j) |
|||||
Wilmington Trust National Association |
|
|
|
|
|
|
|
|
|
|
(a) (b) (c) (i) |
|||||
PNC Bank |
|
|
|
|
|
|
|
|
|
|
(b) (c) |
|||||
Sun Life |
|
|
|
|
|
|
|
|
|
|
(b) (e) (k) |
|||||
Aegon |
|
|
|
|
|
|
|
|
|
|
(b) (f) |
|||||
M&T Bank |
|
|
|
|
|
|
|
|
|
|
|
(b) (d) (g) (h) (l) |
||||
Total mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Debt issuance costs, net |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
Mortgages, net |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
(a) Non-recourse debt includes the indemnification/guaranty of the Corporation and/or OP pertaining to fraud, environmental claims, insolvency and other matters.
(b) Debt secured by related rental property and lease rents.
(c) Debt secured by guaranty of the OP.
(d) Debt secured by guaranty of the Corporation.
(e) Mortgage was assumed in March 2012 as part of an UPREIT transaction. The debt was recorded at fair value at the time of the assumption.
(f) Mortgage was assumed in April 2012 as part of the acquisition of the related property. The debt was recorded at fair value at the time of the assumption.
(g) The Company entered into an interest rate swap agreement in connection with the mortgage, as further described in Note 11.
(h) Mortgage was assumed in October 2017 as part of an UPREIT transaction. The debt was recorded at fair value at the time of the assumption.
(i) Mortgage was assumed in June 2018 as part of the acquisition of the related property. The debt was recorded at fair value at the time of assumption.
(j) Mortgage was assumed in April 2019 as part of the acquisition of the related property. The debt was recorded at fair value at the time of assumption.
(k) Mortgage was refinanced on July 30, 2021, see Note 19.
(l) Mortgage was paid in full on August 1, 2021, see Note 19.
At June 30, 2021, investment in rental property of $
Estimated future principal payments to be made under the above mortgages and the Company’s unsecured credit agreements (see Note 9) at June 30, 2021 are as follows:
(in thousands) |
|
|
|
|
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
18
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:
(in thousands, except interest rates) |
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|||||||||
Counterparty |
|
Maturity Date |
|
Fixed |
|
|
Variable Rate Index |
|
Notional |
|
|
June 30, |
|
|
December 31, |
|
|
||||
Bank of America, N.A. |
|
|
|
% |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
||||
Bank of Montreal |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Bank of Montreal |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Bank of Montreal |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Bank of Montreal |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Bank of Montreal |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Bank of Montreal |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Bank of Montreal |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Bank of Montreal |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Bank of Montreal |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Capital One, National Association |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Capital One, National Association |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Capital One, National Association |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Capital One, National Association |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Capital One, National Association |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Capital One, National Association |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
M&T Bank |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
(a), (b) |
||||
M&T Bank |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
M&T Bank |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Regions Bank |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Regions Bank |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Regions Bank |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Truist Financial Corporation |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Truist Financial Corporation |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Truist Financial Corporation |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Truist Financial Corporation |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Truist Financial Corporation |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
U.S. Bank National Association |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
U.S. Bank National Association |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Wells Fargo Bank, N.A. |
|
|
|
% |
|
|
|
|
|
|
|
|
|
( |
) |
|
|||||
Wells Fargo Bank, N.A. |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Wells Fargo Bank, N.A. |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
Wells Fargo Bank, N.A. |
|
|
|
% |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
(a) Notional amount at December 31, 2020 was $
(b) Interest rate swap was assumed in
19
The total amounts recognized, and the location in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss), from converting from variable rates to fixed rates under these agreements were as follows:
|
|
|
|
|
Reclassification from |
|
|
Total Interest Expense |
|
|||||
|
|
Amount of Loss |
|
|
Accumulated Other |
|
|
Presented in the Condensed |
|
|||||
|
|
Recognized in |
|
|
Comprehensive Loss |
|
|
Consolidated Statements of |
|
|||||
(in thousands) |
|
Accumulated Other |
|
|
|
|
Amount of |
|
|
Income and Comprehensive |
|
|||
For the Three Months Ended June 30, |
|
Comprehensive Loss |
|
|
Location |
|
Loss |
|
|
Income (Loss) |
|
|||
2021 |
|
$ |
( |
) |
|
|
$ |
|
|
$ |
|
|||
2020 |
|
|
( |
) |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Amount of Gain |
|
|
Reclassification from |
|
|
Total Interest Expense |
|
|||||
|
|
(Loss) |
|
|
Accumulated Other |
|
|
Presented in the Condensed |
|
|||||
|
|
Recognized in |
|
|
Comprehensive Loss |
|
|
Consolidated Statements of |
|
|||||
(in thousands) |
|
Accumulated Other |
|
|
|
|
Amount of |
|
|
Income and Comprehensive |
|
|||
For the Six Months Ended June 30, |
|
Comprehensive Loss |
|
|
Location |
|
Loss |
|
|
Income (Loss) |
|
|||
2021 |
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
2020 |
|
|
( |
) |
|
|
|
|
|
|
|
12. Non-Controlling Interests
The following table summarizes OP Units exchanged for shares of common stock:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
OP Units exchanged for shares of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Value of units exchanged |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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
13. Credit Risk Concentrations
The Company maintained bank balances that, at times, exceeded the federally insured limit during the six months ended June 30, 2021. 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.
The Company has mortgages with three institutions that comprised
14. Equity
General
On June 28, 2021, the Corporation completed its first public follow-on equity offering and issued
On September 21, 2020, the Corporation completed its IPO and issued
Aside from the conversion discussed below, the terms of the Class A Common Stock were identical to the terms of the Common Stock. Each share of Class A Common Stock automatically converted into one share of Common Stock on March 20, 2021, and effective
20
March 22, 2021, all shares of Common Stock were listed and freely tradeable on the NYSE under the ticker “BNL.” The Common Stock and Class A Common Stock are collectively referred to as the Corporation’s “common stock.”
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
15. Stock-Based Compensation
Restricted Stock Awards
On March 1, 2021, the Company awarded
The following table presents information about the Company’s RSAs:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||
(in thousands) |
|
June 30, 2021 |
|
|
June 30, 2021 |
|
||
Compensation cost |
|
$ |
|
|
$ |
|
||
Dividends declared on unvested RSAs |
|
|
|
|
|
|
||
Grant date fair value of shares vested during the period |
|
|
|
|
|
|
There were
(in thousands, except recognition period) |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
Unamortized value of RSAs |
|
$ |
|
|
$ |
|
||
Weighted average amortization period (in years) |
|
|
|
|
|
|
The following table presents information about the Company’s RSA activity:
|
|
For the Three Months Ended June 30, 2021 |
|
|
For the Six Months Ended June 30, 2021 |
|
||||||||||
(in thousands, except per share amounts) |
|
Number of Shares |
|
|
Weighted Average |
|
|
Number of Shares |
|
|
Weighted Average |
|
||||
Unvested at beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unvested at end of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
There were
Performance-based Restricted Stock Units
On March 1, 2021, the Company issued target grants of
21
The following table presents information about the Company’s PRSUs:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||
(in thousands, except recognition period) |
|
June 30, 2021 |
|
|
June 30, 2021 |
|
||
Compensation cost |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
June 30, 2021 |
|
||
Unamortized value of PRSUs |
|
|
|
|
$ |
|
||
Weighted average amortization period (in years) |
|
|
|
|
|
|
There were
The following table presents information about the Company’s PRSU activity:
|
|
For the Three Months Ended June 30, 2021 |
|
|
For the Six Months Ended June 30, 2021 |
|
||||||||||
(in thousands, except per share amounts) |
|
Number of Shares |
|
|
Weighted Average |
|
|
Number of Shares |
|
|
Weighted Average |
|
||||
Unvested at beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested at end of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
22
16. Earnings per Share
The following table summarizes the components used in the calculation of basic and diluted earnings per share (“EPS”):
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands, except per share amounts) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Basic earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net earnings attributable to Broadstone Net Lease, Inc. common |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Less earnings allocated to unvested restricted shares |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net earnings used to compute basic earnings per common share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net earnings used to compute basic earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net earnings attributable to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net earnings used to compute diluted earnings per common share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less weighted average unvested restricted shares (a) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Weighted average number of common shares outstanding used in |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effects of restricted stock units (b) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effects of convertible membership units (c) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of common shares outstanding used in |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
(a) Represents the weighted average effects of
earnings per share until they vest. The shares of restricted common stock were not included in the calculation of diluted earnings per share, as the effect of doing
so would have been anti-dilutive.
(b) Represents the weighted average effects of shares of common stock to be issued as though the end of the period were the end of the performance period (see Note
15).
(c) Represents the weighted average effects of
earnings per share calculation. However, because such OP Units would also require that the share of the net income attributable to such OP units also be added
back to net income, there is no effect to EPS.
17. Supplemental Cash Flow Disclosures
Cash paid for interest was $
The following are non-cash transactions and have been excluded from the accompanying Condensed Consolidated Statements of Cash Flows:
23
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 costs 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.
Balances associated with tenant improvement allowances are included in Accounts payable and other liabilities on the Condensed Consolidated Balance Sheets as follows:
(in thousands) |
|
June 30, |
|
|
December 31, |
|
||
Tenant improvement allowances |
|
$ |
|
|
$ |
|
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, 2021, taxable sales of the applicable properties would trigger liability under the agreements of approximately $
Obligations Under Operating Leases
Subsequent to the Internalization, the Company leases office space for its corporate headquarters and other locations under non-cancellable operating leases with expiration dates ranging from
The Company also leases land at certain properties under non-cancellable operating leases (“ground leases”) with initial lease terms ranging from
The following table summarizes the total lease costs associated with operating leases:
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands) |
|
Financial Statement Presentation |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Operating lease costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Office leases |
|
General and administrative |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Ground leases |
|
Property and operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable lease costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Ground leases |
|
Property and operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease costs |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
24
The following table summarizes payments associated with obligations under operating leases, reported as Net cash provided by operating activities on the accompanying Condensed Consolidated Statements of Cash Flows:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Operating lease payments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Estimated future lease payments required under non-cancelable operating leases at June 30, 2021, and a reconciliation to the lease liabilities, is as follows:
(in thousands) |
|
|
|
|
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
Total undiscounted cash flows |
|
|
|
|
Less imputed interest |
|
|
( |
) |
Lease liabilities |
|
$ |
|
19. Subsequent Events
On July 15, 2021, the Company paid distributions totaling $
On
Subsequent to June 30, 2021, the Company continued to expand its operations through the acquisition of additional rental property and associated intangible assets and liabilities. The Company acquired approximately $
Subsequent to June 30, 2021, the Company paid one mortgage with a principal balance of $
On July 14, 2021, the Company achieved a 40-day VWAP of $23.75, thereby triggering the payout of tranche 2 of the earnout representing
25
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 (the “OP”), 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.
Cautionary Note Regarding Forward-Looking Statements
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 2020 Annual Report on Form 10-K, as filed with the SEC on February 25, 2021. The “Risk Factors” of our 2020 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.
Explanatory Note and Certain Defined Terms
Unless the context otherwise requires, the following terms and phrases are used throughout this MD&A as described below:
26
Overview
We acquire, own, and manage 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. As of June 30, 2021, our portfolio has grown to 684 properties, with 683 properties located in 42 U.S. states and one property located in British Columbia, Canada.
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 for which there 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 their core business operations rather than real estate ownership.
27
Real Estate Portfolio Information
The following charts summarize our portfolio diversification by property type, tenant, brand, industry, and geographic location as of June 30, 2021. The percentages below are calculated based on our ABR of $313.2 million as of June 30, 2021.
Diversification by Property Type
28
Property Type |
|
# Properties |
|
|
ABR |
|
|
ABR as a % of |
|
|
Square Feet |
|
|
SF as a % of |
|
|||||
Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Distribution & Warehouse |
|
|
42 |
|
|
$ |
46,668 |
|
|
|
14.9 |
% |
|
|
8,950 |
|
|
|
29.6 |
% |
Manufacturing |
|
|
56 |
|
|
|
42,724 |
|
|
|
13.6 |
% |
|
|
7,732 |
|
|
|
25.6 |
% |
Food Processing |
|
|
14 |
|
|
|
18,455 |
|
|
|
5.9 |
% |
|
|
2,132 |
|
|
|
7.1 |
% |
Flex and R&D |
|
|
7 |
|
|
|
16,934 |
|
|
|
5.4 |
% |
|
|
1,457 |
|
|
|
4.8 |
% |
Cold Storage |
|
|
4 |
|
|
|
12,600 |
|
|
|
4.0 |
% |
|
|
933 |
|
|
|
3.1 |
% |
Services |
|
|
19 |
|
|
|
7,787 |
|
|
|
2.5 |
% |
|
|
445 |
|
|
|
1.5 |
% |
Industrial Total |
|
|
142 |
|
|
|
145,168 |
|
|
|
46.3 |
% |
|
|
21,649 |
|
|
|
71.7 |
% |
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Clinical |
|
|
50 |
|
|
|
24,831 |
|
|
|
7.9 |
% |
|
|
1,055 |
|
|
|
3.6 |
% |
Animal Health Services |
|
|
27 |
|
|
|
10,188 |
|
|
|
3.3 |
% |
|
|
405 |
|
|
|
1.3 |
% |
Surgical |
|
|
11 |
|
|
|
9,592 |
|
|
|
3.1 |
% |
|
|
316 |
|
|
|
1.0 |
% |
Healthcare Services |
|
|
27 |
|
|
|
7,829 |
|
|
|
2.5 |
% |
|
|
315 |
|
|
|
1.0 |
% |
Life Science |
|
|
9 |
|
|
|
7,539 |
|
|
|
2.4 |
% |
|
|
549 |
|
|
|
1.8 |
% |
Untenanted |
|
|
2 |
|
|
|
- |
|
|
|
0.0 |
% |
|
|
23 |
|
|
|
0.1 |
% |
Healthcare Total |
|
|
126 |
|
|
|
59,979 |
|
|
|
19.2 |
% |
|
|
2,663 |
|
|
|
8.8 |
% |
Restaurant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Quick Service Restaurants |
|
|
148 |
|
|
|
24,468 |
|
|
|
7.8 |
% |
|
|
505 |
|
|
|
1.7 |
% |
Casual Dining |
|
|
84 |
|
|
|
19,657 |
|
|
|
6.3 |
% |
|
|
543 |
|
|
|
1.8 |
% |
Untenanted |
|
|
2 |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
10 |
|
|
|
0.0 |
% |
Restaurant Total |
|
|
234 |
|
|
|
44,125 |
|
|
|
14.1 |
% |
|
|
1,058 |
|
|
|
3.5 |
% |
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
General Merchandise |
|
|
82 |
|
|
|
14,472 |
|
|
|
4.6 |
% |
|
|
1,072 |
|
|
|
3.5 |
% |
Automotive |
|
|
68 |
|
|
|
12,830 |
|
|
|
4.1 |
% |
|
|
844 |
|
|
|
2.8 |
% |
Home Furnishings |
|
|
13 |
|
|
|
6,916 |
|
|
|
2.2 |
% |
|
|
797 |
|
|
|
2.6 |
% |
Untenanted |
|
|
2 |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
63 |
|
|
|
0.2 |
% |
Retail Total |
|
|
165 |
|
|
|
34,218 |
|
|
|
10.9 |
% |
|
|
2,776 |
|
|
|
9.1 |
% |
Office |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Strategic Operations |
|
|
7 |
|
|
|
13,835 |
|
|
|
4.4 |
% |
|
|
1,021 |
|
|
|
3.4 |
% |
Corporate Headquarters |
|
|
6 |
|
|
|
10,167 |
|
|
|
3.3 |
% |
|
|
671 |
|
|
|
2.2 |
% |
Call Center |
|
|
4 |
|
|
|
5,731 |
|
|
|
1.8 |
% |
|
|
392 |
|
|
|
1.3 |
% |
Office Total |
|
|
17 |
|
|
|
29,733 |
|
|
|
9.5 |
% |
|
|
2,084 |
|
|
|
6.9 |
% |
Total |
|
|
684 |
|
|
$ |
313,223 |
|
|
|
100.0 |
% |
|
|
30,230 |
|
|
|
100.0 |
% |
29
Diversification by Tenant
Tenant |
|
Property Type |
|
# Properties |
|
|
ABR |
|
|
ABR as a % |
|
|
Square Feet |
|
|
SF as a % |
|
|||||
Red Lobster Hospitality & Red Lobster |
|
Casual Dining |
|
|
24 |
|
|
$ |
7,307 |
|
|
|
2.3 |
% |
|
|
196 |
|
|
|
0.6 |
% |
Jack's Family Restaurants LP* |
|
Quick Service Restaurants |
|
|
43 |
|
|
|
7,026 |
|
|
|
2.2 |
% |
|
|
147 |
|
|
|
0.5 |
% |
Joseph T. Ryerson & Son, Inc |
|
Distribution & Warehouse |
|
|
11 |
|
|
|
6,395 |
|
|
|
2.0 |
% |
|
|
1,537 |
|
|
|
5.1 |
% |
Axcelis Technologies, Inc. |
|
Flex and R&D |
|
|
1 |
|
|
|
5,859 |
|
|
|
1.9 |
% |
|
|
417 |
|
|
|
1.4 |
% |
Hensley & Company* |
|
Distribution & Warehouse |
|
|
3 |
|
|
|
5,756 |
|
|
|
1.8 |
% |
|
|
577 |
|
|
|
1.9 |
% |
BluePearl Holdings, LLC* |
|
Animal Health Services |
|
|
13 |
|
|
|
5,308 |
|
|
|
1.7 |
% |
|
|
160 |
|
|
|
0.5 |
% |
Outback Steakhouse of Florida LLC*1 |
|
Casual Dining |
|
|
22 |
|
|
|
5,192 |
|
|
|
1.7 |
% |
|
|
140 |
|
|
|
0.5 |
% |
Krispy Kreme Doughnut Corporation |
|
Quick Service Restaurants/ |
|
|
27 |
|
|
|
5,034 |
|
|
|
1.6 |
% |
|
|
156 |
|
|
|
0.5 |
% |
Siemens Medical Solutions USA, Inc. & |
|
Manufacturing/Flex |
|
|
2 |
|
|
|
4,862 |
|
|
|
1.6 |
% |
|
|
545 |
|
|
|
1.8 |
% |
Big Tex Trailer Manufacturing, Inc.* |
|
Automotive/Distribution & |
|
|
17 |
|
|
|
4,860 |
|
|
|
1.6 |
% |
|
|
1,302 |
|
|
|
4.3 |
% |
Total Top 10 Tenants |
|
|
|
|
163 |
|
|
|
57,599 |
|
|
|
18.4 |
% |
|
|
5,177 |
|
|
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Nestle' Dreyer's Ice Cream Company |
|
Cold Storage |
|
|
1 |
|
|
|
4,409 |
|
|
|
1.4 |
% |
|
|
310 |
|
|
|
1.0 |
% |
Arkansas Surgical Hospital |
|
Surgical |
|
|
1 |
|
|
|
4,260 |
|
|
|
1.4 |
% |
|
|
129 |
|
|
|
0.4 |
% |
Nationwide Mutual Insurance Company* |
|
Strategic Operations |
|
|
2 |
|
|
|
4,248 |
|
|
|
1.4 |
% |
|
|
407 |
|
|
|
1.3 |
% |
Cascade Aerospace Inc. |
|
Manufacturing |
|
|
1 |
|
|
|
4,187 |
|
|
|
1.4 |
% |
|
|
231 |
|
|
|
0.8 |
% |
American Signature, Inc. |
|
Home Furnishings |
|
|
6 |
|
|
|
4,141 |
|
|
|
1.3 |
% |
|
|
474 |
|
|
|
1.6 |
% |
Tractor Supply Company |
|
General Merchandise |
|
|
15 |
|
|
|
3,872 |
|
|
|
1.2 |
% |
|
|
300 |
|
|
|
1.0 |
% |
Fresh Express Incorporated |
|
Food Processing |
|
|
1 |
|
|
|
3,869 |
|
|
|
1.2 |
% |
|
|
335 |
|
|
|
1.1 |
% |
Aventiv Technologies, LLC |
|
Corporate Headquarters |
|
|
1 |
|
|
|
3,819 |
|
|
|
1.2 |
% |
|
|
154 |
|
|
|
0.5 |
% |
Dollar General Corporation |
|
General Merchandise |
|
|
35 |
|
|
|
3,510 |
|
|
|
1.1 |
% |
|
|
320 |
|
|
|
1.1 |
% |
Centene Management Company, LLC |
|
Strategic Operations |
|
|
1 |
|
|
|
3,377 |
|
|
|
1.1 |
% |
|
|
220 |
|
|
|
0.8 |
% |
Total Top 20 Tenants |
|
|
|
|
227 |
|
|
$ |
97,291 |
|
|
|
31.1 |
% |
|
|
8,057 |
|
|
|
26.7 |
% |
1 Tenant’s properties include 20 Outback Steakhouse restaurants and two Carrabba’s Italian Grill restaurants.
* Subject to a master lease.
Diversification by Brand
Brand |
|
Property Type |
|
# Properties |
|
|
ABR |
|
|
ABR as a % |
|
|
Square Feet |
|
|
SF as a % |
|
|||||
Red Lobster* |
|
Casual Dining |
|
|
24 |
|
|
$ |
7,307 |
|
|
|
2.3 |
% |
|
|
196 |
|
|
|
0.6 |
% |
Jack's Family Restaurants* |
|
Quick Service Restaurants |
|
|
43 |
|
|
|
7,026 |
|
|
|
2.2 |
% |
|
|
147 |
|
|
|
0.5 |
% |
Ryerson |
|
Distribution & Warehouse |
|
|
11 |
|
|
|
6,395 |
|
|
|
2.0 |
% |
|
|
1,537 |
|
|
|
5.1 |
% |
Axcelis |
|
Flex and R&D |
|
|
1 |
|
|
|
5,859 |
|
|
|
1.9 |
% |
|
|
417 |
|
|
|
1.4 |
% |
Hensley* |
|
Distribution & Warehouse |
|
|
3 |
|
|
|
5,756 |
|
|
|
1.8 |
% |
|
|
577 |
|
|
|
1.9 |
% |
BluePearl Veterinary Partners* |
|
Animal Health Services |
|
|
13 |
|
|
|
5,308 |
|
|
|
1.7 |
% |
|
|
160 |
|
|
|
0.5 |
% |
Bob Evans Farms*1 |
|
Casual Dining/Food |
|
|
21 |
|
|
|
5,246 |
|
|
|
1.7 |
% |
|
|
282 |
|
|
|
1.0 |
% |
Krispy Kreme |
|
Quick Service Restaurants/ |
|
|
27 |
|
|
|
5,034 |
|
|
|
1.6 |
% |
|
|
156 |
|
|
|
0.5 |
% |
Siemens |
|
Manufacturing/Flex |
|
|
2 |
|
|
|
4,862 |
|
|
|
1.6 |
% |
|
|
545 |
|
|
|
1.8 |
% |
Big Tex Trailers* |
|
Automotive/Distribution & |
|
|
17 |
|
|
|
4,860 |
|
|
|
1.6 |
% |
|
|
1,302 |
|
|
|
4.3 |
% |
Total Top 10 Brands |
|
|
|
|
162 |
|
|
|
57,653 |
|
|
|
18.4 |
% |
|
|
5,319 |
|
|
|
17.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Wendy's** |
|
Quick Service Restaurants |
|
|
31 |
|
|
|
4,532 |
|
|
|
1.5 |
% |
|
|
88 |
|
|
|
0.3 |
% |
Outback Steakhouse* |
|
Casual Dining |
|
|
20 |
|
|
|
4,492 |
|
|
|
1.4 |
% |
|
|
126 |
|
|
|
0.4 |
% |
Nestle' |
|
Cold Storage |
|
|
1 |
|
|
|
4,409 |
|
|
|
1.4 |
% |
|
|
310 |
|
|
|
1.0 |
% |
Arkansas Surgical Hospital |
|
Surgical |
|
|
1 |
|
|
|
4,260 |
|
|
|
1.4 |
% |
|
|
129 |
|
|
|
0.4 |
% |
Nationwide Mutual Insurance Co.* |
|
Strategic Operations |
|
|
2 |
|
|
|
4,248 |
|
|
|
1.4 |
% |
|
|
407 |
|
|
|
1.3 |
% |
Cascade Aerospace |
|
Manufacturing |
|
|
1 |
|
|
|
4,187 |
|
|
|
1.4 |
% |
|
|
231 |
|
|
|
0.8 |
% |
Value City Furniture |
|
Home Furnishings |
|
|
6 |
|
|
|
4,142 |
|
|
|
1.3 |
% |
|
|
474 |
|
|
|
1.6 |
% |
Taco Bell** |
|
Quick Service Restaurants |
|
|
31 |
|
|
|
4,101 |
|
|
|
1.3 |
% |
|
|
80 |
|
|
|
0.3 |
% |
Tractor Supply Co. |
|
General Merchandise |
|
|
15 |
|
|
|
3,872 |
|
|
|
1.2 |
% |
|
|
300 |
|
|
|
1.0 |
% |
Chiquita |
|
Food Processing |
|
|
1 |
|
|
|
3,869 |
|
|
|
1.2 |
% |
|
|
335 |
|
|
|
1.1 |
% |
Total Top 20 Brands |
|
|
|
|
271 |
|
|
$ |
99,765 |
|
|
|
31.9 |
% |
|
|
7,799 |
|
|
|
25.8 |
% |
1 Brand includes one BEF Foods, Inc property and 20 Bob Evans Restaurants, LLC properties.
* Subject to a master lease.
** Includes properties leased by multiple tenants, some, not all, of which are subject to master leases.
30
Diversification by Industry
Industry |
|
# Properties |
|
|
ABR |
|
|
ABR as a % |
|
|
Square Feet ('000s) |
|
|
ABR as a % |
|
|||||
Healthcare Facilities |
|
|
99 |
|
|
$ |
47,073 |
|
|
|
15.0 |
% |
|
|
1,874 |
|
|
|
6.2 |
% |
Restaurants |
|
|
234 |
|
|
|
44,788 |
|
|
|
14.3 |
% |
|
|
1,082 |
|
|
|
3.6 |
% |
Distributors |
|
|
24 |
|
|
|
13,889 |
|
|
|
4.4 |
% |
|
|
2,519 |
|
|
|
8.3 |
% |
Food Distributors |
|
|
7 |
|
|
|
12,957 |
|
|
|
4.1 |
% |
|
|
1,556 |
|
|
|
5.1 |
% |
Auto Parts & Equipment |
|
|
39 |
|
|
|
12,396 |
|
|
|
4.0 |
% |
|
|
2,387 |
|
|
|
7.9 |
% |
Specialized Consumer Services |
|
|
47 |
|
|
|
12,004 |
|
|
|
3.8 |
% |
|
|
720 |
|
|
|
2.4 |
% |
Packaged Foods & Meats |
|
|
6 |
|
|
|
11,390 |
|
|
|
3.6 |
% |
|
|
1,130 |
|
|
|
3.7 |
% |
Metal & Glass Containers |
|
|
8 |
|
|
|
9,686 |
|
|
|
3.1 |
% |
|
|
2,206 |
|
|
|
7.3 |
% |
Healthcare Services |
|
|
18 |
|
|
|
9,018 |
|
|
|
2.9 |
% |
|
|
515 |
|
|
|
1.7 |
% |
Home Furnishing Retail |
|
|
16 |
|
|
|
8,696 |
|
|
|
2.8 |
% |
|
|
1,149 |
|
|
|
3.8 |
% |
Specialty Stores |
|
|
19 |
|
|
|
8,279 |
|
|
|
2.7 |
% |
|
|
1,023 |
|
|
|
3.4 |
% |
Aerospace & Defense |
|
|
6 |
|
|
|
7,825 |
|
|
|
2.5 |
% |
|
|
921 |
|
|
|
3.0 |
% |
Electronic Components |
|
|
2 |
|
|
|
6,658 |
|
|
|
2.1 |
% |
|
|
466 |
|
|
|
1.6 |
% |
Air Freight & Logistics |
|
|
3 |
|
|
|
6,516 |
|
|
|
2.1 |
% |
|
|
436 |
|
|
|
1.5 |
% |
General Merchandise Stores |
|
|
60 |
|
|
|
6,090 |
|
|
|
2.0 |
% |
|
|
533 |
|
|
|
1.8 |
% |
Other (40 industries) |
|
|
90 |
|
|
|
95,958 |
|
|
|
30.6 |
% |
|
|
11,617 |
|
|
|
38.4 |
% |
Untenanted properties |
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
96 |
|
|
|
0.3 |
% |
Total |
|
|
684 |
|
|
$ |
313,223 |
|
|
|
100.0 |
% |
|
|
30,230 |
|
|
|
100.0 |
% |
31
Diversification by Geography
State |
|
# |
|
|
ABR |
|
|
ABR as a |
|
|
Square Feet ('000s) |
|
|
SF as a % |
|
|
|
State |
|
# |
|
|
ABR |
|
|
ABR as a |
|
|
Square Feet ('000s) |
|
|
SF as a % |
|
||||||||||
TX |
|
|
59 |
|
|
$ |
32,074 |
|
|
|
10.2 |
% |
|
|
3,366 |
|
|
|
11.1 |
% |
|
|
MO |
|
|
10 |
|
|
$ |
4,781 |
|
|
|
1.5 |
% |
|
|
959 |
|
|
|
3.2 |
% |
IL |
|
|
26 |
|
|
|
19,922 |
|
|
|
6.4 |
% |
|
|
1,991 |
|
|
|
6.6 |
% |
|
|
WA |
|
|
15 |
|
|
|
4,185 |
|
|
|
1.3 |
% |
|
|
150 |
|
|
|
0.5 |
% |
FL |
|
|
47 |
|
|
|
16,345 |
|
|
|
5.2 |
% |
|
|
859 |
|
|
|
2.8 |
% |
|
|
KY |
|
|
18 |
|
|
|
4,110 |
|
|
|
1.3 |
% |
|
|
338 |
|
|
|
1.1 |
% |
CA |
|
|
11 |
|
|
|
15,735 |
|
|
|
5.0 |
% |
|
|
1,554 |
|
|
|
5.1 |
% |
|
|
LA |
|
|
3 |
|
|
|
3,128 |
|
|
|
1.0 |
% |
|
|
175 |
|
|
|
0.6 |
% |
WI |
|
|
32 |
|
|
|
15,655 |
|
|
|
5.0 |
% |
|
|
1,611 |
|
|
|
5.3 |
% |
|
|
NE |
|
|
6 |
|
|
|
2,967 |
|
|
|
0.9 |
% |
|
|
509 |
|
|
|
1.7 |
% |
MI |
|
|
35 |
|
|
|
14,762 |
|
|
|
4.7 |
% |
|
|
1,439 |
|
|
|
4.8 |
% |
|
|
MD |
|
|
4 |
|
|
|
2,903 |
|
|
|
0.9 |
% |
|
|
293 |
|
|
|
1.0 |
% |
OH |
|
|
34 |
|
|
|
14,149 |
|
|
|
4.5 |
% |
|
|
1,364 |
|
|
|
4.5 |
% |
|
|
NM |
|
|
8 |
|
|
|
2,764 |
|
|
|
0.9 |
% |
|
|
96 |
|
|
|
0.3 |
% |
NC |
|
|
35 |
|
|
|
12,810 |
|
|
|
4.1 |
% |
|
|
1,308 |
|
|
|
4.3 |
% |
|
|
MS |
|
|
8 |
|
|
|
2,736 |
|
|
|
0.9 |
% |
|
|
334 |
|
|
|
1.1 |
% |
MN |
|
|
21 |
|
|
|
12,761 |
|
|
|
4.1 |
% |
|
|
2,029 |
|
|
|
6.7 |
% |
|
|
IA |
|
|
4 |
|
|
|
2,704 |
|
|
|
0.9 |
% |
|
|
622 |
|
|
|
2.1 |
% |
IN |
|
|
29 |
|
|
|
12,690 |
|
|
|
4.0 |
% |
|
|
1,759 |
|
|
|
5.8 |
% |
|
|
SC |
|
|
13 |
|
|
|
2,466 |
|
|
|
0.8 |
% |
|
|
308 |
|
|
|
1.0 |
% |
PA |
|
|
16 |
|
|
|
10,923 |
|
|
|
3.5 |
% |
|
|
1,416 |
|
|
|
4.7 |
% |
|
|
WV |
|
|
16 |
|
|
|
2,456 |
|
|
|
0.8 |
% |
|
|
109 |
|
|
|
0.4 |
% |
TN |
|
|
43 |
|
|
|
10,694 |
|
|
|
3.4 |
% |
|
|
516 |
|
|
|
1.7 |
% |
|
|
UT |
|
|
3 |
|
|
|
2,328 |
|
|
|
0.7 |
% |
|
|
280 |
|
|
|
0.9 |
% |
NY |
|
|
26 |
|
|
|
10,532 |
|
|
|
3.4 |
% |
|
|
680 |
|
|
|
2.3 |
% |
|
|
CT |
|
|
2 |
|
|
|
1,690 |
|
|
|
0.5 |
% |
|
|
55 |
|
|
|
0.2 |
% |
MA |
|
|
5 |
|
|
|
10,286 |
|
|
|
3.3 |
% |
|
|
1,026 |
|
|
|
3.4 |
% |
|
|
MT |
|
|
7 |
|
|
|
1,544 |
|
|
|
0.5 |
% |
|
|
43 |
|
|
|
0.1 |
% |
AZ |
|
|
8 |
|
|
|
8,553 |
|
|
|
2.7 |
% |
|
|
761 |
|
|
|
2.5 |
% |
|
|
CO |
|
|
3 |
|
|
|
1,434 |
|
|
|
0.5 |
% |
|
|
94 |
|
|
|
0.3 |
% |
AL |
|
|
44 |
|
|
|
7,981 |
|
|
|
2.5 |
% |
|
|
186 |
|
|
|
0.6 |
% |
|
|
NV |
|
|
2 |
|
|
|
1,311 |
|
|
|
0.4 |
% |
|
|
81 |
|
|
|
0.3 |
% |
AR |
|
|
11 |
|
|
|
7,385 |
|
|
|
2.4 |
% |
|
|
282 |
|
|
|
0.9 |
% |
|
|
DE |
|
|
4 |
|
|
|
1,124 |
|
|
|
0.4 |
% |
|
|
133 |
|
|
|
0.4 |
% |
GA |
|
|
21 |
|
|
|
7,334 |
|
|
|
2.3 |
% |
|
|
1,056 |
|
|
|
3.5 |
% |
|
|
ND |
|
|
2 |
|
|
|
933 |
|
|
|
0.3 |
% |
|
|
28 |
|
|
|
0.1 |
% |
OK |
|
|
20 |
|
|
|
7,080 |
|
|
|
2.3 |
% |
|
|
944 |
|
|
|
3.1 |
% |
|
|
WY |
|
|
1 |
|
|
|
307 |
|
|
|
0.1 |
% |
|
|
21 |
|
|
|
0.1 |
% |
VA |
|
|
17 |
|
|
|
5,364 |
|
|
|
1.7 |
% |
|
|
204 |
|
|
|
0.7 |
% |
|
|
VT |
|
|
1 |
|
|
|
305 |
|
|
|
0.1 |
% |
|
|
15 |
|
|
|
0.1 |
% |
KS |
|
|
10 |
|
|
|
4,925 |
|
|
|
1.6 |
% |
|
|
639 |
|
|
|
2.1 |
% |
|
|
Total US |
|
|
683 |
|
|
$ |
309,036 |
|
|
|
98.6 |
% |
|
|
29,999 |
|
|
|
99.2 |
% |
NJ |
|
|
3 |
|
|
|
4,900 |
|
|
|
1.6 |
% |
|
|
366 |
|
|
|
1.2 |
% |
|
|
Total Canada |
|
|
1 |
|
|
|
4,187 |
|
|
|
1.4 |
% |
|
|
231 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total |
|
|
684 |
|
|
$ |
313,223 |
|
|
|
100.0 |
% |
|
|
30,230 |
|
|
|
100.0 |
% |
32
Lease Expirations
As of June 30, 2021, the ABR weighted average remaining term of our leases was approximately 10.4 years. Less than 5% of the properties in our portfolio are subject to leases without at least one renewal option. Approximately 45.8% of our rental revenue was derived from leases that will expire after 2030, and no more than 8.7% of our rental revenue 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, 2021.
Expiration |
|
2021 |
|
2022 |
|
2023 |
|
2024 |
|
2025 |
|
2026 |
|
2027 |
|
2028 |
|
2029 |
|
2030 |
|
2031 |
|
2032 |
|
2033 |
|
2034 |
|
2035 |
|
2036 |
|
2037 |
|
2038 |
|
2039 |
|
2040+ |
|
||||||||||||||||||||
Number of |
|
|
2 |
|
|
3 |
|
|
6 |
|
|
11 |
|
|
19 |
|
|
34 |
|
|
27 |
|
|
36 |
|
|
66 |
|
|
96 |
|
|
23 |
|
|
44 |
|
|
42 |
|
|
32 |
|
|
16 |
|
|
82 |
|
|
24 |
|
|
33 |
|
|
12 |
|
|
70 |
|
Number of |
|
|
2 |
|
|
4 |
|
|
7 |
|
|
11 |
|
|
22 |
|
|
31 |
|
|
27 |
|
|
30 |
|
|
34 |
|
|
52 |
|
|
18 |
|
|
29 |
|
|
16 |
|
|
21 |
|
|
12 |
|
|
19 |
|
|
9 |
|
|
29 |
|
|
7 |
|
|
11 |
|
33
The following table presents certain information based on lease expirations by year. Amounts are in thousands, except for number of properties.
Expiration Year |
|
# Properties |
|
|
ABR |
|
|
ABR as a % of |
|
|
Square Feet |
|
|
SF as a % of |
|
|||||
2021 |
|
|
2 |
|
|
$ |
294 |
|
|
|
0.1 |
% |
|
|
37 |
|
|
|
0.1 |
% |
2022 |
|
|
3 |
|
|
|
2,410 |
|
|
|
0.8 |
% |
|
|
85 |
|
|
|
0.3 |
% |
2023 |
|
|
6 |
|
|
|
4,848 |
|
|
|
1.5 |
% |
|
|
515 |
|
|
|
1.7 |
% |
2024 |
|
|
11 |
|
|
|
13,811 |
|
|
|
4.4 |
% |
|
|
1,689 |
|
|
|
5.6 |
% |
2025 |
|
|
19 |
|
|
|
7,872 |
|
|
|
2.5 |
% |
|
|
682 |
|
|
|
2.3 |
% |
2026 |
|
|
34 |
|
|
|
18,626 |
|
|
|
5.9 |
% |
|
|
1,404 |
|
|
|
4.6 |
% |
2027 |
|
|
27 |
|
|
|
23,148 |
|
|
|
7.4 |
% |
|
|
2,010 |
|
|
|
6.7 |
% |
2028 |
|
|
36 |
|
|
|
27,307 |
|
|
|
8.7 |
% |
|
|
2,746 |
|
|
|
9.1 |
% |
2029 |
|
|
66 |
|
|
|
20,638 |
|
|
|
6.6 |
% |
|
|
2,647 |
|
|
|
8.8 |
% |
2030 |
|
|
96 |
|
|
|
51,029 |
|
|
|
16.3 |
% |
|
|
5,030 |
|
|
|
16.6 |
% |
2031 |
|
|
23 |
|
|
|
7,527 |
|
|
|
2.4 |
% |
|
|
737 |
|
|
|
2.4 |
% |
2032 |
|
|
44 |
|
|
|
25,963 |
|
|
|
8.3 |
% |
|
|
3,014 |
|
|
|
10.0 |
% |
2033 |
|
|
42 |
|
|
|
16,858 |
|
|
|
5.4 |
% |
|
|
1,717 |
|
|
|
5.7 |
% |
2034 |
|
|
32 |
|
|
|
5,817 |
|
|
|
1.9 |
% |
|
|
376 |
|
|
|
1.2 |
% |
2035 |
|
|
16 |
|
|
|
11,461 |
|
|
|
3.7 |
% |
|
|
1,552 |
|
|
|
5.1 |
% |
2036 |
|
|
82 |
|
|
|
23,320 |
|
|
|
7.4 |
% |
|
|
2,506 |
|
|
|
8.3 |
% |
2037 |
|
|
24 |
|
|
|
17,256 |
|
|
|
5.5 |
% |
|
|
1,367 |
|
|
|
4.5 |
% |
2038 |
|
|
33 |
|
|
|
6,805 |
|
|
|
2.2 |
% |
|
|
306 |
|
|
|
1.0 |
% |
2039 |
|
|
12 |
|
|
|
9,066 |
|
|
|
2.9 |
% |
|
|
933 |
|
|
|
3.1 |
% |
2040 |
|
|
33 |
|
|
|
5,906 |
|
|
|
1.9 |
% |
|
|
317 |
|
|
|
1.1 |
% |
Thereafter |
|
|
37 |
|
|
|
13,261 |
|
|
|
4.2 |
% |
|
|
464 |
|
|
|
1.5 |
% |
Untenanted properties |
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
96 |
|
|
|
0.3 |
% |
Total |
|
|
684 |
|
|
$ |
313,223 |
|
|
|
100.0 |
% |
|
|
30,230 |
|
|
|
100.0 |
% |
Results of Operations
The following discussion includes the results of our operations for the periods presented.
Three Months Ended June 30, 2021 Compared to Three Months Ended March 31, 2021
Lease Revenues, net
|
|
For the Three Months Ended |
|||||||||||||
|
|
June 30, |
|
March 31, |
|
Increase/(Decrease) |
|||||||||
(in thousands) |
|
2021 |
|
2021 |
|
$ |
|
% |
|||||||
Contractual rental amounts billed for operating leases |
|
$ |
75,011 |
|
|
$ |
73,245 |
|
|
$ |
1,766 |
|
|
2.4 |
% |
Adjustment to recognize contractual operating lease |
|
|
4,724 |
|
|
|
4,367 |
|
|
|
357 |
|
|
8.2 |
% |
Variable rental amounts earned |
|
|
114 |
|
|
|
91 |
|
|
|
23 |
|
|
25.3 |
% |
Earned income from direct financing leases |
|
|
728 |
|
|
|
730 |
|
|
|
(2 |
) |
|
(0.3 |
)% |
Earned income from sales-type leases |
|
|
15 |
|
|
|
14 |
|
|
|
1 |
|
|
7.1 |
% |
Operating expenses billed to tenants |
|
|
4,196 |
|
|
|
4,388 |
|
|
|
(192 |
) |
|
(4.4 |
)% |
Other income from real estate transactions |
|
|
28 |
|
|
|
5 |
|
|
|
23 |
|
|
>100.0 |
% |
Adjustment to revenue recognized for uncollectible |
|
|
(57 |
) |
|
|
(142 |
) |
|
|
85 |
|
|
(59.9 |
)% |
Total Lease revenues, net |
|
$ |
84,759 |
|
|
$ |
82,698 |
|
|
$ |
2,061 |
|
|
2.5 |
% |
The increase in Lease revenues, net was primarily attributable to growth in our real estate portfolio through accretive property acquisitions during the first quarter of 2021. During the first quarter of 2021, we invested $87.3 million, excluding capitalized acquisition costs, in 28 properties at a weighted average initial cash cap rate of 6.4%. Most of these acquisitions closed during the month of March 2021, and therefore did not materially contribute to Lease revenues, net for the three months ended March 31, 2021.
34
Operating Expenses
|
|
For the Three Months Ended |
|
|||||||||||||
|
|
June 30, |
|
|
March 31, |
|
|
Increase/(Decrease) |
|
|||||||
(in thousands) |
|
2021 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
$ |
31,225 |
|
|
$ |
30,713 |
|
|
$ |
512 |
|
|
|
1.7 |
% |
Property and operating expense |
|
|
4,572 |
|
|
|
4,605 |
|
|
|
(33 |
) |
|
|
(0.7 |
)% |
General and administrative |
|
|
8,655 |
|
|
|
10,633 |
|
|
|
(1,978 |
) |
|
|
(18.6 |
)% |
Provision for impairment of investment in rental properties |
|
|
— |
|
|
|
2,012 |
|
|
|
(2,012 |
) |
|
|
(100.0 |
)% |
Total operating expenses |
|
$ |
44,452 |
|
|
$ |
47,963 |
|
|
$ |
(3,511 |
) |
|
|
(7.3 |
)% |
General and administrative
The decrease in general and administrative expenses for the three months ended June 30, 2021 was primarily due to the payment of severance associated with the departure of an executive officer during the three months ended March 31, 2021.
Provision for impairment of investment in rental properties
During the three months ended March 31, 2021, we recognized $2.0 million of impairment on our investments in rental properties. No properties were impaired during the three months ended June 30, 2021. The following table presents the impairment charges for the three months ended March 31, 2021:
(in thousands, except number of properties) |
|
|
|
|
Number of properties |
|
|
1 |
|
Carrying value prior to impairment charge |
|
$ |
2,818 |
|
Fair value |
|
|
806 |
|
Impairment charge |
|
$ |
2,012 |
|
The timing and amount of impairment fluctuates from period to period depending on the specific facts and circumstances.
Other income (expenses)
|
|
For the Three Months Ended |
|||||||||||||
|
|
June 30, |
|
March 31, |
|
Increase/(Decrease) |
|||||||||
(in thousands) |
|
2021 |
|
2021 |
|
$ |
|
% |
|||||||
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
6 |
|
|
$ |
5 |
|
|
$ |
1 |
|
|
20.0 |
% |
Interest expense |
|
|
(15,430 |
) |
|
|
(16,108 |
) |
|
|
(678 |
) |
|
(4.2 |
)% |
Cost of debt extinguishment |
|
|
— |
|
|
|
(126 |
) |
|
|
(126 |
) |
|
(100.0 |
)% |
Gain on sale of real estate |
|
|
3,838 |
|
|
|
4,733 |
|
|
|
(895 |
) |
|
(18.9 |
)% |
Income taxes |
|
|
(301 |
) |
|
|
(413 |
) |
|
|
(112 |
) |
|
(27.1 |
)% |
Change in fair value of earnout liability |
|
|
(5,604 |
) |
|
|
1,124 |
|
|
|
(6,728 |
) |
|
>(100.0 |
)% |
Other income (expenses) |
|
|
4 |
|
|
|
10 |
|
|
|
(6 |
) |
|
(60.0 |
)% |
Change in fair value of earnout liability
As part of the Internalization, we may be required to pay additional earnout consideration if certain milestones are achieved during the Earnout Periods. We record the fair value of this contingent consideration in the Condensed Consolidated Balance Sheets, and update the fair value at the end of each reporting period. To the extent the change in fair value relates to a portion of the earnout consideration that is classified as a liability, we record the change through earnings. We estimate the fair value of the earnout liability by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis to estimate fair value. These estimates require us to make various assumptions about future share prices, and other items that are unobservable and are considered Level 3 inputs in the fair value hierarchy. The change in the fair value of the earnout liability during the three months ended June 30, 2021, reflects an increase in our share price as compared to March 31, 2021.
Net income and Net earnings per diluted share
|
|
For the Three Months Ended |
|
|||||||||||||
|
|
June 30, |
|
|
March 31, |
|
|
Increase/(Decrease) |
|
|||||||
(in thousands, except per share data) |
|
2021 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
Net income |
|
$ |
22,820 |
|
|
$ |
23,960 |
|
|
$ |
(1,140 |
) |
|
|
(4.8 |
)% |
Net earnings per diluted share |
|
|
0.14 |
|
|
|
0.15 |
|
|
|
(0.01 |
) |
|
|
(6.7 |
)% |
35
The decrease in net income is primarily due to a $6.7 million change in the fair value of our earnout liability, partially offset by a $2.1 million increase in revenues, a $2.0 million decrease in general and administrative expenses and $2.0 million decrease in impairment of investment in rental properties.
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, 2021 Compared to Six Months Ended June 30, 2020
Lease Revenues, net
|
|
For the Six Months Ended |
|||||||||||||
|
|
June 30, |
|
Increase/(Decrease) |
|||||||||||
(in thousands) |
|
2021 |
|
2020 |
|
$ |
|
% |
|||||||
Contractual rental amounts billed for operating leases |
|
$ |
148,256 |
|
|
$ |
140,170 |
|
|
$ |
8,086 |
|
|
5.8 |
% |
Adjustment to recognize contractual operating lease |
|
|
9,091 |
|
|
|
9,941 |
|
|
|
(850 |
) |
|
(8.6 |
)% |
Variable rental amounts earned |
|
|
205 |
|
|
|
74 |
|
|
|
131 |
|
|
>100.0 |
% |
Earned income from direct financing leases |
|
|
1,458 |
|
|
|
1,842 |
|
|
|
(384 |
) |
|
(20.8 |
)% |
Earned income from sales-type leases |
|
|
29 |
|
|
|
— |
|
|
|
29 |
|
|
100.0 |
% |
Operating expenses billed to tenants |
|
|
8,584 |
|
|
|
8,067 |
|
|
|
517 |
|
|
6.4 |
% |
Other income from real estate transactions |
|
|
33 |
|
|
|
731 |
|
|
|
(698 |
) |
|
(95.5 |
)% |
Adjustment to revenue recognized for uncollectible |
|
|
(199 |
) |
|
|
(2,223 |
) |
|
|
2,024 |
|
|
(91.0 |
)% |
Total Lease revenues, net |
|
$ |
167,457 |
|
|
$ |
158,602 |
|
|
$ |
8,855 |
|
|
5.6 |
% |
The increase in Lease revenues, net, was primarily attributable to growth in our real estate portfolio through accretive property acquisitions during the fourth quarter of 2020 and first quarter of 2021. During this period, we invested $187.6 million, excluding capitalized acquisition costs, in 47 properties at a weighted average initial cash cap rate of 6.6%. We did not acquire any properties during the first half of 2020 as a result of the COVID-19 pandemic.
Operating Expenses
|
|
For the Six Months Ended |
|
|||||||||||||
|
|
June 30, |
|
|
Increase/(Decrease) |
|
||||||||||
(in thousands) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
$ |
61,938 |
|
|
$ |
71,140 |
|
|
$ |
(9,202 |
) |
|
|
(12.9 |
)% |
Asset management fees |
|
|
— |
|
|
|
2,461 |
|
|
|
(2,461 |
) |
|
|
(100.0 |
)% |
Property management fees |
|
|
— |
|
|
|
1,275 |
|
|
|
(1,275 |
) |
|
|
(100.0 |
)% |
Property and operating expense |
|
|
9,177 |
|
|
|
8,305 |
|
|
|
872 |
|
|
|
10.5 |
% |
General and administrative |
|
|
19,288 |
|
|
|
11,542 |
|
|
|
7,746 |
|
|
|
67.1 |
% |
Provision for impairment of investment in rental properties |
|
|
2,012 |
|
|
|
2,667 |
|
|
|
(655 |
) |
|
|
(24.6 |
)% |
Total operating expenses |
|
$ |
92,415 |
|
|
$ |
97,390 |
|
|
$ |
(4,975 |
) |
|
|
(5.1 |
)% |
Depreciation and amortization
The decrease in depreciation and amortization was due to the accelerated amortization resulting from early lease termination during the six months ended June 30, 2020 (as a result of the COVID-19 pandemic), compared to none during the six months ended June 30, 2021.
Asset management fees and Property management fees
The decrease in asset management fees and property management fees was due to the completion of the Internalization in February 2020, which terminated the associated agreements with our third-party manager.
36
General and administrative
The increase in general and administrative expenses mainly reflects the impact of the Internalization associated with our newly acquired employee base. Following the Internalization, our asset and property management fees were replaced with compensation and related expenses, along with associated general and administrative expenses in February 2020.
Other income (expenses)
|
|
For the Six Months Ended |
|||||||||||||
|
|
June 30, |
|
Increase/(Decrease) |
|||||||||||
(in thousands) |
|
2021 |
|
2020 |
|
$ |
|
% |
|||||||
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
11 |
|
|
$ |
20 |
|
|
$ |
(9 |
) |
|
(45.0 |
)% |
Interest expense |
|
|
(31,538 |
) |
|
|
(40,504 |
) |
|
|
(8,966 |
) |
|
22.1 |
% |
Cost of debt extinguishment |
|
|
(126 |
) |
|
|
(22 |
) |
|
|
104 |
|
|
>100.0 |
% |
Gain on sale of real estate |
|
|
8,571 |
|
|
|
8,665 |
|
|
|
(94 |
) |
|
(1.1 |
)% |
Income taxes |
|
|
(714 |
) |
|
|
(951 |
) |
|
|
(237 |
) |
|
(24.9 |
)% |
Internalization expenses |
|
|
— |
|
|
|
(1,594 |
) |
|
|
(1,594 |
) |
|
(100.0 |
)% |
Change in fair value of earnout liability |
|
|
(4,480 |
) |
|
|
2,144 |
|
|
|
(6,624 |
) |
|
>(100.0 |
)% |
Other income (expenses) |
|
|
14 |
|
|
|
(24 |
) |
|
|
38 |
|
|
>(100.0 |
)% |
Interest expense
The decrease in interest expense primarily reflects a decrease in our average outstanding borrowings, combined with a decrease in our weighted average cost of borrowings. In September 2020, we used the proceeds of our IPO to repay $456.7 million of outstanding borrowings, including accrued interest, significantly reducing our leverage profile. In January 2021, we received an initial credit rating of BBB with a stable outlook from S&P, which had the effect of lowering the applicable margin on our then existing $965 million of bank loans by 25 basis points beginning in February 2021. We also repriced and partially repaid our 2026 Unsecured Term Loan in March 2021, reducing the applicable margin and principal balance by an additional 60 basis points and $50 million, respectively.
Internalization expenses
During the six months ended June 30, 2020, we incurred $1.6 million of third-party fees and consulting expenses associated with the Internalization. We did not incur these expenses during the six months ended June 30, 2021.
Change in fair value of earnout liability
The change in the fair value of the earnout liability during the six months ended June 30, 2021, reflects a increase in our period end share price.
Net income and Net earnings per diluted share
|
|
For the Six Months Ended |
|
|||||||||||||
|
|
June 30, |
|
|
Increase/(Decrease) |
|
||||||||||
(in thousands, except per share data) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Net income |
|
$ |
46,780 |
|
|
$ |
28,946 |
|
|
$ |
17,834 |
|
|
|
61.6 |
% |
Net earnings per diluted share |
|
|
0.30 |
|
|
|
0.25 |
|
|
|
0.05 |
|
|
|
20.0 |
% |
The increase in net income, is primarily due to revenue growth of $8.9 million, a $9.2 million decrease in depreciation and amortization expenses, a $9.0 million decrease in interest expense, a $3.8 million decrease in asset and property management fees, and a $1.6 million decrease in Internalization expenses. These factors were partially offset by a $7.7 million increase in general and administrative expenses and $6.6 million change in the fair value of our earnout liability.
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.
Liquidity and Capital Resources
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
37
debt while simultaneously strengthening our balance sheet, as evidenced by our investment grade credit ratings of BBB from S&P and Baa3 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, 2021, we had total debt outstanding of $1.5 billion, Net Debt of $1.4 billion, and a Net Debt to Annualized Adjusted EBITDAre ratio of approximately 4.76x.
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 gain, 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, and to pay distributions. We do not currently anticipate making significant capital expenditures or incurring other significant property costs because of the strong occupancy levels across our portfolio and the 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.
As detailed in the contractual obligations table below, we have approximately $45.7 million of expected obligations due to be paid throughout the remainder of 2021, primarily consisting of $16.3 million of mortgage maturities, and $28.7 million of interest expense due, including the impact of our interest rate swaps. 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. Debt capital is provided through unsecured term notes, revolving credit facilities, and senior unsecured notes. Further, we anticipate having the ability to access the public unsecured bond market, which was historically unavailable to us prior to our IPO.
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 lease terms, 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. Our $60 million 2022 Unsecured Term Loan has a short-term maturity date of February 2022. We expect to either repay the 2022 Unsecured Term Loan with available cash on hand, or with borrowings under our Revolving Credit Facility. We currently have full capacity available under our $900 million 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.
38
Equity Capital Resources
On September 21, 2020, we completed our IPO and issued 37 million shares of stock for net proceeds of $588.3 million, including shares issued subsequently pursuant to the underwriters’ partial exercise of their over-allotment option. We used $216.5 million of the net proceeds to fully repay the outstanding borrowings and accrued interest under our then existing revolving credit agreement and $240.2 million of the proceeds to fully repay the outstanding principal and accrued interest associated with an unsecured term loan.
On June 28, 2021, we completed our first public follow-on equity offering and issued 11.5 million shares of stock for net proceeds of $253.5 million, including shares issued pursuant to the underwriters' full exercise of their over-allotment option. We used the net proceeds to repay the remaining $160.6 million principal due under the revolving credit facility. The remaining net proceeds will be used for general business purposes, including acquisitions.
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 an at-the-market (“ATM”) program.
Unsecured Indebtedness and Capital Markets Activities as of and for the Six Months Ended June 30, 2021
The following table sets forth our outstanding Revolving Credit Facility, unsecured term loans and Senior Notes at June 30, 2021.
(in thousands, except interest rates) |
|
Outstanding |
|
|
Interest |
|
Maturity |
|
Revolving Credit Facility |
|
$ |
— |
|
|
one-month LIBOR + 1.00% |
|
Sept. 2023 |
2022 Unsecured Term Loan |
|
|
60,000 |
|
|
one-month LIBOR + 1.00% |
|
Feb. 2022 |
2023 Unsecured Term Loan |
|
|
265,000 |
|
|
one-month LIBOR + 1.10% |
|
Jan. 2023 |
2024 Unsecured Term Loan |
|
|
190,000 |
|
|
one-month LIBOR + 1.00% |
|
Jun. 2024 |
2026 Unsecured Term Loan |
|
|
400,000 |
|
|
one-month LIBOR + 1.00% |
|
Feb. 2026 |
Senior Notes |
|
|
|
|
|
|
|
|
Series A |
|
|
150,000 |
|
|
4.84% |
|
Apr. 2027 |
Series B |
|
|
225,000 |
|
|
5.09% |
|
Jul. 2028 |
Series C |
|
|
100,000 |
|
|
5.19% |
|
Jul. 2030 |
|
|
|
475,000 |
|
|
|
|
|
Total unsecured debt |
|
|
1,390,000 |
|
|
|
|
|
As announced on January 21, 2021, S&P assigned the Company an initial credit rating of 'BBB' with a stable outlook. As a result of this credit rating, the margin of our existing bank loans was reduced by 25 basis points beginning in February 2021, the applicable margin on borrowings under our Revolving Credit Facility was reduced by 20 basis points, and our access to a diverse set of advantageous funding sources should expand. During the three months ended March 31, 2021, Moody’s reaffirmed our ‘Baa3’ credit rating and updated their outlook from "stable" to "positive."
On March 12, 2021, we amended our $450 million 2026 Unsecured Term Loan, reducing the applicable margin an additional 60 basis points based on our current credit rating. In connection with the amendment, we repaid in full the outstanding commitments for two lenders and elected to repay an additional $10 million in outstanding principal, bringing the outstanding balance to $400 million as of March 31, 2021.
We have full capacity available under our $900 million Revolving Credit Facility as of June 30, 2021.
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, 2021, 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 |
|
Requirement |
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 |
|
≤ 0.60 to 1.00 |
Dividends and Other Restricted Payments |
|
Only applicable in case of default |
39
Derivative Instruments and Hedging Activities
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 and the mortgage 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 our interest rate risk by entering into interest rate swaps. As of June 30, 2021, we had 32 interest rate swaps outstanding in an aggregate notional amount of $824.7 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.
Cash Flows
Cash and cash equivalents and restricted cash totaled $87.0 million and $9.8 million at June 30, 2021 and June 30, 2020, respectively. The table below shows information concerning cash flows for the six months ended June 30, 2021 and 2020:
|
|
For the Six Months Ended |
|
|||||
(In thousands) |
|
June 30, |
|
|
June 30, |
|
||
Net cash provided by operating activities |
|
$ |
99,015 |
|
|
$ |
79,458 |
|
Net cash (used in) provided by investing activities |
|
|
(242,712 |
) |
|
|
10,738 |
|
Net cash provided by (used in) financing activities |
|
|
119,977 |
|
|
|
(100,665 |
) |
Decrease in cash and cash equivalents and restricted cash |
|
$ |
(23,720 |
) |
|
$ |
(10,469 |
) |
The increase in net cash provided by operating activities during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, was mainly due to growth in our real estate portfolio and cost savings associated with the Internalization.
The increase in cash used in investing activities during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, was mainly due to increased acquisition volume in 2021 offset by decrease in cash paid in connection with the Internalization.
The change in net cash provided by (used in) by financing activities during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 mainly reflects net proceeds from our first public follow-on equity offering during the second quarter of 2021 as compared to net repayment of debt in the first half of 2020.
40
Contractual Obligations
The following table provides information with respect to our contractual commitments and obligations as of June 30, 2021 (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 of |
|
Term Loans |
|
|
Revolving Credit Facility(a) |
|
|
Senior |
|
|
Mortgages |
|
|
Interest |
|
|
Tenant |
|
|
Operating |
|
|
Total |
|
||||||||
Remainder |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
16,343 |
|
|
$ |
28,650 |
|
|
$ |
313 |
|
|
$ |
363 |
|
|
$ |
45,669 |
|
2022 |
|
|
60,000 |
|
|
|
— |
|
|
|
— |
|
|
|
2,907 |
|
|
|
55,404 |
|
|
|
— |
|
|
|
690 |
|
|
|
119,001 |
|
2023 |
|
|
265,000 |
|
|
|
— |
|
|
|
— |
|
|
|
7,582 |
|
|
|
50,908 |
|
|
|
— |
|
|
|
505 |
|
|
|
323,995 |
|
2024 |
|
|
190,000 |
|
|
|
— |
|
|
|
— |
|
|
|
2,260 |
|
|
|
45,939 |
|
|
|
— |
|
|
|
120 |
|
|
|
238,319 |
|
2025 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20,195 |
|
|
|
42,377 |
|
|
|
— |
|
|
|
121 |
|
|
|
62,693 |
|
Thereafter |
|
|
400,000 |
|
|
|
— |
|
|
|
475,000 |
|
|
|
56,717 |
|
|
|
82,158 |
|
|
|
— |
|
|
|
2,290 |
|
|
|
1,016,165 |
|
Total |
|
$ |
915,000 |
|
|
$ |
— |
|
|
$ |
475,000 |
|
|
$ |
106,004 |
|
|
$ |
305,436 |
|
|
$ |
313 |
|
|
$ |
4,089 |
|
|
$ |
1,805,842 |
|
(a) We may extend the Revolving Credit Facility twice, each for a six-month period, subject to certain conditions, including the payment of an extension fee equal to 0.0625% of the revolving commitments.
(b) Interest expense is projected based on the outstanding borrowings and interest rates in effect as of June 30, 2021. This amount includes the impact of interest rate swap agreements.
(c) We expect to pay tenant improvement allowances out of cash flows from operations or from additional borrowings.
At June 30, 2021 and December 31, 2020, investment in rental property of $171.3 million and $173.5 million, respectively, 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, 2021, 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.
Non-GAAP Measures
FFO and AFFO
We compute 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. To derive Adjusted Funds From Operations (“AFFO”), we modify the Nareit computation of FFO to include other adjustments to GAAP net income related to certain non-cash and non-recurring revenues and expenses, including straight-line rents, the change in fair value of our earnout liability, cost of debt extinguishments, 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, realized gains or losses on foreign currency transactions, internalization expenses, stock-based compensation, severance, extraordinary items, 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.
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 did not impact our AFFO.
We further exclude the change in fair value of our earnout liability, costs or gains recorded on the extinguishment of debt, non-cash interest expense and gains, the amortization of debt issuance costs, net mortgage premiums, and lease intangibles, realized gains and losses on foreign currency transactions, internalization expenses, stock-based compensation and severance, as these items are not indicative of ongoing operational results. We use AFFO as a measure of our performance when we formulate corporate goals.
41
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 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 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. FFO and AFFO may not be comparable to similarly titled measures employed by other REITs, and comparisons of our 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 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 AFFO accordingly.
The following table reconciles net income (which is the most comparable GAAP measure) to FFO and AFFO:
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
(in thousands, except per share data) |
|
June 30, |
|
|
March 31, |
|
|
June 30, |
|
|
June 30, |
|
||||
Net income |
|
$ |
22,820 |
|
|
$ |
23,960 |
|
|
$ |
46,780 |
|
|
$ |
28,946 |
|
Real property depreciation and amortization |
|
|
31,202 |
|
|
|
30,690 |
|
|
|
61,892 |
|
|
|
71,109 |
|
Gain on sale of real estate |
|
|
(3,838 |
) |
|
|
(4,733 |
) |
|
|
(8,571 |
) |
|
|
(8,665 |
) |
Provision for impairment on investment in rental properties |
|
|
— |
|
|
|
2,012 |
|
|
|
2,012 |
|
|
|
2,667 |
|
FFO |
|
$ |
50,184 |
|
|
$ |
51,929 |
|
|
$ |
102,113 |
|
|
$ |
94,057 |
|
Straight-line rent adjustment |
|
|
(4,979 |
) |
|
|
(4,632 |
) |
|
|
(9,611 |
) |
|
|
(7,763 |
) |
Adjustment to provision for credit losses |
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(127 |
) |
Cost of debt extinguishment |
|
|
— |
|
|
|
126 |
|
|
|
126 |
|
|
|
22 |
|
Amortization of debt issuance costs |
|
|
956 |
|
|
|
914 |
|
|
|
1,870 |
|
|
|
1,709 |
|
Amortization of net mortgage premiums |
|
|
(37 |
) |
|
|
(35 |
) |
|
|
(72 |
) |
|
|
(72 |
) |
Gain on interest rate swaps and other non-cash interest expense |
|
|
(42 |
) |
|
|
(41 |
) |
|
|
(83 |
) |
|
|
(83 |
) |
Amortization of lease intangibles |
|
|
(641 |
) |
|
|
(728 |
) |
|
|
(1,369 |
) |
|
|
(119 |
) |
Internalization expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,594 |
|
Stock-based compensation |
|
|
951 |
|
|
|
1,769 |
|
|
|
2,720 |
|
|
|
— |
|
Severance |
|
|
32 |
|
|
|
1,243 |
|
|
|
1,275 |
|
|
|
26 |
|
Change in fair value of earnout liability |
|
|
5,604 |
|
|
|
(1,124 |
) |
|
|
4,480 |
|
|
|
(2,144 |
) |
Other expenses |
|
|
(4 |
) |
|
|
(10 |
) |
|
|
(14 |
) |
|
|
24 |
|
AFFO |
|
$ |
52,024 |
|
|
$ |
49,410 |
|
|
$ |
101,434 |
|
|
$ |
87,124 |
|
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 (loss) 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 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,
42
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:
|
|
For the Three Months Ended |
|
|||||
(in thousands) |
|
June 30, |
|
|
March 31, |
|
||
Net income |
|
$ |
22,820 |
|
|
$ |
23,960 |
|
Depreciation and amortization |
|
|
31,225 |
|
|
|
30,713 |
|
Interest expense |
|
|
15,430 |
|
|
|
16,108 |
|
Income taxes |
|
|
301 |
|
|
|
413 |
|
EBITDA |
|
$ |
69,776 |
|
|
$ |
71,194 |
|
Provision for impairment of investment in rental properties |
|
|
— |
|
|
|
2,012 |
|
Gain on sale of real estate |
|
|
(3,838 |
) |
|
|
(4,733 |
) |
EBITDAre |
|
$ |
65,938 |
|
|
$ |
68,473 |
|
Adjustment for current quarter acquisition activity (a) |
|
|
2,761 |
|
|
|
1,365 |
|
Adjustment for current quarter disposition activity (b) |
|
|
(353 |
) |
|
|
(278 |
) |
Adjustment to exclude non-recurring and other expenses (c) |
|
|
— |
|
|
|
2,100 |
|
Adjustment to exclude change in fair value of earnout liability |
|
|
5,604 |
|
|
|
(1,124 |
) |
Adjustment exclude write-off of accrued rental income |
|
|
— |
|
|
|
442 |
|
Adjustment to exclude cost of debt extinguishments |
|
|
— |
|
|
|
126 |
|
Adjusted EBITDAre |
|
$ |
73,950 |
|
|
$ |
71,104 |
|
Annualized EBITDAre |
|
$ |
263,761 |
|
|
$ |
273,888 |
|
Annualized Adjusted EBITDAre |
|
$ |
295,808 |
|
|
$ |
284,414 |
|
(a) Reflects an adjustment to give effect to all acquisitions during the quarter as if they had been acquired as of the beginning of the quarter.
(b) Reflects an adjustment to give effect to all dispositions during the quarter as if they had been sold as of the beginning of the quarter.
(c) Amounts include $1.2 million of severance and $0.9 million of accelerated stock-based compensation associated with the departure of executive officers during the three months ended March 31, 2021.
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 deferred financing 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:
(in thousands) |
|
June 30, |
|
|
March 31, |
|
||
Debt |
|
|
|
|
|
|
||
Revolving Credit Facility |
|
$ |
— |
|
|
$ |
15,000 |
|
Unsecured term notes, net |
|
|
1,383,631 |
|
|
|
1,383,283 |
|
Mortgages and notes payable, net |
|
|
105,748 |
|
|
|
106,559 |
|
Debt issuance costs |
|
|
6,625 |
|
|
|
6,988 |
|
Gross Debt |
|
|
1,496,004 |
|
|
|
1,511,830 |
|
Cash and cash equivalents |
|
|
(78,987 |
) |
|
|
(10,205 |
) |
Restricted cash |
|
|
(8,021 |
) |
|
|
(8,145 |
) |
Net Debt |
|
$ |
1,408,996 |
|
|
$ |
1,493,480 |
|
Net Debt to Annualized EBITDAre |
|
5.34x |
|
|
5.45x |
|
||
Net Debt to Annualized Adjusted EBITDAre |
|
4.76x |
|
|
5.25x |
|
43
Critical Accounting Policies
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. 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, 2021, to the items that we disclosed as our critical accounting policies in our 2020 Annual Report on Form 10-K.
Impact of Recent Accounting Pronouncements
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
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 Notes, mortgages, and variable-rate debt converted to a fixed rate with the use of interest rate swaps. Our fixed-rate debt and outstanding interest rate swaps had carrying values and fair values of approximately $1.4 billion and $1.5 billion, respectively, as of June 30, 2021. Changes in market interest rates impact the fair value of our fixed-rate debt and interest rate swaps, 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 and interest rate swaps of approximately $73.4 million as of June 30, 2021.
Borrowings pursuant to our Revolving Credit Facility and other variable-rate debt bear interest at rates based on LIBOR plus an applicable margin, and totaled $919.7 million as of June 30, 2021, of which $824.7 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 would have a corresponding $1.0 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.
As of June 30, 2021, our financial instruments were not exposed to significant market risk due to foreign currency exchange risk.
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, 2021, 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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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. Excluding ordinary, routine litigation incidental to 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 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits
No. |
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Description |
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3.1 |
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3.2 |
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3.3 |
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3.4 |
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3.5 |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* 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.
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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.
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BROADSTONE NET LEASE, INC. |
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Date: August 4, 2021 |
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/s/ Christopher J. Czarnecki |
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Christopher J. Czarnecki |
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Chief Executive Officer and President |
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Date: August 4, 2021 |
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/s/ Ryan M. Albano |
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Ryan M. Albano |
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Executive Vice President and Chief Financial Officer |
47