BNL 10-Q Quarterly Report June 30, 2023

BNL 10-Q Quarter ended June 30, 2023

Exhibits

Exhibits

BROADSTONE NET LEASE, INC.

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2023 , or

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

Commission File Number 001-39529

BROADSTONE NET LEASE, INC.

(Exact name of registrant as specified in its charter)


Maryland	26-1516177
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

       
          800 Clinton Square
         
          Rochester
         
        ,
       
          New York

14604

       
        (Address of principal executive offices)

       
        (Zip Code)

( 585 ) 287-6500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

       
        Title of each class

       
        Trading
       
        Symbol(s)

       
        Name of each exchange on which registered

       
          Common Stock, $0.00025 par value

BNL

       
          The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 187,271,816 shares of the Registrants ’ Common Stock, $0.00025 par value per share, outstanding as of July 31, 2023.

BROADSTONE NET LEASE, INC.

TABLE OF CONTENTS


		Page
Part I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)	2
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	Cautionary Note Regarding Forward-Looking Statements	25
	Regulation FD Disclosures	25
	Explanatory Note and Certain Defined Terms	26
	Overview	26
	Real Estate Portfolio Information	27
	Results of Operations	34
	Liquidity and Capital Resources	39
	Derivative Instruments and Hedging Activities	42
	Cash Flows	42
	Non-GAAP Measures	43
	Critical Accounting Policies and Estimates	46
	Impact of Recent Accounting Pronouncements	46
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47
Part II - OTHER INFORMATION		48
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	49

Part I. FINANCI AL INFORMATION

Item 1. Financi al Statements

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolida ted Balance Sheets

(Unaudited)

(in thousands, except per share amounts)


	June 30, 2023			December 31, 2022
Assets
Accounted for using the operating method:
Land	$	754,402		$	768,667
Land improvements		332,757			340,385
Buildings and improvements		3,857,236			3,888,756
Equipment		9,608			10,422
Total accounted for using the operating method		4,954,003			5,008,230
Less accumulated depreciation		( 578,616	)		( 533,965	)
Accounted for using the operating method, net		4,375,387			4,474,265
Accounted for using the direct financing method		26,855			27,045
Accounted for using the sales-type method		572			571
Property under development		37,449			—
Investment in rental property, net		4,440,263			4,501,881
Cash and cash equivalents		20,763			21,789
Accrued rental income		148,697			135,666
Tenant and other receivables, net		1,895			1,349
Prepaid expenses and other assets		42,322			64,180
Interest rate swap, assets		65,143			63,390
Goodwill		339,769			339,769
Intangible lease assets, net		309,298			329,585
Total assets	$	5,368,150		$	5,457,609

Liabilities and equity
Unsecured revolving credit facility	$	122,912		$	197,322
Mortgages, net		80,141			86,602
Unsecured term loans, net		895,319			894,692
Senior unsecured notes, net		844,932			844,555
Accounts payable and other liabilities		44,147			47,547
Dividends payable		55,640			54,460
Accrued interest payable		5,889			7,071
Intangible lease liabilities, net		57,573			62,855
Total liabilities		2,106,553			2,195,104

Commitments and contingencies (See Note 16)

Equity
Broadstone Net Lease, Inc. stockholders' equity:
Preferred stock, $ 0.001 par value; 20,000 shares authorized, no shares issued or outstanding		—			—
Common stock, $ 0.00025 par value; 500,000 shares authorized, 187,273 and 186,114 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		47			47
Additional paid-in capital		3,430,692			3,419,395
Cumulative distributions in excess of retained earnings		( 391,631	)		( 386,049	)
Accumulated other comprehensive income		68,428			59,525
Total Broadstone Net Lease, Inc. stockholders' equity		3,107,536			3,092,918
Non-controlling interests		154,061			169,587
Total equity		3,261,597			3,262,505
Total liabilities and equity	$	5,368,150		$	5,457,609

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

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of In come and Comprehensive Income

(Unaudited)

(in thousands, except per share amounts)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2023			2022			2023			2022
Revenues
Lease revenues, net	$	109,353		$	98,013		$	228,345		$	191,854

Operating expenses
Depreciation and amortization		39,031			35,511			80,815			69,801
Property and operating expense		4,988			4,696			10,874			9,740
General and administrative		9,483			9,288			19,899			18,116
Provision for impairment of investment in rental properties		—			1,380			1,473			1,380
Total operating expenses		53,502			50,875			113,061			99,037

Other income (expenses)
Interest income		82			—			244			—
Interest expense		( 20,277	)		( 17,888	)		( 41,416	)		( 34,784	)
Gain on sale of real estate		29,462			4,071			32,877			5,267
Income taxes		( 448	)		( 401	)		( 927	)		( 813	)
Other (expenses) income		( 1,674	)		2,632			( 1,692	)		1,506
Net income		62,996			35,552			104,370			63,993
Net income attributable to non-controlling interests		( 2,982	)		( 2,036	)		( 5,052	)		( 3,719	)
Net income attributable to Broadstone Net Lease, Inc.	$	60,014		$	33,516		$	99,318		$	60,274

Weighted average number of common shares outstanding
Basic		186,733			169,555			186,433			166,698
Diluted		196,228			180,256			196,148			177,346
Net earnings per share attributable to common stockholders
Basic and diluted	$	0.32		$	0.20		$	0.53		$	0.36

Comprehensive income
Net income	$	62,996		$	35,552		$	104,370		$	63,993
Other comprehensive income
Change in fair value of interest rate swaps		19,652			18,772			1,753			53,733
Realized loss on interest rate swaps		522			695			1,044			1,354
Comprehensive income		83,170			55,019			107,167			119,080
Comprehensive income attributable to non-controlling interests		( 3,937	)		( 3,151	)		( 5,138	)		( 6,941	)
Comprehensive income attributable to Broadstone Net Lease, Inc.	$	79,233		$	51,868		$	102,029		$	112,139

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

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statem ents of Stockholders’ Equity

(Unaudited)

(in thousands, except per share amounts)


	Common Stock		Additional Paid-in Capital			Cumulative Distributions in Excess of Retained Earnings			Accumulated Other Comprehensive Income			Non- controlling Interests			Total Stockholders' Equity
Balance, January 1, 2023	$	47	$	3,419,395		$	( 386,049	)	$	59,525		$	169,587		$	3,262,505
Net income		—		—			39,304			—			2,070			41,374
Issuance of 259 shares of common stock under equity incentive plan		—		—			—			—			—			—
Offering costs, discounts, and commissions		—		( 2	)		—			—			—			( 2	)
Stock-based compensation, net of zero shares of restricted stock forfeited		—		1,879			—			—			—			1,879
Retirement of 66 shares of common stock under equity incentive plan		—		( 1,175	)		—			—			—			( 1,175	)
Conversion of 896 OP units to 896 shares of common stock		—		14,897			—			—			( 14,897	)		—
Distributions declared ($ 0.275 per share and OP Unit)		—		—			( 52,145	)		—			( 2,742	)		( 54,887	)
Change in fair value of interest rate swap agreements		—		—			—			( 17,003	)		( 896	)		( 17,899	)
Realized loss on interest rate swap agreements		—		—			—			496			26			522
Adjustment to non-controlling interests		—		( 460	)		—			498			( 38	)		—
Balance, March 31, 2023	$	47	$	3,434,534		$	( 398,890	)	$	43,516		$	153,110		$	3,232,317
Net income		—		—			60,014			—			2,982			62,996
Issuance of 51 shares of common stock under equity incentive plan		—		—			—			—			—			—
Offering costs, discounts, and commissions		—		( 10	)		—			—			—			( 10	)
Stock-based compensation, net of 6 shares of restricted stock forfeited		—		1,539			—			—			—			1,539
Conversion of 25 OP units to 25 shares of common stock		—		398			—			—			( 398	)		—
Distributions declared ($ 0.280 per share and OP Unit)		—		—			( 52,755	)		—			( 2,664	)		( 55,419	)
Change in fair value of interest rate swap agreements		—		—			—			18,722			930			19,652
Realized loss on interest rate swap agreements		—		—			—			496			26			522
Adjustment to non-controlling interests		—		( 5,769	)		—			5,694			75			—
Balance, June 30, 2023	$	47	$	3,430,692		$	( 391,631	)	$	68,428		$	154,061		$	3,261,597

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

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity - Continued

(Unaudited)

(in thousands, except per share amounts)


	Common Stock		Additional Paid-in Capital			Cumulative Distributions in Excess of Retained Earnings			Accumulated Other Comprehensive Income			Non- controlling Interests			Total Stockholders' Equity
Balance, January 1, 2022	$	41	$	2,924,168		$	( 318,476	)	$	( 28,441	)	$	163,846		$	2,741,138
Net income		—		—			26,758			—			1,683			28,441
Issuance of 6,427 shares of common stock		1		136,825			—			—			—			136,826
Offering costs, discounts, and commissions		—		( 2,218	)		—			—			—			( 2,218	)
Stock-based compensation, net of one share of restricted stock forfeited		—		929			—			—			—			929
Retirement of 59 shares of common stock		—		( 1,301	)		—			—			—			( 1,301	)
Distributions declared ($ 0.265 per share and OP Unit)		—		—			( 45,270	)		—			( 2,845	)		( 48,115	)
Change in fair value of interest rate swap agreements		—		—			—			32,893			2,068			34,961
Realized loss on interest rate swap agreements		—		—			—			620			39			659
Adjustment to non-controlling interests		—		( 1,843	)		—			( 45	)		1,888			—
Balance, March 31, 2022	$	42	$	3,056,560		$	( 336,988	)	$	5,027		$	166,679		$	2,891,320
Net income		—		—			33,516			—			2,036			35,552
Issuance of 3,281 shares of common stock		1		69,420			—			—			—			69,421
Offering costs, discounts, and commissions		—		( 992	)		—			—			—			( 992	)
Stock-based compensation, net of eight shares of restricted stock forfeited		—		1,381			—			—			—			1,381
Distributions declared ($ 0.270 per share and OP Unit)		—		—			( 46,655	)		—			( 2,852	)		( 49,507	)
Change in fair value of interest rate swap agreements		—		—			—			17,697			1,075			18,772
Realized loss on interest rate swap agreements		—		—			—			655			40			695
Adjustment to non-controlling interests		—		( 992	)		—			18			974			—
Balance, June 30, 2022	$	43	$	3,125,377		$	( 350,127	)	$	23,397		$	167,952		$	2,966,642

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

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated St atements of Cash Flows

(Unaudited)

(in thousands)


	For the Six Months Ended June 30,
	2023			2022
Operating activities
Net income	$	104,370		$	63,993
Adjustments to reconcile net income including non-controlling interests to net cash provided by operating activities:
Depreciation and amortization including intangibles associated with investment in rental property		77,039			67,476
Provision for impairment of investment in rental properties		1,473			1,380
Amortization of debt issuance costs and original issuance discount charged to interest expense		1,894			1,704
Stock-based compensation expense		3,418			2,310
Straight-line rent, direct financing and sales-type lease adjustments		( 14,250	)		( 8,513	)
Gain on sale of real estate		( 32,877	)		( 5,267	)
Other non-cash items		923			628
Changes in assets and liabilities:
Tenant and other receivables		371			( 326	)
Prepaid expenses and other assets		( 192	)		1,040
Accounts payable and other liabilities		( 4,383	)		( 6,079	)
Accrued interest payable		( 1,182	)		( 387	)
Net cash provided by operating activities		136,604			117,959

Investing activities
Acquisition of rental property		( 25,990	)		( 377,966	)
Investment in property under development including capitalized interest of $ 267 and $ 0 in 2023 and 2022, respectively		( 37,449	)		—
Capital expenditures and improvements		( 23,593	)		( 18,289	)
Proceeds from disposition of rental property, net		118,253			16,402
Change in deposits on investments in rental property		125			( 118	)
Net cash provided by (used in) investing activities		31,346			( 379,971	)

Financing activities
Proceeds from issuance of common stock, net of $ 180 and $ 3,229 offering costs, discounts, and commissions in 2023 and 2022, respectively		( 180	)		202,628
Principal payments on mortgages and unsecured term loans		( 6,411	)		( 61,389	)
Borrowings on unsecured revolving credit facility		125,000			380,783
Repayments on unsecured revolving credit facility		( 201,000	)		( 161,000	)
Cash distributions paid to stockholders		( 103,521	)		( 88,361	)
Cash distributions paid to non-controlling interests		( 5,613	)		( 5,647	)
Debt issuance and extinguishment costs paid		—			( 3,795	)
Net cash (used in) provided by financing activities		( 191,725	)		263,219
Net (decrease) increase in cash and cash equivalents and restricted cash		( 23,775	)		1,207
Cash and cash equivalents and restricted cash at beginning of period		60,040			27,769
Cash and cash equivalents and restricted cash at end of period	$	36,265		$	28,976

Reconciliation of cash and cash equivalents and restricted cash
Cash and cash equivalents at beginning of period	$	21,789		$	21,669
Restricted cash at beginning of period		38,251			6,100
Cash and cash equivalents and restricted cash at beginning of period	$	60,040		$	27,769

Cash and cash equivalents at end of period	$	20,763		$	16,813
Restricted cash at end of period		15,502			12,163
Cash and cash equivalents and restricted cash at end of period	$	36,265		$	28,976

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

Broadstone Net Lease, Inc. and Subsidiaries

Notes to the Condensed Consolid ated Financial Statements (Unaudited)

1. Business Description

Broadstone Net Lease, Inc. (the “Corporation”) is a Maryland corporation formed on October 18, 2007 , that elected to be taxed as a real estate investment trust (“REIT”) commencing with the taxable year ended December 31, 2008. Broadstone Net Lease, LLC (the Corporation ’s operating company, or the “OP”), is the entity through which the Corporation conducts its business and owns (either directly or through subsidiaries) all of the Corporation’s properties. The Corporation is the sole managing member of the OP. The membership units not owned by the Corporation are referred to as OP Units or non-controlling interests. As the Corporation conducts substantially all of its operations through the OP, it is structured as what is referred to as an umbrella partnership real estate investment trust (“UPREIT”). The Corporation, the OP, and its consolidated subsidiaries are collectively referred to as the “Company.” The Corporation’s common stock is listed on the New York Stock Exchange under the symbol “BNL”.

The Company is an industrial-focused, diversified net lease REIT that focuses on investing in income-producing, single-tenant net leased commercial properties, primarily in the United States. The Company leases industrial, healthcare, restaurant, retail, and office commercial properties under long-term lease agreements. At June 30, 2023 , the Company owned a diversified portfolio of 801 individual commercial properties with 794 properties located in 44 U.S. states and seven properties located in four Canadian provinces.

The following table summarizes the outstanding equity and economic ownership interest of the Company:


	June 30, 2023									December 31, 2022
(in thousands)	Shares of Common Stock			OP Units			Total Diluted Shares			Shares of Common Stock			OP Units			Total Diluted Shares
Ownership interest		187,273			9,283			196,556			186,114			10,205			196,319
Percent ownership of OP		95.3	%		4.7	%		100.0	%		94.8	%		5.2	%		100.0	%

Refer to Note 14 for further discussion regarding the calculation of weighted average shares outstanding.

2. Summary of Significant Accounting Policies

Interim Information

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information (Accounting Standards Codification (“ASC”) 270, Interim Reporting ) and Article 10 of the Securities and Exchange Commission’s (“SEC”) Regulation S-X. Accordingly, the Company has omitted certain footnote disclosures which would substantially duplicate those contained within the audited consolidated financial statements for the year ended December 31, 2022, included in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on February 23, 2023. Therefore, the readers of this quarterly report should refer to those audited consolidated financial statements, specifically Note 2, Summary of Significant Accounting Policies , for further discussion of significant accounting policies and estimates. The Company believes all adjustments necessary for a fair presentation have been included in these interim Condensed Consolidated Financial Statements (which include only normal recurring adjustments).

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts and operations of the Company. All intercompany balances and transactions have been eliminated in consolidation.

To the extent the Corporation has a variable interest in entities that are not evaluated under the variable interest entity (“VIE”) model, the Corporation evaluates its interests using the voting interest entity model. The Corporation has complete responsibility for the day-to-day management of, authority to make decisions for, and control of the OP. Based on consolidation guidance, the Corporation has concluded that the OP is a VIE as the members in the OP do not possess kick-out rights or substantive participating rights. Accordingly, the Corporation consolidates its interest in the OP. However, because the Corporation holds the majority voting interest in the OP and certain other conditions are met, it qualifies for the exemption from providing certain disclosure requirements associated with investments in VIEs.

The portion of the OP not owned by the Corporation is presented as non-controlling interests as of and during the periods presented.

Basis of Accounting

The Condensed Consolidated Financial Statements have been prepared in accordance with GAAP.

Use of Estimates

The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include, but are not limited to, the allocation of purchase price between tangible and intangible assets acquired and liabilities assumed, the fair value of long-lived assets and goodwill utilized in impairment assessments, the depreciable lives of rental property, the amortizable lives of intangible assets and liabilities, the probability of collecting outstanding and future lease payments, and the fair value of the Company’ s interest rate swap agreements. Accordingly, actual results may differ from those estimates.

Investment in Property Under Development

Land acquired for development and construction and improvement costs incurred in connection with the development of new properties are capitalized and recorded as Property under development on the accompanying Condensed Consolidated Balance Sheets until construction has been completed. Such capitalized costs include all direct and indirect costs related to planning, development and construction, including interest, real estate taxes and other miscellaneous costs incurred during the construction period. Once construction is completed the property under development is placed in service and depreciation commences.

Long-lived Asset Impairment

The Company reviews long-lived assets to be held and used for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If, and when, such events or changes in circumstances are present, an impairment exists to the extent the carrying value of the long-lived asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the long-lived asset or asset group and its eventual disposition. Such cash flows include expected future operating income, as adjusted for trends and prospects, as well as the effects of demand, competition, and other factors. An impairment loss is measured as the amount by which the carrying amount of the long-lived asset or asset group exceeds its fair value. Significant judgment is made to determine if and when impairment should be taken. The Company’s assessment of impairment as of June 30, 2023 and 2022 was based on the most current information available to the Company. Certain of the Company’s properties may have fair values less than their carrying amounts. However, based on the Company’ s plans with respect to each of those properties, the Company believes that their carrying amounts are recoverable and therefore, no impairment charges were recognized other than those described below. If the operating conditions mentioned above deteriorate or if the Company ’s expected holding period for assets changes, subsequent tests for impairments could result in additional impairment charges in the future.

Inputs used in establishing fair value for impaired 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 charge, resulting primarily from changes in the Company’s long-term hold strategy, with respect to the individual property:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except number of properties)	2023		2022		2023		2022
Number of properties		—		1	1			1
Impairment charge	$	—	$	1,380	$	1,473	$	1,380

Restricted Cash

Restricted cash generally includes escrow funds the Company maintains pursuant to the terms of certain mortgages, lease agreements, and 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)	2023		2022
Escrow funds and other	$	1,315	$	4,812
1031 exchange proceeds		14,187		33,439
	$	15,502	$	38,251

Rent Received in Advance

Rent received in advance represents tenant rent payments received prior to the contractual due date, and is included in Accounts payable and other liabilities on the Condensed Consolidated Balance Sheets. Rent received in advance consisted of the following:


(in thousands)	June 30, 2023		December 31, 2022
Rent received in advance	$	21,387	$	18,783

Fair Value Measurements

Recurring Fair Value Measurements

The balances of financial instruments measured at fair value on a recurring basis are as follows (see Note 9):


	June 30, 2023
(in thousands)	Total		Level 1		Level 2		Level 3
Interest rate swap, assets	$	65,143	$	—	$	65,143	$	—


	December 31, 2022
(in thousands)	Total		Level 1		Level 2		Level 3
Interest rate swap, assets	$	63,390	$	—	$	63,390	$	—

Long-term Debt – The fair value of the Company’s debt was estimated using Level 1, Level 2, and Level 3 inputs based on recent secondary market trades of the Company’s 2031 Senior Unsecured Public Notes (see Note 7), recent financing transactions, estimates of the fair value of the property that serves as collateral for such debt, recent market risk premiums for loans of comparable quality, applicable London Interbank Offered Rate (“LIBOR”), Secured Overnight Financing Rate (“SOFR”), Canadian Dollar Offered Rate (“CDOR”), U.S. Treasury obligation interest rates, and discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect the Company’s judgment as to the approximate current lending rates for loans or groups of loans with similar maturities and assumes that the debt is outstanding through maturity. Market information, as available, or present value techniques were utilized to estimate the amounts required to be disclosed. Since such amounts are estimates that are based on limited available market information for similar transactions and do not acknowledge transfer or other repayment restrictions that may exist on specific loans, it is unlikely that the estimated fair value of any such debt could be realized by immediate settlement of the obligation.

The following table summarizes the carrying amount reported on the Condensed Consolidated Balance Sheets and the Company ’s estimate of the fair value of the unsecured revolving credit facility, mortgages, unsecured term loans, and senior unsecured notes which reflects the fair value of interest rate swaps:


(in thousands)	June 30, 2023		December 31, 2022
Carrying amount	$	1,953,176	$	2,034,076
Fair value		1,732,146		1,841,381

Non-recurring Fair Value Measurements

The Company’s non-recurring fair value measurements at June 30, 2023 and December 31, 2022 consisted of the fair value of impaired real estate assets that were determined using Level 3 inputs.

Reclassifications

The Company reclassified Debt issuance costs – unsecured revolving credit facility, net of $ 6.0 million and Leasing fees, net of $ 8.5 million to Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets at December 31, 2022, to conform with the current period presentation. The reclassifications are changes from one acceptable presentation to another acceptable presentation.

3. Acquisitions of Rental Property

The Company closed on the following acquisitions during the six months ended June 30, 2023:


(in thousands, except number of properties)		Number of		Real Estate
Date	Property Type	Properties		Acquisition Price
March 14, 2023	Retail		1	$	5,221
May 16, 2023	Industrial		2		10,432
May 22, 2023	Industrial		1		17,300	(a)
May 25, 2023	Industrial		1		9,952
			5	$	42,905	(b)

(a)

Acquisition of land to be developed in connection with a $ 204.8 million build-to-suit transaction expected to fund in multiple draws through October 2024 (see Note 2).

(b)

Acquisition price excludes capitalized acquisition costs of $ 2.8 million.

The Company closed on the following acquisitions during the six months ended June 30, 2022:


(in thousands, except number of properties)		Number of		Real Estate
Date	Property Type	Properties		Acquisition Price
January 7, 2022	Retail		2	$	2,573
February 10, 2022	Industrial		1		21,733
February 15, 2022	Retail		1		1,341
February 28, 2022	Industrial		1		5,678
March 4, 2022	Retail		6		79,061
March 31, 2022	Restaurant		16		99,587
April 12, 2022	Retail		1		1,680
April 12, 2022	Industrial		1		7,522
April 13, 2022	Industrial		1		16,250
April 19, 2022	Retail		1		1,780
May 16, 2022	Retail		1		2,264
June 7, 2022	Retail		1		11,510
June 13, 2022	Retail		1		1,638
June 15, 2022	Retail		1		1,884
June 21, 2022	Industrial		5		78,500
June 29, 2022	Healthcare		1		12,467
June 30, 2022	Industrial		1		29,500
			42	$	374,968	(c)

(c)

Acquisition price excludes capitalized acquisition costs of $ 3.1 million.

The Company allocated the purchase price of these properties to the fair value of the assets acquired and liabilities assumed. The following table summarizes the purchase price allocation for completed real estate acquisitions:


	For the Six Months Ended June 30,
(in thousands)	2023			2022
Land	$	2,461		$	77,088
Land improvements		2,694			26,002
Buildings and improvements		18,647			253,500
Property under development		19,648			—
Acquired in-place leases (d)		2,400			29,585
Acquired below-market leases (e)		( 166	)		( 76	)
Non-real estate liabilities assumed		—			( 8,051	)
	$	45,684		$	378,048		(f)

(d)

The weighted average amortization period for acquired in-place leases is 15 years and 20 years for acquisitions completed during the six months ended June 30, 2023 and 2022 , respectively.

(e)

The weighted average amortization period for the acquired below-market leases is 20 years and nine years for acquisitions completed during the six months ended June 30, 2023 and 2022, respectively.

(f)

Excludes a $ 17.4 million building expansion agreed to as a forward commitment in connection with a prior acquisition.

The above acquisitions were funded using a combination of available cash on hand and unsecured revolving credit facility borrowings. All real estate acquisitions closed during the six months ended June 30, 2023, and 2022, qualified as asset acquisitions and as such, acquisition costs have been capitalized.

Subsequent to June 30, 2023, the Company closed on the following acquisitions (see Note 17):


(in thousands, except number of properties)		Number of		Real Estate
Date	Property Type	Properties		Acquisition Price
July 11, 2023	Restaurant		1	$	460	(g)

(g)

Acquisition of land to be developed in connection with a $ 1.7 million build-to-suit transaction expected to fund in multiple draws through September 2023.

4. 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 June 30,						For the Six Months Ended June 30,
(in thousands, except number of properties)	2023			2022			2023				2022
Number of properties disposed		4			3			7				4
Aggregate sale price	$	69,390		$	11,889		$	121,264		(a)	$	17,101
Aggregate carrying value		( 38,381	)		( 7,311	)		( 85,376	)			( 11,135	)
Additional sales expenses		( 1,547	)		( 507	)		( 3,011	)			( 699	)
Gain on sale of real estate	$	29,462		$	4,071		$	32,877			$	5,267

(a)

The six months ended June 30, 2023 includes $ 32.0 million of proceeds from the sale of an underlying office property which was executed simultaneously with a lease termination in exchange for a fee of $ 7.5 million.

5. Investment in Rental Property and Lease Arrangements

The Company generally leases its investment rental property to established tenants in the industrial, healthcare, restaurant, retail, and office property types. At June 30, 2023 , the Company had 801 real estate properties, 789 of which were leased under leases that have been classified as operating leases , nine that have been classified as direct financing leases, one that has been classified as a sales-type lease, and two that were vacant. Of the nine leases classified as direct financing leases , three include land portions which are accounted for as operating leases. The sales-type lease includes a land portion which is accounted for as an operating lease. Most leases have initial terms of 10 to 20 years. The Company ’s leases generally provide for limited increases in rent as a result of fixed increases, increases in the Consumer Price Index (“CPI”), or increases in the tenant’s sales volume. Generally, tenants are also required to pay all property taxes and assessments, substantially maintain the interior and exterior of the building, and maintain property and liability insurance coverage. The leases also typically provide for one or more multiple-year renewal options, at the election of the tenant, and are subject to generally the same terms and conditions as the initial lease.

Investment in Rental Property – Accounted for Using the Operating Method

Depreciation expense on investment in rental property was as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Depreciation	$	30,989	$	27,730	$	62,146	$	54,388

Estimated lease payments to be received under non-cancelable operating leases with tenants at June 30, 2023 are as follows:


(in thousands)
Remainder of 2023	$	194,412
2024		403,771
2025		437,777
2026		434,030
2027		418,124
Thereafter		3,795,761
	$	5,683,875

Since lease renewal periods are exercisable at the option of the tenant, the above amounts only include future lease payments due during the initial lease terms. Such amounts exclude any potential variable rent increases that are based on changes in the CPI or future variable rents which may be received under the leases based on a percentage of the tenant’s gross sales. Additionally, certain of our leases provide tenants with the option to terminate their leases in exchange for termination penalties, or that are contingent upon the occurrence of a future event. Future lease payments within the table above have not been adjusted for these termination rights.

Investment in Rental Property – Direct Financing Leases

The Company ’s net investment in direct financing leases was comprised of the following:


(in thousands)	June 30, 2023			December 31, 2022
Undiscounted estimated lease payments to be received	$	36,712		$	38,268
Estimated unguaranteed residual values		14,547			14,547
Unearned revenue		( 24,289	)		( 25,645	)
Reserve for credit losses		( 115	)		( 125	)
Net investment in direct financing leases	$	26,855		$	27,045

Undiscounted estimated lease payments to be received under non-cancelable direct financing leases with tenants at June 30, 2023 are as follows:


(in thousands)
Remainder of 2023	$	1,558
2024		3,171
2025		3,285
2026		3,357
2027		3,426
Thereafter		21,915
	$	36,712

The above rental receipts do not include future lease payments for renewal periods, potential variable CPI rent increases, or variable percentage rent payments that may become due in future periods.

The following table summarizes amounts reported as Lease revenues, net on the Condensed Consolidated Statements of Income and Comprehensive Income:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands)	2023			2022			2023				2022
Contractual rental amounts billed for operating leases	$	96,456		$	87,505		$	194,558			$	171,901
Adjustment to recognize contractual operating lease billings on a straight-line basis		7,380			5,090			14,750				10,111
Net write-offs of accrued rental income		—			—			( 105	)			( 1,326	)
Variable rental amounts earned		452			291			793				477
Earned income from direct financing leases		689			721			1,380				1,444
Interest income from sales-type leases		15			15			29				29
Operating expenses billed to tenants		4,594			4,263			9,669				8,998
Other income from real estate transactions		3			134			7,395		(a)		176
Adjustment to revenue recognized for uncollectible rental amounts billed, net		( 236	)		( 6	)		( 124	)			44
Total lease revenues, net	$	109,353		$	98,013		$	228,345			$	191,854

(a)

The six months ended June 30, 2023, includes $ 7.5 million of lease termination fee income recognized in connection with the simultaneous lease termination and sale of an underlying office property for an additional $ 32.0 million in proceeds.

6 . Intangible Assets and Liabilities

The following is a summary of intangible assets and liabilities and related accumulated amortization:


(in thousands)	June 30, 2023			December 31, 2022
Lease intangibles:
Acquired above-market leases	$	45,260		$	45,740
Less accumulated amortization		( 19,404	)		( 18,436	)
Acquired above-market leases, net		25,856			27,304
Acquired in-place leases		426,779			436,401
Less accumulated amortization		( 143,337	)		( 134,120	)
Acquired in-place leases, net		283,442			302,281
Total intangible lease assets, net	$	309,298		$	329,585
Acquired below-market leases	$	101,223		$	105,059
Less accumulated amortization		( 43,650	)		( 42,204	)
Intangible lease liabilities, net	$	57,573		$	62,855
Leasing fees	$	16,043		$	14,430
Less accumulated amortization		( 6,376	)		( 5,924	)
Leasing fees, net	$	9,667		$	8,506

Amortization of intangible lease assets and liabilities was as follows:


(in thousands)		For the Three Months Ended June 30,				For the Six Months Ended June 30,
Intangible	Financial Statement Presentation	2023		2022		2023		2022
Acquired in-place leases and leasing fees	Depreciation and amortization	$	8,001	$	7,749	$	18,589	$	15,350
Above-market and below-market leases	Lease revenues, net		1,088		1,170		3,782		2,331

For the six months ended June 30, 2023, amortization expense includes $ 0.9 million of accelerated amortization, resulting from early lease terminations. There was no accelerated amortization for the three months ended June 30, 2023 and the six months ended June 30, 2022.

Estimated future amortization of intangible assets and liabilities at June 30, 2023 is as follows:


(in thousands)
Remainder of 2023	$	13,675
2024		26,781
2025		25,737
2026		24,575
2027		22,832
Thereafter		147,792
	$	261,392

7. Unsecured Credit Agreements

The following table summarizes the Company ’s unsecured credit agreements:


	Outstanding Balance
(in thousands, except interest rates)	June 30, 2023			December 31, 2022			Interest Rate	Maturity Date
Unsecured revolving credit facility	$	122,912		$	197,322		Applicable reference rate + 0.85 % (a)	Mar. 2026
Unsecured term loans:
2026 Unsecured Term Loan		400,000			400,000		one-month adjusted SOFR + 1.00 % (b)(c)	Feb. 2026
2027 Unsecured Term Loan		200,000			200,000		one-month adjusted SOFR + 0.95 % (d)	Aug. 2027
2029 Unsecured Term Loan		300,000			300,000		one-month adjusted SOFR + 1.25 % (d)	Aug. 2029
Total unsecured term loans		900,000			900,000
Unamortized debt issuance costs, net		( 4,681	)		( 5,308	)
Total unsecured term loans, net		895,319			894,692
Senior unsecured notes:
2027 Senior Unsecured Notes - Series A		150,000			150,000		4.84 %	Apr. 2027
2028 Senior Unsecured Notes - Series B		225,000			225,000		5.09 %	Jul. 2028
2030 Senior Unsecured Notes - Series C		100,000			100,000		5.19 %	Jul. 2030
2031 Senior Unsecured Public Notes		375,000			375,000		2.60 %	Sep. 2031
Total senior unsecured notes		850,000			850,000
Unamortized debt issuance costs and original issuance discount, net		( 5,068	)		( 5,445	)
Total senior unsecured notes, net		844,932			844,555
Total unsecured debt, net	$	1,863,163		$	1,936,569

(a)

At June 30, 2023 and December 31, 2022 , a balance of $ 16.0 million and $ 123.5 million was subject to the one-month SOFR of 5.14 % and 4.36 %, respectively. At June 30, 2023, a balance of $ 31.5 million was subject to the daily simple SOFR of 5.09 %. The remaining balance includes $ 100 million Canadian Dollar ("CAD") borrowings remeasured to $ 75.4 million United States Dollar ("USD") and $ 73.8 million USD, at June 30, 2023 and December 31, 2022, respectively, and was subject to the one-month CDOR of 5.27 % and 4.74 %, respectively.

(b)

Effective June 30, 2023 , the loan converted into a one-month SOFR borrowing concurrent with LIBOR's cessation. At June 30, 2023 , one-month SOFR was 5.14 %.

(c)

At December 31, 2022 , the applicable interest rate was 1-month LIBOR of 4.39 % plus 1.00 %.

(d)

At June 30, 2023 and December 31, 2022 , one-month SOFR was 5.14 % and 4.36 %, respectively.

At June 30, 2023 , the weighted average interest rate on all outstanding borrowings was 5.23 % exclusive of interest rate swap agreements.

The Company is subject to various financial and operational covenants and financial reporting requirements pursuant to its unsecured credit agreements. These covenants require the Company to maintain certain financial ratios, including leverage, fixed charge coverage, debt service coverage, aggregate debt ratio, consolidated income available for debt to annual debt service charge, total unencumbered assets to total unsecured debt, and secured debt ratio, among others. As of June 30, 2023, and for all periods presented, the Company believes it was in compliance with all of its loan covenants. Failure to comply with the covenants would result in a default which, if the Company were unable to cure or obtain a waiver from the lenders, could accelerate the repayment of the obligations. Further, in the event of default, the Company may be restricted from paying dividends to its stockholders in excess of dividends required to maintain its REIT qualification. Accordingly, an event of default could have a material and adverse impact on the Company.

For the six months ended June 30, 2022 , the Company incurred $ 3.8 million in debt issuance costs associated with the unsecured revolving credit facility. The Company did no t incur debt issuance costs during the six months ended June 30, 2023.

Debt issuance costs and original issuance discounts are amortized as a component of Interest expense in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income. The following table summarizes debt issuance cost and original issuance discount amortization:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Debt issuance costs and original issuance discount amortization	$	986	$	900	$	1,972	$	1,756

8. 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	2023			2022
Wilmington Trust National Association	Apr-19	Feb-28	4.92 %	$	44,866		$	45,516		(a) (b) (c) (d)
Wilmington Trust National Association	Jun-18	Aug-25	4.36 %		18,939			19,150		(a) (b) (c) (e)
PNC Bank	Oct-16	Nov-26	3.62 %		16,459			16,675		(b) (c)
Aegon	Apr-12	Oct-23	6.38 %	—				5,413		(b) (f)
Total mortgages					80,264			86,754
Debt issuance costs, net					( 123	)		( 152	)
Mortgages, net				$	80,141		$	86,602

(a)

Non-recourse debt includes the indemnification/guaranty of the Company 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)

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.

(e)

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.

(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.

At June 30, 2023 , investment in rental property of $ 121.9 million was pledged as collateral against the Company ’s mortgages.

Estimated future principal payments to be made under the above mortgages and the Company ’s unsecured credit agreements (see Note 7) at June 30, 2023 are as follows:


(in thousands)
Remainder of 2023	$	1,092
2024		2,260
2025		20,195
2026		539,755
2027		351,597
Thereafter		1,038,277
	$	1,953,176

Certain of the Company’ s mortgages provide for prepayment fees and can be terminated under certain events of default as defined under the related agreements. These prepayment fees are not reflected as part of the table above.

9. 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. Under these agreements, the Company receives monthly payments from the counterparties equal to the related variable interest rates multiplied by the outstanding notional amounts. 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.

In order to reduce counterparty concentration risk, the Company diversifies the institutions that serve as swap counterparties. The Company is exposed to credit risk in the event of non-performance by the counterparties of the swaps. The Company minimizes the risk exposure by limiting counterparties to only major banks who meet established credit and capital guidelines.

The following is a summary of the Company ’s outstanding interest rate swap agreements:


(in thousands, except interest rates)						June 30, 2023					December 31, 2022
Counterparty	Maturity Date	Fixed Rate			Variable Rate Index (a)	Notional Amount			Fair Value		Notional Amount			Fair Value
Wells Fargo Bank, N.A.	October 2024		2.72	%	one-month LIBOR	$	15,000		$	460	$	15,000		$	477
Capital One, National Association	December 2024		1.58	%	one-month LIBOR		15,000			734		15,000			815
Bank of Montreal	January 2025		1.91	%	one-month LIBOR		25,000			1,161		25,000			1,239
Truist Financial Corporation	April 2025		2.20	%	one-month LIBOR		25,000			1,160		25,000			1,169
Bank of Montreal	July 2025		2.32	%	one-month LIBOR		25,000			1,196		25,000			1,162
Truist Financial Corporation	July 2025		1.99	%	one-month LIBOR		25,000			1,354		25,000			1,358
Truist Financial Corporation	December 2025		2.30	%	one-month LIBOR		25,000			1,355		25,000			1,279
Bank of Montreal	January 2026		1.92	%	one-month LIBOR		25,000			1,581		25,000			1,547
Bank of Montreal	January 2026		2.05	%	one-month LIBOR		40,000			2,409		40,000			2,332
Capital One, National Association	January 2026		2.08	%	one-month LIBOR		35,000			2,068		35,000			2,007
Truist Financial Corporation	January 2026		1.93	%	one-month LIBOR		25,000			1,577		25,000			1,542
Capital One, National Association	April 2026		2.68	%	one-month LIBOR		15,000			700		15,000			625
Capital One, National Association	July 2026		1.32	%	one-month LIBOR		35,000			3,004		35,000			3,042
Bank of Montreal	December 2026		2.33	%	one-month LIBOR		10,000			625		10,000			584
Bank of Montreal	December 2026		1.99	%	one-month LIBOR		25,000			1,838		25,000			1,773
Toronto-Dominion Bank	March 2027		2.46	%	one-month CDOR		15,082	(b)		984		14,764	(b)		765
Wells Fargo Bank, N.A.	April 2027		2.72	%	one-month LIBOR		25,000			1,271		25,000			1,129
Bank of Montreal	December 2027		2.37	%	one-month LIBOR		25,000			1,712		25,000			1,628
Capital One, National Association	December 2027		2.37	%	one-month LIBOR		25,000			1,677		25,000			1,605
Wells Fargo Bank, N.A.	January 2028		2.37	%	one-month LIBOR		75,000			5,105		75,000			4,854
Bank of Montreal	May 2029		2.09	%	one-month LIBOR		25,000			2,304		25,000			2,295
Regions Bank	May 2029		2.11	%	one-month LIBOR		25,000			2,262		25,000			2,244
Regions Bank	June 2029		2.03	%	one-month LIBOR		25,000			2,367		25,000			2,357
U.S. Bank National Association	June 2029		2.03	%	one-month LIBOR		25,000			2,381		25,000			2,377
Regions Bank	August 2029		2.58	%	one-month SOFR		100,000			6,057		100,000			5,782
Toronto-Dominion Bank	August 2029		2.58	%	one-month SOFR		45,000			2,784		45,000			2,674
U.S. Bank National Association	August 2029		2.65	%	one-month SOFR		15,000			868		15,000			826
U.S. Bank National Association	August 2029		2.58	%	one-month SOFR		100,000			6,113		100,000			5,861
U.S. Bank National Association	August 2029		1.35	%	one-month LIBOR		25,000			3,347		25,000			3,419
Regions Bank	March 2032		2.69	%	one-month CDOR		15,082	(b)		1,155		14,764	(b)		1,092
U.S. Bank National Association	March 2032		2.70	%	one-month CDOR		15,082	(b)		1,164		14,764	(b)		1,107
Bank of Montreal	March 2034		2.81	%	one-month CDOR		30,165	(b)		2,370		29,530	(b)		2,424
						$	975,411		$	65,143	$	973,822		$	63,390

(a)

Effective July 1, 2023, the variable rate index for LIBOR based swaps will convert to daily simple SOFR concurrent with LIBOR’s cessation.

(b)

The contractual notional amount is $ 20.0 million or $ 40.0 million CAD .

At June 30, 2023 , the weighted average fixed rate on all outstanding interest rate swaps was 2.28 %.

The total amounts recognized, and the location in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income, from converting from variable rates to fixed rates under these agreements were as follows:

           
            Amount of Gain

           
            Reclassification from

           
            Total Interest Expense

           
            Recognized in

           
            Accumulated Other

           
            Presented in the Condensed

           
            Accumulated Other

           
            Comprehensive Income

           
            Consolidated Statements of

           
            (in thousands)

           
            Comprehensive

           
            Amount of

           
            Income and Comprehensive

           
            For the Three Months Ended June 30,

           
            Income

           
            Location

           
            Gain (Loss)

           
            Income

2023

           
             19,652

           
              Interest expense

           
             6,182

           
             20,277

2022

           
             18,772

           
              Interest expense

)

           
             17,888

           
            Amount of Gain

           
            Reclassification from

           
            Total Interest Expense

           
            Recognized in

           
            Accumulated Other

           
            Presented in the Condensed

           
            Accumulated Other

           
            Comprehensive Income

           
            Consolidated Statements of

           
            (in thousands)

           
            Comprehensive

           
            Amount of

           
            Income and Comprehensive

           
            For the Six Months Ended June 30,

           
            Income

           
            Location

           
            Gain (Loss)

           
            Income

2023

           
             1,753

           
              Interest expense

           
             11,179

           
             41,416

2022

           
             53,733

           
              Interest expense

)

           
             34,784

Amounts related to the interest rate swaps expected to be reclassified out of Accumulated other comprehensive income to Interest expense during the next twelve months are estimated to be a gain of $ 28.1 million.

10. Non-Controlling Interests

The following table summarizes OP Units exchanged for shares of common stock:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
OP Units exchanged for shares of common stock		25		—		921		—
Value of units exchanged	$	398	$	—	$	15,295	$	—

11. Credit Risk Concentrations

The Company maintained bank balances that, at times, exceeded the federally insured limit during the six months ended June 30, 2023. 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 based on the financial position and capitalization of the banks.

For the six months ended June 30, 2023 and 2022 , the Company had no individual tenants or common franchises that accounted for more than 10 % of Lease revenues, net, excluding lease termination fees.

12. Equity

At-the-Market Program

The Company has an at-the-market common equity offering program (“ATM Program”), through which it may, from time to time, publicly offer and sell shares of common stock having an aggregate gross sales price of up to $ 400.0 million. The ATM Program provides for forward sale agreements, enabling the Company to set the price of shares upon pricing the offering, while delaying the issuance of shares and the receipt of the net proceeds. As of June 30, 2023 , the Company has $ 145.4 million of available capacity under the ATM Program.

The following table presents information about the Company ’s ATM Program activity:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except per share amounts)	2023		2022		2023		2022
Number of common shares issued		—		3,236		—		9,509
Weighted average sale price per share	$	—	$	21.42	$	—	$	21.69
Net proceeds	$	—	$	68,321	$	—	$	202,647
Gross proceeds		—		69,313		—		205,857

Share Repurchase Program

On March 14, 2023, the Company’s Board of Directors approved a stock repurchase program (the “Repurchase Program”), which authorized the Company to repurchase up to $ 150.0 million of the Company’s common stock. These purchases can be made in the open market or through private transactions from time to time over the 12-month time period following authorization, depending on prevailing market conditions and applicable legal and regulatory requirements. The timing, manner, price and amount of any repurchases of common stock under the Repurchase Program will be determined at the Company's discretion, using available cash resources. During the six months ended June 30, 2023, no shares of the Company’s common stock were repurchased under the program.

13. Stock-Based Compensation

Restricted Stock Awards

During the three and six months ended June 30, 2023 , the Company awarded 50,531 and 309,630 shares of restricted stock awards (“RSAs”), respectively, to officers, employees and non-employee directors under the Company's equity incentive plan. During the three and six months ended June 30, 2022, the Company issued 32,868 and 174,913 shares of RSAs, respectively. The holder of RSAs is generally entitled at all times on and after the date of issuance of the restricted common shares to exercise the rights of a stockholder of the Company, including the right to vote the shares and the right to receive dividends on the shares. The RSAs vest over a one -, three -, or four-year period from the date of the grant and are subject to the holder ’s continued service through the applicable vesting dates and in accordance with the terms of the individual award agreements. The weighted average per share value of awards granted during the three and six months ended June 30, 2023 , were $ 16.33 and $ 17.52 , respectively, which were based on the market price per share of the Company ’ s common stock on the grant date. The weighted average value of awards granted during the three and six months ended June 30, 2022 were $ 20.23 and $ 21.39 , respectively.

The following table presents information about the Company ’s RSAs:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Compensation cost	$	932	$	877	$	2,660	$	1,487
Dividends declared on unvested RSAs		142		106		278	203
Fair value of shares vested during the period		520		—		3,384		3,209

As of June 30, 2023, there was $ 7.1 million of unrecognized compensation costs related to the unvested restricted shares, which is expected to be recognized over a weighted average period of 2 .7 years.

The following table presents information about the Company ’s restricted stock activity:


	For the Three Months Ended June 30,
	2023					2022
(in thousands, except per share amounts)	Number of Shares			Weighted Average Grant Date Fair Value per Share		Number of Shares			Weighted Average Grant Date Fair Value per Share
Unvested at beginning of period		495		$	19.00		367		$	20.33
Granted		51			16.33		33			20.23
Vested		( 32	)		20.22		—			—
Forfeited		( 6	)		18.90		( 8	)		19.95
Unvested at end of period		508			18.65		392			20.33


	For the Six Months Ended June 30,
	2023					2022
(in thousands, except per share amounts)	Number of Shares			Weighted Average Grant Date Fair Value per Share		Number of Shares			Weighted Average Grant Date Fair Value per Share
Unvested at beginning of period		396		$	20.36		372		$	19.62
Granted		310			17.52		175			21.39
Vested		( 192	)		20.33		( 146	)		19.80
Forfeited		( 6	)		18.90		( 9	)		20.06
Unvested at end of period		508			18.65		392			20.33

Performance-based Restricted Stock Units

During six months ended June 30, 2023 , the Company issued target grants of 186,481 performance-based restricted stock units (“PRSUs”), under the Company's equity incentive plan to the officers of the Company. During the six months ended June 30, 2022, the Company issued target grants of 121,883 PRSUs. During the three months ended June 30, 2023 and 2022, there were no PRSUs issued. The awards are non-vested restricted stock units where the vesting percentages and the ultimate number of units vesting will be measured 50 % based on the relative total shareholder return (“rTSR”) of the Company ’ s common stock as compared to the rTSR of peer companies, as identified in the grant agreements, over a three-year period, and 50 % based on the rTSR of the Company ’ s common stock as compared to the rTSR of the MSCI US REIT Index over a three year measurement period. Vesting percentages range from 0 % to 200 % with a target of 100 %. rTSR means the percentage appreciation in the fair market value of one share over the three-year measurement period beginning on the date of grant, assuming the reinvestment of dividends on the ex-dividend date. The target number of units is based on achieving a rTSR equal to the 55 th percentile of the peer companies and MSCI US REIT Index. The grant date fair value of the PRSUs was measured using a Monte Carlo simulation model based on assumptions including share price volatility, among others.

The following table presents compensation cost recognized on the Company ’s PRSUs:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Compensation cost	$	607	$	504	$	758	$	823

As of June 30, 2023, there was $ 5.2 million of unrecognized compensation costs related to the unvested PRSUs, which is expected to be recognized over a weighted average period of 2.4 years.

The following table presents information about the Company ’s performance-based restricted stock unit activity:


	For the Three Months Ended June 30,
	2023				2022
(in thousands, except per share amounts)	Number of Shares		Weighted Average Grant Date Fair Value per Share		Number of Shares			Weighted Average Grant Date Fair Value per Share
Unvested at beginning of period		358	$	25.01		232		$	26.25
Granted		—		—		—			—
Vested		—		—		—			—
Forfeited		—		—		( 1	)		27.93
Unvested at end of period		358		25.01		231			26.25


	For the Six Months Ended June 30,
	2023					2022
(in thousands, except per share amounts)	Number of Shares			Weighted Average Grant Date Fair Value per Share		Number of Shares			Weighted Average Grant Date Fair Value per Share
Unvested at beginning of period		233		$	26.27		110		$	24.40
Granted		186			23.78		122			27.93
Vested		—			—		—			—
Forfeited		( 61	)		26.80		( 1	)		27.93
Unvested at end of period		358			25.01		231			26.25

14. 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 June 30,						For the Six Months Ended June 30,
(in thousands, except per share amounts)	2023			2022			2023			2022
Basic earnings:
Net earnings attributable to Broadstone Net Lease, Inc. common shareholders	$	60,014		$	33,516		$	99,318		$	60,274
Less: earnings allocated to unvested restricted shares		( 162	)		( 105	)		( 278	)		( 202	)
Net earnings used to compute basic earnings per common share	$	59,852		$	33,411		$	99,040		$	60,072

Diluted earnings:
Net earnings used to compute basic earnings per share	$	59,852		$	33,411		$	99,040		$	60,072
Add: net earnings attributable to non-controlling interests		2,982			2,036			5,052			3,719
Add: undistributed earnings allocated to unvested restricted shares		21			—			—			—
Less: undistributed earnings reallocated to unvested restricted shares		( 20	)		—			—			—
Net earnings used to compute diluted earnings per common share	$	62,835		$	35,447		$	104,092		$	63,791

Weighted average number of common shares outstanding		187,237			169,933			186,901			167,072
Less: weighted average unvested restricted shares (a)		( 504	)		( 378	)		( 468	)		( 374	)
Weighted average number of common shares outstanding used in basic earnings per common share		186,733			169,555			186,433			166,698
Add: effects of restricted stock units (b)		191			378			151			325
Add: effects of convertible membership units (c)		9,304			10,323			9,564			10,323
Weighted average number of common shares outstanding used in diluted earnings per common share		196,228			180,256			196,148			177,346

Basic earnings per share	$	0.32		$	0.20		$	0.53		$	0.36
Diluted earnings per share	$	0.32		$	0.20		$	0.53		$	0.36

(a)

Represents the weighted average effects of 506,671 and 391,187 unvested restricted shares of common stock as of June 30, 2023 and 2022, respectively, which will be excluded from the computation of earnings per share until they vest.

(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 13).

(c)

Represents the weighted average effects of 9,284,245 and 10,323,206 OP Units outstanding at June 30, 2023 and 2022 , respectively. OP Units are included in the diluted 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.

15. Supplemental Cash Flow Disclosures

Cash paid for interest was $ 39.7 million and $ 32.1 million for the six months ended June 30, 2023 and 2022 , respectively. Cash paid for income taxes was $ 1.0 million for the six months ended June 30, 2023 and 2022.

The following are non-cash transactions and have been excluded from the accompanying Condensed Consolidated Statements of Cash Flows:

•

During the six months ended June 30 , 2023, the Company converted 920,561 OP units valued at $ 15.3 million to 920,561 shares of common stock.

•

At June 30, 2023 and 2022 , dividend amounts declared and accrued but not yet paid amounted to $ 55.6 million and $ 49.5 million, respectively.

•

At June 30, 2023 and 2022 , the Company adjusted the carrying value of Non-controlling interests to reflect their share of the book value of the OP by $ 0.04 million and $ 2.9 million, respectively, with the reallocation recorded as an offset to Additional paid-in capital and Accumulated other comprehensive income.

16. Commitments and Contingencies

Litigation

From time to time, the Company is a party to various litigation matters incidental to the conduct of the Company’s business. While the resolution of such matters cannot be predicted with certainty, based on currently available information, the Company does not believe that the final outcome of any of these matters will have a material effect on its consolidated financial position, results of operations, or liquidity.

Property and Acquisition Related

In connection with ownership and operation of real estate, the Company may potentially be liable for cost and damages related to environmental matters. The Company is not aware of any non-compliance, liability, claim, or other environmental condition that would have a material effect on its consolidated financial position, results of operations, or liquidity.

As of June 30, 2023, the Company has a commitment to fund a build-to-suit transaction with a remaining commitment of $ 167.3 million expected to fund in multiple draws through October 2024, using a combination of available cash on hand and unsecured revolving credit facility borrowings. Rent is contractually scheduled to commence at the earlier of construction completion or October 2024.

The Company is a party to two separate tax protection agreements with the contributing members of two distinct UPREIT transactions and a third tax protection agreement in connection with the Company's 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 tax protection agreement entered into in connection with the Company’s internalization, 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, 2023, taxable sales of the applicable properties would trigger liability under the agreements of approximately $ 20.4 million. Based on information available, the Company does not believe that the events resulting in damages as detailed above have occurred or are likely to occur in the foreseeable future.

In the normal course of business, the Company enters into various types of commitments to purchase real estate properties. These commitments are generally subject to the Company’s customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated to purchase the properties.

Obligations Under Leases

In October 2022, the Company executed a ten year lease for its new corporate office space that commences during 2023, the timing of which depends on the satisfaction of certain conditions set forth in the lease. Upon commencement, the total expected future lease payments would be $ 8.9 million.

17. Subsequent Events

On July 14, 2023, the Company paid distributions totaling $ 55.0 million.

On July 27, 2023 , the Board of Directors declared a quarterly distribution of $ 0.28 per share on the Company ’ s common stock and OP Units for the third quarter of 2023, which will be payable on or before October 13, 2023 to stockholders and OP unitholders of record as of September 29, 2023 .

Subsequent to June 30, 2023 , the Company paid down $ 47.0 million, and borrowed $ 29.5 million on the unsecured revolving credit facility, the proceeds of which were used to fund investment activity and for general corporate purposes.

Subsequent to June 30, 2023, the Company acquired approximately $ 0.5 million of land to be developed in connection with a $ 1.7 million build-to-suit transaction expected to fund in multiple draws through September 2023. (see Note 3).

Through August 3, 2023, the Company sold one property with a carrying value of approximately $ 37.0 million for total proceeds of $ 47.0 million. The Company incurred additional expenses related to the sale of approximately $ 0.7 million, resulting in a gain on sale of real estate of approximately $ 9.3 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Except where the context suggests otherwise, as used in this Quarterly Report on Form 10-Q, the terms “ BNL, ” “ we, ” “ us, ” “ our, ” and “ our company ” refer to Broadstone Net Lease, Inc., a Maryland corporation incorporated on October 18, 2007, and, as required by context, Broadstone Net Lease, LLC, a New York limited liability company, which we refer to as the or our "OP, ” and to their respective subsidiaries.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying Notes to the Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Cautionary Note Regarding F orward-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 2022 Annual Report on Form 10-K, as filed with the SEC on February 23, 2023. The “Risk Factors” of our 2022 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.

Regulation FD Disclosures

We use any of the following to comply with our disclosure obligations under Regulation FD: U.S. Securities and Exchange Commission (“SEC”) filings, press releases, public conference calls, or our website. We routinely post important information on our website at www.broadstone.com, including information that may be deemed material. We encourage our shareholders and others interested in our company to monitor these distribution channels for material disclosures. Our website address is included in this Quarterly Report as a textual reference only and the information on the website is not incorporated by reference in this Quarterly Report.

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:

•

“annualized base rent” or “ABR” means the annualized contractual cash rent due for the last month of the reporting period, excluding the impacts of short-term rent deferrals, abatements, or free rent, and adjusted to remove rent from properties sold during the month and to include a full month of contractual cash rent for investments made during the month;

•

“Investments” or amounts “invested” include real estate investments in new property acquisitions; revenue generating capital expenditures, whereby we agree to fund certain expenditures in exchange for increased rents that often include rent escalations and terms consistent with that of the underlying lease; and investments in development funding opportunities; and excludes capitalized acquisition costs.

•

“cash capitalization rate” represents either (1) for acquisitions and new developments, the estimated first year cash yield to be generated on a real estate investment, which was estimated at the time of investment based on the contractually specified cash base rent for the first full year after the date of the investment, divided by the purchase price for the property excluding capitalized acquisitions costs, or (2) for disposition properties, the estimated first year cash yield to be generated subsequent to disposition based on contractually specified cash base rent divided by the disposition price;

•

“CPI” means the Consumer Price Index for All Urban Consumers (CPI-U): U.S. City Average, All Items, as published by the U.S. Bureau of Labor Statistics, or other similar index which is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services;

•

“occupancy” or a specified percentage of our portfolio that is “occupied” or “leased” means as of a specified date the quotient of (1) the total rentable square footage of our properties minus the square footage of our properties that are vacant and from which we are not receiving any rental payment, and (2) the total square footage of our properties; and

•

“Revolving Credit Facility” means our $1.0 billion unsecured revolving credit facility, dated January 28, 2022, with J.P. Morgan Chase Bank, N.A. and the other lenders party thereto.

Overv iew

We are an internally-managed, industrial-focused, diversified net lease real estate investment trust (“REIT”) that acquires, owns, and manages primarily single-tenant commercial real estate properties that are net leased on a long-term basis to a diversified group of tenants. As of June 30, 2023, our portfolio includes 801 properties, with 794 properties located in 44 U.S. states and seven properties located in four Canadian provinces.

We focus on investing in real estate that is operated by creditworthy single-tenants in industries characterized by positive business drivers and trends. We target properties that are an integral part of the tenants’ businesses and are therefore opportunities to secure long-term net leases. Through long-term net leases, our tenants are able to retain operational control of their strategically important locations, while allocating their debt and equity capital to fund core business operations rather than real estate ownership.

Diversified Portfolio . As of June 30, 2023, our portfolio comprised approximately 38.5 million rentable square feet of operational space, and was highly diversified based on property type, geography, tenant, and industry, and is cross-diversified within each ( e.g., property-type diversification within a geographic concentration):

•

Property Type: Since 2018, approximately 51.6% of our investment activity has been in industrial properties (based on ABR), with the remaining investments diversified across healthcare (17.5%), restaurant (13.5%), retail (11.6%), and certain office properties acquired in connection with larger portfolios of industrial or restaurant properties (5.8%). We remain highly diversified across industrial, healthcare, restaurant, and retail property types, and within these sectors have meaningful concentrations in manufacturing, distribution and warehouse, food processing, casual dining, clinical, quick service restaurants, and general merchandise.

•

Geographic Diversification : Our properties are located in 44 U.S. states and four Canadian provinces, with no single geographic concentration exceeding 9.8% of our ABR.

•

Tenant and Industry Diversification : Our properties are occupied by approximately 221 different commercial tenants who operate 209 different brands that are diversified across 54 differing industries, with no single tenant accounting for more than 4.0% of our ABR.

Strong In-Place Leases with Significant Remaining Lease Term . As of June 30, 2023, our portfolio was approximately 99.4% leased with an ABR weighted average remaining lease term of approximately 10.7 years, excluding renewal options.

Standard Contractual Base Rent Escalation . Approximately 97.3% of our leases have contractual rent escalations, with an ABR weighted average minimum increase of 2.0%.

Extensive Tenant Financial Reporting . Approximately 94.2% of our tenants, based on ABR, provide financial reporting, of which 86.3% are required to provide us with specified financial information on a periodic basis, and an additional 7.9% of our tenants report financial statements publicly, either through SEC filings or otherwise.

Real Estate Portf olio Information

The following charts summarize our portfolio diversification by property type, tenant, brand, industry, and geographic location as of June 30, 2023. The percentages below are calculated based on our ABR of $391.0 million as of June 30, 2023.

Diversification by Property Type


Property Type	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
Industrial
Manufacturing		81	$	64,908		16.6	%		12,266		31.8	%
Distribution & Warehouse		46		50,121		12.8	%		9,158		23.8	%
Food Processing		33		46,072		11.8	%		5,442		14.1	%
Flex and R&D		6		15,977		4.1	%		1,157		3.0	%
Cold Storage		5		12,849		3.3	%		933		2.4	%
Industrial Services		23		11,698		3.0	%		607		1.6	%
Untenanted		1		—		—			123		0.3	%
Industrial Total		195		201,625		51.6	%		29,686		77.0	%
Healthcare
Clinical		52		27,396		7.0	%		1,090		2.8	%
Healthcare Services		29		11,795		3.0	%		478		1.2	%
Animal Health Services		27		10,939		2.8	%		405		1.0	%
Surgical		12		10,528		2.7	%		330		0.9	%
Life Science		9		7,942		2.0	%		549		1.4	%
Healthcare Total		129		68,600		17.5	%		2,852		7.3	%
Restaurant
Casual Dining		101		27,410		7.0	%		673		1.7	%
Quick Service Restaurants		146		25,497		6.5	%		499		1.3	%
Restaurant Total		247		52,907		13.5	%		1,172		3.0	%
Retail
General Merchandise		132		24,800		6.4	%		1,865		4.8	%
Automotive		67		12,457		3.2	%		773		2.0	%
Home Furnishings		13		7,147		1.8	%		797		2.1	%
Child Care		2		730		0.2	%		20		0.2	%
Retail Total		214		45,134		11.6	%		3,455		9.1	%
Office
Strategic Operations		6		10,381		2.7	%		632		1.6	%
Corporate Headquarters		7		8,389		2.1	%		409		1.1	%
Call Center		2		3,938		1.0	%		287		0.7	%
Untenanted		1		—		—			46		0.2	%
Office Total		16		22,708		5.8	%		1,374		3.6	%
Total		801	$	390,974		100.0	%		38,539		100.0	%

Diversification by Tenant


Tenant	Property Type	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
Roskam Baking Company, LLC *	Food Processing		7	$	15,605		4.0	%		2,250		5.8	%
AHF, LLC *	Distribution & Warehouse/Manufacturing		8		9,378		2.4	%		2,284		5.9	%
Jack's Family Restaurants LP *	Quick Service Restaurants		43		7,309		1.9	%		147		0.4	%
Joseph T. Ryerson & Son, Inc	Distribution & Warehouse		11		6,491		1.7	%		1,537		4.0	%
Red Lobster Hospitality & Red Lobster Restaurants LLC *	Casual Dining		19		6,178		1.6	%		157		0.4	%
Axcelis Technologies, Inc.	Flex and R&D		1		6,126		1.6	%		417		1.1	%
J. Alexander's, LLC *	Casual Dining		16		6,115		1.6	%		131		0.3	%
Salm Partners, LLC *	Food Processing		2		6,062		1.6	%		368		1.0	%
Hensley & Company *	Distribution & Warehouse		3		5,989		1.5	%		577		1.5	%
Dollar General Corporation	General Merchandise		60		5,966		1.5	%		562		1.5	%
Total Top 10 Tenants			170		75,219		19.4	%		8,430		21.9	%

BluePearl Holdings, LLC **	Animal Health Services		13		5,599		1.4	%		165		0.4	%
Krispy Kreme Doughnut Corporation	Quick Service Restaurants/ Food Processing		27		5,525		1.4	%		156		0.4	%
Outback Steakhouse of Florida LLC *1	Casual Dining		22		5,365		1.4	%		140		0.4	%
Tractor Supply Company	General Merchandise		21		5,349		1.4	%		417		1.1	%
Big Tex Trailer Manufacturing Inc. *	Automotive/Distribution & Warehouse/Manufacturing/ Corporate Headquarters		17		5,056		1.3	%		1,302		3.4	%
Nestle' Dreyer's Ice Cream Company 2	Cold Storage		1		4,543		1.2	%		309		0.8	%
Carvana, LLC *	Industrial Services		2		4,510		1.2	%		230		0.6	%
Klosterman Bakery *	Food Processing		11		4,500		1.2	%		549		1.4	%
Arkansas Surgical Hospital	Surgical		1		4,476		1.1	%		129		0.3	%
Chiquita Holdings Limited	Food Processing		1		4,418		1.1	%		335		0.9	%
Total Top 20 Tenants			286	$	124,560		32.1	%		12,162		31.6	%

1 Tenant's properties include 20 Outback Steakhouse restaurants and two Carrabba's Italian Grill restaurants.

2 Nestle's ABR excludes $1.6 million of rent paid under a sub-lease for an additional property, which will convert to a prime lease no later than August 2024.

* Subject to a master lease.

** Includes properties leased by multiple tenants, some, not all, of which are subject to master leases.

Diversification by Brand


Brand	Property Type	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
Roskam Baking Company, LLC*	Food Processing		7	$	15,605		4.0	%		2,250		5.8	%
AHF Products*	Distribution & Warehouse/ Manufacturing		8		9,378		2.4	%		2,284		5.9	%
Jack's Family Restaurants*	Quick Service Restaurants		43		7,309		1.9	%		147		0.4	%
Ryerson	Distribution & Warehouse		11		6,491		1.7	%		1,537		4.0	%
Red Lobster*	Casual Dining		19		6,178		1.6	%		157		0.4	%
Axcelis	Flex and R&D		1		6,126		1.6	%		417		1.1	%
Salm Partners, LLC*	Food Processing		2		6,062		1.6	%		368		1.0	%
Hensley*	Distribution & Warehouse		3		5,989		1.5	%		577		1.5	%
Dollar General	General Merchandise		60		5,966		1.5	%		562		1.5	%
BluePearl Veterinary Partners**	Animal Health Services		13		5,598		1.4	%		165		0.4	%
Total Top 10 Brands			167		74,702		19.2	%		8,464		22.0	%

Krispy Kreme	Quick Service Restaurants/ Food Processing		27		5,525		1.4	%		156		0.4	%
Bob Evans Farms* 1	Casual Dining/Food Processing		21		5,459		1.4	%		281		0.7	%
Tractor Supply Company	General Merchandise		21		5,349		1.4	%		417		1.1	%
Big Tex Trailers*	Automotive/Distribution & Warehouse/Manufacturing/ Corporate Headquarters		17		5,056		1.3	%		1,302		3.4	%
Outback Steakhouse*	Casual Dining		20		4,641		1.2	%		126		0.3	%
Nestle'	Cold Storage		1		4,543		1.2	%		309		0.8	%
Carvana*	Industrial Services		2		4,510		1.2	%		230		0.6	%
Klosterman Bakery *	Food Processing		11		4,500		1.2	%		549		1.4	%
Arkansas Surgical Hospital	Surgical		1		4,476		1.1	%		129		0.3	%
Chiquita Holdings Limited	Food Processing		1		4,419		1.1	%		335		0.9	%
Total Top 20 Brands			289	$	123,180		31.7	%		12,298		31.9	%

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.

Diversification by Industry


Industry	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
Healthcare Facilities		104	$	54,517		13.9	%		2,062		5.3	%
Restaurants		250		53,746		13.7	%		1,214		3.2	%
Packaged Foods & Meats		29		40,358		10.3	%		4,713		12.2	%
Auto Parts & Equipment		45		16,424		4.2	%		2,799		7.3	%
Distributors		27		16,042		4.1	%		2,695		7.0	%
Specialty Stores		31		14,350		3.7	%		1,338		3.5	%
Food Distributors		8		14,133		3.6	%		1,712		4.4	%
Home Furnishing Retail		18		12,684		3.3	%		1,858		4.8	%
Specialized Consumer Services		48		12,501		3.2	%		724		1.9	%
Metal & Glass Containers		8		10,114		2.6	%		2,206		5.7	%
General Merchandise Stores		96		9,644		2.5	%		880		2.3	%
Industrial Machinery		20		9,528		2.4	%		1,949		5.1	%
Forest Products		8		9,378		2.4	%		2,284		5.9	%
Healthcare Services		18		9,342		2.4	%		515		1.3	%
Electronic Components		2		6,957		1.8	%		466		1.2	%
Other (39 industries)		87		101,256		25.9	%		10,900		28.3	%
Untenanted properties		2		—		—			224		0.6	%
Total		801	$	390,974		100.0	%		38,539		100.0	%

Diversification by Geographic Location


State / Province	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio			State / Province	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
TX		72	$	38,240		9.8	%		3,621		9.4	%	WA		15		4,362		1.1	%		150		0.4	%
MI		55		32,573		8.2	%		3,811		9.8	%	LA		4		3,407		0.9	%		194		0.5	%
IL		32		24,268		6.1	%		2,424		6.2	%	MS		11		3,322		0.9	%		430		1.1	%
WI		35		23,242		5.9	%		2,163		5.6	%	NE		6		3,183		0.8	%		509		1.3	%
OH		48		19,118		4.9	%		1,792		4.7	%	MD		4		3,073		0.8	%		293		0.8	%
CA		13		18,838		4.8	%		1,718		4.5	%	SC		13		2,964		0.8	%		308		0.8	%
FL		42		16,237		4.2	%		840		2.2	%	IA		4		2,804		0.7	%		622		1.6	%
IN		32		15,997		4.1	%		1,906		4.9	%	NM		9		2,767		0.7	%		107		0.3	%
MN		21		15,442		3.9	%		2,500		6.5	%	CO		4		2,501		0.6	%		126		0.3	%
TN		50		15,273		3.9	%		1,103		2.9	%	UT		3		2,432		0.6	%		280		0.7	%
NC		36		12,385		3.2	%		1,135		2.9	%	CT		2		1,828		0.5	%		55		0.1	%
AL		53		12,197		3.1	%		873		2.3	%	ND		3		1,700		0.4	%		48		0.1	%
AZ		9		11,876		3.0	%		909		2.4	%	MT		7		1,582		0.4	%		43		0.1	%
GA		33		11,581		3.0	%		1,576		4.1	%	DE		4		1,167		0.3	%		133		0.3	%
PA		22		9,700		2.5	%		1,836		4.8	%	VT		2		426		0.1	%		24		0.1	%
NY		26		9,337		2.4	%		680		1.8	%	WY		1		307		0.1	%		21		0.1	%
KY		24		8,548		2.2	%		900		2.3	%	NV		1		268		0.1	%		6		0.0	%
OK		22		8,121		2.1	%		987		2.6	%	OR		1		136		0.0	%		9		0.0	%
AR		11		7,728		2.0	%		283		0.7	%	SD		1		81		0.0	%		9		0.0	%
MA		3		6,543		1.7	%		444		1.2	%	Total U.S.		794	$	382,823		97.8	%		38,108		98.8	%
MO		12		6,175		1.6	%		1,138		3.0	%	BC		2	$	4,596		1.2	%		253		0.7	%
KS		11		5,643		1.4	%		648		1.7	%	ON		3		2,168		0.6	%		101		0.3	%
VA		17		5,561		1.4	%		204		0.5	%	AB		1		1,019		0.3	%		51		0.1	%
WV		17		4,981		1.3	%		884		2.3	%	MB		1		368		0.1	%		26		0.1	%
NJ		3		4,909		1.3	%		366		0.9	%	Total Canada		7	$	8,151		2.2	%		431		1.2	%
													Grand Total		801	$	390,974		100.0	%		38,539		100.0	%

Our Leases

We typically lease our properties pursuant to long-term net leases with initial terms of 10 years or more that often have renewal options. Substantially all of our leases are net, meaning our tenants are generally obligated to pay all expenses associated with the leased property (such as real estate taxes, insurance, maintenance, repairs, and capital costs). In scenarios where we lease multiple properties to a single tenant (multi-site tenants), we seek to use master lease structures on an all-or-none basis. When we acquire properties associated with a tenant that has an existing master lease structure with us, we seek to add the new properties to the existing master lease structure to strengthen the existing lease with such tenant. As of June 30, 2023, master leases contributed to 69.3% of the ABR associated with multi-site tenants (408 of our 676 properties) and 41.5% of our overall ABR (408 of our 801 properties).

As of June 30, 2023, approximately 99.4% of our portfolio, representing all but two of our properties, was subject to a lease. Because substantially all of our properties are leased under long-term leases, we are not currently required to perform significant ongoing leasing activities on our properties. As of June 30, 2023, the ABR weighted average remaining term of our leases was approximately 10.7 years. Approximately 3% of the properties in our portfolio are subject to leases without at least one renewal option. The following chart sets forth our lease expirations based upon the terms of the leases in place as of June 30, 2023.

The following table presents certain information based on lease expirations by year. Amounts are in thousands, except for number of properties.


Expiration Year	# Properties		# Leases		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
2023		3		4	$	3,729		1.0	%		467		1.1	%
2024		8		8		8,884		2.3	%		938		2.4	%
2025		19		21		7,001		1.8	%		394		1.0	%
2026		34		35		17,278		4.4	%		1,150		3.0	%
2027		29		30		24,341		6.2	%		2,079		5.4	%
2028		36		37		22,876		5.9	%		1,930		5.0	%
2029		72		73		22,616		5.8	%		2,724		7.1	%
2030		101		101		54,800		14.1	%		5,110		13.3	%
2031		33		33		8,647		2.2	%		805		2.1	%
2032		62		63		32,001		8.2	%		3,469		9.0	%
2033		50		50		19,222		4.9	%		1,593		4.1	%
2034		33		33		6,345		1.6	%		409		1.1	%
2035		19		19		13,618		3.5	%		2,021		5.2	%
2036		88		88		27,244		7.0	%		2,952		7.7	%
2037		22		22		16,848		4.3	%		1,120		2.9	%
2038		38		38		10,819		2.8	%		848		2.2	%
2039		10		10		6,927		1.8	%		798		2.1	%
2040		31		31		5,864		1.5	%		312		0.8	%
2041		40		40		22,382		5.7	%		1,731		4.5	%
2042		59		59		43,859		11.2	%		4,813		12.5	%
Thereafter		12		11		15,673		3.8	%		2,652		6.9	%
Untenanted properties		2		—		—		—			224		0.6	%
Total		801		806	$	390,974		100.0	%		38,539		100.0	%

Substantially all of our leases provide for periodic contractual rent escalations. As of June 30, 2023, leases contributing 97.3% of our ABR provided for increases in future ABR, generally ranging from 1.5% to 3.0% annually, with an ABR weighted average annual minimum increase equal to 2.0% of base rent. Generally, our rent escalators increase rent on specified dates by a fixed percentage. Our escalations provide us with a source of organic revenue growth and a measure of inflation protection. Additional information on lease escalation frequency and weighted average annual escalation rates as of June 30, 2023 is displayed below:


Lease Escalation Frequency	% of ABR			Weighted Average Annual Minimum Increase (a)
Annually		80.6	%		2.2	%
Every 2 years		0.1	%		1.8	%
Every 3 years		2.2	%		3.1	%
Every 4 years		1.0	%		2.4	%
Every 5 years		6.9	%		1.7	%
Other escalation frequencies		6.5	%		1.6	%
Flat		2.7	%		—
Total/Weighted Average (b)		100.0	%		2.0	%

(a)

Represents the ABR weighted average annual minimum increase of the entire portfolio as if all escalations occurred annually. For leases where rent escalates by the greater of a stated fixed percentage or the change in CPI, we have assumed an escalation equal to the stated fixed percentage in the lease. As of June 30, 2023, leases contributing 5.2% of our ABR provide for rent increases equal to the lesser of a stated fixed percentage or the change in CPI. As any future increase in CPI is unknowable at this time, we have not included an increase in the rent pursuant to these leases in the weighted average annual minimum increase presented.

(b)

Weighted by ABR.

The escalation provisions of our leases (by percentage of ABR) as of June 30, 2023, are displayed in the following chart:

Results of Operations

The following discussion includes the results of our operations for the periods presented.

Three Months Ended June 30, 2023 Compared to Three Months Ended March 31, 2023

Lease Revenues, net


	For the Three Months Ended
	June 30,				March 31,			Increase/(Decrease)
(in thousands)	2023				2023			$			%
Contractual rental amounts billed for operating leases	$		96,456		$	98,102		$	(1,646	)		(1.7	)	%
Adjustment to recognize contractual operating lease billings on a straight-line basis			7,380			7,370			10			0.1		%
Net write-offs of accrued rental income		—				(105	)		105			100.0		%
Variable rental amounts earned			452			341			111			32.6		%
Earned income from direct financing leases			689			691			(2	)		(0.3	)	%
Interest income from sales-type leases			15			14			1			7.1		%
Operating expenses billed to tenants			4,594			5,075			(481	)		(9.5	)	%
Other income from real estate transactions			3			7,392			(7,389	)		(100.0	)	%
Adjustment to revenue recognized for uncollectible rental amounts billed, net			(236	)		112			(348	)	< (100.0)			%
Total Lease revenues, net	$		109,353		$	118,992		$	(9,639	)		(8.1	)	%

The decrease in Lease revenues, net was primarily attributable to $7.5 million of lease termination income recognized in the first quarter of 2023 compared to no lease termination fees recognized during the second quarter of 2023. The timing and amount of lease termination income varies from period to period. The decrease was also attributable to a decrease of $1.6 million in rental amounts collected from operating leases as a result of net dispositions during the quarter. We have strategically disposed of properties with either credit risk or lease rollover risk, at advantageous pricing relative to redeployment yields and in certain circumstances, our cost of borrowings.

Operating Expenses


	For the Three Months Ended
	June 30,		March 31,		Increase/(Decrease)
(in thousands)	2023		2023		$			%
Operating expenses
Depreciation and amortization	$	39,031	$	41,784	$	(2,753	)		(6.6	)%
Property and operating expense		4,988		5,886		(898	)		(15.3	)%
General and administrative		9,483		10,416		(933	)		(9.0	)%
Provision for impairment of investment in rental properties		—		1,473		(1,473	)		(100.0	)%
Total operating expenses	$	53,502	$	59,559	$	(6,057	)		(10.2	)%

Depreciation and amortization

The decrease in depreciation and amortization for the three months ended June 30, 2023 was primarily due to net dispositions during the quarter. The total properties owned during the second quarter of 801 remained the same from the prior quarter.

Provision for impairment of investment in rental properties

During the three months ended June 30, 2023, we recognized no impairment on our investments in rental properties. During the three months ended March 31, 2023, we recognized $1.5 million of impairment on our investments in rental properties due to a change in our long-term hold strategy for one property. The following table presents the impairment charges for the three months ended March 31, 2023:

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)	2023			2023			$			%
Other income (expenses)
Interest income	$	82		$	162		$	(80	)		(49.4	)	%
Interest expense		(20,277	)		(21,139	)		(862	)		(4.1	)	%
Gain on sale of real estate		29,462			3,415			26,047		> 100.0			%
Income taxes		(448	)		(479	)		(31	)		(6.5	)	%
Other expenses		(1,674	)		(18	)		1,656		> 100.0			%

Gain on sale of real estate

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)	2023		2023		$		%
Net income	$	62,996	$	41,374	$	21,622		52.3	%
Net earnings per diluted share		0.32		0.21		0.11		52.4	%

The increase in net income is primarily attributable to a $26.0 million increase in gain on the sale of real estate, a $2.8 million decrease in depreciation and amortization, a $1.5 million decrease in impairment of investment on rental properties, and a $0.9 million decrease in interest expense, partially offset by a $7.4 million decrease in other income from real estate transactions and a $0.5 million decrease in operating expenses billed to tenants.

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, 2023 Compared to Six Months Ended June 30, 2022

Lease Revenues, net


	For the Six Months Ended
	June 30,						Increase/(Decrease)
(in thousands)	2023			2022			$				%
Contractual rental amounts billed for operating leases	$	194,558		$	171,901		$		22,657			13.2		%
Adjustment to recognize contractual operating lease billings on a straight-line basis		14,750			10,111				4,639			45.9		%
Net write-offs of accrued rental income		(105	)		(1,326	)			1,221			92.1		%
Variable rental amounts earned		793			477				316			66.2		%
Earned income from direct financing leases		1,380			1,444				(64	)		(4.4	)	%
Interest income from sales-type leases		29			29			—			—			%
Operating expenses billed to tenants		9,669			8,998				671			7.5		%
Other income from real estate transactions		7,395			176				7,219		> 100.0			%
Adjustment to revenue recognized for uncollectible rental amounts billed, net		(124	)		44				(168	)	< (100.0)			%
Total Lease revenues, net	$	228,345		$	191,854		$		36,491			19.0		%

The increase in Lease revenues, net was primarily attributable to growth in our real estate portfolio through property acquisitions closed since June 30, 2022. During the twelve months ended June 30, 2023, we invested $561.6 million, excluding capitalized acquisition costs, in 52 properties at a weighted average initial cash capitalization rate of 6.6%. The increase is also attributable to an increase in lease termination income.

Operating Expenses


	For the Six Months Ended
	June 30,				Increase/(Decrease)
(in thousands)	2023		2022		$		%
Operating expenses
Depreciation and amortization	$	80,815	$	69,801	$	11,014		15.8	%
Property and operating expense		10,874		9,740		1,134		11.6	%
General and administrative		19,899		18,116		1,783		9.8	%
Provision for impairment of investment in rental properties		1,473		1,380		93		6.7	%
Total operating expenses	$	113,061	$	99,037	$	14,024		14.2	%

Depreciation and amortization

The increase in depreciation and amortization for the six months ended June 30, 2023 was primarily due to growth in our real estate portfolio.

General and administrative

The increase in general and administrative expense for the six months ended June 30, 2023 was primarily due to increased stock-based compensation expense associated with an additional annual grant during the first quarter of 2023, and an increase in payroll expense related to general annual cost of living adjustments.

Property and operating expense

The increase in property and operating expense is primarily due to the growth in our real estate portfolio. The increase was partially offset by tenant reimbursements recognized as operating expenses billed to tenants in lease revenues, net above.

Provision for impairment of investment in rental properties

During the six months ended June 30, 2023, we recognized $1.5 million of impairment on our investments in rental properties. During the six months ended June 30, 2022, we recognized $1.4 million of impairment on our investments in rental properties. The following table presents the impairment charges for the respective periods:


	For the Six Months Ended
	June 30,
(in thousands, except number of properties)	2023		2022
Number of properties		1		1
Carrying value prior to impairment charge	$	4,236	$	3,674
Fair value		2,763		2,294
Impairment charge	$	1,473	$	1,380

The timing and amount of impairment fluctuates from period to period depending on the specific facts and circumstances.

Other income (expenses)


	For the Six Months Ended
	June 30,							Increase/(Decrease)
(in thousands)	2023			2022				$			%
Other income (expenses)
Interest income	$	244		$	—			$	244			100.0	%
Interest expense		(41,416	)			(34,784	)		6,632			19.1	%
Gain on sale of real estate		32,877				5,267			27,610		> 100.0		%
Income taxes		(927	)			(813	)		114			14.0	%
Other (expenses) income		(1,692	)			1,506			(3,198	)	< (100.0)		%

Interest expense

The increase in interest expense reflects an increase in our weighted average cost of borrowings combined with increased average outstanding borrowings. Since June 30, 2022, we increased total outstanding borrowings by $96.8 million to partially fund our acquisitions. Of our $2.0 billion of total outstanding indebtedness, approximately $47.4 million, or 2.4%, is variable and unhedged (United States Dollar ("USD") Revolving Credit Facility borrowings) and therefore subject to the impact of fluctuations in interest rates. At June 30, 2023, the one-month SOFR rate was 5.14%, compared with 1.69% at June 30, 2022.

Gain on sale of real estate

Our recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market. During the six months ended June 30, 2023, we recognized a gain of $32.9 million on the sale of seven properties, compared to a gain of $5.3 million on the sale of four properties during the six months ended June 30, 2022. Our proactive asset management strategy includes determining whether to sell any of our properties where we believe the risk profile has changed and become misaligned with our then current risk-adjusted return objectives.

Other income (expenses)

The increase in other expenses during the six months ended June 30, 2023 was primarily due to a $1.7 million unrealized foreign exchange loss recognized on the quarterly remeasurement of our $100 million Canadian Dollars ("CAD") revolver borrowings, compared to a $1.5 million unrealized foreign exchange gain recognized during the six months ended June 30, 2022.

Net income and Net earnings per diluted share


	For the Six Months Ended
	June 30,				Increase/(Decrease)
(in thousands, except per share data)	2023		2022		$		%
Net income	$	104,370	$	63,993	$	40,377		63.1	%
Net earnings per diluted share		0.53		0.36		0.17		47.2	%

The increase in net income is primarily due to revenue growth of $36.5 million and a $27.6 million increase on gain on sale of real estate. These factors were partially offset by a $11.0 million increase in depreciation and amortization, a $6.6 million increase in interest expense, a $1.8 million increase in general and administrative expense, and a $1.1 million increase in property and operating expenses.

Liquidity and Cap ital Resources

General

We acquire real estate using a combination of debt and equity capital, cash from operations that is not otherwise distributed to our stockholders, and proceeds from the disposition of real estate properties. Our focus is on maximizing the risk-adjusted return to our stockholders through an appropriate balance of debt and equity in our capital structure. We are committed to maintaining an investment grade balance sheet through active management of our leverage profile and overall liquidity position. We believe our leverage strategy has allowed us to take advantage of the lower cost of debt while simultaneously strengthening our balance sheet, as evidenced by our current investment grade credit ratings of ‘BBB’ from S&P Global Ratings (“S&P”) and ‘Baa2’ from Moody’s Investors Service (“Moody’s”). We manage our leverage profile using a ratio of Net Debt to Annualized Adjusted EBITDAre, a non-GAAP financial measure, which we believe is a useful measure of our ability to repay debt and a relative measure of leverage, and is used in communications with lenders and with rating agencies regarding our credit rating. We seek to maintain on a sustained basis a Net Debt to Annualized Adjusted EBITDAre ratio that is generally less than 6.0x. As of June 30, 2023, we had total debt outstanding of $2.0 billion, Net Debt of $1.9 billion, and a Net Debt to Annualized Adjusted EBITDAre ratio of 5.0x.

Net Debt and Annualized Adjusted EBITDAre are non-GAAP financial measures, and Annualized Adjusted EBITDAre is calculated based upon EBITDA, EBITDAre, and Adjusted EBITDAre, each of which is also a non-GAAP financial measure. Refer to Non-GAAP Measures below for further details concerning our calculation of non-GAAP measures and reconciliations to the comparable GAAP measure.

Liquidity/REIT Requirements

Liquidity is a measure of our ability to meet potential cash requirements, including our ongoing commitments to repay debt, fund our operations, acquire properties, make distributions to our stockholders, and other general business needs. As a REIT, we are required to distribute to our stockholders at least 90% of our REIT taxable income determined without regard to the dividends paid deduction and excluding net capital gains, on an annual basis. As a result, it is unlikely that we will be able to retain substantial cash balances to meet our long-term liquidity needs, including repayment of debt and the acquisition of additional properties, from our annual taxable income. Instead, we expect to meet our long-term liquidity needs primarily by relying upon external sources of capital.

Short-term Liquidity Requirements

Our short-term liquidity requirements consist primarily of funds necessary to pay for our operating expenses, including our general and administrative expenses and interest payments on our outstanding debt, to pay distributions, to fund our acquisitions that are under control or expected to close within a short time period, and to pay for commitments to fund development opportunities, tenant improvements and revenue generating capital expenditures. Under leases where we are required to bear the cost of structural repairs and replacements, we do not currently anticipate making significant capital expenditures or incurring other significant property costs, including as a result of inflationary pressures in the current economic environment, because of the strong occupancy levels across our portfolio and the net lease nature of our leases. We expect to meet our short-term liquidity requirements primarily from cash and cash equivalents balances and net cash provided by operating activities, supplemented by borrowings under our Revolving Credit Facility. We intend to match fund our acquisitions with an appropriate mix of debt and equity capital. We use cash on hand and borrowings under our Revolving Credit Facility to initially fund acquisitions, which are subsequently repaid or replaced with proceeds from our equity and debt capital markets activities as well as proceeds from dispositions.

As detailed in the contractual obligations table below, we have approximately $123.8 million of expected obligations due throughout the remainder of 2023, primarily consisting of $84.5 million of commitments to fund investments, $38.3 million of interest expense due and $1.1 million of mortgage amortization. We expect our cash provided by operating activities, as discussed below, will be sufficient to pay for our current obligations including interest and mortgage amortization. We expect to pay for commitments to fund investments using our Revolving Credit Facility.

Long-term Liquidity Requirements

Our long-term liquidity requirements consist primarily of funds necessary to repay debt and invest in additional revenue generating properties. We expect to source debt capital from unsecured term loans from commercial banks, revolving credit facilities, private placement senior unsecured notes, and public bond offerings.

The source and mix of our debt capital in the future will be impacted by market conditions as well as our continued focus on lengthening our debt maturity profile to better align with our portfolio’s long-term leases, staggering debt maturities to reduce the risk that a significant amount of debt will mature in any single year in the future, and managing our exposure to interest rate risk. As of June 30, 2023, we have $877.1 million of available capacity under our Revolving Credit Facility.

We expect to meet our long-term liquidity requirements primarily from borrowings under our Revolving Credit Facility, future debt and equity financings, and proceeds from limited sales of our properties. Our ability to access these capital sources may be impacted by unfavorable market conditions, particularly in the debt and equity capital markets, that are outside of our control. In addition, our success will depend on our operating performance, our borrowing restrictions, our degree of leverage, and other factors. Our acquisition growth strategy significantly depends on our ability to obtain acquisition financing on favorable terms. We seek to reduce the risk that long-term debt capital may be unavailable to us by strengthening our balance sheet by investing in real estate with creditworthy tenants and lease guarantors, and by maintaining an appropriate mix of debt and equity capitalization. We also, from time to time, obtain or assume non-recourse mortgage financing from banks and insurance companies secured by mortgages on the corresponding specific property subject to limitations imposed by our Revolving Credit Facility covenants and our investment grade credit rating. We have no material debt maturities until 2026.

Equity Capital Resources

Our equity capital is primarily provided through our at-the-market common equity offering program (“ATM Program”), as well as follow-on equity offerings. Under the terms of our ATM Program we may, from time to time, publicly offer and sell shares of our common stock having an aggregate gross sales price of up to $400 million. The ATM Program provides for forward sale agreements, enabling us to set the price of shares upon pricing the offering while delaying the issuance of shares and the receipt of the net proceeds. We did not raise any equity on our ATM Program during the six months ended June 30, 2023, and have approximately $145.4 million of capacity remaining on the ATM Program as of June 30, 2023.

Our public offerings have been used to repay debt, fund acquisitions, and for other general corporate purposes.

As we continue to invest in accretive real estate properties, we expect to balance our debt and equity capitalization, while maintaining a Net Debt to Annualized Adjusted EBITDAre ratio below 6.0x on a sustained basis, through the anticipated use of follow-on equity offerings and the ATM Program.

Unsecured Indebtedness as of June 30, 2023

The following table sets forth our outstanding revolving credit facility, unsecured term loans and senior unsecured notes at June 30, 2023.


(in thousands, except interest rates)	Outstanding Balance			Interest Rate	Maturity Date
Unsecured revolving credit facility	$	122,912		Applicable reference rate + 0.85% (a)	Mar. 2026
Unsecured term loans:
2026 Unsecured Term Loan		400,000		one-month adjusted SOFR + 1.00% (b)	Feb. 2026
2027 Unsecured Term Loan		200,000		one-month adjusted SOFR + 0.95%	Aug. 2027
2029 Unsecured Term Loan		300,000		one-month adjusted SOFR + 1.25%	Aug. 2029
Total unsecured term loans		900,000
Unamortized debt issuance costs, net		(4,681	)
Total unsecured term loans, net		895,319
Senior unsecured notes:
2027 Senior Unsecured Notes - Series A		150,000		4.84%	Apr. 2027
2028 Senior Unsecured Notes - Series B		225,000		5.09%	Jul. 2028
2030 Senior Unsecured Notes - Series C		100,000		5.19%	Jul. 2030
2031 Senior Unsecured Public Notes		375,000		2.60%	Sep. 2031
Total senior unsecured notes		850,000
Unamortized debt issuance costs and original issuance discount, net		(5,068	)
Total senior unsecured notes, net		844,932
Total unsecured debt, net	$	1,863,163

(a)

At June 30, 2023, a balance of $16.0 million was subject to the one-month SOFR of 5.14%. At June 30, 2023, a balance of $31.5 million was subject to the daily simple SOFR of 5.09%. The remaining balance includes $100 million CAD borrowings remeasured to $75.4 million USD, at June 30, 2023, and was subject to the one-month Canadian Dollar Offered Rate of 5.27%.

(b)

Effective June 30, 2023, the loan converted into a one-month SOFR borrowing concurrent with LIBOR's cessation.

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, 2023, we believe we were in compliance with all of our covenants on all outstanding borrowings. In the event of default, either through default on payments or breach of covenants, we may be restricted from paying dividends to our stockholders in excess of dividends required to maintain our REIT qualification. For each of the previous three years, we paid dividends out of our cash flows from operations in excess of the distribution amounts required to maintain our REIT qualification.


Covenants		Requirements
Leverage Ratio		≤ 0.60 to 1.00
Secured Indebtedness Ratio		≤ 0.40 to 1.00
Unencumbered Coverage Ratio		≥ 1.75 to 1.00
Fixed Charge Coverage Ratio		≥ 1.50 to 1.00
Total Unsecured Indebtedness to Total Unencumbered Eligible Property Value		≤ 0.60 to 1.00
Dividends and Other Restricted Payments		Only applicable in case of default
Aggregate Debt Ratio		≤ 0.60 to 1.00
Consolidated Income Available for Debt to Annual Debt Service Charge		≥ 1.50 to 1.00
Total Unencumbered Assets to Total Unsecured Debt		≥ 1.50 to 1.00
Secured Debt Ratio		≤ 0.40 to 1.00

Contractual Obligations

The following table provides information with respect to our contractual commitments and obligations as of June 30, 2023 (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 Maturity	Revolving Credit Facility		Mortgages		Term Loans		Senior Notes		Interest Expense (a)		Commitments to Fund Investments (b)		Total
Remainder of 2023	$	—	$	1,092	$	—	$	—	$	38,280	$	84,468	$	123,840
2024		—		2,260		—		—		76,021		98,014		176,295
2025		—		20,195		—		—		78,461		—		98,656
2026		122,912		16,843		400,000		—		56,007		—		595,762
2027		—		1,597		200,000		150,000		41,443		—		393,040
Thereafter		—		38,277		300,000		700,000		61,670		—		1,099,947
Total	$	122,912	$	80,264	$	900,000	$	850,000	$	351,882	$	182,482	$	2,487,540

(a)

Interest expense is projected based on the outstanding borrowings and interest rates in effect as of June 30, 2023. This amount includes the impact of interest rate swap agreements.

(b)

Amounts include acquisitions under control, defined as under contract or executed letter of intent, commitments to fund revenue generating capital expenditures and development opportunities.

At June 30, 2023 investment in rental property of $121.9 million was pledged as collateral against our mortgages.

Additionally, we are a party to two separate tax protection agreements with the contributing members of two distinct UPREIT transactions and a third 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 tax protection agreement entered into in connection with our internalization, 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, 2023, taxable sales of the applicable properties would trigger liability under the three agreements of approximately $20.4 million. Based on information available, we do not believe that the events resulting in liability as detailed above have occurred or are likely to occur in the foreseeable future. Accordingly, we have excluded these commitments from the contractual commitments table above.

In the normal course of business, we enter into various types of commitments to purchase real estate properties. These commitments are generally subject to our customary due diligence process and, accordingly, a number of specific conditions must be met before we are obligated to purchase the properties.

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. Borrowings pursuant to our unsecured credit facilities bear interest at floating rates based on SOFR, or CDOR plus an applicable margin. Accordingly, fluctuations in market interest rates may increase or decrease our interest expense, which will in turn, increase or decrease our net income and cash flow.

We attempt to manage the interest rate risk on variable rate borrowings by entering into interest rate swaps. As of June 30, 2023, we had 32 interest rate swaps outstanding with an aggregate notional amount of $975.4 million. Under these agreements, we receive monthly payments from the counterparties equal to the related variable interest rates multiplied by the outstanding notional amounts. In turn, we pay the counterparties each month an amount equal to a fixed interest rate multiplied by the related outstanding notional amounts. The intended net impact of these transactions is that we pay a fixed interest rate on our variable-rate borrowings. The interest rate swaps have been designated by us as cash flow hedges for accounting purposes and are reported at fair value. We assess, both at inception and on an ongoing basis, the effectiveness of our qualifying cash flow hedges. We have not entered, and do not intend to enter, into derivative or interest rate transactions for speculative purposes.

In addition, we own investments in Canada, and as a result are subject to risk from the effects of exchange rate movements in the Canadian dollar, which may affect future costs and cash flows. We funded a significant portion of our Canadian investments through Canadian dollar borrowings under our Revolving Credit Facility, which is intended to act as a natural hedge against our Canadian dollar investments. The Canadian dollar revolving borrowings are remeasured each reporting period, with the unrealized foreign currency gains and losses flowing through earnings. These unrealized foreign currency gains and losses do not impact our cash flows from operations until settled, and are expected to directly offset the changes in the value of our net investments as a result of changes in the Canadian dollar. Our Canadian investments are recorded at their historical exchange rates, and therefore are not impacted by changes in the value of the Canadian dollar.

Cash Flows

Cash and cash equivalents and restricted cash totaled $36.3 million and $29.0 million at June 30, 2023 and June 30, 2022, respectively. The table below shows information concerning cash flows for the six months ended June 30, 2023 and 2022:


	For the Six Months Ended
	June 30,			June 30,
(In thousands)	2023			2022
Net cash provided by operating activities	$	136,604		$	117,959
Net cash provided by (used in) investing activities		31,346			(379,971	)
Net cash (used in) provided by financing activities		(191,725	)		263,219
(Decrease) increase in cash and cash equivalents and restricted cash	$	(23,775	)	$	1,207

The increase in net cash provided by operating activities was mainly due to growth in our real estate portfolio and associated incremental net lease revenues.

The increase in cash provided by investing activities was mainly due to decreased investment volume and increased disposition volume during the six months ended June 30, 2023.

The increase in net cash used in financing activities mainly reflects net repayments on the unsecured revolving credit facility and increased distributions paid to shareholders. Additionally, there were no proceeds from the issuance of common stock during the six months ended June 30, 2023 as compared to proceeds of $202.6 million during the six months ended June 30, 2022.

Non-GAAP M easures

FFO, Core FFO, and AFFO

We compute Funds From Operations (“FFO”) in accordance with the standards established by the Board of Governors of Nareit, the worldwide representative voice for REITs and publicly traded real estate companies with an interest in the U.S. real estate and capital markets. Nareit defines FFO as GAAP net income or loss adjusted to exclude net gains (losses) from sales of certain depreciated real estate assets, depreciation and amortization expense from real estate assets, gains and losses from change in control, and impairment charges related to certain previously depreciated real estate assets. FFO is used by management, investors, and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers, primarily because it excludes the effect of real estate depreciation and amortization and net gains (losses) on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions.

We compute Core Funds From Operations (“Core FFO”) by adjusting FFO, as defined by Nareit, to exclude certain GAAP income and expense amounts that we believe are infrequently recurring, unusual in nature, or not related to its core real estate operations, including write-offs or recoveries of accrued rental income, lease termination fees, gain on insurance recoveries, cost of debt extinguishments, unrealized and realized gains or losses on foreign currency transactions, severance and executive transition costs, and other extraordinary items. Exclusion of these items from similar FFO-type metrics is common within the equity REIT industry, and management believes that presentation of Core FFO provides investors with a metric to assist in their evaluation of our operating performance across multiple periods and in comparison to the operating performance of our peers, because it removes the effect of unusual items that are not expected to impact our operating performance on an ongoing basis.

We compute Adjusted Funds From Operations (“AFFO”), by adjusting Core FFO for certain non-cash revenues and expenses, including straight-line rents, amortization of lease intangibles, amortization of debt issuance costs, amortization of net mortgage premiums, (gain) loss on interest rate swaps and other non-cash interest expense, stock-based compensation, and other specified non-cash items. We believe that excluding such items assists management and investors in distinguishing whether changes in our operations are due to growth or decline of operations at our properties or from other factors. We use AFFO as a measure of our performance when we formulate corporate goals, and is a factor in determining management compensation. We believe that AFFO is a useful supplemental measure for investors to consider because it will help them to better assess our operating performance without the distortions created by non-cash revenues or expenses.

Specific to our adjustment for straight-line rents, our leases include cash rents that increase over the term of the lease to compensate us for anticipated increases in market rental rates over time. Our leases do not include significant front-loading or back-loading of payments, or significant rent-free periods. Therefore, we find it useful to evaluate rent on a contractual basis as it allows for comparison of existing rental rates to market rental rates.

FFO, Core FFO, and AFFO may not be comparable to similarly titled measures employed by other REITs, and comparisons of our FFO, Core FFO, and AFFO with the same or similar measures disclosed by other REITs may not be meaningful.

Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments to FFO that we use to calculate Core FFO and AFFO. In the future, the SEC, Nareit or another regulatory body may decide to standardize the allowable adjustments across the REIT industry and in response to such standardization we may have to adjust our calculation and characterization of Core FFO and AFFO accordingly.

The following table reconciles net income (which is the most comparable GAAP measure) to FFO, Core FFO, and AFFO:


	For the Three Months Ended						For the Six Months Ended
(in thousands, except per share data)	June 30, 2023			March 31, 2023			June 30, 2023			June 30, 2022
Net income	$	62,996		$	41,374		$	104,370		$	63,993
Real property depreciation and amortization		38,990			41,745			80,735			69,738
Gain on sale of real estate		(29,462	)		(3,415	)		(32,877	)		(5,267	)
Provision for impairment on investment in rental properties		—			1,473			1,473			1,380
FFO	$	72,524		$	81,177		$	153,701		$	129,844
Net write-offs of accrued rental income		—			297			297			1,326
Lease termination fees		—			(7,500	)		(7,500	)		—
Cost of debt extinguishment		3			—			3			—
Severance and executive transition costs (a)		183			481			664			398
Other expenses (b)		1,671			18			1,689			(1,506	)
Core FFO	$	74,381		$	74,473		$	148,854		$	130,062
Straight-line rent adjustment		(7,276	)		(7,271	)		(14,547	)		(9,899	)
Adjustment to provision for credit losses		(10	)		—			(10	)		(1	)
Amortization of debt issuance costs		986			986			1,972			1,756
Amortization of net mortgage premiums		(52	)		(26	)		(78	)		(52	)
Loss (gain) on interest rate swaps and other non-cash interest expense		521			522			1,043			1,354
Amortization of lease intangibles		(1,085	)		(2,691	)		(3,776	)		(2,325	)
Stock-based compensation		1,539			1,492			3,031			2,310
AFFO	$	69,004		$	67,485		$	136,489		$	123,205

(a)

Amount includes $0.2 million and $0.1 million of executive transition costs during the three months ended June 30, 2023 and March 31, 2023, respectively, and $0.4 million of accelerated stock-based compensation during the three months ended March 31, 2023, related to the departure of our previous chief executive officer.

(b)

Amount includes $1.7 million and $18 thousand of unrealized foreign exchange loss for the three months ended June 30, 2023 and March 31, 2023, respectively, and $1.7 million and $(1.5) million of unrealized foreign exchange loss (gain) for the six months ended June 30, 2023 and June 30, 2022, respectively, primarily associated with our Canadian dollar denominated revolving borrowings.

EBITDA, EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre

We compute EBITDA as earnings before interest, income taxes and depreciation and amortization. EBITDA is a measure commonly used in our industry. We believe that this ratio provides investors and analysts with a measure of our performance that includes our operating results unaffected by the differences in capital structures, capital investment cycles and useful life of related assets compared to other companies in our industry. We compute EBITDAre in accordance with the definition adopted by Nareit, as EBITDA excluding gains (losses) from the sales of depreciable property and provisions for impairment on investment in real estate. We believe EBITDA and EBITDAre are useful to investors and analysts because they provide important supplemental information about our operating performance exclusive of certain non-cash and other costs. EBITDA and EBITDAre are not measures of financial performance under GAAP, and our EBITDA and EBITDAre may not be comparable to similarly titled measures of other companies. You should not consider our EBITDA and EBITDAre as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.

We are focused on a disciplined and targeted acquisition strategy, together with active asset management that includes selective sales of properties. We manage our leverage profile using a ratio of Net Debt to Annualized Adjusted EBITDAre, each discussed further below, which we believe is a useful measure of our ability to repay debt and a relative measure of leverage, and is used in communications with our lenders and rating agencies regarding our credit rating. As we fund new acquisitions using our unsecured Revolving Credit Facility, our leverage profile and Net Debt will be immediately impacted by current quarter acquisitions. However, the full benefit of EBITDAre from newly acquired properties will not be received in the same quarter in which the properties are acquired. Additionally, EBITDAre for the quarter includes amounts generated by properties that have been sold during the quarter. Accordingly, the variability in EBITDAre caused by the timing of our acquisitions and dispositions can temporarily distort our leverage ratios. We adjust EBITDAre (“Adjusted EBITDAre”) for the most recently completed quarter (i) to recalculate as if all acquisitions and dispositions had occurred at the beginning of the quarter, (ii) to exclude certain GAAP income and expense amounts that are either non-cash, such as cost of debt extinguishments, realized or unrealized gains and losses on foreign currency transactions, or gains on insurance recoveries, or that we believe are one time, or unusual in nature because they relate to unique circumstances or transactions that had not previously occurred and which we do not anticipate occurring in the future, and (iii) to eliminate the impact of lease termination fees and other items that are not a result of normal operations. We then annualize quarterly Adjusted EBITDAre by multiplying it by four (“Annualized Adjusted EBITDAre”). You should not unduly rely on this measure as it is based on assumptions and estimates that may prove to be inaccurate. Our actual reported EBITDAre for future periods may be significantly different from our Annualized Adjusted EBITDAre. Adjusted EBITDAre and Annualized Adjusted EBITDAre are not measurements of performance under GAAP, and our Adjusted EBITDAre and Annualized Adjusted EBITDAre may not be comparable to similarly titled measures of other companies. You should not consider our Adjusted EBITDAre and Annualized Adjusted EBITDAre as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.

The following table reconciles net income (which is the most comparable GAAP measure) to EBITDA, EBITDAre, and Adjusted EBITDAre. Information is also presented with respect to Annualized EBITDAre and Annualized Adjusted EBITDAre:


	For the Three Months Ended
(in thousands)	June 30, 2023			March 31, 2023			June 30, 2022
Net income	$	62,996		$	41,374		$	35,552
Depreciation and amortization		39,031			41,784			35,511
Interest expense		20,277			21,139			17,888
Income taxes		448			479			401
EBITDA	$	122,752		$	104,776		$	89,352
Provision for impairment of investment in rental properties		—			1,473			1,380
Gain on sale of real estate		(29,462	)		(3,415	)		(4,071	)
EBITDAre	$	93,290		$	102,834		$	86,661
Adjustment for current quarter acquisition activity (a)		342			406			2,780
Adjustment for current quarter disposition activity (b)		(444	)		(365	)		(141	)
Adjustment to exclude non-recurring and other expenses (c)		183			(1,023	)		—
Adjustment excludes net write-offs of accrued rental income		—			297			—
Adjustment to exclude realized / unrealized foreign exchange (gain) loss		1,681			18			(2,632	)
Adjustment to exclude cost of debt extinguishments		3			—			—
Adjustment to exclude lease termination fees		—			(7,500	)		—
Adjusted EBITDAre	$	95,055		$	94,667		$	86,668
Annualized EBITDAre	$	373,160		$	411,336		$	346,642
Annualized Adjusted EBITDAre	$	380,220		$	378,668		$	346,672

(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 $0.2 million of executive transition costs and $0.5 million of executive transition costs and accelerated amortization of stock-based compensation for the three months ended June 30, 2023 and March 31, 2023, related to the departure of our previous chief executive officer, and $(1.5) million of accelerated amortization of lease intangibles during the three months ended March 31, 2023.

Net Debt, Net Debt to Annualized EBITDAre and Net Debt to Annualized Adjusted EBITDAre

We define Net Debt as gross debt (total reported debt plus debt issuance costs) less cash and cash equivalents and restricted cash. We believe that the presentation of Net Debt to Annualized EBITDAre and Net Debt to Annualized Adjusted EBITDAre is useful to investors and analysts because these ratios provide information about gross debt less cash and cash equivalents, which could be used to repay debt, compared to our performance as measured using EBITDAre, and is used in communications with lenders and rating agencies regarding our credit rating. The following table reconciles total debt (which is the most comparable GAAP measure) to Net Debt, and presents the ratio of Net Debt to Annualized EBITDAre and Net Debt to Annualized Adjusted EBITDAre, respectively:


(in thousands)	June 30, 2023			March 31, 2023			June 30, 2022
Debt
Unsecured revolving credit facility	$	122,912		$	108,330		$	320,657
Unsecured term loans, net		895,319			895,006			587,098
Senior unsecured notes, net		844,932			844,744			844,178
Mortgages, net		80,141			85,853			95,453
Debt issuance costs		9,872			10,390			8,991
Gross Debt		1,953,176			1,944,323			1,856,377
Cash and cash equivalents		(20,763	)		(15,412	)		(16,813	)
Restricted cash		(15,502	)		(3,898	)		(12,163	)
Net Debt	$	1,916,911		$	1,925,013		$	1,827,401
Net Debt to Annualized EBITDAre	5.1x			4.7x			5.3x
Net Debt to Annualized Adjusted EBITDAre	5.0x			5.1x			5.3x

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses as well as other disclosures in the financial statements. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and assumptions; however, actual results may differ from these estimates and assumptions, which in turn could have a material impact on our financial statements. A summary of our significant accounting policies and procedures are included in Note 2, "Summary of Significant Accounting Policies," in the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. We believe there have been no significant changes during the six months ended June 30, 2023, to the items that we disclosed as our critical accounting policies and estimates in our 2022 Annual Report on Form 10-K.

Impact of Recent Accou nting 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 Qualitat ive Disclosures About Market Risk

Interest Rate Risk

We are exposed to certain market risks, one of the most predominant of which is a change in interest rates. Increases in interest rates can result in increased interest expense under our Revolving Credit Facility and other variable-rate debt. Increases in interest rates can also result in increased interest expense when our fixed rate debt matures and needs to be refinanced. We attempt to manage interest rate risk by entering into long-term fixed rate debt, entering into interest rate swaps to convert certain variable-rate debt to a fixed rate, and staggering our debt maturities. We have designated the interest rate swaps as cash flow hedges for accounting purposes and they 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 9 in our Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report on Form 10-Q.

Our fixed-rate debt includes our senior unsecured notes, mortgages, and variable-rate debt converted to a fixed rate with the use of interest rate swaps. Our fixed-rate debt had a carrying value and fair value of approximately $1.9 billion and $1.7 billion, respectively, as of June 30, 2023. Changes in market interest rates impact the fair value of our fixed-rate debt, but they have no impact on interest incurred or on cash flows. For instance, if interest rates were to increase 1%, and the fixed-rate debt balance were to remain constant, we would expect the fair value of our debt to decrease, similar to how the price of a bond decreases as interest rates rise. A 1% increase in market interest rates would have resulted in a decrease in the fair value of our fixed-rate debt of approximately $68.0 million as of June 30, 2023.

Borrowings pursuant to our Revolving Credit Facility and other variable-rate debt bear interest at rates based on the applicable reference rate plus an applicable margin, and totaled $1.0 billion as of June 30, 2023, of which $975.4 million was swapped to a fixed rate by our use of interest rate swaps. Taking into account the effect of our interest rate swaps, a 1% increase or decrease in interest rates would have a corresponding $0.5 million increase or decrease in interest expense annually.

With the exception of our interest rate swap transactions, we have not engaged in transactions in derivative financial instruments or derivative commodity instruments.

Foreign Currency Exchange Rate Risk

We own investments in Canada, and as a result are subject to risk from the effects of exchange rate movements in the Canadian dollar, which may affect future costs and cash flows. We funded a significant portion of our Canadian investments through Canadian dollar borrowings under our Revolving Credit Facility, which is intended to act as a natural hedge against our Canadian dollar investments. To the extent that currency fluctuations increase or decrease rental revenues, as translated to U.S. dollars, the change in debt service (comprised of interest payments), as translated to U.S. dollars, will partially offset the effect of fluctuations in revenue and, to some extent, mitigate the risk from changes in foreign currency exchange rates. We believe the foreign currency exchange rate risk on the remaining cash flows is immaterial.

Additionally, our Canadian dollar revolving borrowings are remeasured each reporting period, with the unrealized foreign currency gains and losses flowing through earnings. These unrealized foreign currency gains and losses do not impact our cash flows from operations until settled, and are expected to directly offset the changes in the value of our net investments as a result of changes in the Canadian dollar. Our Canadian investments are recorded at their historical exchange rates, and therefore are not impacted by changes in the value of the Canadian dollar.

Item 4. Control s 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, 2023, 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II – OTH ER INFORMATION

Item 1. Legal Proceedings.

From time to time, we are subject to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of our business. We are not currently a party to legal proceedings that we believe would reasonably be expected to have material adverse effect on our business, financial condition, or results of operations. We are not aware of any material legal proceedings to which we or any of our subsidiaries are a party or to which any of our property is subject, nor are we aware of any such legal proceedings contemplated by government agencies.

Item 1A. Ris k Factors.

There have been no material changes from the risk factors set forth in our 2022 Annual Report on Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equit y Securities and Use of Proceeds from Registered Securities.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Saf ety Disclosures.

Not applicable.

Item 5. Other Information.

None of our officers or directors adopted or terminated any contract, instruction, or written plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.

Item 6. E xhibits


No.		Description

3.1		Articles of Incorporation of Broadstone Net Lease, Inc. (filed as Exhibit 3.1 to the Corporation’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)

3.2		Articles of Amendment of Broadstone Net Lease, Inc. (filed as Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed September 18, 2020 and incorporated herein by reference)

3.3		Articles Supplementary of Broadstone Net Lease, Inc. (filed as Exhibit 3.2 to the Corporation’s Current Report on Form 8-K filed September 18, 2020 and incorporated herein by reference)

3.4		Articles of Amendment of Broadstone Net Lease, Inc. (filed as Exhibit 3.3 to the Corporation’s Current Report on Form 8-K filed September 18, 2020 and incorporated herein by reference)

3.5		Articles of Amendment and Restatement of Broadstone Net Lease, Inc. (filed as Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed May 8, 2023 and incorporated herein by reference)

3.6		Second Amended and Restated Bylaws of Broadstone Net Lease, Inc., adopted March 23, 2020 (filed as Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed March 25, 2020 and incorporated herein by reference)

4.1		Indenture, dated as of September 15, 2021, among the Issuer, the Company and the Trustee, including the form of the Guarantee (filed as Exhibit 4.1 to the Corporation’s Current Report on Form 8-K filed September 10, 2021 and incorporated herein by reference)

4.2		First Supplemental Indenture, dated as of September 15, 2021, among the Issuer, the Company and the Trustee, including the form of the Notes (filed as Exhibit 4.2 to the Corporation’s Current Report on Form 8-K filed September 10, 2021 and incorporated herein by reference)

10.1*		Amendment No. 5 to Term Loan Agreement, dated June 8, 2023, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Capital One, National Association and the lenders party thereto

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*†		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*†		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		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

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith.

+ Management contract or compensatory plan or arrangement.

† In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		BROADSTONE NET LEASE, INC.

Date: August 3, 2023		/s/ John D. Moragne
		John D. Moragne
		Chief Executive Officer

Date: August 3, 2023		/s/ Kevin M. Fennell
		Kevin M. Fennell
		Executive Vice President and Chief Financial Officer

TABLE OF CONTENTS

Part I. Financi Item 1. Financial Statements Item 1. Financi Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 2. Management S Discussion and Analysis Of Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 3. Quantitative and Qualitat Item 4. Controls and Procedures Item 4. Control Part II Other Information Part II Oth Item 1. Legal Proceedings Item 1. Legal Item 1A. Risk Factors Item 1A. Ris Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds From Registered Securities Item 2. Unregistered Sales Of Equit Item 3. Defaults Upon Senior Securities Item 3. Defaults Upon Item 4. Mine Safety Disclosures Item 4. Mine Saf Item 5. Other Information Item 5. Other Item 6. Exhibits

(in thousands, except number of properties)

Number of properties

Carrying value prior to impairment charge

Fair value

Impairment charge