Broadstone Net Lease, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements appearing in Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. Overview We are an industrial-focused, diversified net lease real estate investment trust (“REIT”) that invests in primarily single-tenant commercial real estate properties that are net leased on a long-term basis to a diversified group of tenants. As of December 31, 2023, our portfolio includes 796 properties, with 789 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 December 31, 2023, our portfolio comprised approximately 38.3 million rentable square feet of operational space, was highly diversified based on property type, geography, tenant, and industry, and was cross-diversified within each ( e.g., property-type diversification within a geographic concentration): • Property Type : We are diversified across industrial, healthcare, restaurant, and retail property types. Within these sectors, we 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 9.7% of our ABR. • Tenant and Industry Diversification : Our properties are occupied by approximately 220 different commercial tenants who operate 208 different brands that are diversified across 53 differing industries, with no single tenant accounting for more than 4.1% of our ABR. • Strong In-Place Leases with Significant Remaining Lease Term . As of December 31, 2023, our portfolio was approximately 99.4% leased with an ABR weighted average remaining lease term of approximately 10.5 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 93.8% of our tenants, based on ABR, provide financial reporting, of which 86.0% are required to provide us with specified financial information on a periodic basis and an additional 7.8% of our tenants report financial statements publicly, either through SEC filings or otherwise. Factors That Impact Our Result of Operations Our results of operations and financial condition are affected by numerous factors, many of which are beyond our control. Key factors that typically impact our results of operations and financial condition, include rental rates, property dispositions, lease renewals and occupancy, investment activity, net lease terms, interest expense, general and administrative expenses, tenant bankruptcies, and impairments. Rental Rates Our ability to grow rental revenue from our existing portfolio will depend on our ability to realize the rental escalations built into our leases. As of December 31, 2023, leases contributing approximately 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 minimum increase of 2.0%. Generally, our rent escalators increase rent on specified dates by a fixed percentage. Approximately 11.8% of our rent escalators are based on an increase in the CPI over a specified period and 2.7% of our leases are flat leases, meaning they do not provide for rent increases during their terms. 42 Property Dispositions From time to time, we strategically dispose of properties, primarily when we believe the risk profile has changed and become misaligned with our then current risk-adjusted return objectives. The resulting gains or losses on dispositions may materially impact our operating results, and the 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 at the time a property is listed for sale. Lease Renewals and Occupancy As of December 31, 2023, the ABR weighted average remaining term of our portfolio was approximately 10.5 years, excluding tenant renewal options, and leases for five properties, or 1.2% of ABR, will expire during 2024. Approximately 3% of the properties in our portfolio are subject to tenant leases without at least one renewal option. Approximately 60.6% of our ABR was derived from leases that will expire after 2030, and no more than 13.6% of our ABR was derived from leases that expire in any single year up to 2030. The stability of the rental revenue generated by our properties depends principally on our tenants’ ability to pay rent and our ability to collect rents, renew expiring leases or re-lease space upon the expiration or other termination of leases, lease currently vacant properties, and maintain or increase rental rates at our leased properties. To the extent our properties become vacant and are not subject to a lease, we would forego rental income while remaining responsible for the payment of property taxes and maintaining the property until it is re-leased, which could negatively impact our operating results. Our portfolio was 99.4% occupied as of December 31, 2023. Investment Activity Our historical growth in revenues and earnings has been achieved through rent escalations associated with existing in-place leases, coupled with rental income generated from accretive property investments. Our ability to grow revenue will depend, to a significant degree, on our ability to identify and complete acquisitions that meet our investment criteria. Changes in capitalization rates, interest rates, or other factors may impact our acquisition opportunities in the future. Market conditions may also impact the total returns we can achieve on our investments. Our investment volume also depends on our ability to access third-party debt and equity financing. Net Lease Terms Substantially all of our leases are net, pursuant to which our tenant generally is obligated to pay most recurring expenses associated with the leased property including real estate taxes, insurance, maintenance, and repairs. The remaining leases generally require that we pay some property expenses such as real estate taxes, insurance, or certain repairs and maintenance. Additionally, we seek to use master lease structures when possible, pursuant to which we lease multiple properties to a single tenant on an all or none basis. Master leases strengthen our ability to preserve rental revenue and prevent costs associated with vacancies for underperforming properties. As of December 31, 2023, master leases contributed 69.0% of the ABR associated with multi-site tenants (406 of 675 properties), and 41.5% of our overall ABR (406 of our 796 properties). Interest Expense We anticipate that we will continue to incur debt to fund future investment activity, which will increase the amount of interest expense we incur. In addition, although we attempt to limit our total floating-rate debt exposure, changes in the interest rate environment could either increase or decrease our weighted average interest rate in the future. As of December 31, 2023, 99.2% of our debt was fixed, with $30 million of interest rate swap notional maturing in the fourth quarter of 2024. Any changes to our debt structure or debt financing associated with property investments, could materially influence our operating results depending on the terms of any such debt. Our current investment grade credit ratings are ‘BBB’ from S&P Global Ratings (“S&P”) and ‘Baa2’ from Moody’s Investors Service (“Moody’s”), which allow us to take advantage of the lower cost of debt. However, a downgrade in our credit rating, or interest rate change due to governmental monetary and tax policies, domestic and international economic and political conditions, or other factors beyond our control, could also increase the amount of interest we pay under our debt agreements. General and Administrative Expenses Our general and administrative expenses primarily consist of employee compensation and related costs, third party legal, accounting, and consulting expenses, travel and entertainment, and general office expenses. 43 Impact of Inflation Our leases with tenants of our properties are long-term in nature, with a current weighted average remaining lease term of 10.5 years as of December 31, 2023. To mitigate the impact of inflation on our fixed revenue streams, we have implemented limited escalation clauses in our leases. As of December 31, 2023, substantially all of our leases had contractual rent escalations, with an ABR weighted average minimum increase of 2.0%. A majority of our leases have fixed annual rent increases or periodic escalations over the term of the lease ( e.g. , a 10% increase every five years), and the remaining portion has annual rent escalations based on increases in the CPI. These lease escalations mitigate the risk of fixed revenue streams in the case of an inflationary economic environment, and provide increased return in otherwise stable market conditions. As a majority of our portfolio has fixed lease escalations, we are limited in our same store rental revenue inflation protection. Our focus on single-tenant, net leases also mitigates the potential impact of fluctuations in the cost of services and maintenance as a result of inflation. For a portion of our portfolio, we have leases that are not fully net, and, therefore, we bear certain responsibilities for the maintenance and structural component replacements ( e.g., roof, structure, or parking lot) that may be required in the future, although the tenants are still required to pay all operating expenses associated with the property ( e.g. , real estate taxes, insurance, and maintenance). Inflation and increased costs may have an adverse impact to our tenants and their creditworthiness if the increase in costs are greater than their increase in revenue. Where we cannot implement a net lease, we attempt to limit our exposure to inflation through the use of warranties and other remedies that reduce the likelihood of a significant capital outlay. Tenant Bankruptcies Adverse economic conditions, particularly those that affect the markets in which our properties are located, or downturns in our tenants’ industries could impair our tenants’ ability to meet their lease obligations to us and our ability to renew expiring leases or re-lease space. In particular, the bankruptcy of one or more of our tenants could adversely affect our ability to collect rents from such tenants and maintain our portfolio’s occupancy. Impairments We review 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. Significant judgment is made as to if and when impairment should be taken. If our strategy, or one or more of the assumptions described above, changes in the future, we may have to recognize an impairment. Indications of a tenant’s inability to continue as a going concern, changes in our view or strategy relative to a tenant’s business or industry, or changes in our long-term hold strategies, could each be indicative of an impairment triggering event. For the year ended December 31, 2023, we recognized $31.3 million of impairment due to a change in our long-term hold strategy for four properties. Results of Operations Discussion of our Results of Operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 was previously filed in our Annual Report on Form 10-K for the year ended December 31, 2022. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “ Results of Operations—Year Ended December 31, 2022 Compared to Year Ended year ended December 31, 2021 .” 44 Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Lease revenues, net Year Ended December 31, Increase/(Decrease) (in thousands) 2023 2022 $ % Revenues: Contractual rental amounts billed for operating leases $ 388,073 $ 359,317 $ 28,756 8.0 % Adjustment to recognize contractual operating lease billings on a straight-line basis 27,154 22,353 4,801 21.5 % Write-off of accrued rental income (4,266 ) (1,326 ) 2,940 > 100.0 % Variable rental amount earned 2,277 1,507 770 51.1 % Earned income from direct financing leases 2,752 2,856 (104 ) (3.6 ) % Interest income from sales-type leases 58 58 — — % Operating expenses billed to tenants 20,363 19,779 584 3.0 % Other income from real estate transactions 7,414 3,069 4,345 > 100.0 % Adjustment to revenue recognized for uncollectible rental amounts billed, net (937 ) (100 ) (837 ) < (100.0) % Total Lease revenues, net $ 442,888 $ 407,513 $ 35,375 8.7 % The increase in Lease revenues, net was primarily due to recognizing a full year of rental revenue for all property acquisitions made during 2022 partially offset by the reductions of revenues associated with property dispositions. During the year ended December 31, 2022, we invested $907.2 million, in 87 properties at a weighted average initial cash capitalization rate of 6.4%. During the year ended December 31, 2023, we invested $68.4 million in new property acquisitions and revenue generating capital expenditures at a weighted average initial cash capitalization rate of 7.2%, and we disposed of 14 properties for net proceeds of $195.0 million at a weighted average cash capitalization rate of 6.0%. The increase in lease revenues was additionally due to an increase in lease termination fee income, which we classified as other income from real estate transactions in the table above, associated with the early lease termination and sale of an office property for total proceeds of $39.5 million. The timing and amount of lease termination income varies from period to period. Operating Expenses Year Ended December 31, Increase/(Decrease) (in thousands) 2023 2022 $ % Operating expenses: Depreciation and amortization $ 158,626 $ 154,807 $ 3,819 2.5 % Property and operating expense 22,576 21,773 $ 803 3.7 % General and administrative 39,425 37,375 $ 2,050 5.5 % Provision for impairment of investment in rental properties 31,274 5,535 $ 25,739 > 100.0 % Total operating expenses $ 251,901 $ 219,490 $ 32,411 14.8 % Depreciation and amortization The increase in depreciation and amortization during the year ended December 31, 2023 was primarily due to properties acquired in the previous year having a full year’s worth of depreciation in the current year, offset by net dispositions for the year ended December 31, 2023. General and administrative The increase in general and administrative expense for the year ended December 31, 2023 was primarily due to increases of stock-based compensation expense associated with an additional annual grant during the first quarter of 2023, payroll expense related to general annual merit adjustments, and transaction-related expenses for investments that did not close during the year. This was partially offset by a decrease in directors and officers insurance expense, associated with the length of time that has elapsed since our initial public offering in 2020. 45 Provision for impairment of investment in rental properties During the year ended December 31, 2023, we recognized $31.3 million of impairment on our investments in rental properties, primarily due to a change in our long-term hold strategy on Green Valley Medical Center, compared to $5.5 million of impairment during the year ended December 31, 2022. The following table presents the impairment charges for their respective periods: Year Ended December 31, (in thousands, except number of properties) 2023 2022 Number of properties 4 3 Carrying value prior to impairment charge $ 62,720 $ 12,721 Fair value 31,446 7,186 Impairment charge $ 31,274 $ 5,535 The timing and amount of impairment fluctuates from period to period depending on the specific facts and circumstances. Other income (expenses) Year Ended December 31, Increase/(Decrease) (in thousands) 2023 2022 $ % Other income (expenses) Interest income $ 512 $ 44 $ 468 > 100.0 % Interest expense (80,053 ) (78,652 ) 1,401 1.78 % Gain on sale of real estate 54,310 15,953 38,357 > 100.0 % Income taxes (763 ) (1,275 ) (512 ) (40.16 ) % Other income (expenses) (1,681 ) 5,382 (7,063 ) < (100.0) % Interest expense The increase in interest expense reflects an increase in our weighted average cost of our United States Dollar (“USD”) Revolving Credit Facility borrowings, our only variable rate debt. At December 31, 2023, the one-month SOFR rate was 5.35%, compared with 4.36% at December 31, 2022. This increase was offset by decreased average outstanding borrowings. Since December 31, 2022, we decreased total outstanding borrowings by $116.0 million, excluding the impacts of foreign exchange remeasurement. 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 year ended December 31, 2023, we recognized gains of $54.3 million on the sale of 14 properties, compared to gains of $16.0 million on the sale of eight properties during the year ended December 31, 2022. Other income (expenses) The change in other income during the year ended December 31, 2023 was primarily $1.7 million of unrealized foreign exchange loss recognized on the remeasurement of our $100 million CAD Revolving Credit Facility borrowings, compared to a $5.6 million unrealized foreign exchange gain recognized during the year ended December 31, 2022. Net Income and Net earnings per diluted share Year Ended December 31, Increase/(Decrease) (in thousands, except per share data) 2023 2022 $ % Net income $ 163,312 $ 129,475 $ 33,837 26.1 % Net earnings per diluted share 0.83 0.72 0.11 15.3 % The increase in net income is primarily due to a $38.4 million increase in the gain on sale of real estate, together with revenue growth of $35.4 million. These factors were partially offset by a $25.7 million increase in the provision for impairment of investment in rental properties and a $7.1 million decrease in other income (expenses). 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. 46 Liquidity and Capital Resources General We acquire real estate using a combination of debt and equity capital and with cash from operations that is not otherwise distributed to our stockholders, and proceeds from dispositions 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 and ‘Baa2’ from Moody’s. We seek to maintain on a sustained basis a Leverage Ratio that is generally less than 6.0x. As of December 31, 2023, we had total debt outstanding and Net Debt of $1.9 billion each, and a Leverage 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 and proceeds from selective property dispositions. Short-term Liquidity Requirements Our short-term liquidity requirements consist primarily of funds necessary to pay for our operating expenses, including our general and administrative expenses as well as interest payments on our outstanding debt, 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 and capital recycled through selective property dispositions. 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 $214.1 million of expected obligations due throughout 2024, primarily consisting of $118.7 million of commitments to fund investments, $55.9 million of dividends declared, $37.2 million of interest expense due, and $2.3 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 and our dividends declared using our Revolving Credit Facility. As of December 31, 2023, we have $909.6 million of available capacity under our Revolving Credit Facility with sufficient leverage capacity to remain within our targeted leverage profile. 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. We have no material debt maturities until 2026, as detailed in the table below. 47 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. 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 twelve months ended December 31, 2023, and have approximately $145.4 million of available capacity remaining on the ATM Program as of December 31, 2023. The following table presents information about our ATM Program activity: For the Year Ended December 31, (in thousands, except per share amounts) 2023 2022 2021 Number of common shares issued — 10,471 1,072 Weighted average sale price per share $ — $ 21.66 $ 26.26 Net proceeds $ — $ 222,895 $ 27,300 Gross proceeds $ — $ 226,483 $ 28,100 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 Leverage Ratio below 6.0x on a sustained basis. Unsecured Indebtedness and Capital Markets Activities as of and for the Year Ended December 31, 2023 The following table sets forth our outstanding Revolving Credit Facility, unsecured term loans and senior unsecured notes at December 31, 2023. (in thousands, except interest rates) Outstanding Balance Interest Rate Maturity Date Revolving Credit Facility $ 90,434 Applicable reference rate + 0.85% (a) Mar. 2026 (d) Unsecured term loans: 2026 Unsecured Term Loan 400,000 one-month adjusted SOFR + 1.00% (b)(c) Feb. 2026 2027 Unsecured Term Loan 200,000 one-month adjusted SOFR + 0.95% (c) Aug. 2027 2029 Unsecured Term Loan 300,000 one-month adjusted SOFR + 1.25% (c) Aug. 2029 Total unsecured term loans 900,000 Unamortized debt issuance costs, net (4,053 ) Total unsecured term loans, net 895,947 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 (4,691 ) Total senior unsecured notes, net 845,309 Total unsecured debt $ 1,831,690 (a) At December 31, 2023, the balance includes $100 million CAD borrowings remeasured to $75.4 million USD, and was subject to the one-month Canadian Dollar Offered Rate of 5.46%. (b) Effective July 1, 2023, the loan converted into a one-month SOFR borrowing concurrent with LIBOR's cessation. (c) At December 31, 2023, one-month SOFR was 5.35%. (d) Our Revolving Credit Facility contains two six-month extension options subject to certain conditions, including the payment of an extension fee equal to 0.0625% of the revolving commitments. 48 Revolving Credit Facility Our Revolving Credit Facility has a $1.0 billion capacity with a maturity date of March 2026 and contains two six-month extension options, subject to certain conditions, including an extension fee equal to 0.0625%. In addition to United States Dollars (“USD”), borrowings under the Revolving Credit Facility can be made in Pound Sterling, Euros or Canadian Dollars (“CAD”) up to an aggregate amount of $500.0 million. Borrowings under the amended credit facility are subject to interest only payments at variable rates equal to the applicable reference rate plus a margin of 0.85% based on our current credit ratings of ‘BBB’ and ‘Baa2’ from S&P and Moody’s, respectively. In addition, the Revolving Credit Facility is subject to a facility fee on the amount of the revolving commitments, based on our credit rating. The applicable facility fee is 0.20% per annum. 2026 Unsecured Term Loan Borrowings under the 2026 Unsecured Term Loan are subject to interest at variable rates based on one-month adjusted SOFR plus a margin based on our credit rating ranging between 0.85% and 1.65% based on our credit rating. 2027 Unsecured Term Loan and 2029 Unsecured Term Loan Borrowings under the 2027 Unsecured Term Loan and 2029 Unsecured Term Loan bear interest at variable rates based on one-month adjusted SOFR plus a margin based on our credit rating ranging between 0.80% and 1.60% per annum for the 2027 Unsecured Term Loan, and 1.15% and 2.20% per annum for the 2029 Unsecured Term Loan. 2027 Senior Unsecured Notes - Series A The 2027 Senior Unsecured Notes - Series A are payable interest only semiannually during their term, bear interest at a fixed rate of 4.84% per annum, and mature in April 2027. 2028 Senior Unsecured Notes - Series B and 2030 Senior Unsecured Notes - Series C The 2028 Senior Unsecured Notes - Series B and 2030 Senior Unsecured Notes - Series C are payable interest only semiannually during their term, and bear interest at fixed rates of 5.09% per annum and 5.19% per annum, respectively. Series B Notes mature in July 2028, and the Series C Notes mature in July 2030. 2031 Senior Unsecured Public Notes Borrowings under the 2031 Senior Unsecured Public Notes are subject to interest only, semi-annual payments at a fixed rate of 2.60% per annum and mature in September 2031. Debt Covenants We are subject to various covenants and financial reporting requirements pursuant to our debt facilities, which are summarized below. As of December 31, 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. 49 Contractual Obligations The following table provides information with respect to our contractual commitments and obligations as of December 31, 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 (a) Mortgages Term Loans Senior Notes Interest Expense (b) Dividends (c) Commitments to Fund Investments (d) Total 2024 $ — $ 2,260 $ — $ — $ 37,241 $ 55,906 $ 118,728 $ 214,135 2025 — 20,195 — — 93,301 — 2,000 115,496 2026 90,434 16,843 400,000 — 96,933 — — 604,210 2027 — 1,596 200,000 150,000 51,009 — — 402,605 2028 — 38,278 — 225,000 71,620 — — 334,898 Thereafter — — 300,000 475,000 46,712 — — 821,712 Total $ 90,434 $ 79,172 $ 900,000 $ 850,000 $ 396,816 $ 55,906 $ 120,728 $ 2,493,056 (a) Our Revolving Credit Facility contains two six-month extension options subject to certain conditions, including the payment of an extension fee equal to 0.0625% of the revolving commitments. (b) Interest expense is projected based on the outstanding borrowings and interest rates in effect as of December 31, 2023. This amount includes the impact of interest rate swap agreements. (c) Amounts include dividends declared as of December 31, 2023 of $0.285 per common share and OP Unit. Future undeclared dividends have been excluded. (d) Amounts include acquisitions under control, defined as under contract or executed letter of intent, and commitments to fund revenue generating capital expenditures and development opportunities. At December 31, 2023, investment in rental property of $120.5 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 entered into in connection with the internalization of our management in February 2020. 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 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. Based on values as of December 31, 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. 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 December 31, 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 Credit Facility 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. 50 Cash Flows Cash and cash equivalents and restricted cash totaled $20.6 million, $60.0 million, and $27.8 million at December 31, 2023, 2022, and 2021, respectively. The table below shows information concerning cash flows for the years ended December 31, 2023, 2022, and 2021: For the Year Ended December 31, (in thousands) 2023 2022 2021 Net cash provided by operating activities $ 271,074 $ 255,914 $ 244,937 Net cash provided by (used in) investing activities 24,338 (859,643 ) (582,304 ) Net cash (used in) provided by financing activities (334,820 ) 636,000 254,408 (Decrease) increase in cash and cash equivalents and restricted cash $ (39,408 ) $ 32,271 $ (82,959 ) The increase in net cash provided by operating activities during the years ended December 31, 2023 and 2022 was mainly due to growth in our real estate portfolio and associated incremental net lease revenues. The increase in net cash provided by investing activities during the years ended December 31, 2023 and 2022 was mainly due to increased disposition volume. The increase in net cash used in investing activities in 2022 as compared to 2021 was driven by an increase in investing activities. The decrease in net cash (used in) provided by financing activities during the year ended December 31, 2023 as compared to the year ended December 31, 2022, mainly reflects a decrease in our total outstanding borrowings in 2023. The increase in net cash provided by financing activities during the year ended December 31, 2022 as compared to the year ended December 31, 2021, mainly reflects an increase in net proceeds from equity and debt offerings in 2022 to fund growth in our real estate portfolio. Non-GAAP Measures 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, 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, the change in fair value of our earnout liability, 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, adjustment to provision for credit losses, amortization of debt issuance costs, amortization of net mortgage premiums, (gain) loss on interest rate swaps and other non-cash interest expense, deferred taxes, 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. 51 The following table reconciles net income (which is the most comparable GAAP measure) to FFO, Core FFO and AFFO: For the Year Ended December 31, (in thousands, except per share data) 2023 2022 2021 Net income $ 163,312 $ 129,475 $ 109,528 Real property depreciation and amortization 158,346 154,673 131,999 Gain on sale of real estate (54,310 ) (15,953 ) (13,523 ) Provision for impairment on investment in rental properties 31,274 5,535 28,208 FFO $ 298,622 $ 273,730 $ 256,212 Net write-offs of accrued rental income 4,458 1,326 1,938 Lease termination fees (7,500 ) (2,469 ) (35,000 ) Gain on insurance recoveries — (341 ) — Cost of debt extinguishment 3 308 368 Severance and executive transition costs 1,622 401 1,304 Change in fair value of earnout liability — — 5,539 Other expenses (income) (a) 1,678 (5,690 ) 62 Core FFO $ 298,883 $ 267,265 $ 230,423 Straight-line rent adjustment (26,736 ) (21,900 ) (20,304 ) Adjustment to provision for credit losses (10 ) (5 ) (38 ) Amortization of debt issuance costs 3,938 3,692 3,854 Amortization of net mortgage premiums (78 ) (104 ) (132 ) Loss on interest rate swaps and other non-cash interest expense 1,884 2,514 698 Amortization of lease intangibles (5,846 ) (4,809 ) (3,208 ) Stock-based compensation 5,972 5,316 4,669 Deferred taxes (282 ) 204 — AFFO $ 277,725 $ 252,173 $ 215,962 (a) Amount includes $1.7 million, ($5.6) million, and ($0.1) million of unrealized foreign exchange loss (gain) for the years ended December 31, 2023, 2022, and 2021, respectively, primarily associated with our Canadian dollar denominated Revolver Credit Facility 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 investment 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 investments using our unsecured Revolving Credit Facility, our leverage profile and Net Debt will be immediately impacted by current quarter investments. However, the full benefit of EBITDAre from new investments 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 investments 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 investments 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. While investments in property developments have an immediate impact to Net Debt, we do not make an adjustment to EBITDAre until the quarter in which the lease commences. 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. 52 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 December 31, (in thousands) 2023 2022 2021 Net income $ 6,797 $ 36,773 $ 32,226 Depreciation and amortization 39,278 45,606 33,476 Interest expense 18,972 23,773 16,997 Income taxes (268 ) 105 457 EBITDA $ 64,779 $ 106,257 $ 83,156 Provision for impairment of investment in rental properties 29,801 — 207 Gain on sale of real estate (6,270 ) (10,625 ) (3,732 ) EBITDAre $ 88,310 $ 95,632 $ 79,631 Adjustment for current quarter acquisition activity (a) 153 1,283 2,002 Adjustment for current quarter disposition activity (b) (156 ) (440 ) (180 ) Adjustment to exclude non-recurring expenses (income) (c) 128 — — Adjustment to exclude net write-offs of accrued rental income 4,161 — — Adjustment to exclude gain on insurance recoveries — (341 ) — Adjustment to exclude realized/unrealized foreign exchange loss 1,453 796 — Adjustment to exclude cost of debt extinguishments — 77 — Adjustment to exclude lease termination fees — (1,678 ) — Adjusted EBITDAre $ 94,049 $ 95,329 $ 81,453 Annualized EBITDAre $ 353,240 $ 382,528 $ 318,526 Annualized Adjusted EBITDAre $ 376,196 $ 381,316 $ 325,812 (a) Reflects an adjustment to give effect to all investments during the quarter as if they had been made 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 employee severance and ($0.1) million of forfeited stock-based compensation for the three months ended December 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: As of December 31, (in thousands) 2023 2022 Debt Revolving Credit Facility $ 90,434 $ 197,322 Unsecured term loans, net 895,947 894,692 Senior unsecured notes, net 845,309 844,555 Mortgages, net 79,068 86,602 Debt issuance costs 8,848 10,905 Gross Debt 1,919,606 2,034,076 Cash and cash equivalents (19,494 ) (21,789 ) Restricted cash (1,138 ) (38,251 ) Net Debt $ 1,898,974 $ 1,974,036 Net Debt to Annualized EBITDAre 5.4x 5.2x Net Debt to Annualized Adjusted EBITDAre 5.0x 5.2x 53 Critical Accounting Policies and Estimates The preparation of our consolidated financial statements in conformance with GAAP 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”, contained in Item 8. “Financial Statements and Supplementary Data” included in this Annual Report on Form 10-K. Management believes the following critical accounting policies, among others, affect its more significant estimates and assumptions used in the preparation of our consolidated financial statements. Investment in Rental Property Rental property accounted for under operating leases is recorded at cost. Rental property accounted for under direct financing leases and sales-type are recorded at its net investment, which generally represents the cost of the property at the inception of the lease. We account for acquisitions of real estate as asset acquisitions in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, as substantially all of the fair value of the assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets. We allocate the purchase price of investments in rental property accounted for as asset acquisitions based on the relative fair value of the assets acquired and liabilities assumed. These generally include tangible assets, consisting of land and land improvements, buildings and other improvements, and equipment, and identifiable intangible assets and liabilities, including the value of in-place leases and acquired above-market and below-market leases. We use multiple sources to estimate fair value, including information obtained about each property as a result of our pre-acquisition due diligence and our marketing and leasing activities. Factors that impact our fair value determination include real estate market conditions, industry conditions that the tenant operates in, and characteristics of the real estate and/or real estate appraisals. Changes in any of these factors could impact the future purchase prices of our investments and the corresponding capitalization rates recognized. The estimated fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant. The as-if-vacant value is then allocated to land and land improvements, buildings, and equipment based on comparable sales and other relevant information with respect to the property, as estimated by management. Specifically, the “if vacant” value of buildings and equipment is calculated using an income approach. Assumptions used in the income approach to value the buildings include: capitalization and discount rates, lease-up time, market rents, make ready costs, land value, and land improvement value. The estimated fair value of acquired in-place leases are the costs we would have had to incur to lease the properties to the occupancy level of the properties at the date of acquisition. Such costs include the fair value of leasing commissions and other operating costs that would have been incurred to lease the properties, had they been vacant, to their acquired occupancy level. Acquired in-place leases as of the date of acquisition are amortized over the remaining non-cancellable lease terms of the respective leases to amortization expense. Acquired above-market and below-market lease values are recorded based on the present value (using an interest rate that reflects the risks associated with the lease acquired) of the differences between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market value lease rates at the time of acquisition for the corresponding in-place leases. The capitalized above-market and below-market lease values are amortized as adjustments to rental income over the remaining term of the respective leases. Management estimates the fair value of assumed mortgages based upon indications of then-current market pricing for similar types of debt with similar maturities. Assumed mortgages are initially recorded at their estimated fair value as of the assumption date, and the difference between such estimated fair value and the notes’ outstanding principal balance is amortized to interest expense over the remaining term of the debt. Long-lived Asset Impairment We review 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 the fair value. Significant judgment is made to determine if and when impairment should be taken. Management’s assessment of impairment as of December 31, 2023 was based on the most current information available to management. Certain of our properties may have fair values less than their carrying amounts. However, based on management’s plans with respect to each of those properties, we believe 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 our expected holding period for assets changes, subsequent tests for impairments could result in additional impairment charges in the future. 54 Inputs used in establishing fair value for real estate assets generally fall within Level 3 of the fair value hierarchy, which are characterized as requiring significant judgment as little or no current market activity may be available for validation. The main indicator used to establish the classification of the inputs is current market conditions, as derived through the use of published commercial real estate market information. We determine 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. We may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of our real estate. The following table summarizes our impairment charges resulting primarily from changes in our long-term hold strategy with respect to the individual properties: Year Ended December 31, (in thousands, except number of properties) 2023 2022 2021 Number of properties 4 3 7 Carrying value prior to impairment charge $ 62,720 $ 12,721 $ 48,604 Fair value 31,446 7,186 20,396 Impairment charge $ 31,274 $ 5,535 $ 28,208 During the year ended December 31, 2023, we recognized an impairment charge of $26.4 million on a healthcare property due to changes in our tenant’s ability to perform under the lease agreement, leading to a change in management’s long-term hold strategy and desire to sell in the near term. We determined the fair value measurement using a range of significant unobservable inputs, including a third-party appraisal, broker market information, and recent comparable vacant sales transactions. Decreases in the sale price assumptions based on continued marketing of the property could result in additional impairment in the future. Based on the range of fair value estimates, which was the best available information, an additional $9 million of impairment would be recorded if we sold the property at the low end of the range. The remaining impairments recognized during the year ended December 31, 2023 were immaterial. Goodwill Goodwill represents the excess of the amount paid over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and it assigned to one or more reporting units. We evaluate goodwill for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable, or at least annually. Our annual testing date is November 30. The goodwill impairment evaluation is completed using either a qualitative or quantitative approach. Under a qualitative approach, the impairment review for goodwill consists of an assessment of whether it is more-likely-than-not that the reporting unit’s fair value is less than its carrying value, including goodwill. If a qualitative approach indicates it is more likely-than-not that the estimated carrying value of a reporting unit (including goodwill) exceeds its fair value, or if we choose to bypass the qualitative approach, we perform the quantitative approach described below. When we perform a quantitative test of goodwill for impairment, we compare the carrying value of a reporting unit with its fair value. If the fair value of the reporting unit exceeds its carrying amount, we do not consider goodwill to be impaired and no further analysis would be required. If the fair value is determined to be less than its carrying value, the amount of goodwill impairment equals the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Management determined that we have one reporting unit, consistent with our segment reporting analysis, which includes the acquisition, leasing, and ownership of net leased properties (i.e., the consolidated entity). When necessary to perform the quantitative test for goodwill impairment, our estimate of fair value is determined using a market approach, leveraging assumptions such as the fair value of our equity, and consideration of a control premium, if necessary, which includes an analysis of similar market transactions. While we believe the assumptions used to estimate the fair value of our reporting unit are reasonable, changes in these assumptions may have a material impact on our financial results. Based on the results of our annual goodwill impairment test on November 30, 2023, our annual goodwill impairment test date, we concluded that goodwill was not impaired. Revenue Recognition We account for leases in accordance with ASC 842, Leases. We commence revenue recognition on our leases based on a number of factors, including the initial determination that the contract is or contains a lease. Generally, all of our property related contracts are or contain leases, and therefore revenue is recognized when the lessee takes possession of or controls the physical use of the leased assets. In most instances this occurs on the lease commencement date. At the time of lease assumption or at the inception of a new lease, including new leases that arise from amendments, we assess the terms and conditions of the lease to determine the proper lease classification. A lease is classified as an operating lease if none of the following criteria are met: (i) ownership transfers to the lessee at the end of the lease term, (ii) the lessee has a purchase option that is reasonably expected to be exercised, (iii) the lease term is for a major part of the economic life of the leased property, (iv) the present value of the future lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the leased property, and (v) the leased property is of such a specialized nature that it is expected to have no future alternative use to the Company at the end of the lease term. If one or 55 more of these criteria are met, the lease will generally be classified as a sales-type lease, unless the lease contains a residual value guarantee from a third party other than the lessee, in which case it would be classified as a direct financing lease under certain circumstances. We account for the right to use land as a separate lease component, unless the accounting effect of doing so would be insignificant. Determination of significance requires management judgment. In determining whether the accounting effect of separately reporting the land component from other components for its real estate leases is significant, we assess: (i) whether separating the land component impacts the classification of any lease component, (ii) the value of the land component in the context of the overall contract, and (iii) whether the right to use the land is coterminous with the rights to use the other assets. Derivative Instruments and Hedging Management uses interest rate swap agreements to manage risks related to interest rate movements. Management documents its risk management strategy and hedge effectiveness at the inception of, and during the term of, each hedge. Our interest rate risk management strategy is intended to stabilize cash flow requirements by maintaining interest rate swap agreements to convert certain variable-rate debt to a fixed rate. The interest rate swap agreements, designated and qualifying as cash flow hedges, are reported at fair value. Interest rate swaps are measured at fair value using inputs that are directly observable in active markets and are classified within Level 2 of the valuation hierarchy, using an income approach. Specifically, the fair value of the interest rate swaps is determined using a discounted cash flow analysis on the expected future cash flows of each instrument. This analysis utilizes observable market data including yield curves and implied volatilities to determine the market’s expectation of the future cash flows of the variable component. The fixed and variable components of the interest rate swaps are then discounted using calculated discount factors developed based on the overnight indexed swap (“OIS”) curve and are aggregated to arrive at a single valuation for the period. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its interest rate swaps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate swaps utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. At December 31, 2023 and 2022, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As a result, the Company has determined that its interest rate swap valuations in their entirety are appropriately classified within Level 2 of the fair value hierarchy. When an existing cash flow hedge is terminated, we determine the accounting treatment for the accumulated gain or loss recognized in Accumulated other comprehensive income (loss), based on the probability of the hedged forecasted transaction occurring within the period the cash flow hedge was anticipated to affect earnings. If management determines that the hedged forecasted transaction is probable of occurring during the original period, the accumulated gain or loss is reclassified into earnings over the remaining life of the cash flow hedge using a straight-line method. If management determines that the hedged forecasted transaction is not probable of occurring during the original period, the entire amount of accumulated gain or loss is reclassified into earnings at such time. Impact of Recent Accounting Pronouncements For information on the impact of recent accounting pronouncements on our business, see the captions Recently Adopted Accounting Standards and Other Recently Issued Accounting Standards in Note 2, “Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. 56 Item 7A. 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 and interest rate swaps mature. 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 11 in our Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K. 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 December 31, 2023. Changes in market interest rates impact the fair value of our fixed-rate debt and interest rate swaps, but they have no impact on interest incurred or on cash flows. For instance, if interest rates were to increase 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 as of approximately $65.9 million as of December 31, 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 December 31, 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 $0.2 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. The Canadian dollar Revolving Credit Facility borrowings are remeasured each reporting period, with the unrealized foreign currency gains and losses flowing through earnings. A 10% increase or decrease in the exchange rate between the Canadian dollar and USD would have a corresponding $7.5 million increase or decrease in unrealized foreign currency gain or loss. 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. 57 Item 8. Financial Statemen ts and Supplementary Data Contents Report of Independent Registered Accounting Firm (PCAOB ID No. 34 ) 59 Consolidated Balance Sheets 61 Consolidated Statements of Income and Comprehensive Income 62 Consolidated Statements of Equity 63 Consolidated Statements of Cash Flows 64 Notes to Consolidated Financial Statements 65 Schedule III – Real Estate Assets and Accumulated Depreciation 91 58 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Broadstone Net Lease, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Broadstone Net Lease, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of long-lived asset impairment —Refer to Note 2 to the consolidated financial statements Critical Audit Matter Description The Company’s evaluation of long-lived assets to be held and used for possible impairment involves an initial assessment to determine whether 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 and its eventual disposition. An impairment loss is measured as the amount by which the carrying amount of the long-lived asset or asset group exceeds its estimated fair value. Significant judgment is made to determine if and when impairment should be taken. 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 reflected in the financial statements. If the operating conditions 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. We identified the estimated holding period used in determining the recoverability of long-lived assets as a critical audit matter because of the subjective judgments made by management to determine the holding period for long-lived assets as part of their impairment analysis. This required a higher degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s assumptions, given the inherent unpredictability involved in the timing of sales of long-lived assets. 59 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the assessment of the Company’s expected holding periods included the following, among others: • We obtained an understanding and tested the design and operating effectiveness of the Company’s controls to monitor long-lived assets for events or changes in circumstances that indicate that their carrying amounts may not be recoverable due to a change in the expected holding period. • We held discussions with the Company’s management and evaluated the reasonableness of management’s assertions regarding the expected holding period of its long-lived assets, more specifically by performing the following: • Engaged in discussions with senior management, including legal and asset management, and inspected Board of Director meeting minutes regarding the assumptions utilized in determining the expected holding periods. • Evaluated audit evidence (e.g. hindsight analysis) to determine whether it supported or contradicted the conclusions reached by management. /s/ Deloitte & Touche LLP Rochester, New York February 22, 2024 We have served as the Company’s auditor since 2016. 60 Broadstone Net Lease, Inc. and Subsidiaries Consolidated Ba lance Sheets (in thousands, except per share amounts) December 31, 2023 2022 Assets Accounted for using the operating method: Land $ 748,529 $ 768,667 Land improvements 328,746 340,385 Buildings and improvements 3,803,156 3,888,756 Equipment 8,265 10,422 Total accounted for using the operating method 4,888,696 5,008,230 Less accumulated depreciation ( 626,597 ) ( 533,965 ) Accounted for using the operating method, net 4,262,099 4,474,265 Accounted for using the direct financing method 26,643 27,045 Accounted for using the sales-type method 572 571 Property under development 94,964 — Investment in rental property, net 4,384,278 4,501,881 Cash and cash equivalents 19,494 21,789 Accrued rental income 152,724 135,666 Tenant and other receivables, net 1,487 1,349 Prepaid expenses and other assets 36,661 64,180 Interest rate swap, assets 46,096 63,390 Goodwill 339,769 339,769 Intangible lease assets, net 288,226 329,585 Total assets $ 5,268,735 $ 5,457,609 Liabilities and equity Unsecured revolving credit facility $ 90,434 $ 197,322 Mortgages, net 79,068 86,602 Unsecured term loans, net 895,947 894,692 Senior unsecured notes, net 845,309 844,555 Accounts payable and other liabilities 47,534 47,547 Dividends payable 56,869 54,460 Accrued interest payable 5,702 7,071 Intangible lease liabilities, net 53,531 62,855 Total liabilities 2,074,394 2,195,104 Commitments and contingencies (Note 19) Equity Broadstone Net Lease, Inc. 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, 187,614 and 186,114 shares issued and outstanding at December 31, 2023 and 2022, respectively 47 47 Additional paid-in capital 3,440,639 3,419,395 Cumulative distributions in excess of retained earnings ( 440,731 ) ( 386,049 ) Accumulated other comprehensive income 49,286 59,525 Total Broadstone Net Lease, Inc. equity 3,049,241 3,092,918 Non-controlling interests 145,100 169,587 Total equity 3,194,341 3,262,505 Total liabilities and equity $ 5,268,735 $ 5,457,609 The accompanying notes are an integral part of these consolidated financial statements. 61 Broadstone Net Lease, Inc. and Subsidiaries Consolidated Statements of Income and Comprehensive Income (in thousands, except per share amounts) For the Year Ended December 31, 2023 2022 2021 Revenues Lease revenues, net $ 442,888 $ 407,513 $ 382,876 Operating expenses Depreciation and amortization 158,626 154,807 132,096 Property and operating expense 22,576 21,773 18,459 General and administrative 39,425 37,375 36,366 Provision for impairment of investment in rental properties 31,274 5,535 28,208 Total operating expenses 251,901 219,490 215,129 Other income (expenses) Interest income 512 44 17 Interest expense ( 80,053 ) ( 78,652 ) ( 64,146 ) Gain on sale of real estate 54,310 15,953 13,523 Income taxes ( 763 ) ( 1,275 ) ( 1,644 ) Change in fair value of earnout liability — — ( 5,539 ) Other (expenses) income ( 1,681 ) 5,382 ( 430 ) Net income 163,312 129,475 109,528 Net income attributable to non-controlling interests ( 7,834 ) ( 7,360 ) ( 7,102 ) Net income attributable to Broadstone Net Lease, Inc. $ 155,478 $ 122,115 $ 102,426 Weighted average number of common shares outstanding Basic 186,617 169,840 153,057 Diluted 196,315 180,201 163,970 Net earnings per share attributable to common stockholders Basic and Diluted $ 0.83 $ 0.72 $ 0.67 Comprehensive income Net income $ 163,312 $ 129,475 $ 109,528 Other comprehensive income Change in fair value of interest rate swaps ( 17,293 ) 90,560 39,353 Realized loss on interest rate swaps 1,883 2,514 698 Comprehensive income 147,902 222,549 149,579 Comprehensive income attributable to non-controlling interests ( 7,070 ) ( 12,700 ) ( 9,831 ) Comprehensive income attributable to Broadstone Net Lease, Inc. $ 140,832 $ 209,849 $ 139,748 The accompanying notes are an integral part of these consolidated financial statements. 62 Broadstone Net Lease, Inc. and Subsidiaries Consolidated Statement s of Equity (in thousands, except per share amounts) Common Stock Class A Common Stock Additional Paid-in Capital Cumulative Distributions in Excess of Retained Earnings Accumulated Other Comprehensive Income (Loss) Non- controlling Interests Total Equity Balance, January 1, 2021 $ 27 $ 9 $ 2,624,997 $ ( 259,673 ) $ ( 66,255 ) $ 179,976 $ 2,479,081 Net income — — — 102,426 — 7,102 109,528 Issuance of 13,910 shares of common stock 4 — 293,728 — — — 293,732 Issuance of 1,859 OP Units — — — — — — — Offering costs, discounts, and commissions — — ( 12,290 ) — — — ( 12,290 ) Stock-based compensation, net of seven shares of restricted stock forfeited — — 4,668 — — — 4,668 Retirement of 64 shares of common stock under equity incentive plan — — ( 1,215 ) — — — ( 1,215 ) Conversion of 37,000 Class A common stock to 37,000 shares of common stock 9 ( 9 ) — — — — — Conversion of 886 OP Units to 886 shares of common stock — — 14,206 — — ( 14,206 ) — Conversion of 2,049 OP Units to 2,049 shares of common stock with a related party 1 — 32,761 — — ( 32,762 ) — Distributions declared ($ 1.025 per share and OP Unit) — — — ( 161,229 ) — ( 11,188 ) ( 172,417 ) Change in fair value of interest rate swap agreements — — — — 36,664 2,689 39,353 Realized loss on interest rate swap agreements — — — — 658 40 698 Adjustment to non-controlling interests — — ( 32,687 ) — 492 32,195 — Balance, December 31, 2021 41 — 2,924,168 ( 318,476 ) ( 28,441 ) 163,846 2,741,138 Net income — — — 122,115 — 7,360 129,475 Issuance of 23,682 shares of common stock 6 — 503,442 — — — 503,448 Offering costs, discounts, and commissions — — ( 7,575 ) — — — ( 7,575 ) Stock-based compensation, net of ten shares of restricted stock forfeited — — 5,316 — — — 5,316 Retirement of 59 shares of common stock under equity incentive plan — — ( 1,301 ) — — — ( 1,301 ) Conversion of 118 OP Units to 118 shares of common stock — — 1,926 — — ( 1,926 ) — Distributions declared ($ 1.080 per share and OP Unit) — — — ( 189,688 ) — ( 11,382 ) ( 201,070 ) Change in fair value of interest rate swap agreements — — — — 85,363 5,197 90,560 Realized loss on interest rate swap agreements — — — — 2,371 143 2,514 Adjustment to non-controlling interests — — ( 6,581 ) — 232 6,349 — Balance, December 31, 2022 47 — 3,419,395 ( 386,049 ) 59,525 169,587 3,262,505 Net income — — — 155,478 — 7,834 163,312 Issuance of 312 shares of common stock under equity incentive plan — — — — — — — Offering costs, discounts, and commissions — — ( 237 ) — — — ( 237 ) Stock-based compensation, net of 23 shares of restricted stock forfeited — — 6,359 — — — 6,359 Retirement of 66 shares of common stock under equity incentive plan — — ( 1,175 ) — — — ( 1,175 ) Conversion of 1,277 OP Units to 1,277 shares of common stock — — 21,235 — — ( 21,235 ) — Distributions declared ($ 1.120 per share and OP Unit) — — — ( 210,160 ) — ( 10,853 ) ( 221,013 ) Change in fair value of interest rate swap agreements — — — — ( 16,439 ) ( 854 ) ( 17,293 ) Realized loss on interest rate swap agreements — — — — 1,793 90 1,883 Adjustment to non-controlling interests — — ( 4,938 ) — 4,407 531 — Balance, December 31, 2023 $ 47 $ — $ 3,440,639 $ ( 440,731 ) $ 49,286 $ 145,100 $ 3,194,341 The accompanying notes are an integral part of these consolidated financial statements. 63 Broadstone Net Lease, Inc. and Subsidiaries Consolidated Stateme nts of Cash Flows (in thousands) For the Year Ended December 31, 2023 2022 2021 Operating activities Net income $ 163,312 $ 129,475 $ 109,528 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 152,781 149,998 128,888 Provision for impairment of investment in rental properties 31,274 5,535 28,208 Amortization of debt issuance costs and original issuance discounts charged to interest expense 3,860 3,588 3,721 Stock-based compensation expense 6,359 5,316 4,669 Straight-line rent, direct financing and sales-type lease adjustments ( 22,278 ) ( 20,494 ) ( 18,362 ) Gain on sale of real estate ( 54,310 ) ( 15,953 ) ( 13,523 ) Change in fair value of earnout liability — — 5,539 Cash paid for earnout liability — — ( 6,440 ) Settlement of interest rate swaps — — ( 5,580 ) Other non-cash items ( 757 ) ( 1,858 ) 1,822 Changes in assets and liabilities: Tenant and other receivables 780 659 776 Prepaid expenses and other assets ( 352 ) 199 350 Accounts payable and other liabilities ( 8,226 ) ( 1,149 ) 2,891 Accrued interest payable ( 1,369 ) 598 2,450 Net cash provided by operating activities 271,074 255,914 244,937 Investing activities Acquisition of rental property ( 27,738 ) ( 884,770 ) ( 665,030 ) Investment in property under development including capitalized interest of $ 1,469 in 2023 and $ 0 in 2022 and 2021 ( 96,756 ) — — Capital expenditures and improvements ( 46,252 ) ( 31,374 ) ( 1,598 ) Proceeds from disposition of rental property, net 194,959 56,438 83,812 Change in deposits on investments in rental property 125 63 512 Net cash provided by (used in) investing activities 24,338 ( 859,643 ) ( 582,304 ) Financing activities Proceeds from issuance of common stock, net of $ 180 , $ 7,492 and $ 12,270 of offering costs, discounts, and commissions in 2023, 2022 and 2021, respectively ( 180 ) 495,566 280,356 Borrowings on mortgages, senior unsecured notes and unsecured term loans — 500,000 381,810 Principal payments on mortgages and unsecured term loans ( 7,503 ) ( 260,303 ) ( 332,874 ) Borrowings on unsecured revolving credit facility 215,500 900,283 356,600 Repayments on unsecured revolving credit facility ( 324,000 ) ( 800,000 ) ( 254,600 ) Cash distributions paid to stockholders ( 207,522 ) ( 181,224 ) ( 154,459 ) Cash distributions paid to non-controlling interests ( 11,115 ) ( 11,312 ) ( 11,302 ) Cash paid for earnout liability — — ( 6,608 ) Debt issuance and extinguishment costs paid — ( 7,010 ) ( 4,515 ) Net cash (used in) provided by financing activities ( 334,820 ) 636,000 254,408 Net (decrease) increase in cash and cash equivalents and restricted cash ( 39,408 ) 32,271 ( 82,959 ) Cash and cash equivalents and restricted cash at beginning of period 60,040 27,769 110,728 Cash and cash equivalents and restricted cash at end of period $ 20,632 $ 60,040 $ 27,769 Reconciliation of cash and cash equivalents and restricted cash Cash and cash equivalents at beginning of period $ 21,789 $ 21,669 $ 100,486 Restricted cash at beginning of period 38,251 6,100 10,242 Cash and cash equivalents and restricted cash at beginning of period $ 60,040 $ 27,769 $ 110,728 Cash and cash equivalents at end of period $ 19,494 $ 21,789 $ 21,669 Restricted cash at end of period 1,138 38,251 6,100 Cash and cash equivalents and restricted cash at end of period $ 20,632 $ 60,040 $ 27,769 The accompanying notes are an integral part of these consolidated financial statements. 64 Broadstone Net Lease, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2023, 2022, and 2021 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’s common stock is listed on the New York Stock Exchange under the symbol “BNL.” The Corporation, the OP, and its consolidated subsidiaries are collectively referred to as the “Company.” 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 December 31, 2023 , the Company owned a diversified portfolio of 796 individual commercial properties with 789 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: December 31, 2023 December 31, 2022 December 31, 2021 (in thousands) Shares of Common Stock OP Units Total Diluted Shares Shares of Common Stock OP Units Total Diluted Shares Shares of Common Stock OP Units Total Diluted Shares Ownership interest 187,614 8,928 196,542 186,114 10,205 196,319 162,383 10,323 172,706 Percent Ownership of OP 95.5 % 4.5 % 100.0 % 94.8 % 5.2 % 100.0 % 94.0 % 6.0 % 100.0 % Refer to Note 16 for further discussion regarding the calculation of weighted average shares outstanding. 2. Summary of Significant Accounting Policies Principles of Consolidation The 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 Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Use of Estimates The preparation of 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 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, the fair value of the earnout liability, and the fair value of the Company’s interest rate swap agreements. Accordingly, actual results may differ from those estimates. 65 Investment in Rental Property Rental property accounted for under operating leases is recorded at cost. Rental property accounted for under direct financing leases and sales-type leases are recorded at its net investment, which generally represents the cost of the property at the inception of the lease. The Company accounts for its acquisitions of real estate as asset acquisitions in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations , as substantially all of the fair value of the assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets. The Company allocates the purchase price of investments in rental property accounted for as asset acquisitions based on the relative fair value of the assets acquired and liabilities assumed. These generally include tangible assets, consisting of land and land improvements, buildings and other improvements, and equipment, and identifiable intangible assets and liabilities, including the value of in-place leases and acquired above-market and below-market leases. Acquisition costs incurred in connection with investments in real estate accounted for as asset acquisitions are capitalized and included with the allocated purchase price. The results of operations of acquired properties are included in the Consolidated Statements of Income and Comprehensive Income from the respective date of acquisition. Estimated fair value determinations are based on management’s judgment, which considers various factors including real estate market conditions, industry conditions that the tenant operates in, and characteristics of the real estate and/or real estate appraisals. The estimated fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant. The as-if-vacant value is then allocated to land and land improvements, buildings, and equipment based on comparable sales and other relevant information with respect to the property as estimated by management. Specifically, the “if vacant” value of buildings and equipment is calculated using an income approach. Assumptions used in the income approach to value the buildings include: capitalization and discount rates, lease-up time, market rents, make ready costs, land value, and land improvement value. The estimated fair value of acquired in-place leases are the costs that the Company would have had to incur to lease the properties to the occupancy level of the properties at the date of acquisition. Such costs include the fair value of leasing commissions and other operating costs that would have been incurred to lease the properties, had they been vacant, to their acquired occupancy level. Acquired in-place leases as of the date of acquisition are amortized over the remaining non-cancellable lease terms of the respective leases to amortization expense. Acquired above-market and below-market lease values are recorded based on the present value (using an interest rate that reflects the risks associated with the lease acquired) of the differences between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market value lease rates at the time of acquisition. The capitalized above-market and below-market lease values are amortized as adjustments to lease revenue over the remaining term of the respective leases. Should a tenant terminate its lease, the unamortized portion of the in-place lease value is charged to amortization expense and the unamortized portion of above-market or below-market lease value is charged to lease revenue. Management estimates the fair value of assumed mortgages payable based upon indications of then-current market pricing for similar types of debt with similar maturities. Assumed mortgages are initially recorded at their estimated fair value as of the assumption date, and the difference between such estimated fair value and the notes’ outstanding principal balance is amortized to interest expense over the remaining term of the debt. Expenditures for significant betterments and improvements are capitalized. Maintenance and repairs are charged to expense when incurred. 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 in the accompanying 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 completed, the property under development is placed in service and depreciation commences. For the year ended December 31, 2023, the Company funded $ 96.8 million of costs related to two properties under development, inclusive of $ 1.5 million of capitalized interest. 66 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 December 31, 2023, 2022, and 2021 , was based on the most current information available to the Company. Certain of the Company’s properties may have fair values less than their carrying amounts. However, based on the Company’s plans with respect to each of those properties, the Company believes that their carrying amounts are recoverable and therefore, 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 and information obtained from brokers and other third party sources. The Company determines the valuation of impaired assets using generally accepted valuation techniques including discounted cash flow analysis, income capitalization, analysis of recent comparable sales transactions, actual sales negotiations, and bona fide purchase offers received from third parties. Management may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of its real estate. The following table summarizes the Company’s impairment charges, resulting primarily from changes in the Company's long-term hold strategy with respect to the individual properties: For the Year Ended December 31, (in thousands, except number of properties) 2023 2022 2021 Number of properties 4 3 7 Impairment charge $ 31,274 $ 5,535 $ 28,208 During the year ended December 31, 2023, we recognized an impairment charge of $ 26.4 million on a healthcare property with a remaining carrying value of $ 24.4 million, which declined due to changes in our tenant’s ability to perform under the lease agreement, leading to a change in management’s long-term hold strategy and desire to sell in the near term. The fair value measurement was determined using a range of significant unobservable inputs, including a third-party appraisal, broker market information, and recent comparable vacant sales transactions. Decreases in the sale price assumptions based on continued marketing of the property could result in additional impairment in the future. The remaining impairments recognized during the year ended December 31, 2023 were immaterial. Impairments recognized during the year ended December 31, 2022 were immaterial. During the year ended December 31, 2021, the Company executed an early lease termination with an office tenant on two properties in exchange for a fee of $ 35.0 million, and simultaneously sold the underlying properties to an unrelated third party for aggregate gross proceeds of $ 16.0 million. As the sale of the underlying properties was to an unrelated third party, the Company accounted for the lease termination income and sale of properties as separate transactions in accordance with GAAP. As a result, the $ 35.0 million cash receipt was not able to be factored into the properties’ future undiscounted cash flows, resulting in a $ 25.7 million impairment charge in the Consolidated Statements of Income and Comprehensive Income. The Company recognized termination fee income of $ 33.5 million as other income from real estate transactions, a component of Lease revenues, net, in the Consolidated Statements of Income and Comprehensive Income. The net impact of the lease termination and the sale of the underlying properties was a $ 4.0 million increase to net income after considering certain other adjustments. Remaining impairments recognized during the year ended December 31, 2021 were immaterial. Investments in Rental Property Held for Sale The Company classifies investments in rental property as held for sale when all of the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of investment properties, (iii) an active program to locate a buyer and conduct other actions required to complete the sale has been initiated, (iv) the sale of the property is probable in occurrence and is expected to qualify as a completed sale, (v) the property is actively marketed for sale at a sale price that is reasonable in relation to its fair value, and (vi) actions required to complete the sale indicate that it is unlikely that any significant changes will be made or that the plan to sell will be withdrawn. 67 For properties classified as held for sale, the Company suspends depreciation and amortization of the related assets, including the acquired in-place lease and above- or below-market lease intangibles, as well as straight-line revenue recognition of the associated lease, and records the investment in rental property at the lower of cost or net realizable value. The assets and liabilities associated with the properties classified as held for sale are presented separately in the Consolidated Balance Sheets for the most recent reporting period. At December 31, 2023 and 2022, the Company did not have any properties that met the held for sale criteria. Sales of Real Estate Under ASC 610-20, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets, the Company’s sales of real estate are generally considered to be sales to non-customers, requiring the Company to identify each distinct non-financial asset promised to the buyer. The Company determines whether the buyer obtains control of the non-financial assets, achieved through the transfer of the risks and rewards of ownership of the non-financial assets. If control is transferred to the buyer, the Company derecognizes the asset. If the Company determines that it did not transfer control of the non-financial assets to the buyer, the Company analyzes the contract for separate performance obligations and allocates a portion of the sales price to each performance obligation. As performance obligations are satisfied, the Company recognizes the respective income in the Consolidated Statements of Income and Comprehensive Income. The Company presents discontinued operations if disposals of properties represent a strategic shift in operations. Those strategic shifts would need to have a major effect on the Company’s operations and financial results in order to meet the definition. For the years ended December 31, 2023, 2022, and 2021 , the Company did not have property dispositions that qualified as discontinued operations. Depreciation Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which are as follows: Land improvements 15 years Buildings and improvements 15 to 39 years Equipment 7 years Leasing Fees Leasing fees represent costs incurred to lease properties to tenants and are capitalized as they are incremental costs of a lease that would not have been incurred if the lease had not been obtained. Leasing fees are amortized using the straight-line method over the term of the lease to which they relate, which range from 3 to 25 years. Cash Equivalents Cash equivalents consist of highly liquid investments with an original maturity at date of acquisition of three months or less, including money market funds. The Company estimates that the fair value of cash equivalents approximates the carrying value due to the relatively short maturity of these instruments. Restricted Cash Restricted cash generally includes escrow funds the Company maintains pursuant to the terms of certain mortgages, lease agreements, and undistributed proceeds from the sale of properties under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”), and is reported within Prepaid expenses and other assets in the Consolidated Balance Sheets. Restricted cash consisted of the following: December 31, (in thousands) 2023 2022 Escrow funds and other $ 1,138 $ 4,812 1031 exchange proceeds — 33,439 $ 1,138 $ 38,251 Revenue Recognition The Company accounts for leases in accordance with ASC 842, Leases (“ASC 842”). The Company commences revenue recognition on its leases based on a number of factors, including the initial determination that the contract is or contains a lease. Generally, all of the Company’s property related contracts are or contain leases, and therefore revenue is recognized when the lessee takes possession of or controls the physical use of the leased assets. In most instances this occurs on the lease commencement date. At the time of lease assumption or at the inception of a new lease, including new leases that arise from amendments, the Company assesses the terms and conditions of the lease to determine the proper lease classification. 68 Certain of the Company’s leases require tenants to pay rent based upon a percentage of the property’s net sales (“percentage rent”) or contain rent escalators indexed to future changes in the Consumer Price Index (“CPI”). Lease income associated with such provisions, absent the existence of a floor, are considered variable lease income and are not included in the initial measurement of the lease receivable, or in the calculation of straight-line rent revenue. Such amounts are recognized as income when the amounts are determinable. A lease is classified as an operating lease if none of the following criteria are met: (i) ownership transfers to the lessee at the end of the lease term, (ii) the lessee has a purchase option that is reasonably expected to be exercised, (iii) the lease term is for a major part of the economic life of the leased property, (iv) the present value of the future lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the leased property, and (v) the leased property is of such a specialized nature that it is expected to have no future alternative use to the Company at the end of the lease term. If one or more of these criteria are met, the lease will generally be classified as a sales-type lease, unless the lease contains a residual value guarantee from a third party other than the lessee, in which case it would be classified as a direct financing lease under certain circumstances. Prior to the adoption of ASC 842, a lease that was not an operating lease would be accounted for as a direct financing lease. The Company accounts for the right to use land as a separate lease component, unless the accounting effect of doing so would be insignificant. Determination of significance requires management judgment. In determining whether the accounting effect of separately reporting the land component from other components for its real estate leases is significant, the Company assesses: (i) whether separating the land component impacts the classification of any lease component, (ii) the value of the land component in the context of the overall contract, and (iii) whether the right to use the land is coterminous with the rights to use the other assets. Revenue recognition methods for operating leases, direct financing leases, and sales-type leases are described below: Rental property accounted for under operating leases – Revenue is recognized as rents are earned on a straight-line basis over the non-cancelable terms of the related leases. For leases that have fixed and measurable rent escalations and collectability of the lease payments is probable, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded as Accrued rental income in the Consolidated Balance Sheets. If the Company determines that collectability of the lease payments is not probable, the Company records an adjustment to Lease revenues, net to reduce cumulative income recognized since lease commencement to the amount of cash collected from the lessee (i.e., write off of accrued rental income). Future revenue recognition is limited to amounts paid by the lessee. Rental property accounted for under direct financing leases – The Company utilizes the direct finance method of accounting to record direct financing lease income. The net investment in the direct financing lease represents receivables for the sum of future lease payments to be received and the estimated residual value of the leased property, less unamortized unearned income (which represents the difference between undiscounted cash flows and discounted cash flows). Unearned income is deferred and amortized into income over the lease terms so as to produce a constant periodic rate of return on the Company’s net investment in the leases. Rental property accounted for under sales-type leases – For leases accounted for as sales-type leases, the Company records selling profit arising from the lease at inception, along with the net investment in the lease. The Company leases assets through the assumption of existing leases or through sale-leaseback transactions, and records such assets at their fair value at the time of acquisition, which in most cases coincides with lease inception. As a result, the Company does not generally recognize selling profit on sales-type leases. The net investment in the sales-type lease represents receivables for the sum of future lease payments and the estimated unguaranteed residual value of the leased property, each measured at net present value. Interest income is recorded over the lease terms so as to produce a constant periodic rate of return on the Company’s net investment in the leases. Certain of the Company’s lease contracts contain nonlease components ( e.g. , charges for management fees, common area maintenance, and reimbursement of third-party maintenance expenses) in addition to lease components (e .g. , monthly rental charges). Services related to nonlease components are provided over the same period of time as, and billed in the same manner as, monthly rental charges. The Company elected to apply the practical expedient available under ASC 842, for all classes of assets, not to separate the lease components from the nonlease components when accounting for operating leases. Since the lease component is the predominant component under each of these leases, combined revenues from both the lease and nonlease components are reported as Lease revenues, net in the accompanying Consolidated Statements of Income and Comprehensive Income. In accordance with ASC 842, provisions for uncollectible rent are recorded as an offset to Lease revenues, net in the accompanying Consolidated Statements of Income and Comprehensive Income. 69 Lease Termination Fee Income The Company recognizes lease termination fee income as other income from real estate transactions, a component of Lease revenues, net, when all conditions of the termination agreement have been met, and collection of the lease termination fee is probable. If the tenant immediately vacates the property upon satisfying the conditions of the termination agreement, the Company recognizes the lease termination fee income net of the write off of accrued rental income associated with the lease immediately. If the tenant continues to occupy the property, the Company treats the termination as a lease modification, and recognizes the lease termination fee income on a straight-line basis over the new lease term. Lease termination fee income is recorded as other income from real estate transactions, a component of Lease revenues, net, in the Consolidated Statements of Income and Comprehensive Income. Goodwill Goodwill represents the excess of the amount paid over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and is assigned to one or more reporting units. The Company evaluates goodwill for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable, or at least annually. The Company’s annual testing date is November 30. The goodwill impairment evaluation is completed using either a qualitative or quantitative approach. Under a qualitative approach, the impairment review for goodwill consists of an assessment of whether it is more-likely-than-not that the reporting unit’s fair value is less than its carrying value, including goodwill. If a qualitative approach indicates it is more likely-than-not that the estimated carrying value of a reporting unit (including goodwill) exceeds its fair value, or if we choose to bypass the qualitative approach, we perform the quantitative approach described below. When the Company performs a quantitative test of goodwill for impairment, it compares the carrying value of its reporting unit with its fair value. If the fair value of the reporting unit exceeds its carrying amount, the Company does not consider goodwill to be impaired and no further analysis would be required. If the fair value is determined to be less than its carrying value, the amount of goodwill impairment equals the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The Company determined that it has one reporting unit, consistent with its segment reporting analysis, which includes the acquisition, leasing, and ownership of net leased properties (i.e., the consolidated entity). When necessary to perform the quantitative test for goodwill impairment, the Company’s estimate of fair value is determined using a market approach, leveraging assumptions such as the fair value of our equity inclusive of our consideration of a control premium, if necessary, which includes an analysis of similar market transactions and other quantitative and qualitative factors. While the Company believes the assumptions used to estimate the fair value of its reporting unit are reasonable, changes in these assumptions may have a material impact on the Company’s financial results. Based on the results of its annual goodwill impairment test on November 30, 2023 and 2022, the Company concluded that goodwill was not impaired, and that the fair value of its reporting unit was substantially in excess of carrying value. 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 in the Consolidated Balance Sheets. Rent received in advance consisted of the following: December 31, (in thousands) 2023 2022 Rent received in advance $ 14,776 $ 18,783 Debt Issuance Costs In accordance with ASC 835, Interest, debt issuance costs related to mortgages, unsecured term loans and senior unsecured notes are reported as a direct deduction from the carrying amount of the related liability, consistent with debt discounts, in the Consolidated Balance Sheets. Debt issuance costs associated with the unsecured revolving credit facility are reported as an asset in the Consolidated Balance Sheets. Debt issuance costs incurred in connection with the Company’s unsecured revolving credit facility, mortgages, unsecured term loans and senior unsecured notes have been deferred and are being amortized over the term of the respective loan commitment using the straight-line method, which approximates the effective interest method. Offering Costs In connection with equity offerings, the Company incurs and capitalizes certain direct, incremental legal, professional, accounting and other third-party costs. Such costs are offset against the gross proceeds of each equity offering, and recorded as a component of Additional paid-in capital in the Consolidated Balance Sheets upon the consummation of the offering. See Note 14 for further discussion of net proceeds associated with equity offerings. 70 Forward Sale Agreements The Company occasionally sells shares of common stock through forward sale agreements to enable the Company to set the price of such shares upon pricing the offering (subject to certain adjustments) while delaying the issuance of such shares and the receipt of the net proceeds by the Company. To account for the forward sale agreements, the Company considers the accounting guidance governing financial instruments and derivatives. To date, the Company has concluded that its forward sale agreements are not liabilities as they do not embody obligations to repurchase its shares nor do they embody obligations to issue a variable number of shares for which the monetary value is predominantly fixed, varying with something other than the fair value of the shares, or varying inversely in relation to its shares. The Company then evaluates whether the agreements meet the derivatives and hedging guidance scope exception to be accounted for as equity instruments. The Company has concluded that the agreements are classifiable as equity contracts based on the following assessments: (i) none of the agreements’ exercise contingencies are based on observable markets or indices besides those related to the market for the Company’s own stock price and operations; and (ii) none of the settlement provisions preclude the agreements from being indexed to its own stock. The Company also considers the potential dilution resulting from the forward sale agreements on the earnings per share calculations. The Company uses the treasury stock method to determine the dilution resulting from the forward sale agreements during the period of time prior to settlement. Earnout Liability The Company’s earnout liability was payable in four tranches, in a combination of cash, common shares, and OP Units, in the same proportion as the initial consideration paid in the Company’s internalization (see Note 4). During the year ended December 31, 2021, the portion of the earnout to be paid in cash was classified as a liability in the Consolidated Balance Sheets. The fair value of the earnout liability was remeasured each reporting period, with changes recorded as Change in fair value of earnout liability in the Consolidated Statements of Income and Comprehensive Income. The Company achieved all four milestones applicable to the earnout thereby triggering the payout of all earnout tranches during the year ended December 31, 2021, and therefore no remaining earnout liability existed on, or after, December 31, 2021. Non-controlling Interests Non-controlling interests represents the membership interests held in the OP of 4.5 %, 5.2 %, and 6.0 % at December 31, 2023, 2022, and 2021, respectively, by third parties which are accounted for as a separate component of equity. The Company adjusts the carrying value of non-controlling interests to reflect their share of the book value of the OP. Such adjustments are recorded to Additional paid-in capital as a reallocation of Non-controlling interests in the Consolidated Statements of Equity. Derivative Instruments The Company uses interest rate swap agreements to manage risks related to interest rate movements. The interest rate swap agreements, designated and qualifying as cash flow hedges, are reported at fair value. ASC 815, Derivatives and Hedging (“ASC 815”) , requires a company to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. In accordance with ASC 815, the gain or loss on the qualifying hedges is initially included as a component of other comprehensive income or loss and is subsequently reclassified into earnings when interest payments (the forecasted transactions) on the related debt are incurred and as the swap net settlements occur. When an existing cash flow hedge is terminated, the Company determines the accounting treatment for the accumulated gain or loss recognized in Accumulated other comprehensive income based on the probability of the hedged forecasted transaction occurring within the period the cash flow hedge was anticipated to affect earnings. If the Company determines that the hedged forecasted transaction is probable of occurring during the original period, the accumulated gain or loss is reclassified into earnings over the remaining life of the cash flow hedge using a straight-line method. If the Company determines that the hedged forecasted transaction is not probable of occurring during the original period, the entire amount of accumulated gain or loss is reclassified into earnings at such time. The Company documents its risk management strategy and hedge effectiveness at the inception of, and during the term of, each hedge. The Company’s interest rate risk management strategy is intended to stabilize cash flow requirements by maintaining interest rate swap agreements to convert certain variable-rate debt to a fixed rate. 71 Property Loss and Insurance Recoveries Property losses, whether full or partial, are accounted for using a combination of impairment, insurance, and revenue recognition guidance prescribed by GAAP. Upon incurring a loss event, the Company evaluates for asset impairment under ASC 350, Intangibles – Goodwill and Other, and ASC 360, Property, Plant, and Equipment. Under the terms of the Company’s lease agreements with tenants, a majority of which are net leases (whereby the tenants are responsible for insurance, taxes, and maintenance, among other property costs), the tenants are responsible for repairs and maintenance to the properties. The terms of the leases generally also require the tenants to continue making their monthly rental payments despite the property loss. To the extent that the assets are recoverable, determined utilizing undiscounted cash flows expected to result from the use of the asset or asset group and its eventual disposition, the Company accounts for a full or partial property loss as an acceleration of depreciation and evaluates whether all or a portion of the property loss can be offset by the recognition of insurance recoveries. Under the terms of the lease agreements with tenants, in the case of full or partial loss to a property, the tenant has an obligation to restore/rebuild the premises as nearly as possible to its value, condition and character immediately prior to such event. To mitigate the risk of loss, the Company requires tenants to maintain general liability insurance policies on the replacement value of the properties. Based on these considerations, the Company follows the guidance in ASC 610-30, Other Income – Gains and Losses on Involuntary Conversions (“ASC 610-30”) , for the conversion of nonmonetary assets ( i.e. , the properties) to monetary assets ( i.e. , insurance recoveries or tenant recoveries). Under ASC 610-30, once probable of receipt, the Company recognizes an insurance/tenant recovery receivable in Tenant and other receivables, net, in the Consolidated Balance Sheets, with a corresponding offset to the accelerated depreciation recognized in the Consolidated Statements of Income and Comprehensive Income. If the insurance/tenant recovery is less than the amount of accelerated depreciation recognized, the Company will recognize a net loss in the Consolidated Statements of Income and Comprehensive Income. If the insurance/tenant recovery is greater than the amount of accelerated depreciation recognized, the Company will only recognize a recovery up to the amount of the accelerated depreciation, and will account for the excess as a gain contingency in accordance with ASC 450-30, Gain Contingencies. Gain contingencies are recognized when earned and realized, which typically will occur at the time of final settlement or when non-refundable cash advances are received. Segment Reporting The Company currently operates in a single reportable segment, which includes the acquisition, leasing, and ownership of net leased properties. The Company’s chief operating decision maker assesses, measures, and reviews the operating and financial results at the consolidated level for the entire portfolio, and therefore, each property or property type is not considered an individual operating segment. The Company does not evaluate the results of operations based on geography, size, or property type. Fair Value Measurements ASC 820, Fair Value Measurement (“ASC 820”) , defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices that are available in active markets for identical assets or liabilities. The types of financial instruments included in Level 1 are marketable, available-for-sale equity securities that are traded in an active exchange market. Level 2 – Pricing inputs other than quoted prices in active markets, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Instruments included in this category are derivative contracts whose value is determined using a pricing model with inputs (such as yield curves and credit spreads) that are observable in the market or can be derived principally from or corroborated by observable market data. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 includes assets and liabilities whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. The Company has estimated that the carrying amount reported in the Consolidated Balance Sheets for Cash and cash equivalents, Prepaid expenses and other assets, Tenant and other receivables, net, Accrued interest payable, Accounts payable and other liabilities, and Dividends payable approximates their fair values due to their short-term nature. Recurring Fair Value Measurements Interest Rate Swap Assets and Liabilities – The Company measures and records its interest rate swap instruments (see Note 11) and earnout liability at fair value, and discloses the fair value of its long-term debt, on a recurring basis. 72 Interest rate swaps are derivative instruments that have no quoted readily available Level 1 inputs, and therefore are measured at fair value using inputs that are directly observable in active markets and are classified within Level 2 of the valuation hierarchy, using an income approach. Specifically, the fair value of the interest rate swaps is determined using a discounted cash flow analysis on the expected future cash flows of each instrument. This analysis utilizes observable market data including yield curves and implied volatilities to determine the market’s expectation of the future cash flows of the variable component. The fixed and variable components of the interest rate swaps are then discounted using calculated discount factors developed based on the overnight indexed swap (“OIS”) curve and are aggregated to arrive at a single valuation for the period. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its interest rate swaps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate swaps utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. At December 31, 2023 and 2022, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As a result, the Company has determined that its interest rate swap valuations in their entirety are appropriately classified within Level 2 of the fair value hierarchy. Earnout Liability – In connection with the Company’s internalization, the Company recognized an earnout liability that was due and payable to the former owners of the Company’s former asset manager if certain milestones were achieved during specified periods of time following the closing (the “Earnout Periods”). Under the terms of the agreement, the milestones related to either (a) the 40-day dollar volume-weighted average price of a share of the Company’s common stock (“VWAP per REIT Share”), following the completion of an IPO of the Company’s common stock, or (b) the Company’s AFFO per share, prior to the completion of an IPO. The Company utilized third-party valuation experts to assist in estimating the fair value of the earnout liability, and developed estimates by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis. The change in fair value of the earnout liability recognized during the year ended December 31, 2021 related to the Company achieving all four VWAP milestones thereby triggering the payout of all earnout tranches during the year ended December 31, 2021. The following table presents a reconciliation of the change in the earnout liability: (in thousands) For the Year Ended December 31, 2021 Beginning balance $ 7,509 Change in fair value subsequent to internalization 5,539 Payout of tranches earned ( 13,048 ) Ending balance $ — The balances of financial instruments measured at fair value on a recurring basis are as follows (see Note 11): December 31, 2023 (in thousands) Total Level 1 Level 2 Level 3 Interest rate swap, assets $ 46,096 $ — $ 46,096 $ — December 31, 2022 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 9), recent comparable financing transactions, 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 in the 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: December 31, (in thousands) 2023 2022 Carrying amount $ 1,919,607 $ 2,034,076 Fair value 1,761,177 1,841,381 73 Non-recurring Fair Value Measurements The Company’s non-recurring fair value measurements at December 31, 2023 and 2022 , consisted of the fair value of impaired real estate assets that were determined using Level 3 inputs. Income Taxes The Company has made an election to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with its taxable year ended December 31, 2008. The Company believes it is organized and operates in such a manner as to qualify for treatment as a REIT, and intends to operate in the foreseeable future in such a manner so that it will remain qualified as a REIT for U.S. federal income tax purposes. Accordingly, the Company is not subject to U.S. federal corporate income tax to the extent its dividends paid deduction exceeds its taxable income, as defined in the Code. Accordingly, no provision has been made for U.S. federal income taxes in the accompanying Consolidated Financial Statements. The Company has a wholly-owned subsidiary that elected to be treated as a taxable REIT subsidiary (“TRS”) and is subject to U.S. federal, state and local income taxes at regular corporate tax rates when due. The Company is subject to state and local income or franchise taxes and foreign taxes in certain jurisdictions in which some of its properties are located and records these within Income taxes in the accompanying Consolidated Statements of Income and Comprehensive Income when due. The Company is required to file income tax returns with federal, state, and Canadian taxing authorities. At December 31, 2023, the Company’s U.S. federal and state income tax returns remain subject to examination by the respective taxing authorities for the 2020 through 2022 tax years. The Company recognizes and measures uncertain tax positions using a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more-likely-than-not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. In making this assessment, the Company must assume that the taxing authority will examine the income tax position and have full knowledge of all relevant information. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may or may not accurately forecast actual outcomes. The Company has determined that it has no uncertain tax positions as of December 31, 2023 and 2022. Interest and penalties related to income taxes are charged to tax expense during the year in which they are incurred. Taxes Collected From Tenants and Remitted to Governmental Authorities A majority of the Company’s properties are leased on a net basis, which provides that the tenants are responsible for the payment of property operating expenses, including, but not limited to, property taxes, maintenance, insurance, repairs, and capital costs, during the lease term. The Company records such expenses on a net basis. In other situations, the Company may collect property taxes from its tenants and remit those taxes to governmental authorities. Taxes collected from tenants and remitted to governmental authorities are presented on a gross basis, where amounts billed to tenants are included in Lease revenues, net and the corresponding expense is included in Property and operating expense in the accompanying Consolidated Statements of Income and Comprehensive Income. Right-of-Use Assets and Lease Liabilities The Company is a lessee under non-cancelable operating leases associated with its corporate headquarters and other office spaces as well as with leases of land (“ground leases”). The Company records right-of-use assets and lease liabilities associated with these leases. The lease liability is equal to the net present value of the future payments to be made under the lease, discounted using estimates based on observable market factors. The right-of-use asset is generally equal to the lease liability plus initial direct costs associated with the leases. The Company includes in the recognition of the right-of-use asset and lease liability those renewal periods that are reasonably certain to be exercised, based on the facts and circumstances that exist at lease inception. Amounts associated with percentage rent provisions are considered variable lease costs and are not included in the initial measurement of the right-of-use asset or lease liability. The Company has made an accounting policy election, applicable to all asset types, not to separate lease from nonlease components when allocating contract consideration related to operating leases. Right-of-use assets and lease liabilities associated with operating leases were included in the accompanying Consolidated Balance Sheets as follows: December 31, (in thousands) Financial Statement Presentation 2023 2022 Right -of-use assets Prepaid expenses and other assets $ 8,476 $ 3,200 Lease liabilities Accounts payable and other liabilities 8,256 2,772 74 The Company’s right-of-use assets and lease liabilities primarily consist of a ten year lease for the Company’s corporate office space that was executed in October 2022 and commenced on October 1, 2023. The lease contains two five-year extension options, exercisable at the Company’s discretion, that are not reasonably certain to be exercised, and are therefore excluded from our calculation of the lease liability. Rental Expense Rental expense associated with operating leases is recorded on a straight-line basis over the term of each lease, for leases that have fixed and measurable rent escalations. The difference between rental expense incurred on a straight-line basis and the cash rental payments due under the provisions of the lease is recorded as part of the right-of-use asset in the accompanying December 31, 2023 and 2022 Consolidated Balance Sheets. Amounts associated with percentage rent provisions based on the achievement of sales targets are recognized as variable rental expense when achievement of the sales targets are considered probable. Rental expense, which primarily consists of office space, is included in both General and administrative and Property and operating expense line items in the accompanying Consolidated Statements of Income and Comprehensive Income as follows: For the Year Ended December 31, (in thousands) 2023 2022 2021 Rental expense $ 1,189 $ 964 $ 834 Stock-Based Compensation The Company has issued restricted stock awards (“RSAs”) and performance-based restricted stock units (“PRSUs”) under its 2020 Omnibus Equity and Incentive Plan (the “Equity Incentive Plan”). The Company accounts for stock-based incentives in accordance with ASC 718, Compensation – Stock Compensation , which requires that such compensation be recognized in the financial statements based on the award’s estimated grant date fair value. The value of such awards is recognized as compensation expense in General and administrative expenses in the Consolidated Statements of Income and Comprehensive Income over the appropriate vesting period on a straight-line basis or at the cumulative amount vested at each balance sheet date, if greater. The Company records forfeitures during the period in which they occur by reversing all previously recorded stock compensation expense associated with the forfeited shares. Dividends declared on RSAs issued under the Equity Incentive Plan are recorded as Cumulative distributions in excess of retained earnings in the Consolidated Balance Sheets. Accumulated dividends related to forfeited RSAs are reversed through compensation expense in the period the forfeiture occurs. Dividends accrued on the PRSUs are recorded as Cumulative distributions in excess of retained earnings in the Consolidated Balance Sheets. Accumulated dividends accrued related to forfeited PRSUs are reversed in the period the forfeiture occurs. Earnings per Share Earnings per common share has been computed pursuant to the guidance in ASC 260, Earnings Per Share, which requires the classification of the Company’s unvested shares of restricted common stock, which contain rights to receive non-forfeitable dividends, as participating securities requiring the two-class method of computing earnings per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. In accordance with the two-class method, the Company’s calculation of earnings per share excludes the income attributable to the unvested shares of restricted common stock from the numerator of the calculation and the weighted average number of such unvested shares from the denominator. Diluted earnings per share is computed by dividing net income by the weighted average shares of common stock and potentially dilutive securities in accordance with the treasury stock method and/or if converted method. See Note 16 . Recently Adopted Accounting Standards In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative . ASU 2023-06 codifies disclosure requirements related to various ASUs related to the Securities and Exchange Commission’s (“SEC”) Disclosure Update and Simplification Initiative, which was implemented by the Company in 2018 when it became effective. There are no new or additional requirements applicable to the Company as part of ASU 2023-06, and consequently this has no impact to the Company’s financial statements or disclosures. Other Recently Issued Accounting Standards In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . The ASU requires additional disclosures regarding segment expenses and other items on an interim and annual basis. The amendments in ASU 2023-07 are effective for the Company beginning January 1, 2024. While this update will result in enhanced disclosures, the Company does not expect it will have a material impact on the Company’s financial statements. 75 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 in the Consolidated Balance Sheets at December 31, 2022 to conform with the current period presentation. Additionally, the Company reclassified $ 0.3 and $ 0.4 million of Cost of debt extinguishment to Other (expenses) income in the Consolidated Statements of Income and Comprehensive Income and to Other non-cash items in the Consolidated Statements of Cash Flows for the years ended December 31, 2022, and 2021, respectively. 3. Related-Party Transactions Prior to the Company’s internalization on February 7, 2020, the former asset manager, a related party in which certain directors of the Corporation had either a direct or indirect ownership interest, and its wholly-owned subsidiary were considered to be related parties. Earnout Consideration In connection with the Company’s internalization, the Company incurred a contingent obligation that would be payable to certain members of the Company’s Board of Directors and employees who had previously been owners and/or employees of the former asset manager, upon the occurrence of certain events (see Note 4). During the year ended December 31, 2021, the Company achieved all four VWAP milestones applicable to the earnout. As a result, the Company issued 1,088,977 shares of common stock, 1,859,257 OP Units and made cash payments of $ 13.0 million to these related parties (see Note 4). Conversion of OP Units to Common Stock During the year ended December 31, 2021, in non-cash transactions (see Note 18), the Company converted 2,049,439 OP Units held by an affiliated third party to 2,049,439 shares of common stock, respectively, at a total conversion value of $ 32.8 million. There were no conversions of OP Units held by a related party during the years ended December 31, 2023, and 2022. See further discussion in Notes 12 and 14. 4 . Internalization In accordance with the Company’s internalization, the Company was required to pay additional earnout consideration of up to $ 75.0 million payable in four tranches of $ 10.0 million, $ 15.0 million, $ 25.0 million, and $ 25.0 million if certain milestones related to the 40 -day VWAP per REIT Share were achieved. The consideration consisted of a combination of cash, shares of the Company’s common stock, and OP Units, based on the same proportions paid in the base consideration. As of December 31, 2021, the Company achieved all four VWAP milestones, thereby triggering the payout of all earnout tranches. Below is a summary of the shares of common stock and OP Units issued, and cash paid for each earnout tranche: (in thousands, except per share amounts) Shares of 40-Day Common Stock OP Units VWAP of a Tranche Issued Issued Cash Paid REIT Share Achievement Date 1 145 248 $ 1,926 (a) $ 22.50 June 16, 2021 2 218 371 2,888 (a) 23.75 July 14, 2021 3 363 620 4,117 24.375 September 21, 2021 4 363 620 4,117 25.00 September 21, 2021 (a) Cash payments include amounts earned for dividends. 5. Acquisitions of Rental Property The Company closed on the following acquisitions during the year ended December 31, 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 July 11, 2023 Restaurant 1 460 (b) November 14, 2023 Restaurant 1 1,963 (c) 7 $ 45,328 (d) (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 of land developed in connection with a $ 1.7 million build-to-suit transaction completed in October 2023 (see Note 2). (c) Acquisition price includes consideration payable of $ 0.3 million. (d) Acquisition price excludes capitalized acquisition costs of $ 3.1 million. 76 The Company closed on the following acquisitions during the year ended December 31, 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 July 1, 2022 Retail 2 3,052 July 7, 2022 Retail 1 2,171 July 8, 2022 Industrial 11 75,000 August 25, 2022 Healthcare 1 9,219 August 26, 2022 Industrial 4 44,000 September 6, 2022 Retail 1 1,411 September 28, 2022 Industrial 4 56,250 September 29, 2022 Restaurant 3 12,823 October 12, 2022 Industrial / Office 7 235,000 October 12, 2022 Retail 1 1,743 October 17, 2022 Retail 2 6,000 October 19, 2022 Retail 1 1,743 November 2, 2022 Industrial 4 38,650 November 4, 2022 Retail 1 5,645 November 10, 2022 Industrial 1 10,758 86 $ 878,433 (e) (e) Acquisition price excludes capitalized acquisition costs of $ 6.4 million . 77 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 Year Ended December 31, (in thousands) 2023 2022 2021 Land $ 2,975 $ 126,865 $ 114,296 Land improvements 2,817 47,513 29,298 Buildings and improvements 19,913 649,195 469,113 Property under development 20,315 — — Acquired in-place leases (f) 2,561 69,609 51,956 Acquired above-market leases (g) — — 211 Acquired below-market leases (h) ( 166 ) ( 279 ) — Right-of-use asset — — 663 Lease liability — — ( 481 ) Non-real estate liabilities assumed — ( 8,051 ) — $ 48,415 $ 884,852 $ 665,056 (f) The weighted average amortization period for acquired in-place leases is 16 years, 20 years, and 16 years for acquisitions completed during the years ended December 31, 2023, 2022, and 2021 , respectively. (g) The weighted average amortization period for acquired above-market leases is 10 years for acquisitions completed during the year ended December 31, 2021. There were no above-market leases acquired during the years ended December 31, 2023 and 2022. (h) The weighted average amortization period for acquired below-market leases is 20 years and 14 years for acquisitions completed during the years ended December 31, 2023 and 2022, respectively. There were no below-market leases acquired during the year ended December 31, 2021. 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 years ended December 31, 2023, 2022, and 2021 , qualified as asset acquisitions and, as such, acquisition costs have been capitalized. 6. Sale of Real Estate The Company closed on the following sales of real estate, none of which qualified as discontinued operations: For the Year Ended December 31, (in thousands, except number of properties) 2023 2022 2021 Number of properties disposed 14 8 31 Aggregate sale price $ 200,072 $ 58,024 $ 87,730 Aggregate carrying value ( 140,649 ) ( 40,485 ) ( 70,289 ) Additional sales expenses ( 5,113 ) ( 1,586 ) ( 3,918 ) Gain on sale of real estate $ 54,310 $ 15,953 $ 13,523 78 7. Investment in Rental Property and Lease Arrangements The Company generally leases its investment rental property to established tenants in the industrial, healthcare, restaurant, retail, and office property types. At December 31, 2023 , the Company had 796 real estate properties, 784 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 (see Revenue Recognition within Note 2). 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 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 Year Ended December 31, (in thousands) 2023 2022 2021 Depreciation $ 123,859 $ 114,583 $ 99,143 Estimated lease payments to be received under non-cancelable operating leases with tenants at December 31, 2023 are as follows: (in thousands) 2024 $ 394,031 2025 406,874 2026 402,291 2027 385,379 2028 369,418 Thereafter 2,982,604 $ 4,940,597 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: December 31, (in thousands) 2023 2022 Undiscounted estimated lease payments to be received $ 35,155 $ 38,268 Estimated unguaranteed residual values 14,547 14,547 Unearned revenue ( 22,944 ) ( 25,645 ) Reserve for credit losses ( 115 ) ( 125 ) Net investment in direct financing leases $ 26,643 $ 27,045 Undiscounted estimated lease payments to be received under non-cancelable direct financing leases with tenants at December 31, 2023 are as follows: (in thousands) 2024 $ 3,171 2025 3,285 2026 3,357 2027 3,426 2028 3,496 Thereafter 18,420 $ 35,155 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. 79 The following table summarizes amounts reported as Lease revenues, net in the Consolidated Statements of Income and Comprehensive Income: For the Year Ended December 31, (in thousands) 2023 2022 2021 Contractual rental amounts billed for operating leases $ 388,073 $ 359,317 $ 308,624 Adjustment to recognize contractual operating lease billings on a straight-line basis 27,154 22,353 19,847 Net write-offs of accrued rental income ( 4,266 ) ( 1,326 ) ( 442 ) Variable rental amounts earned 2,277 1,507 768 Earned income from direct financing leases 2,752 2,856 2,909 Interest income from sales-type leases 58 58 58 Operating expenses billed to tenants 20,363 19,779 17,462 Other income from real estate transactions (a) 7,414 3,069 33,549 Adjustment to revenue recognized for uncollectible rental amounts billed, net ( 937 ) ( 100 ) 101 Total lease revenues, net $ 442,888 $ 407,513 $ 382,876 (a) Other income from real estate transactions includes $ 7.5 million, $ 2.5 million, and $ 33.5 million of lease termination fee income for the years ended December 31, 2023, 2022, and 2021, respectively. 8. Intangible Assets and Liabilities, and Leasing Fees The following is a summary of intangible assets and liabilities, and leasing fees, and related accumulated amortization: December 31, (in thousands) 2023 2022 Lease intangibles: Acquired above-market leases $ 44,711 $ 45,740 Less accumulated amortization ( 20,312 ) ( 18,436 ) Acquired above-market leases, net 24,399 27,304 Acquired in-place leases 416,206 436,401 Less accumulated amortization ( 152,379 ) ( 134,120 ) Acquired in-place leases, net 263,827 302,281 Total intangible lease assets, net $ 288,226 $ 329,585 Acquired below-market leases $ 98,535 $ 105,059 Less accumulated amortization ( 45,004 ) ( 42,204 ) Intangible lease liabilities, net $ 53,531 $ 62,855 Leasing fees $ 18,117 $ 14,430 Less accumulated amortization ( 6,426 ) ( 5,924 ) Leasing fees, net $ 11,691 $ 8,506 Amortization of intangible lease assets and liabilities, and leasing fees was as follows: (in thousands) For the Year Ended December 31, Intangible Financial Statement Presentation 2023 2022 2021 Acquired in-place leases and leasing fees Depreciation and amortization $ 34,487 $ 40,090 $ 32,857 Above-market and below-market leases Lease revenues, net 5,859 4,822 3,264 For the years ended December 31, 2023, 2022 and 2021, amortization of all intangible assets and liabilities includes $ 0.9 million, $ 8.5 million, and $ 3.8 million, respectively, of accelerated amortization resulting from early lease terminations. Estimated future amortization of intangible assets and liabilities, and leasing fees at December 31, 2023 is as follows: (in thousands) 2024 $ 26,502 2025 25,458 2026 24,296 2027 22,574 2028 20,695 Thereafter 126,861 $ 246,386 80 9. Unsecured Credit Agreements Unsecured Revolving Credit Agreements Unsecured Revolving Credit Facility On September 4, 2020, the Company entered into a $ 900.0 million unsecured revolving credit facility (the “Revolving Credit Facility”), with JPMorgan Chase Bank, N.A., as administrative agent. The Company closed the Revolving Credit Facility on September 21, 2020. The Revolving Credit Facility includes an accordion feature to increase the aggregate facility size from $ 900.0 million to $ 2.0 billion, subject to the willingness of existing or new lenders to fund such increase and other customary conditions. The Company has the option to extend the term of the Revolving Credit Facility twice for six months per extension , subject to certain conditions, including payment of an extension fee equal to 0.0625 % of the revolving commitments. On January 28, 2022, the Company amended and restated the Revolving Credit Facility to increase the available borrowings to $ 1.0 billion and extend the maturity date to March 31, 2026 . In addition to United States Dollars (“USD”), borrowings under the Revolving Credit Facility can be made in Pound Sterling, Euros or Canadian Dollars (“CAD”) up to an aggregate amount of $ 500.0 million. Prior to the amendment, borrowings under the Revolving Credit Facility were subject to interest at variable rates based on LIBOR plus a margin based on the Company’s current credit rating ranging between 0.825 % to 1.550 % per annum. Borr owings under the amended Revolving Credit Facility are subject to interest only payments at variable rates equal to the applicable reference rate plus a margin based on the Company’s credit rating, ranging between 0.725 % and 1.400 %. All other terms and conditions of the Revolving Credit Facility remained materially the same as those in effect prior to this amendment. The amended Revolving Credit Facility is subject to a facility fee on the amount of the revolving commitments, based on the Company’s credit rating, ranging between 0.125 % and 0.300 %. The applicable facility fee is 0.200 % per annum. Unsecured Term Loan Agreements 2022 Unsecured Term Loan On February 7, 2020, the Company entered into a $ 60.0 million term loan (the “2022 Unsecured Term Loan”) with JP Morgan Chase, N.A. as administrative agent. The 2022 Unsecured Term Loan was fully funded at closing and used to repay a portion of the debt assumed by the Company as part of the Company’s internalization. Borrowings under the 2022 Unsecured Term Loan were subject to interest only payments at variable rates equal to LIBOR plus a margin based upon the Company’s credit rating, ranging between 0.85 % and 1.65 % per annum. The 2022 Unsecured Term Loan was paid in full in February 2022 with borrowings from the Revolving Credit Facility. 2024 Unsecured Term Loan Borrowings under the 2024 unsecured term loan of $190.0 million bore interest at variable rates based on LIBOR plus a margin based on the Company’s credit rating ranging between 0.85 % and 1.65 % per annum. The loan was paid in full in August 2022 with borrowings from the 2027 Unsecured Term Loan and 2029 Unsecured Term Loan (defined below). 2026 Unsecured Term Loan On February 27, 2019, the Company entered into a $ 450.0 million seven-year unsecured term loan agreement (the “2026 Unsecured Term Loan”) with Capital One, National Association as administrative agent. The 2026 Unsecured Term Loan provides an accordion feature for up to a total of $ 550.0 million borrowing capacity. The 2026 Unsecured Term Loan has an initial maturity date of February 27, 2026 . Borrowings under the 2026 Unsecured Term Loan were subject to interest only payments at variable rates equal to LIBOR plus a margin between 1.45 % and 2.40 % per annum based on the Company’s credit rating through March 12, 2021. On March 12, 2021, the Company amended the 2026 Unsecured Term Loan and made a $ 50.0 million paydown on the loan. The amendment reduced the margin on variable interest rate borrowings to a range between 0.85 % and 1.65 % per annum based on the Company’s credit rating. All other terms and conditions of the 2026 Unsecured Term Loan remained materially the same as those in effect prior to this amendment. Effective July 1, 2023, the Company amended the 2026 Unsecured Term Loan to transition to SOFR upon the cessation of LIBOR. Interest on borrowings bear interest at one-month SOFR plus a margin between 0.85 % and 1.65 % per annum based on the Company’s credit rating. The 2026 Unsecured Term Loan is subject to a fee of 0.25 % per annum on the amount of the commitment, reduced by the amount of term loans outstanding. 2027 and 2029 Unsecured Term Loans On August 1, 2022, the Company entered into two unsecured term loans, including a $ 200.0 million, five-year unsecured term loan (the “2027 Unsecured Term Loan”), and a $ 300.0 million, seven-year unsecured term loan (the “2029 Unsecured Term Loan”) both with Regions Bank as administrative agent. Borrowings on the term loans bear interest at variable rates based on adjusted SOFR, plus a margin based on the Company’s credit rating, ranging between 0.80 % and 1.60 % per annum for the 2027 Unsecured Term Loan, and 1.15 % and 2.20 % per annum for the 2029 Unsecured Term Loan. 81 Senior Unsecured Notes 2027 Senior Unsecured Notes - Series A On April 18, 2017, the Company issued $ 150.0 million of unsecured, fixed-rate, interest-only guaranteed senior promissory notes (the “2027 Senior Unsecured Notes - Series A”). The 2027 Senior Unsecured Notes - Series A were issued at par, and bear interest at a rate of 4.84 %. 2028 Senior Unsecured Notes - Series B and 2030 Senior Unsecured Notes - Series C On July 2, 2018, the Company entered into a Note and Guaranty Agreement (the “NGA Agreement”) with each of the purchasers of unsecured, fixed-rate, interest-only, guaranteed senior promissory notes. Under the NGA Agreement, the OP issued and sold senior promissory notes in two series, series B guaranteed senior notes (the “2028 Senior Unsecured Notes - Series B”) and series C guaranteed senior notes (the “2030 Unsecured Notes - Series C”), for an aggregate principal amount of $ 325.0 million. The 2028 Senior Unsecured Notes - Series B provide for an aggregate principal amount of $ 225.0 million with a fixed-rate of 5.09 %. The 2030 Senior Unsecured Notes - Series C provide for an aggregate principal amount of $ 100.0 million with a fixed-rate of 5.19 %. 2031 Senior Unsecured Public Notes On September 15, 2021, the Company completed a public offering of $ 375.0 million in aggregate principal amount of 2.60 % senior unsecured notes due in 2031 (the “2031 Senior Unsecured Public Notes”), issued at 99.816 % of the principal amount. The 2031 Senior Unsecured Public Notes require semi-annual interest payments through the maturity date of September 15, 2031 , unless earlier redeemed. The 2031 Senior Unsecured Public Notes were issued by the OP and are fully and unconditionally guaranteed by the Company. Covenants on Unsecured Credit 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. As of December 31, 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 effect on the Company. The following table summarizes the Company’s unsecured credit agreements: December 31, 2023 2022 Interest Maturity (in thousands, except interest rates) Outstanding Balance Rate Date Revolving Credit Facility $ 90,434 $ 197,322 Applicable reference rate + 0.85 % (a) Mar. 2026 (d) 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 % (c) Aug. 2027 2029 Unsecured Term Loan 300,000 300,000 one-month adjusted SOFR + 1.25 % (c) Aug. 2029 Total unsecured term loans 900,000 900,000 Unamortized debt issuance costs, net ( 4,053 ) ( 5,308 ) Total unsecured term loans, net 895,947 894,692 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 ( 4,691 ) ( 5,445 ) Total senior unsecured notes, net 845,309 844,555 Total unsecured debt, net $ 1,831,690 $ 1,936,569 (a) At December 31, 2023 and 2022, a balance of $ 15.0 million and $ 123.5 million was subject to the one-month SOFR of 5.35 % and 4.36 %, respectively. The remaining balances of $ 100 million CAD borrowings were remeasured to $ 75.4 million USD and $ 73.8 million USD at December 31, 2023 and 2022, respectively, and were subject to the one-month CDOR of 5.46 % and 4.74 %, respectively. (b) At December 31, 2023, one-month SOFR was 5.35 %. At December 31, 2022, the applicable interest rate was one-month LIBOR of 4.39 % plus 1.00 %. (c) At December 31, 2023 and 2022, one-month SOFR was 5.35 % and 4.36 %, respectively. (d) The Company’s Revolving Credit Facility contains two six-month extension options subject to certain conditions, including the payment of an extension fee equal to 0.0625 % of the revolving commitments . 82 At December 31, 2023 , the weighted average interest rate on all outstanding borrowings, exclusive of interest rate swap agreements was 5.33 %. At December 31, 2023, the weighted average interest rate on all outstanding borrowings, inclusive of interest rate swap agreements was 3.73 %. For the years ended December 31, 2022, and 2021, the Company incurred debt issuance costs of $ 7.0 million, and $ 5.0 million, respectively, associated with financing activities. The Company did no t incur any debt issuance costs for the year ended December 31, 2023. Debt issuance costs and original issuance discounts are amortized as a component of Interest expense in the accompanying Consolidated Statements of Income and Comprehensive Income. The following table summarizes debt issuance cost and original issuance discount amortization: For the Year Ended December 31, (in thousands) 2023 2022 2021 Debt issuance costs and original issuance discount amortization $ 3,938 $ 3,692 $ 3,854 10. Mortgages The Company’s mortgages consist of the following: Origination Maturity (in thousands, except interest rates) Date Date Interest December 31, Lender (Month/Year) (Month/Year) Rate 2023 2022 Wilmington Trust National Association Apr-19 Feb-28 4.92 % $ 44,207 $ 45,516 (a) (b) (c) (d) Wilmington Trust National Association Jun-18 Aug-25 4.36 % 18,725 19,150 (a) (b) (c) (d) PNC Bank Oct-16 Nov-26 3.62 % 16,241 16,675 (b) (c) Aegon Apr-12 Oct-23 6.38 % — 5,413 (b) (d) Total mortgages 79,173 86,754 Debt issuance costs, net ( 105 ) ( 152 ) Mortgages, net $ 79,068 $ 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 as part of the acquisition of the related property. The debt was recorded at fair value at the time of assumption. At December 31, 2023 , investment in rental property of $ 120.5 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 9) at December 31, 2023, are as follows: (in thousands) 2024 $ 2,260 2025 20,195 2026 507,277 2027 351,596 2028 263,277 Thereafter 775,002 $ 1,919,607 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. 83 11. Interest Rate Swaps Interest rate swaps were entered into with certain financial institutions in order to mitigate the impact of interest rate variability over the term of the related debt agreements. The interest rate swaps are considered cash flow hedges. 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. In connection with the issuance of the 2031 Senior Unsecured Public Notes in September 2021 and repayment of outstanding borrowings of variable rate debt indexed to the one-month LIBOR rate (see Note 9), the Company terminated interest rate swap agreements with an aggregate termination value of $ 5.6 million. The Company determined that it was not probable the hedge forecasted transactions would not occur during the original periods, and therefore, the $ 5.6 million of accumulated losses held in Other comprehensive income is being reclassified to interest expense on a straight-line basis over the original lives of the terminated swaps. There were no swap terminations for the years ended December 31, 2023 and 2022. The following is a summary of the Company’s outstanding interest rate swap agreements: (in thousands, except interest rates) December 31, 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 % daily compounded SOFR $ 15,000 $ 255 $ 15,000 $ 477 Capital One, National Association December 2024 1.58 % daily compounded SOFR 15,000 445 15,000 815 Bank of Montreal January 2025 1.91 % daily compounded SOFR 25,000 713 25,000 1,239 Truist Financial Corporation April 2025 2.20 % daily compounded SOFR 25,000 734 25,000 1,169 Bank of Montreal July 2025 2.32 % daily compounded SOFR 25,000 768 25,000 1,162 Truist Financial Corporation July 2025 1.99 % daily compounded SOFR 25,000 888 25,000 1,358 Truist Financial Corporation December 2025 2.30 % daily compounded SOFR 25,000 887 25,000 1,279 Bank of Montreal January 2026 1.92 % daily compounded SOFR 25,000 1,071 25,000 1,547 Bank of Montreal January 2026 2.05 % daily compounded SOFR 40,000 1,615 40,000 2,332 Capital One, National Association January 2026 2.08 % daily compounded SOFR 35,000 1,389 35,000 2,007 Truist Financial Corporation January 2026 1.93 % daily compounded SOFR 25,000 1,067 25,000 1,542 Capital One, National Association April 2026 2.68 % daily compounded SOFR 15,000 439 15,000 625 Capital One, National Association July 2026 1.32 % daily compounded SOFR 35,000 2,186 35,000 3,042 Bank of Montreal December 2026 2.33 % daily compounded SOFR 10,000 423 10,000 584 Bank of Montreal December 2026 1.99 % daily compounded SOFR 25,000 1,299 25,000 1,773 Toronto-Dominion Bank March 2027 2.46 % one-month CDOR 15,087 (b) 572 14,764 (b) 765 Wells Fargo Bank, N.A. April 2027 2.72 % daily compounded SOFR 25,000 806 25,000 1,129 Bank of Montreal December 2027 2.37 % daily compounded SOFR 25,000 1,215 25,000 1,628 Capital One, National Association December 2027 2.37 % daily compounded SOFR 25,000 1,197 25,000 1,605 Wells Fargo Bank, N.A. January 2028 2.37 % daily compounded SOFR 75,000 3,632 75,000 4,854 Bank of Montreal May 2029 2.09 % daily compounded SOFR 25,000 1,835 25,000 2,295 Regions Bank May 2029 2.11 % daily compounded SOFR 25,000 1,801 25,000 2,244 Regions Bank June 2029 2.03 % daily compounded SOFR 25,000 1,900 25,000 2,357 U.S. Bank National Association June 2029 2.03 % daily compounded SOFR 25,000 1,908 25,000 2,377 Regions Bank August 2029 2.58 % one-month SOFR 100,000 4,392 100,000 5,782 Toronto-Dominion Bank August 2029 2.58 % one-month SOFR 45,000 2,021 45,000 2,674 U.S. Bank National Association August 2029 2.65 % one-month SOFR 15,000 618 15,000 826 U.S. Bank National Association August 2029 2.58 % one-month SOFR 100,000 4,427 100,000 5,861 U.S. Bank National Association August 2029 1.35 % daily compounded SOFR 25,000 2,828 25,000 3,419 Regions Bank March 2032 2.69 % one-month CDOR 15,087 (b) 677 14,764 (b) 1,092 U.S. Bank National Association March 2032 2.70 % one-month CDOR 15,087 (b) 678 14,764 (b) 1,107 Bank of Montreal March 2034 2.81 % one-month CDOR 30,174 (c) 1,410 29,530 (c) 2,424 $ 975,435 $ 46,096 $ 973,822 $ 63,390 (a) Prior to the cessation of LIBOR on July 1, 2023, the variable rate index for daily compounded SOFR based swaps was one-month LIBOR. (b) The contractual notional amount is $ 20.0 million CAD. (c) The contractual notional amount is $ 40.0 million CAD. At December 31, 2023, the weighted average fixed rate on all outstanding interest rate swaps was 2.28 %. At December 31, 2023, the weighted average interest rate on all outstanding borrowings, inclusive of unsecured credit agreements was 3.73 %. 84 The total amounts recognized, and the location in the accompanying Consolidated Statements of Income and Comprehensive Income, from converting from variable rates to fixed rates under these agreements were as follows: Total Interest Expense Amount of (Loss) Gain Presented in the Recognized in Reclassification from Accumulated Consolidated Statements Accumulated Other Other Comprehensive Income of Income and (in thousands) Comprehensive Amount of Comprehensive For the year ended December 31, Income Location Gain (Loss) Income 2023 $ ( 17,293 ) Interest expense $ 25,679 $ 80,053 2022 90,560 Interest expense ( 4,453 ) 78,652 2021 39,353 Interest expense ( 16,136 ) 64,146 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 $ 23.6 million. 12. Non-Controlling Interests Under the Company’s UPREIT structure, entities and individuals can contribute their properties in exchange for OP Units. There were no UPREIT transactions during the years ended December 31, 2023, 2022, and 2021 . The cumulative amount of UPREIT properties contributed, less assumed debt, amounted to $ 128.7 million as of December 31, 2023 and 2022 . In exchange for the properties contributed and as part of the Company’s internalization, 5,868,654 and 3,059,082 non-controlling OP Units were issued and outstanding, respectively, as of December 31, 2023, representing a 4.5 % interest in the OP at December 31, 2023. In exchange for the properties contributed and as part of the Company’s internalization, 5,939,680 and 4,265,126 non-controlling OP Units were issued and outstanding, respectively, as of December 31, 2022, representing a 5.2 % interest in the OP at December 31, 2022. In exchange for the properties contributed and as part of the Company’s internalization, 6,058,080 and 4,265,126 non-controlling OP Units were issued and outstanding, respectively, as of December 31, 2021, representing a 6.0 % interest in the OP at December 31, 2021. The OP Units are economically equivalent to the Corporation’s common stock and, subject to certain restrictions, are convertible into the Company’s common stock at the option of the respective unit holders on a one-to-one basis. The OP Units are redeemable for cash at the option of the holder, however, the Company may issue shares in lieu of cash. Therefore, the OP Units are considered to be permanent equity. Exchanges of OP Units held by non-controlling interest holders are recorded by reducing non-controlling interest on a historical cost basis with a corresponding increase in common stock and additional paid-in capital. The following table summarizes OP Units exchanged for shares of common stock: For the Year Ended December 31, (in thousands) 2023 2022 2021 OP Units exchanged for shares of common stock 1,277 118 2,935 Value of units exchanged $ 21,235 $ 1,926 $ 46,968 During the year ended December 31, 2021, the Company achieved all four VWAP milestones applicable to the earnout and issued 1,859,257 OP Units (see Note 4). Holders of the OP Units do not have voting rights at the Corporation level. 13. Credit Risk Concentrations The Company maintained bank balances that, at times, exceeded the federally insured limit during the years ended December 31, 2023, 2022, and 2021. The Company has not experienced losses relating to these deposits and management does not believe that the Company is exposed to any significant credit risk with respect to these amounts based on the financial position and capitalization of the banks holding such balances. For the years ended December 31, 2023, 2022, and 2021 , the Company had no individual tenants or common franchises that accounted for more than 10 % of Lease revenues, net, excluding lease termination fees. 14. Equity General On September 21, 2020, the Corporation completed its IPO and issued 37,000,000 shares of Class A Common Stock inclusive of the underwriters’ partial exercise of their over-allotment option on October 20, 2020. Aside from the conversion discussed below, the terms of the Class A Common Stock were identical to the terms of the common stock. Each share of Class A Common Stock automatically converted into one share of common stock on March 20, 2021, and effective March 22, 2021, all shares of common stock were listed and freely tradeable on the NYSE under the ticker “BNL.” The common stock and Class A Common Stock are collectively referred to as the Corporation’s “common stock.” 85 On June 28, 2021, the Corporation completed its first public follow-on equity offering and issued 11,500,000 shares of common stock, inclusive of the underwriters’ full exercise of their over-allotment option, at $ 23.00 per share. The net proceeds, after deducting underwriting discounts and commissions of $ 10.6 million and $ 0.4 million of other expenses, were $ 253.5 million. The Company used the net proceeds to repay the Company’s Revolving Credit Facility in full, and used the remaining net proceeds for general business purposes, including acquisitions. During the year ended December 31, 2021, the Company achieved all four VWAP milestones applicable to the earnout. As a result, the Company issued 1,088,977 shares of common stock (see Note 4). 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 through June 2024. 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 December 31, 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 Year Ended December 31, (in thousands, except per share amounts) 2023 2022 Number of common shares issued — 10,471 Weighted average sale price per share $ — $ 21.66 Net proceeds $ — $ 222,893 Gross proceeds — 226,483 In August 2022, the Company completed a public offering to sell an aggregate of 13,000,000 shares of common stock at a price of $ 21.35 per share, subject to certain adjustments, in connection with a forward sale agreement. On December 28, 2022, the Company settled the forward sale agreement and issued 13,000,000 shares of common stock. The net proceeds, after deducting underwriting discounts and commissions of $ 3.4 million and $ 0.6 million of other expenses, were $ 272.6 million. The Company used the net proceeds to pay down the Revolving Credit Facility. Common Stock The shares of the Corporation’s common stock entitle the holders to one vote per share on all matters upon which stockholders are entitled to vote, to receive dividends and other distributions as authorized by the Board of Directors in accordance with the Maryland General Corporation Law, and to all rights of a stockholder pursuant to the Maryland General Corporation Law. The common stock has no preferences or preemptive conversion or exchange rights. Pursuant to the limited liability company agreement between the Corporation and the OP, each outstanding OP Unit is convertible into one share of the Corporation’s common stock, subject to the terms and conditions set forth in the OP’s operating agreement. Preferred Stock The Charter also provides the Board of Directors with the authority to issue one or more classes or series of preferred stock, and prior to the issuance of such shares of preferred stock, the Board of Directors shall have the power from time to time to classify or reclassify, in one or more series, any unissued shares and designate the preferences, rights and privileges of such shares of preferred stock. At December 31, 2023 and 2022 , no shares of the Corporation’s preferred stock were issued and outstanding. 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 year ended December 31, 2023, no shares of the Company’s common stock were repurchased under the program. 86 15. Stock-Based Compensation Restricted Stock Awards The Company awarded 311,583 , 181,244 , and 199,430 shares of RSAs, during the years ended December 31, 2023, 2022, and 2021 , respectively, to officers, employees and non-employee directors under the Equity Incentive Plan. 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 value of awards granted during the years ended December 31, 2023, 2022, and 2021 were $ 17.50 , $ 21.43 , and $ 18.66 , respectively, which were based on the market price per share of the Company’s common stock on the grant dates. The following table presents information about the Company’s RSAs: For the year ended December 31, (in thousands) 2023 2022 2021 Compensation cost $ 4,437 $ 3,469 $ 3,926 Dividends declared on unvested RSAs 560 419 394 Fair value of shares vested during the period 3,384 3,209 3,296 As of December 31, 2023 , there was $ 5.0 million of unrecognized compensation costs related to the unvested restricted shares, which is expected to be recognized over a weighted average period of 2.4 years. The following table presents information about the Company’s restricted stock activity: For the year ended December 31, 2023 2022 2021 (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 Number of Shares Weighted Average Grant Date Fair Value per Share Unvested at beginning of period 396 $ 20.36 372 $ 19.62 341 $ 20.50 Granted 312 17.50 181 21.43 202 18.70 Vested ( 193 ) 20.33 ( 147 ) 19.80 ( 164 ) 20.15 Forfeited ( 23 ) 18.79 ( 10 ) 20.24 ( 7 ) 19.40 Unvested at end of period 492 18.63 396 20.36 372 19.62 Performance-based Restricted Stock Units During the years ended December 31, 2023, 2022 and 2021, the Company issued target grants of 186,481 , 124,024 , and 132,189 PRSUs under the Equity Incentive Plan to the officers of the Company, respectively. 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 dividen ds 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. Dividends accrue during the measurement period and will be paid on the PRSUs ultimately earned at the end of the measurement period in either cash or common stock, at the direction of the Compensation Committee of the Board of Directors. The grant date fair value of the PRSUs was measured using a Monte Carlo simulation model based on assumptions including share price volatility. The following table presents compensation cost recognized on the Company’s performance-based restricted stock unit: For the Year Ended December 31, (in thousands) 2023 2022 2021 Compensation cost $ 1,922 $ 1,847 $ 743 87 As of December 31, 2023 , there was $ 3.8 million of unrecognized compensation costs related to the unvested PRSUs, which is expected to be recognized over a weighted average period of 2.0 years. The following table presents information about the Company’s performance-based restricted stock unit activity: For the Year Ended December 31, 2023 2022 2021 (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 Number of Shares Weighted Average Grant Date Fair Value per Share Unvested at beginning of period 233 $ 26.27 110 $ 24.40 — $ — Granted 186 23.78 124 27.93 132 24.40 Vested — — — — — — Forfeited ( 68 ) 26.48 ( 1 ) 27.93 ( 22 ) 24.40 Unvested at end of period 351 24.90 233 26.27 110 24.40 16. Earnings per Share The following table summarizes the components used in the calculation of basic and diluted earnings per share (“EPS”): For the Year Ended December 31, (in thousands, except per share amounts) 2023 2022 2021 Basic earnings: Net earnings attributable to Broadstone Net Lease, Inc. common shareholders $ 155,478 $ 122,115 $ 102,426 Less: earnings allocated to unvested restricted shares ( 560 ) ( 419 ) ( 394 ) Net earnings used to compute basic earnings per common share $ 154,918 $ 121,696 $ 102,032 Diluted earnings: Net earnings used to compute basic earnings per common share $ 154,918 $ 121,696 $ 102,032 Add: net earnings attributable to non-controlling interests 7,834 7,360 7,102 Net earnings used to compute diluted earnings per common share $ 162,752 $ 129,056 $ 109,134 Weighted average number of common shares outstanding 187,101 170,225 153,425 Less: weighted average unvested restricted shares (a) ( 484 ) ( 385 ) ( 368 ) Weighted average number of common shares outstanding used in basic earnings per common share 186,617 169,840 153,057 Add: effects of restricted stock units (b) 291 96 172 Add: effects of convertible membership units (c) 9,407 10,265 10,741 Weighted average number of common shares outstanding used in diluted earnings per common share 196,315 180,201 163,970 Basic and Diluted earnings per share $ 0.83 $ 0.72 $ 0.67 (a) Represents the weighted average effects of 492,046 , 396,383, and 372,150 unvested restricted shares of common stock as of December 31, 2023, 2022, and 2021 , respectively, which will be excluded from the computation of earnings per share until they vest . (b) R epresents the weighted average effects of shares of common stock to be issued as though the end of the period were the end of the performance period (see Note 15). (c) Represents the weighted average effects of 8,927,736 , 10,204,806 , and 10,323,206 OP Units outstanding at December 31, 2023, 2022, and 2021 , respectively. 88 17. Income Taxes For federal income tax purposes, distributions to stockholders are characterized as ordinary dividends, capital gain distributions, or return of capital distributions. Return of capital distributions will reduce stockholders’ basis in their shares, but not below zero. The portion of the distribution that exceeds the adjusted basis of the stock will be treated as gain from the sale or exchange of property. The following table shows the character of the distributions the Company paid on a percentage basis: For the Year Ended December 31, Character of Distributions 2023 2022 2021 Ordinary dividends 70 % 68 % 61 % Capital gain distributions 21 % 2 % 0 % Return of capital distributions 9 % 30 % 39 % 100 % 100 % 100 % 18. Supplemental Cash Flow Disclosures Cash paid for interest was $ 77.1 million, $ 72.0 million, and $ 57.3 million for the years ended December 31, 2023, 2022, and 2021 , respectively. Cash paid for income taxes was $ 0.3 million, $ 0.4 million, and $ 0.6 million for the years ended December 31, 2023, 2022, and 2021, respectively. The following are non-cash transactions and have been excluded from the accompanying Consolidated Statements of Cash Flows: • During the year ended December 31, 2023, the Company converted 1,277,070 OP Units valued at $ 21.2 million to 1,277,070 shares of common stock. During the year ended December 31, 2022, the Company converted 118,400 OP Units valued at $ 1.9 million to 118,400 shares of common stock. During the year ended December 31, 2021, the Company converted 2,934,489 OP Units valued at $ 47.0 million to 2,934,489 shares of common stock. (See Note 12). • At December 31, 2023, 2022, and 2021 , dividend amounts declared and accrued but not yet paid amounted to $ 56.9 million, $ 54.5 million, and $ 45.9 million, respectively. • At December 31, 2023, 2022, and 2021 , the Company adjusted the carrying value of Non-controlling interests to reflect their share of the book value of the OP by $ 0.5 million, $ 6.3 million, and $ 32.2 million, respectively, with the reallocation recorded as an offset to Additional paid-in capital (see Note 2). 19. 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 December 31, 2023, the Company has a commitment to fund a build-to-suit transaction with a remaining obligation of $ 111.0 million expected to fund in multiple draws through October 2024, using a combination of available cash on hand and 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 entered into 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 Consolidated Financial Statements. Based on values as of December 31, 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. 89 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. 20. Subsequent Events On January 12, 2024, the Company paid distributions totaling $ 56.0 million. On February 16, 2024 , the Board of Directors declared a quarterly distribution of $ 0.285 per share on the Company’s common stock and OP Units for the first quarter of 2024, which will be payable on or before April 15, 2024 to stockholders and unit holders of record as of March 29, 2024 . Subsequent to December 31, 2023, the Company paid down $ 18.5 million, and borrowed $ 32.5 million on the Revolving Credit Facility, the proceeds of which were used for general corporate purposes. 90 Broadstone Net Lease, Inc. and Subsidiaries Schedule III – Real Estate Assets an d Accumulated Depreciation As of December 31, 2023 (in thousands) Costs Capitalized Life on Initial Costs to Subsequent Gross Amount at Which Carried at Which Company(a) to Acquisition Close of Period Depreciation Buildings and Buildings and Accumulated Date of Date is Computed Property Type Encumbrance Land Improvements Land Improvements Land Improvements Total(b) Depreciation Construction Acquired (Years) Industrial Manufacturing $ — $ 131,548 $ 647,751 $ — $ 14,020 $ 131,548 $ 661,771 $ 793,319 $ 92,248 1932-2021 2011-2023 15 - 39 Distribution & Warehouse — 89,157 573,064 4,511 19,859 93,668 592,923 686,591 76,225 1929-2021 2012-2022 15 - 39 Food Processing — 49,322 529,669 — 51,842 49,322 581,511 630,833 51,899 1907-2022 2012-2022 15 - 39 Flex and R&D 44,206 53,961 138,299 — 4 53,961 138,303 192,264 24,183 1973-2018 2013-2019 15 - 39 Cold Storage 18,725 10,610 118,474 — 42 10,610 118,516 129,126 20,638 1933-2017 2017-2023 7 - 39 Services — 58,731 74,062 — 3,680 58,731 77,742 136,473 9,504 1960-2022 2013-2023 15 - 39 Untenanted — 1,048 7,545 — 1 1,048 7,546 8,594 1,492 2008 2017 15 - 39 Healthcare Clinical — 32,857 279,802 557 10,566 33,414 290,368 323,782 62,853 1970-2022 2010-2022 7 - 39 Healthcare Services — 17,995 119,986 ( 145 ) 832 17,850 120,818 138,668 14,927 1965-2020 2009-2022 15 - 39 Animal Health Services — 15,943 111,107 — ( 144 ) 15,943 110,963 126,906 17,634 1954-2017 2015-2021 15 - 39 Surgical — 9,942 117,006 290 135 10,232 117,141 127,373 22,823 1984-2011 2014-2021 15 - 39 Life Science — 10,306 78,056 — 1,327 10,306 79,383 89,689 17,246 1965-2016 2011-2018 15 - 39 Restaurant Quick Service Restaurants — 50,424 238,984 197 3,167 50,621 242,151 292,772 55,126 1965-2020 2009-2023 15 - 39 Casual Dining — 75,431 269,079 — 12 75,431 269,091 344,522 46,392 1972-2014 2011-2022 15 - 39 Retail General Merchandise 16,241 80,669 294,923 — 156 80,669 295,079 375,748 28,352 1996-2022 2016-2022 15 - 39 Automotive — 31,813 117,973 — 73 31,813 118,046 149,859 23,047 1909-2021 2014-2022 7 - 39 Home Furnishings — 3,625 90,644 — 981 3,625 91,625 95,250 16,820 1974-2014 2017-2018 15 - 39 Child Care — 1,263 8,804 — — 1,263 8,804 10,067 249 2022 2022-2023 15 - 39 Office Corporate Headquarters — 7,554 70,395 — 2,222 7,554 72,617 80,171 13,356 1975-2008 2012-2022 15 - 39 Strategic Operations — 7,864 92,282 — 9,092 7,864 101,374 109,238 21,162 1984-2012 2016-2018 7 - 39 Call Center — 2,870 30,855 — 10,228 2,870 41,083 43,953 10,166 1979-1998 2014-2019 15 - 39 Untenanted — 188 3,147 — — 188 3,147 3,335 255 2001 2010 15 - 39 Acquisitions in Process (c) — — 163 — — — 163 163 — Property Under Development — 17,300 77,664 — — 17,300 77,664 94,964 — Total (d) $ 79,172 $ 760,421 $ 4,089,734 $ 5,410 $ 128,095 $ 765,831 $ 4,217,829 $ 4,983,660 $ 626,597 (a) The initial cost to the Company represents the original purchase price of the property (see Note 5). (b) The aggregate cost of real estate owned as of December 31, 2023 for U.S. federal income tax purposes was approximately $ 5.1 billion. (c) Acquisition costs in progress represents costs incurred during the year ended December 31, 2023 related to asset acquisitions expected to close during the year ended December 31, 2024. (d) This schedule excludes properties subject to leases that are classified as direct financing leases, sales-type leases, as well as the value of right-of-use assets recorded on certain of the properties where the Company is lessee under a ground lease. 91 For the Year Ended December 31, Change in Total Real Estate Assets 2023 2022 2021 Balance, beginning of period $ 5,008,230 $ 4,205,191 $ 3,704,488 Acquisitions, developments, and improvements 167,089 929,972 613,646 Dispositions ( 154,907 ) ( 118,028 ) ( 109,761 ) Impairment ( 36,752 ) ( 8,905 ) ( 3,182 ) Balance, end of period $ 4,983,660 $ 5,008,230 $ 4,205,191 For the Year Ended December 31, Change in Accumulated Depreciation 2023 2022 2021 Balance, beginning of period $ 533,965 $ 430,141 $ 349,977 Acquisitions and building improvements 122,778 115,892 100,878 Dispositions ( 24,547 ) ( 8,165 ) ( 19,543 ) Impairment ( 5,599 ) ( 3,903 ) ( 1,171 ) Balance, end of period $ 626,597 $ 533,965 $ 430,141 92 Item 9. Changes in and Disagreements with Accoun tants on Accounting and Financial Disclosure. None. Item 9A. 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. For the year ended December 31, 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. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2023. The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report in this Annual Report on Form 10-K. Changes in Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 93 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Broadstone Net Lease, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Broadstone Net Lease, Inc. and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 22, 2024, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Rochester, New York February 22, 2024 94 Item 9B. Othe r Information. During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non- Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. Item 9C. D isclosure Regarding Foreign Jurisdictions That Prevent Inspections. Not applicable. 95 Part III. Item 10. Directors, Executive Offi cers, and Corporate Governance. The information required by this Item will be included in the definitive proxy statement and is incorporated herein by reference. The Company will file such definitive proxy statement with the SEC pursuant to Regulation 14A no later than 120 days after the end of the Company’s 2023 fiscal year covered by this Annual Report on Form 10-K. Item 11. Executiv e Compensation. The information required by this Item will be included in the definitive proxy statement and is incorporated herein by reference. The Company will file such definitive proxy statement with the SEC pursuant to Regulation 14A no later than 120 days after the end of the Company’s 2023 fiscal year covered by this Annual Report on Form 10-K. Item 12. Security Ownership of Certai n Beneficial Owners and Management. The information required by this Item will be included in the definitive proxy statement and is incorporated herein by reference. The Company will file such definitive proxy statement with the SEC pursuant to Regulation 14A no later than 120 days after the end of the Company’s 2023 fiscal year covered by this Annual Report on Form 10-K. Item 13. Certain Relationships and Related Transactions and Director Independence. The information required by this Item will be included in the definitive proxy statement and is incorporated herein by reference. The Company will file such definitive proxy statement with the SEC pursuant to Regulation 14A no later than 120 days after the end of the Company’s 2023 fiscal year covered by this Annual Report on Form 10-K. Item 14. Principal Accountant Fees and Services. The information required by this Item will be included in the definitive proxy statement and is incorporated herein by reference. The Company will file such definitive proxy statement with the SEC pursuant to Regulation 14A no later than 120 days after the end of the Company’s 2023 fiscal year covered by this Annual Report on Form 10-K. 96 PART IV. Item 15. Exhibits and Finan cial Statement Schedules. Financial Statements See Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Financial Statement Schedules See Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. All other schedules are omitted because they are not applicable or because the required information is shown in the financial statements or the notes thereto. Item 16. Form 10-K Summary. None. Index to Exhibits. Exhibit No. Description 3.1 Articles of Incorporation of Broadstone Net Lease, Inc. (filed as Exhibit 3.1 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated by reference) 3.2 Articles of Amendment to Articles of Incorporation of Broadstone Net Lease, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed September 18, 2020 and incorporated by reference) 3.3 Articles Supplementary to Articles of Incorporation of Broadstone Net Lease, Inc. (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed September 18, 2020 and incorporated by reference) 3.4 Articles of Amendment to Articles of Incorporation of Broadstone Net Lease, Inc. (filed as Exhibit 3.3 to the Company’s Current Report on Form 8-K filed September 18, 2020 and incorporated 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 by reference) 3.6 Second Amended and Restated Bylaws of Broadstone Net Lease, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 25, 2020 and incorporated by reference) 4.1 Description of the Company’s Securities (filed as Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed February 23, 2022, and incorporated by reference) 4.2 Indenture, dated as of September 15, 2021, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC and U.S. Bank National Association, as trustee, including the form of the Guarantee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed September 15, 2021 and incorporated by reference) 4.3 First Supplemental Indenture, dated as of September 15, 2021, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC and U.S. Bank National Association, as trustee, including the form of the Notes (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed September 15, 2021 and incorporated by reference) 10.1 Second Amended and Restated Operating Agreement of Broadstone Net Lease, LLC, dated September 21, 2020 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 21, 2020 and incorporated by reference) 97 10.2 Director Compensation and Stock Ownership Policy, effective as of May 5, 2022 (filed as Exhibit 10.2 of the Company’s Annual Report on Form 10-K filed February 23, 2023, and incorporated by reference) 10.3 Form of Indemnification Agreement, between Broadstone Net Lease, Inc. and each of its officers and directors (filed as Exhibit 10.25 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated by reference) 10.4 Note and Guaranty Agreement, dated March 16, 2017, for 4.84% Guaranteed Senior Notes due April 18, 2027, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, and the purchasers party thereto (filed as Exhibit 10.23 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated by reference) 10.5 Revolving Credit and Term Loan Agreement, dated as of June 23, 2017, by and among Broadstone Net Lease, LLC, Broadstone Net Lease, Inc., Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 29, 2017, and incorporated by reference) 10.6 Consent and Agreement Regarding Commitment Increases and Additional Term Loans, dated as of November 20, 2017, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 27, 2017, and incorporated by reference) 10.7 First Amendment Regarding Commitment Increases, dated February 28, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company and the other parties thereto (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 5, 2019, and incorporated by reference) 10.8 Second Amendment to Revolving Credit and Term Loan Agreement, dated as of July 1, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, and other parties thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 3, 2019, and incorporated by reference) 10.9 Third Amendment to Revolving Credit and Term Loan Agreement, dated as of September 21, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, and other parties thereto (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed September 21, 2020, and incorporated by reference) 10.10 Fourth Amendment to Revolving Credit and Term Loan Agreement, dated as of March 31, 2022, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, and other parties thereto (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed May 4, 2022 and incorporated by reference) 10.11 Note and Guaranty Agreement, dated July 2, 2018, for 5.09% Series B Guaranteed Senior Notes due July 2, 2028 and 5.19% Series C Guaranteed Senior Notes due July 2, 2030, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, and the purchasers party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 6, 2018, and incorporated by reference) 10.12 Term Loan Agreement, dated February 27, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Capital One, National Association, and the other parties thereto (“Capital One Term Loan Agreement”) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 5, 2019, and incorporated by reference) 98 10.13 Guaranty, dated February 27, 2019, by Broadstone Net Lease, Inc., in favor of Capital One, National Association (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 5, 2019, and incorporated by reference) 10.14 First Amendment to Capital One Term Loan Agreement, dated July 1, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed November 12, 2019, and incorporated by reference) 10.15 Second Amendment to Capital One Term Loan Agreement, dated September 21, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 21, 2020, and incorporated by reference) 10.16 Third Amendment to Capital One Term Loan Agreement, dated March 12, 2021, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 18, 2021 and incorporated by reference) 10.17 Fourth Amendment to Capital One Term Loan Agreement, dated March 31, 2022, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed May 4, 2022 and incorporated by reference) 10.18 Fifth Amendment to Capital One 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 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 3, 2023 and incorporated by reference) 10.19 Term Loan Agreement, dated February 7, 2020, by and among Broadstone Net Lease, LLC, Broadstone Net Lease, Inc., JPMorgan Chase Bank, N.A., and the other lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) 10.20 Guaranty, dated February 7, 2020, by Broadstone Net Lease, Inc. in favor of JPMorgan Chase Bank, N.A (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) 10.21 Amendment No.1 to Term Loan Agreement, dated September 21, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, JP Morgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 21, 2020 and incorporated by reference) 10.22 Amended and Restated Revolving Credit Agreement, dated as of January 28, 2022, by and among, Broadstone Net Lease, LLC, Broadstone Net Lease, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 3, 2022 and incorporated by reference) 10.23 Guaranty, dated January 28, 2022, by Broadstone Net Lease, Inc. in favor of JPMorgan Chase Bank, N.A (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed February 3, 2022 and incorporated by reference) 99 10.24 Term Loan Credit Agreement, dated as of August 1, 2022, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Regions Bank, as administrative agent, and the lender parties thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 3, 2022 and incorporated by reference) 10.25 Guaranty, dated August 1, 2022, by Broadstone Net Lease, Inc. in favor of Regions Bank (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 3, 2022 and incorporated by reference) 10.26 Tax Protection Agreement, dated February 7, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, and the persons named therein (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) 10.27 Registration Rights Agreement, dated February 7, 2020, between Broadstone Net Lease, Inc. and the persons named therein (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) 10.28+ Amended and Restated Employment Agreement, effective February 7, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and John D. Moragne (filed as Exhibit 10.10 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) 10.29+ First Amendment to Amended and Restated Employment Agreement, dated January 10, 2023 and effective February 28, 2023, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and John D. Moragne (filed as Exhibit 10.30 to the Company’s Quarterly Report on Form 10-Q filed May 4, 2023 and incorporated by reference) 10.30+ Amended and Restated Employment Agreement, effective February 7, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Ryan M. Albano (filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) 10.31+ First Amendment to Amended and Restated Employment Agreement, dated January 10, 2023 and effective February 28, 2023, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Ryan M. Albano (filed as Exhibit 10.32 to the Company’s Quarterly Report on Form 10-Q filed May 4, 2023 and incorporated by reference) 10.32+ Severance Protection Agreement, dated January 10, 2023 and effective February 28, 2023, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Kevin M. Fennell (filed as Exhibit 10.33 to the Company’s Quarterly Report on Form 10-Q filed May 4, 2023 and incorporated by reference) 10.33+ Chief Executive Officer Transition Agreement, dated January 10, 2023, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Christopher J. Czarnecki (filed as Exhibit 10.34 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2023 and incorporated by reference) 10.34+ Broadstone Net Lease, Inc. 2020 Omnibus Equity and Incentive Plan, dated August 4, 2020 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 4, 2020 and incorporated by reference) 10.35+ Form of Broadstone Net Lease, Inc. 2020 Omnibus Equity and Incentive Plan Restricted Stock Award Agreement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 4, 2020 and incorporated by reference) 100 10.36+ Form of Broadstone Net Lease, Inc. 2020 Omnibus Equity and Incentive Plan Restricted Stock Unit Award Agreement (2021 Form) (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 5, 2021 and incorporated by reference) 10.37*+ Form of Broadstone Net Lease, Inc. 2020 Omnibus Equity and Incentive Plan Restricted Stock Unit Award Agreement (2022 Form) 10.38*+ Form of Broadstone Net Lease, Inc. 2020 Omnibus Equity and Incentive Plan Restricted Stock Unit Award Agreement (2024 Form) 10.39+ Broadstone Net Lease, Inc. Change in Control Severance Protection Policy (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 4, 2022 and incorporated by reference) 21.1* List of Subsidiaries of Broadstone Net Lease, Inc. 23.1* Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm 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 97.1*+ Broadstone Net Lease, Inc. Compensation Clawback Policy 101.INS Inline XBRL Instance Document – the instance document does not appear in Interactive Data File because XBRL tags are embedded within the Inline XBRL Document 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE 104 Inline XBRL Taxonomy Extension Schema Document Inline XBRL Taxonomy Extension Calculation Linkbase Document Inline XBRL Taxonomy Extension Definition Linkbase Document Inline XBRL Taxonomy Extension Label Linkbase Document Inline XBRL Taxonomy Extension Presentation Linkbase Document 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. 101 SIGNA TURES Pursuant to the requirements of Section 13 or 15(d) 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: February 22, 2024 /s/ John D. Moragne John D. Moragne Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: February 22, 2024 /s/ Laurie A. Hawkes Laurie A. Hawkes Chairman of the Board of Directors Date: February 22, 2024 /s/ John D. Moragne John D. Moragne Director, Chief Executive Officer Date: February 22, 2024 /s/ Michael A. Coke Michael A. Coke Director Date: February 22, 2024 /s/ Jessica Duran Jessica Duran Director Date: February 22, 2024 /s/ Laura Felice Laura Felice Director Date: February 22, 2024 /s/ David M. Jacobstein David M. Jacobstein Director Date: February 22, 2024 /s/ Shekar Narasimhan Shekar Narasimhan Director Date: February 22, 2024 /s/ Denise Brooks-Williams Denise Brooks-Williams Director Date: February 22, 2024 /s/ James H. Watters James H. Watters Director Date: February 22, 2024 /s/ Kevin M. Fennell Kevin M. Fennell Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: February 22, 2024 /s/ Timothy D. Dieffenbacher Timothy D. Dieffenbacher Senior Vice President, Chief Accounting Officer and Treasurer (Principal Accounting Officer) 102