Broadstone Net Lease, Inc. 10-Q

Item 1. Financial Statements Broadstone Net Lease, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except per share amounts) September 30, 2020 December 31, 2019 Assets Accounted for using the operating method, net of accumulated depreciation $ 3,304,002 $ 3,415,400 Accounted for using the direct financing method 30,902 41,890 Investment in rental property, net 3,334,904 3,457,290 Cash and cash equivalents 101,787 12,455 Accrued rental income 97,517 84,534 Tenant and other receivables, net 3,957 934 Prepaid expenses and other assets 19,522 12,613 Interest rate swap, assets — 2,911 Goodwill 339,769 — Intangible lease assets, net 288,971 331,894 Debt issuance costs – unsecured revolving credit facility, net 7,027 2,380 Leasing fees, net 11,015 12,847 Total assets $ 4,204,469 $ 3,917,858 Liabilities and equity Unsecured revolving credit facility $ — $ 197,300 Mortgages and notes payable, net 108,752 111,793 Unsecured term notes, net 1,433,495 1,672,081 Interest rate swap, liabilities 81,326 24,471 Earnout liability 13,177 — Accounts payable and other liabilities 55,339 37,377 Accrued interest payable 9,453 3,594 Intangible lease liabilities, net 81,220 92,222 Total liabilities 1,782,762 2,138,838 Commitments and contingencies (See Note 17) Equity Broadstone Net Lease, Inc. stockholders' equity: Preferred stock, $ 0.001 par value; 20,000 shares authorized, no shares issued or outstanding — — Common stock, $ 0.00025 par value; 440,000 shares authorized, 107,773 shares issued and outstanding at September 30, 2020; 320,000 shares authorized, 104,006 shares issued and outstanding at December 31, 2019 27 26 Class A common stock, $ 0.00025 par value; 60,000 shares authorized, 33,500 shares issued and outstanding at September 30, 2020; no shares authorized, issued or outstanding at December 31, 2019 8 — Additional paid-in capital 2,506,008 1,895,935 Cumulative distributions in excess of retained earnings ( 239,520 ) ( 208,261 ) Accumulated other comprehensive loss ( 74,729 ) ( 20,086 ) Total Broadstone Net Lease, Inc. stockholders’ equity 2,191,794 1,667,614 Non-controlling interests 229,913 111,406 Total equity 2,421,707 1,779,020 Total liabilities and equity $ 4,204,469 $ 3,917,858 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Broadstone Net Lease, Inc. and Subsidiaries Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited) (in thousands, except per share amounts) For the three months ended September 30, For the nine months ended September 30, 2020 2019 2020 2019 Revenues Lease revenues, net $ 80,744 $ 76,401 $ 239,346 $ 213,884 Operating expenses Depreciation and amortization 31,363 28,392 102,503 77,989 Asset management fees — 5,610 2,461 16,048 Property management fees — 2,098 1,275 5,918 Property and operating expense 4,187 3,855 12,492 11,497 General and administrative 7,214 1,315 18,756 3,807 Provision for impairment of investment in rental properties 14,732 2,435 17,399 3,452 Total operating expenses 57,496 43,705 154,886 118,711 Other income (expenses) Interest income — 5 20 6 Interest expense ( 18,511 ) ( 18,465 ) ( 59,015 ) ( 51,025 ) Cost of debt extinguishment ( 392 ) ( 455 ) ( 414 ) ( 1,176 ) Gain on sale of real estate 1,060 12,585 9,725 16,772 Income taxes ( 129 ) ( 405 ) ( 1,080 ) ( 1,153 ) Internalization expenses ( 1,929 ) ( 923 ) ( 3,523 ) ( 1,195 ) Change in fair value of earnout liability 6,362 — 8,506 — Other gains (losses) 2 — ( 22 ) — Net income 9,711 25,038 38,657 57,402 Net income attributable to non-controlling interests ( 961 ) ( 1,650 ) ( 3,738 ) ( 3,942 ) Net income attributable to Broadstone Net Lease, Inc. $ 8,750 $ 23,388 $ 34,919 $ 53,460 Weighted average number of common shares outstanding Basic 111,155 98,568 108,228 93,575 Diluted 123,381 105,516 119,747 100,523 Net earnings per share attributable to common stockholders Basic and diluted $ 0.08 $ 0.24 $ 0.32 $ 0.57 Comprehensive income (loss) Net income $ 9,711 $ 25,038 $ 38,657 $ 57,402 Other comprehensive income (loss) Change in fair value of interest rate swaps 4,352 ( 16,380 ) ( 59,766 ) ( 52,182 ) Realized gain on interest rate swaps ( 42 ) ( 41 ) ( 125 ) ( 163 ) Comprehensive income (loss) 14,021 8,617 ( 21,234 ) 5,057 Comprehensive (income) loss attributable to non-controlling interests ( 1,387 ) ( 557 ) 1,510 ( 315 ) Comprehensive income (loss) attributable to Broadstone Net Lease, Inc. $ 12,634 $ 8,060 $ ( 19,724 ) $ 4,742 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Broadstone Net Lease, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity (Unaudited) (in thousands, except per share amounts) Common Stock Class A Common Stock Additional Paid-in Capital Cumulative Distributions in Excess of Retained Earnings Accumulated Other Comprehensive Loss Non- controlling Interests Total Stockholders' Equity Mezzanine Equity Common Stock Mezzanine Equity Non- controlling Interests Total Mezzanine Equity Balance, January 1, 2020 $ 26 $ — $ 1,895,935 $ ( 208,261 ) $ ( 20,086 ) $ 111,406 $ 1,779,020 $ — $ — $ — Cumulative effect of accounting change (see Note 2) — — — ( 323 ) — — ( 323 ) — — — Net income — — — 10,816 — 710 11,526 — 322 322 Issuance of 293 shares of common stock and 3,124 shares of mezzanine equity common stock — — 6,097 — — — 6,097 66,376 — 66,376 Issuance of 5,278 mezzanine non-controlling interests — — — — — — — — 112,159 112,159 Adjustment to carrying value of mezzanine equity non-controlling interests — — ( 2,416 ) — — — ( 2,416 ) — 2,416 2,416 Distributions declared ($ 0.11 per share January 2020 through March 2020) — — — ( 35,299 ) — ( 2,100 ) ( 37,399 ) — ( 1,161 ) ( 1,161 ) Change in fair value of interest rate swap agreements — — — — ( 53,014 ) ( 3,472 ) ( 56,486 ) — ( 1,576 ) ( 1,576 ) Realized gain on interest rate swap agreements — — — — ( 38 ) ( 2 ) ( 40 ) — ( 2 ) ( 2 ) Balance, March 31, 2020 26 — 1,899,616 ( 233,067 ) ( 73,138 ) 106,542 1,699,979 66,376 112,158 178,534 Net income — — — 15,353 — 992 16,345 — 753 753 Issuance of 11 shares of common stock — — 232 — — — 232 — — — Adjustment to carrying value of mezzanine equity non-controlling interests — — ( 97 ) — — — ( 97 ) — 97 97 Distributions declared ($ 0.11 per share in April 2020) — — — ( 11,817 ) — ( 701 ) ( 12,518 ) — ( 581 ) ( 581 ) Change in fair value of interest rate swap agreements — — — — ( 5,438 ) ( 351 ) ( 5,789 ) — ( 267 ) ( 267 ) Realized gain on interest rate swap agreements — — — — ( 37 ) ( 3 ) ( 40 ) — ( 1 ) ( 1 ) Balance, June 30, 2020 26 — 1,899,751 ( 229,531 ) ( 78,613 ) 106,479 1,698,112 66,376 112,159 178,535 Net income — — — 8,750 — 587 9,337 — 374 374 Issuance of 341 shares of common stock — — — — — — — — — — Stock-based compensation — — 796 — — — 796 — — — Issuance of 33,500 shares of Class A common stock — 8 569,492 — — — 569,500 — — — Offering costs, discounts, and commissions — — ( 37,180 ) — — — ( 37,180 ) — — — Reclassification of portion of contingent earnout liability — — 6,809 — — 11,627 18,436 — — — Reclassification of 3,124 shares of mezzanine equity common stock to 3,124 shares of common stock 1 — 66,375 — — — 66,376 ( 66,376 ) — ( 66,376 ) Reclassification of 5,278 mezzanine equity non-controlling interests to 5,278 non- controlling interests — — — — — 112,698 112,698 — ( 112,698 ) ( 112,698 ) Repurchase of 2 fractional shares of common stock — — ( 35 ) — — — ( 35 ) — — — Repurchase of fractional OP Units — — — — — ( 1 ) ( 1 ) — — — Distributions declared ($ 0.135 per share for three months ended September 30, 2020) — — — ( 18,739 ) — ( 1,738 ) ( 20,477 ) — — — Change in fair value of interest rate swap agreements — — — — 3,921 264 4,185 — 167 167 Realized gain on interest rate swap agreements — — — — ( 37 ) ( 3 ) ( 40 ) — ( 2 ) ( 2 ) Balance, September 30, 2020 $ 27 $ 8 $ 2,506,008 $ ( 239,520 ) $ ( 74,729 ) $ 229,913 $ 2,421,707 $ — $ — $ — The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Broadstone Net Lease, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity (Unaudited) (in thousands, except per share amounts) Common Stock Class A Common Stock Additional Paid-in Capital Subscriptions Receivable Cumulative Distributions in Excess of Retained Earnings Accumulated Other Comprehensive Income (Loss) Non- controlling Interests Total Stockholders' Equity Mezzanine Equity Common Stock Mezzanine Equity Non- controlling Interests Total Mezzanine Equity Balance, January 1, 2019 $ 22 $ — $ 1,557,421 $ — $ ( 155,150 ) $ 14,806 $ 111,821 $ 1,528,920 $ — $ — $ — Net income — — — — 13,938 — 1,084 15,022 — — — Issuance of 3,532 shares of common stock 1 — 75,099 ( 225 ) — — — 74,875 — — — Other offering costs — — ( 300 ) — — — — ( 300 ) — — — Distributions declared ($ 0.1075 per share January 2019, $ 0.11 per share February through March 2019) — — — — ( 29,635 ) — ( 2,348 ) ( 31,983 ) — — — Change in fair value of interest rate swap agreements — — — — — ( 11,713 ) ( 911 ) ( 12,624 ) — — — Realized gain on interest rate swap agreements — — — — — ( 75 ) ( 6 ) ( 81 ) — — — Redemption of 85 shares of common stock — — ( 1,803 ) — — — — ( 1,803 ) — — — Balance, March 31, 2019 23 — 1,630,417 ( 225 ) ( 170,847 ) 3,018 109,640 1,572,026 — — — Net income — — — — 16,134 — 1,208 17,342 — — — Issuance of 3,567 shares of common stock 1 — 76,004 225 — — — 76,230 — — — Other offering costs — — ( 300 ) — — — — ( 300 ) — — Distributions declared ($ 0.11 per share April through June 2019) — — — — ( 30,934 ) — ( 2,297 ) ( 33,231 ) — — — Change in fair value of interest rate swap agreements — — — — — ( 21,564 ) ( 1,614 ) ( 23,178 ) — — — Realized gain on interest rate swap agreements — — — — — ( 38 ) ( 3 ) ( 41 ) — — — Redemption of 150 shares of common stock — — ( 3,210 ) — — — — ( 3,210 ) — — — Balance, June 30, 2019 24 — 1,702,911 — ( 185,647 ) ( 18,584 ) 106,934 1,605,638 — — — Net income — — — — 23,388 — 1,650 25,038 — — — Issuance of 7,360 shares of common stock 1 — 157,191 — — — — 157,192 — — — Other offering costs — — ( 703 ) — — — — ( 703 ) — — Distributions declared ($ 0.11 per share July through September 2019) — — — — ( 32,531 ) — ( 2,352 ) ( 34,883 ) — — — Change in fair value of interest rate swap agreements — — — — — ( 15,288 ) ( 1,092 ) ( 16,380 ) — — — Realized gain on interest rate swap agreements — — — — — ( 39 ) ( 2 ) ( 41 ) — — — Redemption of 353 shares of common stock — — ( 7,361 ) — — — — ( 7,361 ) — — — Balance, September 30, 2019 $ 25 $ — $ 1,852,038 $ — $ ( 194,790 ) $ ( 33,911 ) $ 105,138 $ 1,728,500 $ — $ — $ — The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Broadstone Net Lease, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) For the nine months ended September 30, 2020 2019 Operating activities Net income $ 38,657 $ 57,402 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 102,536 75,661 Provision for impairment of investment in rental properties 17,399 3,452 Amortization of debt issuance costs charged to interest expense 2,421 1,655 Stock-based compensation expense 796 — Straight-line rent and financing lease adjustments ( 14,696 ) ( 15,882 ) Cost of debt extinguishment 414 1,176 Gain on sale of real estate ( 9,725 ) ( 16,772 ) Change in fair value of earnout liability ( 8,506 ) — Leasing fees paid — ( 747 ) Adjustment to provision for credit losses ( 142 ) — Other non-cash items 420 277 Changes in assets and liabilities, net of acquisition: Tenant and other receivables ( 3,023 ) 165 Prepaid expenses and other assets ( 4,751 ) ( 393 ) Accounts payable and other liabilities 5,305 5,234 Accrued interest payable 5,859 ( 295 ) Net cash provided by operating activities 132,964 110,933 Investing activities Acquisition of rental property accounted for using the operating method, net of mortgages assumed of $ 0 and $ 49,782 in 2020 and 2019, respectively ( 76 ) ( 957,820 ) Cash paid for Internalization ( 30,861 ) — Capital expenditures and improvements ( 7,629 ) ( 4,044 ) Proceeds from disposition of rental property, net 54,810 90,137 Change in deposits on investments in rental property ( 37 ) 1,500 Net cash provided by (used in) investing activities 16,207 ( 870,227 ) Financing activities Proceeds from issuance of common stock and Class A common stock, net of $ 35,514 offering costs, discounts, and commissions 534,117 260,475 Redemptions of common stock — ( 12,374 ) Repurchase of fractional shares of common stock ( 36 ) — Borrowings on mortgages, notes payable and unsecured term notes, net of mortgages assumed of $ 0 and $ 49,782 in 2020 and 2019, respectively 60,000 750,000 Principal payments on mortgages, notes payable and unsecured term notes ( 393,294 ) ( 316,191 ) Borrowings on unsecured revolving credit facility 192,000 389,100 Repayments on unsecured revolving credit facility ( 389,300 ) ( 226,900 ) Cash distributions paid to stockholders ( 52,447 ) ( 45,219 ) Cash distributions paid to non-controlling interests ( 5,395 ) ( 6,980 ) Debt issuance and extinguishment costs paid ( 6,140 ) ( 7,491 ) Net cash (used in) provided by financing activities ( 60,495 ) 784,420 Net increase in cash and cash equivalents and restricted cash 88,676 25,126 Cash and cash equivalents and restricted cash at beginning of period 20,311 18,989 Cash and cash equivalents and restricted cash at end of period $ 108,987 $ 44,115 Reconciliation of cash and cash equivalents and restricted cash Cash and cash equivalents at beginning of period $ 12,455 $ 18,612 Restricted cash at beginning of period 7,856 377 Cash and cash equivalents and restricted cash at beginning of period $ 20,311 $ 18,989 Cash and cash equivalents at end of period $ 101,787 $ 14,008 Restricted cash at end of period 7,200 30,107 Cash and cash equivalents and restricted cash at end of period $ 108,987 $ 44,115 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Broadstone Net Lease, Inc. and Subsidiaries Notes to the Condensed Consolidated Financial Statements (Unaudited) (in thousands, except per share amounts) 1. Business Description Broadstone Net Lease, Inc. (the “Corporation”) is a Maryland corporation formed on October 18, 2007 , that elected to be taxed as a real estate investment trust (“REIT”) commencing with the taxable year ended December 31, 2008. The Corporation focuses on investing in income-producing, net leased commercial properties, primarily in the United States. The Corporation leases industrial, healthcare, restaurant, office, retail, and other commercial properties under long-term lease agreements. At September 30, 2020, the Corporation owned a diversified portfolio of 627 individual commercial properties located in 41 states throughout the continental United States and one property in British Columbia, Canada. Broadstone Net Lease, LLC (the Corporation’s operating company, or the “OP”), is the entity through which the Corporation conducts its business and owns (either directly or through subsidiaries) all of the Corporation’s properties. The Corporation is the sole managing member of the OP. The remaining membership units in the OP (“OP Units”), which are referred to as non-controlling interests, are held by members who acquired their interest by contributing real estate properties or other assets to the OP in exchange for OP Units. As the Corporation conducts substantially all of its operations through the OP, it is structured as what is referred to as an umbrella partnership real estate investment trust (“UPREIT”). The Corporation, the OP, and its consolidated subsidiaries are collectively referred to as the “Company”. Prior to February 7, 2020, the Corporation was externally managed by Broadstone Real Estate, LLC (“BRE”) and Broadstone Asset Management, LLC (the “Asset Manager”) subject to the direction, oversight, and approval of the Company’s board of directors (the “Board of Directors”). The Asset Manager was a wholly owned subsidiary of BRE and all of the Corporation’s officers were employees of BRE. Accordingly, both BRE and the Asset Manager were related parties of the Company. Refer to Note 3 for further discussion concerning related parties and related party transactions. On February 7, 2020, the Corporation, the OP, BRE, and certain of their respective subsidiaries and affiliates, completed through a series of mergers (the “Mergers”) the internalization of the external management functions previously performed for the Corporation and the OP by BRE and the Asset Manager (such transactions, collectively, the “Internalization”). Upon consummation of the Internalization, the Company’s management team and corporate staff, who were previously employed by BRE, became employees of an indirect subsidiary of the OP and the Company became internally managed. Upon Internalization, the prior Property Management Agreement and Asset Management Agreement were terminated. The Internalization was not considered a “Termination Event” under the terms of the agreements and therefore no fees were paid under them as a result of the Internalization. The Internalization consisted of the acquisition of BRE in accordance with the definitive merger agreement (the “Merger Agreement”). Refer to Note 4 for further discussion regarding the Internalization, including the associated payments related thereto. On September 18, 2020, the Corporation effected a four -for-one split on its then outstanding 26,944 shares of common stock (“Common Stock”) that previously had a $ 0.001 par value. Concurrent with the stock split, the OP effected a four-for-one stock split of its outstanding OP Units. No fractional shares or OP Units were issued as a result of the stock split. All historic share and per share amounts in these Condensed Consolidated Financial Statements have been adjusted to give retroactive effect to the stock split. On September 21, 2020, the Corporation closed its initial public offering (“IPO”) at $ 17.00 per share, of 33,500 shares of a new class of common stock, $ 0.00025 par value per share (“Class A Common Stock”) pursuant to a registration statement on Form S-11 (File No. 333-240381), as amended, under the Securities Act of 1933, as amended. Shares of the Class A Common Stock are listed on the New York Stock Exchange under the symbol “BNL”. The terms of the Class A Common Stock are identical to the terms of the Common Stock, except that each share of Class A Common Stock will automatically convert into one share of Common Stock on March 20, 2021. The Common Stock will subsequently be listed on the New York Stock Exchange on March 22, 2021, which represents the first trading day following the 180-day period following the closing of the IPO. The Common Stock and Class A Common Stock are collectively referred to as the Corporation’s “common stock”. See further discussion of the Company’s IPO and stock split in Note 13. The following table summarizes the outstanding equity and economic ownership interest of the Corporation and the OP: September 30, 2020 December 31, 2019 (in thousands) Shares of Common Stock OP Units Total Diluted Shares Shares of Common Stock OP Units Total Diluted Shares Ownership interest 141,273 12,226 153,499 104,006 6,948 110,954 Percent Ownership of OP 92.0 % 8.0 % 100.0 % 93.7 % 6.3 % 100.0 % Refer to Note 15 for further discussion regarding the calculation of weighted average shares outstanding. On October 20, 2020, the Company issued an additional 3,500 shares of Class A Common Stock, pursuant to the underwriters’ partial exercise of their option to acquire up to 5,025 shares of Class A Common Stock at $ 17.00 per share. See Note 18. 6 2. Summary of Significant Accounting Policies Interim Information The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information (Accounting Standards Codification (“ASC”) 270, Interim Reporting ) and Article 10 of the Securities and Exchange Commission’s (“SEC”) Regulation S-X. Accordingly, the Corporation has omitted certain footnote disclosures which would substantially duplicate those contained within the audited consolidated financial statements for the year ended December 31, 2019, included in the Company’s 2019 Annual Report on Form 10-K, filed with the SEC on February 27, 2020. Therefore, the readers of this quarterly report should refer to those audited consolidated financial statements, specifically Note 2, Summary of Significant Accounting Policies , for further discussion of significant accounting policies and estimates. The Corporation believes all adjustments necessary for a fair presentation have been included in these interim Condensed Consolidated Financial Statements (which include only normal recurring adjustments). Principles of Consolidation The Condensed Consolidated Financial Statements include the accounts and operations of the Company. All intercompany balances and transactions have been eliminated in consolidation. To the extent the Corporation has a variable interest in entities that are not evaluated under the variable interest entity (“VIE”) model, the Corporation evaluates its interests using the voting interest entity model. The Corporation has complete responsibility for the day-to-day management of, authority to make decisions for, and control of the OP. Based on consolidation guidance, the Corporation has concluded that the OP is a VIE as the members in the OP do not possess kick-out rights or substantive participating rights. Accordingly, the Corporation consolidates its interest in the OP. However, because the Corporation holds the majority voting interest in the OP, it qualifies for the exemption from providing certain disclosure requirements associated with investments in VIEs. The portion of the OP not owned by the Corporation is presented as non-controlling interests as of and during the periods presented. Basis of Accounting The Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. Use of Estimates The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include, but are not limited to, the allocation of purchase price between tangible and intangible assets acquired and liabilities assumed, the value of long-lived assets and goodwill, the provision for impairment, the depreciable lives of rental property, the amortizable lives of intangible assets and liabilities, the provisions for uncollectible rent and credit losses, the fair value of the earnout liability, the fair value of assumed debt and notes payable, the fair value of the Company’s interest rate swap agreements, and the determination of any uncertain tax positions. Accordingly, actual results may differ from those estimates. Long-lived Asset Impairment The Company reviews long-lived assets, other than goodwill, to be held and used for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If, and when, such events or changes in circumstances are present, an impairment exists to the extent the carrying value of the asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the asset or asset group and its eventual disposition. Such cash flows include expected future operating income, as adjusted for trends and prospects, as well as the effects of demand, competition, and other factors. An impairment loss is measured as the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. A significant judgment is made as to if and when impairment should be taken. The Company’s assessment of impairment as of September 30, 2020 was based on the most current information available to the Company. Based upon current market conditions resulting from the COVID-19 pandemic (see Note 19), certain of the Company’s properties may have fair values less than their carrying amounts. However, based on the Company’s plans with respect to each of those properties, the Company believes that their carrying amounts are recoverable and therefore, under applicable GAAP guidance, 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. During the three and nine months ended September 30, 2020, the Company recorded impairment charges associated with three and six properties, respectively. Impairment indicators included changes in the Company’s long-term hold strategy with respect to the individual properties, which was due in part to unfavorable market trends resulting from the COVID-19 pandemic in geographic areas where the Company has vacant properties being marketed for re-lease or sale. 7 Inputs used in establishing fair value for real estate assets generally fall within Level 3 of the fair value hierarchy, which are characterized as requiring significant judgment as little or no current market activity may be available for validation. The main indicator used to establish the classification of the inputs is current market conditions, as derived through the use of published commercial real estate market information. The Company determines the valuation of impaired assets using generally accepted valuation techniques including discounted cash flow analysis, income capitalization, analysis of recent comparable sales transactions, actual sales negotiations, and bona fide purchase offers received from third parties. Management may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of its real estate. During the three and nine months ended September 30, 2020 and 2019, the Company recorded impairment charges of $ 14,732 and $ 2,435 , and $ 17,399 and $ 3,452 , respectively. Restricted Cash Restricted cash includes escrow funds the Company maintains pursuant to the terms of certain mortgages, notes payable, and lease agreements, and undistributed proceeds from the sale of properties under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”), and is reported within Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets. Restricted cash consisted of the following: September 30, December 31, (in thousands) 2020 2019 Escrow funds and other $ 3,815 $ 2,311 Undistributed 1031 proceeds 3,385 5,545 $ 7,200 $ 7,856 Revenue Recognition The Company accounts for leases in accordance with ASC 842, Leases . 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. 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 is considered variable lease income and is 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. 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. 8 Revenue recognition methods for operating leases, d irect 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 on the Condensed 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. 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 ( i.e. , 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 Condensed Consolidated Statements of Income and Comprehensive Income (Loss). Refer below to the Recently Adopted Accounting Standards section of this Note regarding a question and answer document released by the Financial Accounting Standards Board (“FASB”) with guidance on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Rent Received in Advance Rent received in advance represents tenant payments received prior to the contractual due date, and is included in Accounts payable and other liabilities on the Condensed Consolidated Balance Sheets. Rent received in advance is as follows: (in thousands) September 30, 2020 December 31, 2019 Rent received in advance $ 11,119 $ 13,368 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’s reporting unit is the same as its reportable segment. Goodwill has an indefinite life and is therefore not amortized. 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 will perform its first annual goodwill testing during the fourth quarter of 2020. Initial Public Offering Costs Prior to the close of the IPO on September 21, 2020, the Company incurred and capitalized certain direct, incremental legal, professional, accounting and other third-party fees in connection with the IPO. The deferred IPO costs were offset against IPO proceeds, and reclassified as a component of Additional paid-in capital on the Condensed Consolidated Balance Sheets upon the consummation of the offering. At December 31, 2019, deferred IPO costs totaled $ 668 and were included within Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets. See Note 13 for further discussion of net proceeds associated with the IPO. 9 Earnout Liability The Company’s earnout liability is 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 Internalization (see Note 4). The common shares and OP Units payable under the arrangement were originally subject to a redemption rights agreement, whereby holders of the common shares and OP Units had the right to require the Company to repurchase any or all of the common shares or OP Units if an IPO had not occurred on or before December 31, 2020 (see discussion of the redemption rights agreement in Note 4). The common shares and OP Units were deemed to be freestanding financial instruments that, at inception, embody an obligation to repurchase the Company’s common shares and OP Units, and therefore were initially classified as liabilities together with the cash portion of the earnout, and recorded in Earnout liability on the Condensed Consolidated Balance Sheets as part of the purchase price allocation. The fair value of the earnout liability is remeasured each reporting period, with changes recorded as Change in fair value of earnout liability in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss). Upon completion of the IPO, the redemption rights with respect to the common shares and OP Units terminated, and the $ 18,436 fair value of the 726 shares of common stock and 1,240 OP Units associated with the third and fourth earnout tranches as of the date of the IPO, was reclassified to equity as a component of Additional paid-in capital and Non-controlling interests on the Condensed Consolidated Balance Sheets. At September 30, 2020, the remaining balance in the earnout liability represents $ 5,207 that is potentially payable in the form of cash associated with all four tranches, and $ 7,970 , representing the estimated fair value of 363 shares of common stock and 619 OP Units associated with the first and second earnout tranches, that remain potentially payable based upon the achievement of 2020 adjusted funds from operations (“AFFO”) targets. Fair Value Measurements ASC 820, Fair Value Measurements and Disclosures, 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 Company has estimated that the carrying amount reported on the Condensed Consolidated Balance Sheets for Cash and cash equivalents, Prepaid expenses and other assets, Tenant and other receivables, net, Accrued interest payable, and Accounts payable and other liabilities, approximates their fair values due to their short-term nature. Recurring Fair Value Measurements 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. Earnout Liability – In connection with the Internalization, the Company recognized an earnout liability that will be due and payable to the former owners of BRE if certain milestones are achieved during specified periods of time following the closing of the Internalization (the “Earnout Periods”). Under the terms of the agreement, the milestones related to either (a) the 40-day dollar volume-weighted 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 (see Note 4). The Company utilizes third-party valuation experts to assist in estimating the fair value of the earnout liability, and develops estimates by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis. These estimates require the Company to make various assumptions about share price volatility and, prior to the IPO, about the timing of an IPO and net asset prices, each of which are unobservable and considered Level 3 inputs in the fair value hierarchy. A change in these inputs to a different amount might result in a significantly higher or lower fair value measurement at the reporting date. Specifically, advancements in the estimated IPO date assumption increase the earnout liability’s fair value given the earnout’s fixed time horizon. Peer share price volatilities are used to estimate the Company’s expected share price volatility, and the Company’s corresponding ability to achieve the earnout targets. Increases in the volatility assumption would increase the earnout liability’s fair value. Increases in net asset values would also increase the earnout liability’s fair value. The table below provides a summary of the significant unobservable inputs used to estimate the fair value of the earnout liability as of September 30, 2020: Significant Unobservable Inputs Weighted Average Assumption Used Range Peer stock price volatility 40.0 % 26.11% - 56.85% 10 The table below provides a summary of the significant unobservable inputs used to estimate the fair value of the earnout liability as of February 7, 2020, the transaction date : Significant Unobservable Inputs Weighted Average Assumption Used Range Expected IPO date April 15, 2020 March 2020 through May 2020 Peer stock price volatility 20.0 % 16.22% to 23.09% Company's net asset value per diluted share $ 21.30 (a) (a) The Company’s net asset value per diluted share is primarily based on the fair value of its real estate investment portfolio, together with the fair value of its other assets and liabilities. The fair value of the Company’s real estate investment portfolio as of the measurement date was determined using market capitalization rates that ranged between 6.05 % and 7.09 %. The following table presents a reconciliation of the change in the earnout liability during the three and nine months ended September 30, 2020: For the three months ended For the nine months ended (in thousands) September 30, 2020 September 30, 2020 Beginning balance $ 37,975 $ — Allocation of Internalization purchase price at February 7, 2020 — 40,119 Change in fair value subsequent to Internalization ( 6,362 ) ( 8,506 ) Reclassification as a component of additional paid-in capital and non-controlling interests ( 18,436 ) ( 18,436 ) Ending balance $ 13,177 $ 13,177 The Company closed its IPO on September 21, 2020, at which time a portion of the liability payable in common shares and OP units was reclassified to equity at fair value as a component of Additional paid-in capital and Non-controlling interests, respectively. See further discussion in Earnout Liability in this Note 2. The decrease in fair value between the Internalization and the IPO closing was driven by a lower IPO price, correlating to the net asset value assumption, and the delayed closing of the IPO due to market disruption and uncertainty presented by the COVID-19 pandemic late in the first quarter of 2020. These factors were partially offset by an increase in peer stock price volatility, which is attributable to changes in economic circumstances impacting global equity markets. The balances of assets and liabilities measured at fair value on a recurring basis are as follows: September 30, 2020 (in thousands) Total Level 1 Level 2 Level 3 Interest rate swap, liabilities $ ( 81,326 ) $ — $ ( 81,326 ) $ — Earnout liability ( 13,177 ) — — ( 13,177 ) December 31, 2019 (in thousands) Total Level 1 Level 2 Level 3 Interest rate swap, assets $ 2,911 $ — $ 2,911 $ — Interest rate swap, liabilities ( 24,471 ) — ( 24,471 ) — 11 Long-term Debt – The fair value of the Company’s debt was estimated using Level 2 and Level 3 inputs based on recent financing transactions, estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparab le quality, current London Interbank Offered Rate (“LIBOR”), U.S. Treasury obligation interest rates, and on the discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect the Company’s judgment as to the approx imate 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 d isclosed. 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 f air value of any such debt could be realized by immediate settlement of the obligation. The following table summarizes the carrying amount reported on the Condensed Consolidated Balance Sheets and the Company’s estimate of the fair value of the Mortgages and notes payable, net, Unsecured term notes, net, and Unsecured revolving credit facility, which reflects the fair value of interest rate swaps: (in thousands) September 30, 2020 December 31, 2019 Carrying amount $ 1,549,076 $ 1,989,451 Fair value 1,683,505 2,047,860 Non-recurring Fair Value Measurements The Company’s non-recurring fair value measurements at September 30, 2020 and December 31, 2019 consisted of the fair value of impaired real estate assets that were determined using Level 3 inputs. Right-of-Use Assets and Lease Liabilities The Company is a lessee under non-cancelable operating leases associated with its corporate headquarters and other office spaces as well as with leases of land (“ground leases”). The Company records right-of-use assets and lease liabilities associated with these leases. The lease liability is equal to the net present value of the future payments to be made under the lease, discounted using estimates based on observable market factors. The right-of-use asset is generally equal to the lease liability plus initial direct costs associated with the leases. The Company includes in the recognition of the right-of-use asset and lease liability those renewal periods that are reasonably certain to be exercised, based on the facts and circumstances that exist at lease inception. Amounts associated with percentage rent provisions are considered variable lease costs and are not included in the initial measurement of the right-of-use asset or lease liability. The Company has made an accounting policy election, applicable to all asset types, not to separate lease from nonlease components when allocating contract consideration related to operating leases. Right-of-use assets and lease liabilities associated with operating leases were included in the accompanying Condensed Consolidated Balance Sheets as follows: September 30, December 31, (in thousands) Financial Statement Presentation 2020 2019 Right-of-use assets Prepaid expenses and other assets $ 3,167 $ 1,614 Lease liabilities Accounts payable and other liabilities 2,787 1,209 Stock-Based Compensation On August 4, 2020, the Board of Directors adopted the Broadstone Net Lease, Inc. 2020 Omnibus Equity and Incentive Plan (the “Equity Incentive Plan”) to provide long-term stock-based incentives to employees and non-employee directors of the Company. Subject to any adjustment as provided in the Equity Incentive Plan, up to 9,000 shares may be issued pursuant to awards granted under the Equity Incentive Plan in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalent rights, share awards and performance-based awards (including performance share units and performance-based restricted stock) and LTIP Units (as defined in the Equity Incentive Plan). On August 4, 2020, the Company awarded 341 shares of restricted common stock under the Equity Incentive Plan to certain officers and employees. The Company accounts for stock-based incentives in accordance with ASC 718, Compensation – Stock Compensation , which requires that such compensation be recognized in the financial statements based on the award’s estimated grant date fair value. The value of such awards is recognized as compensation expense in General and administrative expenses in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss) over the appropriate 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 shares of restricted common stock issued under the 12 Equity Incentive Plan are recorded as Cumulative distribution in excess of retained earnings on the Condensed Consolidated Balance Sheets. Accumulated dividends related to forfeited a wards will be reversed through compensation expense in the period the forfeiture occurs. Earnings per Share Earnings per common share has been computed pursuant to the guidance in FASB ASC Topic 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. See Note 15. Recently Adopted Accounting Standards In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses which changed how entities measure credit losses for most financial assets. Financial assets that are measured at amortized cost are required to be presented at the net amount expected to be collected with a provision for credit losses deducted from the amortized cost basis. The guidance requires an entity to utilize broader information in estimating the expected credit losses, including forecasted information. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses which clarified that operating lease receivables recorded by lessors are explicitly excluded from the scope of this guidance. ASU 2016-13 and ASU 2018-09 (collectively, “ASC 326”) were effective January 1, 2020, under a modified retrospective application. The new guidance applies to the Company’s investments in direct financing leases. Due to the nature of its activities, the Company’s lease portfolio has historically not included a significant number of direct financing leases, and as a result the adoption of ASC 326 did not have a material impact on its financial statements. In connection with the adoption of ASC 326, the Company recorded a provision for credit losses of $ 323 with an offsetting cumulative-effect adjustment to the opening balance of retained earnings as of January 1, 2020. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments under ASU 2018-13 remove, add, and modify certain disclosure requirements on fair value measurements in ASC 820. The amendments were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company adopted the new standard on a prospective basis on January 1, 2020. The modifications and new disclosures required by the new standard primarily relate to disclosures concerning recurring Level 3 fair value measurements. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments which clarified and improved guidance within the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The Company assessed the impact of the changes to Topic 326 in connection with its adoption of ASU 2016-13 discussed above. The provisions of ASU 2019-04 relating to Topics 815 and 825 relate to clarifying the provisions of existing guidance that are not applicable to the Company. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting affected by reference rate reform if certain criteria are met. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) that focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under ASC 842, economic relief that was agreed to or negotiated outside of the original lease agreement is typically considered a lease modification, in which case both the lessee and lessor would be required to apply the respective modification frameworks. However, if the lessee was entitled to the economic relief because of either contractual or legal rights, the relief would be accounted for outside of the modification framework. Although the original lease modification guidance in ASC 842 remains appropriate to address routine lease modifications, the Lease Modification Q&A established a different framework to account for certain lease concessions granted in response to the COVID-19 pandemic, if certain criteria have been met. The Lease Modification Q&A allows the Company to make an accounting policy election to account for COVID-19 related lease concessions as either a lease modification or a negative variable 13 adjustment to rental revenue. Such election is required to be appl ied consistently to leases with similar characteristics and similar circumstances. Refer to Note 19, COVID-19 Pandemic regarding information on COVID-19 related concessions and the associated impact on the Company’s results of operations. Reclassifications The Company reclassified $ 405 and $ 1,153 of Income taxes from a component of Operating expenses to a component of Other income (expenses), on the Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the three and nine months ended September 30, 2019, respectively, to conform with the current period presentation. The reclassification is a change from one acceptable presentation to another acceptable presentation. 3. Related-Party Transactions Prior to the Internalization on February 7, 2020, BRE, a related party in which certain directors of the Corporation had either a direct or indirect ownership interest, and the Asset Manager were considered to be related parties. Property Management Agreement The Corporation and the OP were parties to a property management agreement (as amended, the “Property Management Agreement”) with BRE. Under the terms of the Property Management Agreement, BRE managed and coordinated certain aspects of the leasing of the Corporation’s rental property. In exchange for services provided under the Property Management Agreement, BRE received certain fees and other compensation as follows: (i) 3 % of gross rentals collected each month from the rental property for property management services (other than one property, which called for 5 % of gross rentals under the Property Management Agreement); and (ii) Re-leasing fees for existing rental property equal to one month ’s rent for a new lease with an existing tenant and two months ’ rent for a new lease with a new tenant. Upon completion of the Internalization, the Property Management Agreement was terminated and there will be no future property management fees payable to BRE. The Internalization was not considered a “Termination Event” under the Property Management Agreement, so no fees were payable to BRE as a result of the Internalization. See Note 4 for further discussion regarding the Internalization, including the associated payments related thereto. Asset Management Agreement The Corporation and the OP were parties to an asset management agreement (as amended, the “Asset Management Agreement”) with the Asset Manager, a single member limited liability company of which BRE was the sole member, and therefore a related party in which certain directors of the Corporation had an indirect ownership interest. Under the terms of the Asset Management Agreement, the Asset Manager was responsible for, among other things, the Corporation’s acquisition, initial leasing, and disposition strategies, financing activities, and providing support to the Corporation’s Independent Directors Committee (“IDC”) for its valuation functions and other duties. The Asset Manager also nominated two individuals to serve on the Board of Directors of the Corporation. Under the terms of the Asset Management Agreement, the Asset Manager was compensated as follows: (i) a quarterly asset management fee equal to 0.25 % of the aggregate value of common stock, based on the per share value as determined by the IDC each quarter, on a fully diluted basis as if all interests in the OP had been converted into shares of the Corporation’s common stock; (ii) 0.5 % of the proceeds from future equity closings as reimbursement for offering, marketing, and brokerage expenses; (iii) 1 % of the gross purchase price paid for each rental property acquired (other than acquisitions described in (iv) below), including any property contributed in exchange for membership interests in the OP; (iv) 2 % of the gross purchase price paid for each rental property acquired in the event that the acquisition of a rental property required a new lease (as opposed to the assumption of an existing lease), such as a sale-leaseback transaction; (v) 1 % of the gross sale price received for each rental property disposition; and (vi) 1 % of the Aggregate Consideration, as defined in the Asset Management Agreement, received in connection with a disposition event, as defined in the Asset Management Agreement. 14 Upon completion of the Internalization, the Asset Management Agreement was terminated and there will be no future asset management fees payable to the Asset Manager. The Internalization was not considered a “Termination Event” under the Asset Management Agreement, so no fees were payable to the Asset Manager as a result of the Internalization. See Note 4 for further discussion regarding the Internalization, including the associated payments related thereto. Total fees incurred under the Property Management Agreement and Asset Management Agreement were as follows: (in thousands) For the three months ended September 30, For the nine months ended September 30, Type of Fee Financial Statement Presentation 2020 (a) 2019 2020 (a) 2019 Asset management fee Asset management fees $ — $ 5,610 $ 2,461 $ 16,048 Property management fee Property management fees — 2,098 1,275 5,918 Total management fee expense — 7,708 3,736 21,966 Marketing fee (offering costs) Additional paid-in capital — 703 — 1,303 Acquisition fee Capitalized as a component of assets acquired — 7,932 — 9,937 Leasing fee and re-leasing fees Leasing fees, net — 312 — 747 Disposition fee Gain on sale of real estate — 596 109 947 Total management fees $ — $ 17,251 $ 3,845 $ 34,900 (a) Fees were payable under the Property Management Agreement and Asset Management Agreement from January 1, 2020 through February 6, 2020. The Internalization was effective February 7, 2020. There were no unpaid management fees at September 30, 2020 and December 31, 2019. All fees related to the Property Management Agreement and the Asset Management Agreement were paid for in cash within the Company’s normal payment cycle for vendors. Tax Protection Agreement Upon closing of the Internalization, the Company entered into an agreement with Amy L. Tait, the Company’s founder, and certain members of her family (“Founding Owners”), pursuant to which the OP agreed to indemnify the Founding Owners against the applicable income tax liabilities resulting from the sale, exchange, transfer or other disposal of the assets of BRE that the Company acquired in the Internalization, through February 7, 2030, or the Company’s failure to allocate specific types of the OP’s indebtedness to the Founding Owners (the “Founding Owners’ Tax Protection Agreement”). The maximum amount the Company may be liable for under the Founding Owners’ Tax Protection Agreement is $ 10,000 . Earnout Consideration In connection with the Internalization, the Company incurred a contingent obligation that would be payable to certain members of the Company’s Board of Directors and employees who had previously been owners and/or employees of BRE, upon the occurrence of certain events (see Note 4). The fair value of the earnout consideration amounted to $ 31,613 at September 30, 2020, of which $ 13,177 is recorded as Earnout liability, $ 6,809 is recorded as a component of Additional paid-in capital, and $ 11,627 is recorded as a component of Non-controlling interests on the Condensed Consolidated Balance Sheets (see Note 2). Related Party Lease In connection with the Internalization, the Company assumed the lease agreement relating to its principal executive office with Clinton Asset Holdings Associates, L.P., an affiliated third party, approximately 1.6 % of which is indirectly owned by the Company’s Chairman and member of the Board of Directors. The lease of 24,072 square feet of office space expires on August 31, 2023 , and contains two five-year renewal options. The annual rent for 2020 is approximately $ 547 , with 2 % annual increases thereafter. See further discussion in Note 17. 4. Internalization On February 7, 2020, the Company completed the Internalization and the Company’s management team and corporate staff, who were previously employed by BRE, became employees of an indirect subsidiary of the OP. The Company paid base consideration of $ 209,516 at closing and may be required to pay additional earnout consideration of up to $ 75,000 in the future, as described below. In addition, the Company assumed $ 90,484 of debt in addition to other assets acquired and liabilities assumed, as detailed in the Allocation of Purchase Price discussion elsewhere in this Note 4. 15 The consideration paid at closing of the Internalization is summarized in the following table: (in thousands) Issuance of 3,124 shares of common stock $ 66,376 Issuance of 5,278 OP Units 112,159 Cash 30,981 Base consideration 209,516 Initial estimate of fair value of earnout liability 40,119 Total consideration $ 249,635 According to the terms of the Merger Agreement, the Company may be required to pay additional earnout consideration of up to $ 75,000 payable in four tranches of $ 10,000 , $ 15,000 , $ 25,000 , and $ 25,000 if certain milestones related to either (a) the 40 -day VWAP per REIT Share, following the completion of an IPO, or (b) the Company’s AFFO per share, prior to the completion of an IPO, (each, an “Earnout Trigger”) are achieved during the Earnout Periods. The consideration will consist of a combination of cash, shares of the Company’s common stock, and OP Units, based on the same proportions paid in the base consideration. The Company completed its IPO on September 21, 2020. The earnout tranches, applicable 40-day VWAP of a REIT Share and the applicable Earnout Periods are as follows: Number of Shares' 40-Day (in thousands, except per share amounts) OP Units Approximate VWAP of a Tranche Earnout Target (a) Payable (b) Amount of Cash REIT Share Applicable Earnout Period 1 $ 10,000 393 $ 1,646 $ 22.50 The two-year period beginning on September 21, 2020. 2 $ 15,000 589 $ 2,470 $ 23.75 The two-year period beginning on September 21, 2020. 3 $ 25,000 983 $ 4,117 $ 24.375 The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above. 4 $ 25,000 983 $ 4,117 $ 25.00 The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above. (a) Initial contractual value of applicable earnout tranche based on a $ 21.25 price per share/unit of common stock and OP Units. Does not take into account the actual per share price of common stock and OP Units at the time an applicable earnout tranche may be earned and paid. (b) Calculated based on $ 21.25 price per share/unit of common stock and OP Units. Should all earnout milestones be met, an additional 1,089 shares of common stock and an additional 1,859 OP Units would be issued, in addition to the payment of $ 12,350 in cash. As of the Internalization date, the Company estimated that the earnout liability had a fair value of $ 40,119 , of which approximately $ 33,511 related to the potential issuance of common shares and OP Units and approximately $ 6,608 related to the potential payment of cash. The Company will estimate the fair value of the earnout liability at each reporting date during the contingency period and record any changes in estimated fair value in its Condensed Consolidated Statement of Income and Comprehensive Income (Loss). See Note 2 for further discussion of changes in the fair value of the earnout liability subsequent to the Internalization. Redemption Rights Agreement If an IPO did not occur on or before the satisfaction of any Earnout Trigger, then each holder of common shares or OP Units issued in connection with the Internalization had the right to require the Company to repurchase any or all of such holder’s shares or OP Units. Such rights terminated effective with the IPO. Upon occurrence of the IPO, the common stock and non-controlling interests issued as base consideration in connection with the Internalization and originally classified as mezzanine equity, were reclassified as a component of Common Stock, Additional paid-in capital, and Non-controlling interests on the Condensed Consolidated Balance Sheets. Allocation of Purchase Price The Internalization was accounted for as a business combination and accordingly, the Company allocated the purchase price utilizing the acquisition method to record assets acquired and liabilities assumed at their estimated fair values. 16 The allocation of the purchase price has not been finalized and is based upon preliminary e stimates of these fair values, which is the best available information at the current time. The final determination of the fair values of the assets and liabilities will be based on the actual valuations of the tangible and intangible assets and liabilitie s that existed as of the date of completion of the acquisition, including the valuation of the earnout liability. The Company expects to finalize the valuations during the measurement period, not to exceed one year from the date of the Internalization. Con sequently, amounts preliminarily allocated to identifiable tangible and intangible assets and liabilities could change. The following table summarizes the Company’s preliminary allocation of the purchase price associated with the Internalization: (in thousands) Prepaid expenses and other assets $ 1,336 Right-of-use assets 1,898 Goodwill 339,769 Accounts payable and other liabilities ( 986 ) Operating lease liabilities ( 1,898 ) Debt ( 90,484 ) $ 249,635 In connection with the Internalization, the Company recorded goodwill of $ 339,769 as a result of the consideration exceeding the fair value of the net liabilities acquired. Goodwill represents the synergies and costs savings expected from the acquired management functions and the Company’s ability to generate additional portfolio growth on a lower cost structure than when it was externally managed. The Company does not expect that the goodwill will be deductible for tax purposes. In connection with the Internalization, the Company assumed $ 90,484 of debt which was subsequently repaid through a combination of revolving credit facility borrowings and entering into a new $ 60,000 term loan agreement (see Note 9). The Company incurred $ 1,929 and $ 3,523 in non-recurring costs associated with the Internalization during the three and nine months ended September 30, 2020, respectively, and $ 923 and $ 1,195 of such costs during the three and nine months ended September 30, 2019, which were classified as Internalization expenses in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss). The effect of the Internalization has been reflected in the Company’s operating results beginning on February 7, 2020. No incremental revenues were recorded as a result of the Internalization. Subsequent to the Internalization, during the three and nine months ended September 30, 2020, the Company incurred $ 5,528 and $ 13,762 , respectively, in expenses as a result of being internalized. Such amounts include general and administrative expenses associated with the Company’s performance of functions previously performed by BRE and the Asset Manager (primarily employee related costs), as well as interest expense associated with the borrowings related to the Internalization. These expenses do not include the Internalization expenses discussed above, or amounts recorded to reflect changes in the fair value of the earnout liability. Condensed Pro Forma Financial Information The following pro forma information summarizes selected financial information from the Company’s combined results of operations, as if the Internalization had occurred on January 1, 2019. These results contain certain adjustments totaling $ 1,929 and $ 8,068 of income, respectively, for the three and nine months ended September 30, 2020 and $ 9,437 and $ 23,418 of income, respectively, for the three and nine months ended September 30, 2019. These pro forma adjustments reflect the elimination of Internalization expenses and asset management, property management, and disposition fees between the Company and BRE and the Asset Manager in historic financial results, and adjustments to reflect incremental interest expense associated with the borrowing related to the Internalization. This pro forma information is presented for informational purposes only, and may not be indicative of what actual results of operations would have been had the Internalization occurred at the beginning of the period, nor does it purport to represent the results of future operations. The condensed pro forma financial information is as follows: For the three months ended September 30, For the nine months ended September 30, (in thousands) 2020 2019 2020 2019 Revenues $ 80,744 $ 76,401 $ 239,346 $ 213,884 Net income 11,640 28,941 42,982 65,913 17 5. Acquisitions of Rental Property The Company did no t complete any acquisitions of rental property during the nine months ended September 30, 2020. The Company closed on the following acquisitions of rental property during the nine months ended September 30, 2019: (in thousands, except number of properties) Number of Real Estate Date Property Type Properties Acquisition Price January 31, 2019 Healthcare 1 $ 4,747 March 12, 2019 Industrial 1 10,217 March 15, 2019 Retail 10 13,185 March 19, 2019 Retail 14 19,128 March 26, 2019 Industrial 1 25,801 April 30, 2019 Industrial 1 76,000 (a) May 21, 2019 Retail 2 6,500 May 31, 2019 Retail 1 3,192 June 7, 2019 Office 1 30,589 June 26, 2019 Industrial 2 11,180 July 15, 2019 Restaurant 1 3,214 July 15, 2019 Industrial 1 11,330 July 31, 2019 Healthcare 5 27,277 August 27, 2019 Industrial 1 4,404 August 29, 2019 Industrial/Office 23 735,740 September 17, 2019 Industrial 1 11,185 66 $ 993,689 (b) (a) In conjunction with this acquisition, the Company assumed a mortgage with a principal balance of $ 49,782 with an interest rate of 4.92 % and a maturity date of February 2028 (see Note 10). (b) Acquisition price does not include capitalized acquisition costs of $ 16,647 . 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: (in thousands) For the nine months ended September 30, 2019 Land $ 155,434 Land improvements 44,929 Buildings and improvements 745,116 Acquired in-place leases (c) 77,868 Acquired above-market leases (d) 2,800 Acquired below-market leases (e) ( 15,811 ) Mortgage payable ( 49,782 ) $ 960,554 (c) The weighted average amortization period for acquired in-place leases is 13 years for acquisitions completed during the nine months ended September 30, 2019. (d) The weighted average amortization period for acquired above-market leases is 18 years for acquisitions completed during the nine months ended September 30, 2019. (e) The weighted average amortization period for acquired below-market leases is 10 years for acquisitions completed during the nine months ended September 30, 2019. The above acquisitions were funded using a combination of available cash on hand, revolving credit facility borrowings and the issuance of unsecured term loans, and proceeds from equity issuances. All real estate acquisitions closed during the nine months ended September 30, 2019, qualified as asset acquisitions and, as such, acquisition costs have been capitalized. 18 6. Sale of Real Estate The Company closed on the following sales of real estate, none of which qualified as discontinued operations: For the three months ended September 30, For the nine months ended September 30, (in thousands, except number of properties) 2020 2019 2020 2019 Number of properties disposed 5 16 18 25 Aggregate sale price $ 9,816 $ 59,691 $ 57,539 $ 94,791 Aggregate carrying value ( 8,327 ) ( 43,920 ) ( 45,085 ) ( 73,365 ) Additional sales expenses ( 429 ) ( 3,186 ) ( 2,729 ) ( 4,654 ) Gain on sale of real estate $ 1,060 $ 12,585 $ 9,725 $ 16,772 7. Investment in Rental Property and Lease Arrangements The Company generally leases its investment rental property to established tenants in the industrial, healthcare, restaurant, office, retail, and other industries. At September 30, 2020, the Company had 611 real estate properties which were leased under leases that have been classified as operating leases and 11 that have been classified as direct financing leases. Of the 11 leases classified as direct financing leases, three include land portions which are accounted for as operating leases (see Revenue Recognition within Note 2). Substantially all 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 Rental property subject to non-cancelable operating leases with tenants was as follows: (in thousands) September 30, 2020 December 31, 2019 Land $ 542,487 $ 548,911 Land improvements 274,786 275,470 Buildings and improvements 2,806,916 2,850,571 Equipment 11,870 11,492 3,636,059 3,686,444 Less accumulated depreciation ( 332,057 ) ( 271,044 ) $ 3,304,002 $ 3,415,400 Depreciation expense on investment in rental property was as follows: For the three months ended September 30, For the nine months ended September 30, (in thousands) 2020 2019 2020 2019 Depreciation $ 23,317 $ 21,843 $ 70,392 $ 60,128 Estimated lease payments to be received under non-cancelable operating leases with tenants at September 30, 2020 are as follows: (in thousands) Remainder of 2020 $ 71,570 2021 289,057 2022 291,801 2023 294,743 2024 290,463 Thereafter 2,230,494 $ 3,468,128 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. In addition, 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. 19 Investment in Rental Property – Direct Financing Leases The Company’s net investment in direct financing leases was comprised of the following: (in thousands) September 30, 2020 December 31, 2019 Undiscounted estimated lease payments to be received $ 48,713 $ 72,753 Estimated unguaranteed residual values 16,049 20,358 Unearned income ( 33,679 ) ( 51,221 ) Reserve for credit losses ( 181 ) — Net investment in direct financing leases $ 30,902 $ 41,890 Undiscounted estimated lease payments to be received under non-cancelable direct financing leases with tenants at September 30, 2020 are as follows: (in thousands) Remainder of 2020 $ 811 2021 3,304 2022 3,368 2023 3,433 2024 3,493 Thereafter 34,304 $ 48,713 The above rental receipts do not include future lease payments for renewal periods, potential variable CPI rent increases, or variable percentage rent payments that may become due in future periods. The following table summarizes amounts reported as Lease revenues, net on the Condensed Consolidated Statements of Income and Comprehensive Income (Loss): For the three months ended September 30, For the nine months ended September 30, (in thousands) 2020 2019 2020 2019 Contractual rental amounts billed for operating leases $ 69,270 $ 65,579 $ 209,440 $ 184,292 Adjustment to recognize contractual operating lease billings on a straight-line basis 6,768 5,575 16,709 16,015 Variable rental amounts earned 234 — 308 — Earned income from direct financing leases 757 1,005 2,599 3,014 Operating expenses billed to tenants 3,389 3,811 11,456 10,572 Other income from real estate transactions 64 431 795 431 Adjustment to revenue recognized for uncollectible rental amounts billed 262 — ( 1,961 ) ( 440 ) Total Lease revenues, net $ 80,744 $ 76,401 $ 239,346 $ 213,884 20 8. Intangible Assets and Liabilities The following is a summary of intangible assets and liabilities and related accumulated amortization: (in thousands) September 30, 2020 December 31, 2019 Lease intangibles: Acquired above-market leases $ 53,563 $ 62,136 Less accumulated amortization ( 18,397 ) ( 17,433 ) Acquired above-market leases, net 35,166 44,703 Acquired in-place leases 333,305 349,645 Less accumulated amortization ( 79,500 ) ( 62,454 ) Acquired in-place leases, net 253,805 287,191 Total intangible lease assets, net $ 288,971 $ 331,894 Acquired below-market leases $ 107,625 $ 113,862 Less accumulated amortization ( 26,405 ) ( 21,640 ) Intangible lease liabilities, net $ 81,220 $ 92,222 Leasing fees $ 15,655 $ 17,013 Less accumulated amortization ( 4,640 ) ( 4,166 ) Leasing fees, net $ 11,015 $ 12,847 Amortization of intangible lease assets and liabilities was as follows: (in thousands) For the three months ended September 30, For the nine months ended September 30, Intangible Financial Statement Presentation 2020 2019 2020 2019 Acquired in-place leases and leasing fees Depreciation and amortization $ 8,026 $ 6,549 $ 32,060 $ 17,861 Above-market and below-market leases Lease revenues, net ( 149 ) 875 ( 25 ) 2,335 Amortization expense for the three and nine months ended September 30, 2020, includes $ 2,459 and $ 14,517 , respectively, of accelerated amortization resulting from early lease terminations, compared to zero in the prior year periods. Estimated future amortization of intangible assets and liabilities at September 30, 2020 is as follows: (in thousands) Remainder of 2020 $ 5,700 2021 22,494 2022 21,952 2023 21,626 2024 20,859 Thereafter 126,135 $ 218,766 21 9. Unsecured Credit Agreements The following table summarizes the Company’s unsecured credit agreements: Outstanding Balance (in thousands, except interest rates) September 30, 2020 December 31, 2019 Interest Rate (c) Maturity Date Revolving credit facilities (a) $ — $ 197,300 one-month LIBOR + 1.20% (d) 2020 Unsecured Term Loan (a) — 300,000 one-month LIBOR + 1.25% Feb. 2021 (e) 2022 Unsecured Term Loan (a) 60,000 — one-month LIBOR + 1.25% Feb. 2022 2023 Unsecured Term Loan (a) 265,000 265,000 one-month LIBOR + 1.35% Jan. 2023 2024 Unsecured Term Loan (a) 190,000 190,000 one-month LIBOR + 1.25% Jun. 2024 2026 Unsecured Term Loan (a) 450,000 450,000 one-month LIBOR + 1.85% Feb. 2026 Senior Notes (a) Series A 150,000 150,000 4.84 % Apr. 2027 Series B 225,000 225,000 5.09 % Jul. 2028 Series C 100,000 100,000 5.19 % Jul. 2030 475,000 475,000 Total 1,440,000 1,877,300 Debt issuance costs, net (b) ( 6,505 ) ( 7,919 ) $ 1,433,495 $ 1,869,381 (a) The Company believes it was in compliance with all financial covenants for all periods presented. (b) Amounts presented include debt issuance costs, net, related to the unsecured term notes and senior notes only. (c) At September 30, 2020 and December 31, 2019, one-month LIBOR was 0.15 % and 1.76 %, respectively. (d) On September 4, 2020, the Company replaced its prior $ 600,000 revolving credit facility with a maturity date of January 2022 , with a new $ 900,000 facility with a maturity date of September 2023 . (e) The 2020 Unsecured Term Loan was originally due in August 2020 , and allows two six-month extensions , at the Company’s option, subject to the Company being in compliance with debt covenants and customary representations and warranties, and payment of a fee equal to 0.05 % of the outstanding principal balance at the time of extension. On May 5, 2020, the Company exercised the first of these options, effective on August 2, 2020, extending the maturity date of the 2020 Unsecured Term Loan to February 2, 2021 . The loan was repaid using proceeds from the Company’s IPO. On September 4, 2020, the Company entered into an agreement (the “Revolving Credit Agreement”) for a $ 900,000 unsecured revolving credit facility (the “Revolving Credit Facility”), with JPMorgan Chase Bank, N.A., as Administrative Agent. Closing of the Revolving Credit Agreement was subject to certain customary conditions, as well as the closing of the IPO, with a minimum condition on size, and listing of the Company’s common stock, as set forth in the agreement. Closing occurred on September 21, 2020, at which time the Revolving Credit Facility replaced the Company’s then existing $ 600,000 unsecured revolving credit facility. The Revolving Credit Agreement includes an accordion feature to increase the aggregate facility size from $ 900,000 to $ 2,000,000 , subject to the willingness of existing or new lenders to fund such increase and other customary conditions. The Revolving Credit Agreement matures on September 21, 2023 . The Company has the option to extend the term of the Revolving Credit Agreement twice for six months per extension , subject to certain conditions, including payment of an extension fee equal to 0.0625 % of the revolving commitments. Borrowings under the Revolving Credit Agreement are subject to interest only payments at variable rates equal to LIBOR plus a margin based on the Company’s credit rating, ranging from 0.825 % to 1.55 % per annum. Based on the Company’s current investment grade credit rating of Baa3, the applicable margin was 1.20 % at September 30, 2020. In addition, the Revolving Credit Facility is subject to a facility fee based on the Company’s credit rating, ranging between 0.125 % and 0.30 % per annum. Based on the Company’s current credit rating, the facility fee was 0.25 % per annum at September 30, 2020. The interest rate spreads and facility fee under the Revolving Credit Facility are identical to those of the facility that was replaced. On February 7, 2020, the Company entered into a $ 60,000 term loan agreement maturing on February 28, 2022 (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 Internalization. Borrowings under the 2022 Unsecured Term Loan are 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. Based on the Company’s current credit rating the applicable margin was 1.25 % at September 30, 2020. At September 30, 2020, the weighted average interest rate on all outstanding borrowings was 2.80 %, exclusive of interest rate swap agreements. For the three and nine months ended September 30, 2020, the Company paid $ 5,918 in debt issuance costs associated with the Revolving Credit Facility. For the three and nine months ended September 30, 2019, the Company paid $ 1,281 and $ 6,510 , respectively, in debt issuance costs associated with the 2020 Unsecured Term Loan, the 2026 Unsecured Term Loan and its prior unsecured revolving credit agreement. For each separate debt instrument, on a lender by lender basis, in accordance with ASC 470-50, Debt Modifications and Extinguishment , the Company performed an assessment of whether the transaction was deemed to be new debt, a modification of existing debt, or an extinguishment of existing debt. Debt issuance costs are either deferred and amortized over 22 the term of the associated debt or expensed as incurred. Based on this assessment, $ 5,918 of the debt issuance costs incurre d during the three and nine months ended September 30, 2020, and $ 1,275 and $ 6,504 of the debt issuance costs incurred during the three and nine months ended September 30, 2019, respectively, were deemed to be related to the issuance of new debt, or the modification of existing debt, and therefore have been deferred and are being amorti zed over the term of the associated debt. The remaining $ 6 of the debt issuance costs incurred in the three and nine months ended September 30, 2019, were deemed to be related to the extinguishment of debt and were expensed and included in Cost of debt extinguishment in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss). Additionally, during the three and nine months ended September 30, 2020, $ 392 of unamortized debt issuance costs were expensed and included in Cost of debt extinguishment in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss). Such amounts totaled $ 113 and $ 328 during the three and nine months ended September 30, 2019, respectively. Debt issuance costs are amortized as a component of interest expense in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss). The following table summarizes debt issuance cost amortization: For the three months ended September 30, For the nine months ended September 30, (in thousands) 2020 2019 2020 2019 Debt issuance costs amortization $ 819 $ 611 $ 2,528 $ 1,761 The Company is subject to various financial and operational covenants and financial reporting requirements pursuant to its unsecured credit agreements. These covenants require the Company to maintain certain financial ratios, including leverage, fixed charge coverage, and debt service coverage, among others. As of September 30, 2020, the Company believes it was in compliance with all of its loan covenants. The Company’s continued compliance with these covenants depends on many factors and could be impacted by current or future economic conditions associated with the COVID-19 pandemic (see Note 19), and thus there are no assurances that the Company will continue to be in compliance with its covenants. Failure to comply with the covenants would result in a default which, if the Company were unable to cure or obtain a waiver from the lenders, could accelerate the repayment of the obligations. Further, in the event of default, the Company may be restricted from paying dividends to its stockholders in excess of dividends required to maintain its REIT qualification. Accordingly, an event of default could have a material and adverse impact on the Company. 10. Mortgages and Notes Payable The Company’s mortgages and notes payable consist of the following: Origination Maturity (in thousands, except interest rates) Date Date Interest September 30, December 31, Lender (Month/Year) (Month/Year) Rate 2020 2019 (1) Wilmington Trust National Association Apr-19 Feb-28 4.92 % $ 48,234 $ 49,065 (a) (b) (c) (k) (2) Wilmington Trust National Association Jun-18 Aug-25 4.36 % 20,042 20,318 (a) (b) (c) (j) (3) PNC Bank Oct-16 Nov-26 3.62 % 17,597 17,885 (b) (c) (4) Sun Life Mar-12 Oct-21 5.13 % 10,575 10,888 (b) (f) (5) Aegon Apr-12 Oct-23 6.38 % 7,230 7,788 (b) (g) (6) M&T Bank Oct-17 Aug-21 one - month LIBOR+3% 4,807 4,913 (b) (d) (h) (i) (7) Note holders Dec-08 Dec-23 6.25 % 591 750 (d) (l) (8) Standard Insurance Co. Jul-10 Aug-30 6.75 % — 544 (b) (c) (d) (e) 109,076 112,151 Debt issuance costs, net ( 324 ) ( 358 ) $ 108,752 $ 111,793 (a) Non-recourse debt includes the indemnification/guaranty of the Corporation and/or OP pertaining to fraud, environmental claims, insolvency and other matters. (b) Debt secured by related rental property and lease rents. (c) Debt secured by guaranty of the OP. (d) Debt secured by guaranty of the Corporation. (e) The interest rate represents the initial interest rate. The interest rate could have been adjusted at Standard Insurance’s discretion (based on prevailing rates) at 119 months from the first payment date. (f) Mortgage was assumed in March 2012 as part of an UPREIT transaction. The debt was recorded at fair value at the time of the assumption. (g) Mortgage was assumed in April 2012 as part of the acquisition of the related property. The debt was recorded at fair value at the time of the assumption. (h) The Company entered into an interest rate swap agreement in connection with the mortgage note, as further described in Note 11. (i) Mortgage was assumed in October 2017 as part of an UPREIT transaction. The debt was recorded at fair value at the time of the assumption. (j) Mortgage was assumed in June 2018 as part of the acquisition of the related property. The debt was recorded at fair value at the time of assumption. (k) Mortgage was assumed in April 2019 as part of the acquisition of the related property. The debt was recorded at fair value at the time of assumption. (l) Notes were repaid in full on October 9, 2020, in connection with the sale of the property. 23 At September 30, 2020, investment in rental property of $ 174,623 was pledged as collateral against the Company’s mortgages and notes payable. The following table summarizes the mortgages extinguished by the Company: (in thousands, except number of mortgages) For the nine months ended September 30, 2020 For the year ended December 31, 2019 Number of mortgages 1 4 Outstanding balance of mortgages $ 541 $ 13,905 The following table summarizes the cost of mortgage extinguishment: For the three months ended September 30, For the nine months ended September 30, (in thousands) 2020 2019 2020 2019 Cost of mortgage extinguishment $ — $ 336 $ 22 $ 842 Estimated future principal payments to be made under the above mortgage and note payable agreements, and the Company’s unsecured credit agreements (see Note 9) at September 30, 2020 are as follows: (in thousands) Remainder of 2020 $ 818 2021 18,006 2022 62,907 2023 273,173 2024 192,260 Thereafter 1,001,912 $ 1,549,076 Certain of the Company’s mortgage and note payable agreements 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. 24 11. Interest Rate Swaps Interest rate swaps were entered into with certain financial institutions in order to mitigate the impact of interest rate variability over the term of the related debt agreements. The interest rate swaps are considered cash flow hedges. In order to reduce counterparty concentration risk, the Company has a diversification policy for institutions that serve as swap counterparties. Under these agreements, the Company receives monthly payments from the counterparties on these interest rate swaps equal to the related variable interest rates multiplied by the outstanding notional amounts. Certain interest rate swaps amortize on a monthly basis. In turn, the Company pays the counterparties each month an amount equal to a fixed rate multiplied by the related outstanding notional amounts. The intended net impact of these transactions is that the Company pays a fixed interest rate on its variable-rate borrowings. The following is a summary of the Company’s outstanding interest rate swap agreements: (in thousands, except interest rates) Fair Value Counterparty Maturity Date Fixed Rate Variable Rate Index Notional Amount September 30, 2020 December 31, 2019 Bank of America, N.A. November 2023 2.80 % one-month LIBOR $ 25,000 $ ( 2,029 ) $ ( 1,136 ) Bank of Montreal July 2024 1.16 % one-month LIBOR 40,000 ( 1,542 ) 740 Bank of Montreal January 2025 1.91 % one-month LIBOR 25,000 ( 1,889 ) ( 402 ) Bank of Montreal July 2025 2.32 % one-month LIBOR 25,000 ( 2,565 ) ( 970 ) Bank of Montreal January 2026 1.92 % one-month LIBOR 25,000 ( 2,255 ) ( 448 ) Bank of Montreal January 2026 2.05 % one-month LIBOR 40,000 ( 3,880 ) ( 1,014 ) Bank of Montreal December 2026 2.33 % one-month LIBOR 10,000 ( 1,281 ) ( 460 ) Bank of Montreal December 2026 1.99 % one-month LIBOR 25,000 ( 2,664 ) ( 577 ) Bank of Montreal December 2027 2.37 % one-month LIBOR 25,000 ( 3,629 ) ( 1,306 ) Bank of Montreal May 2029 2.09 % one-month LIBOR 25,000 ( 3,486 ) ( 799 ) Capital One, National Association December 2021 1.05 % one-month LIBOR 15,000 ( 174 ) 143 Capital One, National Association December 2024 1.58 % one-month LIBOR 15,000 ( 885 ) 10 Capital One, National Association January 2026 2.08 % one-month LIBOR 35,000 ( 3,398 ) ( 911 ) Capital One, National Association April 2026 2.68 % one-month LIBOR 15,000 ( 2,014 ) ( 944 ) Capital One, National Association July 2026 1.32 % one-month LIBOR 35,000 ( 2,101 ) 720 Capital One, National Association December 2027 2.37 % one-month LIBOR 25,000 ( 3,601 ) ( 1,278 ) M&T Bank August 2021 1.02 % one-month LIBOR 4,805 ( 35 ) 41 (a), (b) M&T Bank September 2022 2.83 % one-month LIBOR 25,000 ( 1,315 ) ( 862 ) M&T Bank November 2023 2.65 % one-month LIBOR 25,000 ( 1,964 ) ( 1,038 ) Regions Bank May 2020 2.12 % one-month LIBOR 50,000 — ( 104 ) Regions Bank December 2023 1.18 % one-month LIBOR 25,000 ( 854 ) 376 Regions Bank May 2029 2.11 % one-month LIBOR 25,000 ( 3,515 ) ( 827 ) Regions Bank June 2029 2.03 % one-month LIBOR 25,000 ( 3,349 ) ( 651 ) Truist Financial Corporation April 2024 1.99 % one-month LIBOR 25,000 ( 1,632 ) ( 451 ) Truist Financial Corporation April 2025 2.20 % one-month LIBOR 25,000 ( 2,278 ) ( 781 ) Truist Financial Corporation July 2025 1.99 % one-month LIBOR 25,000 ( 2,131 ) ( 524 ) Truist Financial Corporation December 2025 2.30 % one-month LIBOR 25,000 ( 2,715 ) ( 993 ) Truist Financial Corporation January 2026 1.93 % one-month LIBOR 25,000 ( 2,230 ) ( 458 ) U.S. Bank National Association June 2029 2.03 % one-month LIBOR 25,000 ( 3,393 ) ( 681 ) U.S. Bank National Association August 2029 1.35 % one-month LIBOR 25,000 ( 1,902 ) 881 Wells Fargo Bank, N.A. February 2021 2.39 % one-month LIBOR 35,000 ( 269 ) ( 302 ) Wells Fargo Bank, N.A. October 2024 2.72 % one-month LIBOR 15,000 ( 1,550 ) ( 795 ) Wells Fargo Bank, N.A. April 2027 2.72 % one-month LIBOR 25,000 ( 3,924 ) ( 1,845 ) Wells Fargo Bank, N.A. January 2028 2.37 % one-month LIBOR 75,000 ( 10,877 ) ( 3,914 ) $ ( 81,326 ) $ ( 21,560 ) (a) Notional amount at December 31, 2019 was $ 4,912 . (b) Interest rate swap was assumed in October 2017 as part of an UPREIT transaction. 25 The total amounts recognized, and the location in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss), from converting from variable rates to fixed rates under these agreements were as follows: Reclassification from Total Interest Expense Amount of Gain (Loss) Accumulated Other Presented in the Recognized in Comprehensive Loss Consolidated Statements of (in thousands) Accumulated Other Amount of Income and Comprehensive For the three months ended September 30, Comprehensive Loss Location (Loss) Gain Income (Loss) 2020 $ 4,352 Interest expense $ ( 4,166 ) $ 18,511 2019 ( 16,380 ) Interest expense 387 18,465 Reclassification from Total Interest Expense Amount of Loss Accumulated Other Presented in the Recognized in Comprehensive Loss Consolidated Statements of (in thousands) Accumulated Other Amount of Income and Comprehensive For the nine months ended September 30, Comprehensive Loss Location (Loss) Gain Income (Loss) 2020 $ ( 59,766 ) Interest expense $ ( 8,467 ) $ 59,015 2019 ( 52,182 ) Interest expense 2,001 51,025 Amounts related to the interest rate swaps expected to be reclassified out of Accumulated other comprehensive loss to Interest expense during the next twelve months are estimated to be a loss of $ 16,073 . 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 major banks who meet established credit and capital guidelines. 12. Credit Risk Concentrations The Company maintained bank balances that, at times, exceeded the federally insured limit during the nine months ended September 30, 2020. 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. Prior to the Internalization on February 7, 2020, the Company’s rental property was managed by BRE and the Asset Manager as described in Note 3. Management fees paid to BRE and the Asset Manager represented 0 % and 2 % of total operating expenses for the three and nine months ended September 30, 2020, respectively, and 17 % and 18 % of total operating expenses for the three and nine months ended September 30, 2019, respectively. These amounts do not include acquisition fees paid to the Asset Manager that were capitalized (see Note 3). The Company has mortgages and notes payable with three institutions that comprised 63 %, 16 %, and 10 % of total mortgages and notes payable at September 30, 2020. The Company has mortgages and notes payable with three institutions that comprised 62 %, 16 %, and 10 % of total mortgages and notes payable at December 31, 2019. For the three and nine months ended September 30, 2020 and 2019, the Company had no individual tenants or common franchises that accounted for more than 10% of total revenues. 13. Equity On September 21, 2020, the Corporation completed the IPO and issued 33,500 shares of Class A Common Stock at an initial public offering price of $ 17.00 per share. As part of the IPO, the underwriters of the IPO were granted an option, exercisable within 30 days from September 21, 2020, to purchase up to an additional 5,025 shares of Class A Common Stock at the IPO price, less underwriting discounts and commissions. The net proceeds from the IPO, after deducting underwriting discounts and commissions of $ 34,170 and $ 3,010 of other expenses (including $ 1,656 of expenses that were recorded in Accounts payable and other liabilities at September 30, 2020), were $ 532,320 through September 30, 2020. The Company used the net proceeds to repay the remaining $ 216,488 principal and accrued interest due under the Company’s then existing revolving credit facility and the remaining $ 240,225 principal and accrued interest due under its 2020 Unsecured Term Loan. The remaining net proceeds will be used for general business purposes, including acquisitions. On October 20, 2020, the underwriters partially exercised their option. See Note 18. 26 Share Redemption Program The Company’s Share Redemption Program was terminated effective February 10, 2020, and as a result there were no redemptions during the nine months ended September 30, 2020. The following table summarizes redemptions under the Company’s Share Redemption Program: (in thousands, except number of redemptions) For the three months ended September 30, 2019 For the nine months ended September 30, 2019 Number of redemptions requested 20 49 Number of shares 353 588 Aggregate redemption price $ 7,361 $ 12,374 Distribution Reinvestment Plan The Corporation had adopted a Distribution Reinvestment Plan (“DRIP”), pursuant to which the Corporation’s stockholders and holders of OP Units (other than the Corporation), could elect to have cash distributions reinvested in additional shares of the Corporation’s common stock. The DRIP was terminated effective February 10, 2020. At September 30, 2020 and December 31, 2019, a total of 12,301 and 12,019 shares of common stock, respectively, have been issued under the DRIP. 14. Stock-Based Compensation On August 4, 2020, the Company awarded 341 shares of restricted common stock under the Equity Incentive Plan to certain officers and employees. The holder of a restricted stock award 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 restricted stock awards vest over a three or four year period from the date of the Internalization, subject to the employee’s continued service through the applicable vesting dates and in accordance with the terms of the individual award agreements. No ne of the shares of restricted stock were vested at September 30, 2020. The following table presents information about the Company’s restricted stock awards: (in thousands) For the three months ended September 30, 2020 For the nine months ended September 30, 2020 Compensation cost $ 796 $ 796 Dividends declared on unvested restricted stock 46 46 The following table presents information about the Company’s restricted stock awards at September 30, 2020: (in thousands, except recognition period) Unamortized value of restricted stock awards $ 6,194 Weighted average amortization period (in years) 3.0 The following table presents information about the Company’s restricted stock activity during the nine months ended September 30, 2020: (in thousands, except per share amounts) Number of Shares Weighted Average Grant Date Fair Value per Share Unvested at beginning of period — $ — Granted 341 20.50 Vested — — Forfeited — — Unvested at end of period 341 $ 20.50 The August 4, 2020 grant date fair value per share of $ 20.50 was based on the determined share value established by the Board of Directors (“Determined Share Value”). Prior to the IPO, the Company sold shares of common stock in a private offering at a price equal to the Determined Share Value, which was established at least quarterly by the Board of Directors based on the net asset value (“NAV”) of the Company’s portfolio, input from management and third-party consultants, and such other factors as the Board of Directors determined. The Company’s NAV was calculated using its established valuation process, starting with an estimate of the fair value of the properties in the portfolio as of that date based upon, among other factors, the implied market price for each asset based upon a review of market capitalization rates. 27 15. Earnings per Share The following table summarizes the components used in the calculation of basic and diluted earnings per share (“EPS”): For the three months ended September 30, For the nine months ended September 30, (in thousands, except per share amounts) 2020 2019 2020 2019 Basic earnings: Net earnings attributable to Broadstone Net Lease, Inc. common shareholders $ 8,750 $ 23,388 $ 34,919 $ 53,460 Less: earnings allocated to unvested restricted shares ( 46 ) — ( 46 ) — Net earnings used to compute basic earnings per common share $ 8,704 $ 23,388 $ 34,873 $ 53,460 Diluted earnings: Net earnings used to compute basic earnings per share $ 8,704 $ 23,388 $ 34,873 $ 53,460 Net earnings attributable to non-controlling interests 961 1,650 3,738 3,942 Net earnings used to compute diluted earnings per common share $ 9,665 $ 25,038 $ 38,611 $ 57,402 Weighted average number of common shares outstanding: 111,371 98,568 108,300 93,575 Less: weighted average unvested restricted shares (a) ( 216 ) — ( 72 ) — Weighted average number of common shares outstanding used in basic earnings per common share 111,155 98,568 108,228 93,575 Effects of convertible membership units (b) 12,226 6,948 11,519 6,948 Weighted average number of common shares outstanding used in diluted earnings per common share 123,381 105,516 119,747 100,523 Basic earnings per share $ 0.08 $ 0.24 $ 0.32 $ 0.57 Diluted earnings per share $ 0.08 $ 0.24 $ 0.32 $ 0.57 (a) Represents the weighted average effects of 341 unvested restricted shares of common stock as of September 30, 2020, which will be excluded from the computation of earnings per share until they vest. The shares of restricted common stock were not included in the calculation of diluted earnings per share, as the effect of doing so would have been anti-dilutive. (b) Represents the weighted average effects of 12,226 and 6,948 OP Units outstanding at September 30, 2020 and September 30, 2019, respectively. OP Units are included in the diluted earnings per share calculation. However, because such OP Units would also require that the share of the OP income attributable to such OP units also be added back to net income, there is no effect to EPS. 16. Supplemental Cash Flow Disclosures Cash paid for interest was $ 50,853 and $ 49,828 for the nine months ended September 30, 2020 and 2019, respectively. Cash paid for income taxes was $ 1,385 and $ 809 for the nine months ended September 30, 2020 and 2019, respectively. The following are non-cash transactions and have been excluded from the accompanying Condensed Consolidated Statements of Cash Flows: • During the nine months ended September 30, 2020 and 2019, the Corporation issued 275 and 2,199 shares, respectively, of Common Stock with a value of approximately $ 5,733 and $ 46,084 , respectively, under the terms of the DRIP (see Note 13). • During the nine months ended September 30, 2020, the Company issued shares of Common Stock and OP Units, with a total value of approximately $ 178,535 , and earnout consideration with a fair value of $ 40,119 as consideration for the Internalization and assumed $ 90,484 of debt (see Note 4). • During the nine months ended September 30, 2020, the Company adjusted the carrying value of mezzanine equity non-controlling interests by $ 2,513 , with an offset to Additional paid-in capital. • During the nine months ended September 30, 2020, the Company reclassified $ 112,698 of mezzanine equity non-controlling interests to Non-controlling interests. • During the nine months ended September 30, 2020, the Company reclassified $ 66,376 of mezzanine equity common stock, with an offset of $ 66,375 to Additional paid-in capital and $ 1 to Common stock. 28 • During the nine months ended September 30, 2020, the Company reclassified $ 18,436 of the carrying value of the earnout liability, with an offset of $ 11,627 as a component of Non- controlling interests and $ 6,809 as a component of Additional paid-in capital (see Note 2). • During the nine months ended September 30, 2020, $ 1,656 of incurred but unpaid expenses associated with the IPO were recorded as an offset to Additional paid-in capital (see Note 13). • At September 30, 2020 and 2019, dividend amounts declared and accrued but not yet paid amounted to $ 20,722 and $ 11,932 , respectively . • During the nine months ended September 30, 2020, the Company executed lease modifications that resulted in the lease classification changing from direct financing lease to operating lease for four properties. At the modification date, the net investment in the original lease, and therefore the carrying value of the assets recognized, amounted to $ 9,055 . • In connection with real estate transactions conducted during the nine months ended September 30, 2019, the Company accepted tenant improvement allowances of $ 2,517 in exchange for a reduction to the cash paid for the associated real estate assets . • Upon adoption of ASC 326 on January 1, 2020, described in Note 2, the Company recorded a transition adjustment to record a provision for credit losses associated with its net investment in direct financing leases of $ 323 , with an equal amount recorded as a reduction in retained earnings. The provision for credit losses is included as a component of Investment in rental property, net accounted for using the direct financing method on the Condensed Consolidated Balance Sheets . • Upon adoption of ASC 842 on January 1, 2019, the Company recorded right-of-use assets of $ 1,687 and lease liabilities of $ 1,261 associated with ground leases where it is the lessee. The right-of-use asset was recorded net of a straight-line rent liability of $ 7 and ground lease intangible asset, net of $ 432 as of the date of adoption . 17. Commitments and Contingencies Litigation From time to time, the Company is a party to various litigation matters incidental to the conduct of the Company’s business. While the resolution of such matters cannot be predicted with certainty, based on currently available information, the Company does not believe that the final outcome of any of these matters will have a material effect on its consolidated financial position, results of operations, or liquidity. Property and Acquisition Related In connection with ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company is not aware of any non-compliance, liability, claim, or other environmental condition that would have a material effect on its consolidated financial position, results of operations, or liquidity. Balances associated with tenant improvement allowances are included in Accounts payable and other liabilities on the Condensed Consolidated Balance Sheets as follows: (in thousands) September 30, 2020 December 31, 2019 Tenant improvement allowances $ 1,981 $ 2,706 The Company is a party to three separate tax protection agreements with the contributing members of three distinct UPREIT transactions and to the Founding Owners’ Tax Protection Agreement in connection with the Internalization (see Note 3). 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, or in the case of the Founding Owners’ Tax Protection Agreement, the entire Company, in a taxable transaction that would cause such beneficiaries to recognize a gain that is protected under the agreements, subject to certain exceptions. Based on values as of September 30, 2020, taxable sales of the applicable properties would trigger liability under the Agreements of approximately $ 22,300 . 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. 29 Obligations Under Operating Leases Subsequent to the Internalization (see Note 4), the Company leases office space for its corporate headquarters and other locations under non-cancellable operating leases with expiration dates ranging from 2021 to 2023 . These leases contain provisions for fixed monthly payments, subject to rent escalations. None of the leases are subject to any sublease agreement. The lease for the corporate headquarters is with a related party (see Note 3). The Company also leases land at certain properties under non-cancellable operating leases (“ground leases”) with initial lease terms ranging from 2034 to 2066 . These leases contain provisions for fixed monthly payments, subject to rent escalations. One lease requires the Company to make annual rent payments calculated based upon sales generated at the property (“percentage rent”). None of the leases are subject to any sublease agreement. The following table summarizes the total lease costs associated with operating leases: For the three months ended September 30, For the nine months ended September 30, (in thousands) Financial Statement Presentation 2020 2019 2020 2019 Operating lease costs Office leases General and administrative $ 155 $ — $ 362 $ — Ground leases Property and operating expense 33 35 100 105 Variable lease costs Ground leases Property and operating expense 13 11 43 34 Total lease costs $ 201 $ 46 $ 505 $ 139 The following table summarizes payments associated with obligations under operating leases, reported as Cash flows from operating activities on the accompanying Condensed Consolidated Statements of Cash Flows: For the three months ended September 30, For the nine months ended September 30, (in thousands) 2020 2019 2020 2019 Operating lease payments $ 179 $ 27 $ 490 $ 127 Estimated future lease payments required under non-cancelable operating leases at September 30, 2020, and a reconciliation to the lease liabilities, is as follows: (in thousands) Remainder of 2020 $ 176 2021 711 2022 686 2023 505 2024 120 Thereafter 2,411 Total undiscounted cash flows 4,609 Less imputed interest ( 1,822 ) Lease liabilities $ 2,787 The above rental payments include future minimum lease payments due during the initial lease terms. Such amounts exclude any contingent amounts associated with percentage rent that may become due in future periods. 18. Subsequent Events On October 15, 2020, the Company paid distributions totaling $ 20,722 . On October 20, 2020, the underwriters of the Company’s IPO partially exercised their option to purchase up to an additional 5,025 shares of the Company’s Class A Common Stock at the IPO price of $ 17.00 . The underwriters ultimately exercised the option by purchasing an additional 3,500 shares of Class A Common stock. The Company subsequently received $ 55,930 of additional IPO proceeds as a result of the underwriter’s exercise of their option, net of underwriting fees and discounts. On November 5, 2020 , the Board of Directors declared a quarterly distribution of $ 0.25 per share on the Company’s common stock and OP Units for the fourth quarter of 2020, which will be payable on or before January 15, 2021 to stockholders and unit holders of record as of December 31, 2020 . 30 Through November 5, 2020 the Company sold two properties with an aggregate carrying value of approximately $ 5,019 for total proceeds of $ 8,615 . The Company incurred additional expenses related to the sales of approximately $ 402 , resulting in a gain on sale of real estate of approximately $ 3,194 . Subsequent to September 30, 2020, the Company repaid in full the $ 591 outstanding balance of notes payable (see Note 10). 19. COVID-19 Pandemic Since its discovery in December 2019, a novel strain of coronavirus, which causes the viral disease known as COVID-19, has spread throughout most countries of the world, including the United States. The outbreak has been declared a pandemic by the World Health Organization, and the United States Secretary of Health and Human Services has declared a public health emergency in the United States. In response to the COVID-19 pandemic, many local, state and federal governments have instituted “stay at home” or “shelter in place” rules and restrictions on the types of businesses that may continue to operate, which resulted in closure of many businesses deemed to be non-essential. Many of the Company’s tenants, in particular those who operate in the retail and restaurant industries, depend on in-person interactions with customers to generate unit-level profitability, and have been negatively impacted by the pandemic, as have businesses who supply products and services to these industries. As a result, during the second quarter of 2020, the Company received a number of requests for rent relief and ultimately granted relief to 15 tenants. For all but one of the 15 tenants granted relief, the Company granted relief in the form of a partial rent deferral. For the remaining tenant, the Company agreed to a partial abatement of rent over a nine-month period with the minimum required rent payable increasing during the period, in exchange for a three-year lease term extension and an upside percentage rent clause during the abatement period. Partial rent deferrals and the abatement represented 0.6 % and 1.4 % of total contractual base rents due for the three months ended September 30, 2020, respectively. The partial rent deferrals ranged between two and six months of rent, with a weighted average deferral period of 3.4 months. Repayment periods range from three months to one year , with a weighted average payback period of 5.6 months beginning in July 2020. At September 30, 2020, the weighted average remaining payback period for these deferrals was 4.2 months. The Company has collected 100 % of deferred rent that was required to be repaid during the three months ended September 30, 2020 and the balance of rent deferrals remains probable of collection. For partial rent deferrals expected to be repaid within a short period of time where the deferral of payments made no substantive changes to the total consideration in the original lease agreement, the amount of straight-line lease revenue recognized in the financial statements was not impacted. Deferred rents due under the agreements are recorded as Tenant and other receivables, net in the Condensed Consolidated Balance Sheets. In certain circumstances, as part of the deferral agreements, the Company negotiated lease extensions or the early exercise of tenant renewal options, resulting in cash flows under the agreements being substantially in excess of the original lease terms. The Company evaluated these agreements on a lease by lease basis, and accounted for the relief under the modification framework of ASC 842, resulting in adjustments to the amount of straight-line lease revenue that will be recorded prospectively. The Company also accounted for the partial abatement under the lease modification framework of ASC 842. As of and for the nine months ended September 30, 2020, the impact of the COVID-19 pandemic on the Company’s financial condition, and results of operations has been limited to effects of the grants of rent relief discussed above. The full extent of the pandemic on the Company’s future financial conditions, results of operations, liquidity, and ability to pay distributions will ultimately depend on certain developments, including the duration and spread of the outbreak and its impact on the Company’s tenants, all of which are uncertain and cannot be predicted. For further discussion of risks associated with the COVID-19 outbreak, refer to Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q below. 31