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) March 31, 2021 December 31, 2020 Assets Accounted for using the operating method, net of accumulated depreciation $ 3,395,609 $ 3,354,511 Accounted for using the direct financing method 28,991 29,066 Accounted for using the sales-type method 567 567 Investment in rental property, net 3,425,167 3,384,144 Cash and cash equivalents 10,205 100,486 Accrued rental income 105,674 102,117 Tenant and other receivables, net 1,022 1,604 Prepaid expenses and other assets 18,862 22,277 Interest rate swap, assets 239 — Goodwill 339,769 339,769 Intangible lease assets, net 288,592 290,913 Debt issuance costs – unsecured revolving credit facility, net 5,842 6,435 Leasing fees, net 10,673 10,738 Total assets $ 4,206,045 $ 4,258,483 Liabilities and equity Unsecured revolving credit facility $ 15,000 $ — Mortgages, net 106,559 107,382 Unsecured term notes, net 1,383,283 1,433,796 Interest rate swap, liabilities 43,662 72,103 Earnout liability 6,385 7,509 Accounts payable and other liabilities 71,072 74,936 Accrued interest payable 9,896 4,023 Intangible lease liabilities, net 77,491 79,653 Total liabilities 1,713,348 1,779,402 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; 500,000 shares authorized, 145,813 shares issued and outstanding at March 31, 2021; 440,000 shares authorized, 108,609 shares issued and outstanding at December 31, 2020 36 27 Class A common stock, $ 0.00025 par value; no shares authorized, issued or outstanding at March 31, 2021; 60,000 shares authorized, 37,000 shares issued and outstanding at December 31, 2020 — 9 Additional paid-in capital 2,625,320 2,624,997 Cumulative distributions in excess of retained earnings ( 274,140 ) ( 259,673 ) Accumulated other comprehensive loss ( 38,684 ) ( 66,255 ) Total Broadstone Net Lease, Inc. stockholders’ equity 2,312,532 2,299,105 Non-controlling interests 180,165 179,976 Total equity 2,492,697 2,479,081 Total liabilities and equity $ 4,206,045 $ 4,258,483 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 March 31, 2021 2020 Revenues Lease revenues, net $ 82,698 $ 78,231 Operating expenses Depreciation and amortization 30,713 31,219 Asset management fees — 2,461 Property management fees — 1,275 Property and operating expense 4,605 4,115 General and administrative 10,633 5,842 Provision for impairment of investment in rental properties 2,012 2,133 Total operating expenses 47,963 47,045 Other income (expenses) Interest income 5 9 Interest expense ( 16,108 ) ( 20,991 ) Cost of debt extinguishment ( 126 ) ( 22 ) Gain on sale of real estate 4,733 7,619 Income taxes ( 413 ) ( 549 ) Internalization expenses — ( 1,205 ) Change in fair value of earnout liability 1,124 ( 4,177 ) Other income (expenses) 10 ( 22 ) Net income 23,960 11,848 Net income attributable to non-controlling interests ( 1,737 ) ( 1,032 ) Net income attributable to Broadstone Net Lease, Inc. $ 22,223 $ 10,816 Weighted average number of common shares outstanding Basic 145,338 106,108 Diluted 156,724 116,210 Net earnings per share attributable to common stockholders Basic and diluted $ 0.15 $ 0.10 Comprehensive income (loss) Net income $ 23,960 $ 11,848 Other comprehensive income (loss) Change in fair value of interest rate swaps 28,680 ( 58,062 ) Realized gain on interest rate swaps ( 41 ) ( 42 ) Comprehensive income (loss) 52,599 ( 46,256 ) Comprehensive (income) loss attributable to non-controlling interests ( 3,813 ) 4,020 Comprehensive income (loss) attributable to Broadstone Net Lease, Inc. $ 48,786 $ ( 42,236 ) 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, 2021 $ 27 $ 9 $ 2,624,997 $ ( 259,673 ) $ ( 66,255 ) $ 179,976 $ 2,479,081 $ — $ — $ — Net income — — — 22,223 — 1,737 23,960 — — — Issuance of 211 shares of common stock — — 233 — — — 233 — — — Offering costs, discounts and commissions — — ( 500 ) — — — ( 500 ) — — — Stock-based compensation — — 1,769 — — — 1,769 — — — Retirement of 45 shares of restricted common stock — — ( 832 ) — — — ( 832 ) — — — Conversion of 37,000 Class A common stock to 37,000 shares of common stock 9 ( 9 ) — — — — — — — — Conversion of 38 OP Units to 38 shares of common stock — — 606 — — ( 606 ) — — — — Distributions declared ($ 0.25 per share and OP Unit) — — — ( 36,690 ) — ( 2,963 ) ( 39,653 ) — — — Change in fair value of interest rate swap agreements — — — — 26,602 2,078 28,680 — — — Realized gain on interest rate swap agreements — — — — ( 39 ) ( 2 ) ( 41 ) — — — Adjustment to non-controlling interests — — ( 953 ) — 1,008 ( 55 ) — — — — Balance, March 31, 2021 $ 36 $ — $ 2,625,320 $ ( 274,140 ) $ ( 38,684 ) $ 180,165 $ 2,492,697 $ — $ — $ — 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 ($ 0.33 per share and OP Unit) — — — ( 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 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Broadstone Net Lease, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) For the Three Months Ended March 31, 2021 2020 Operating activities Net income $ 23,960 $ 11,848 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 29,985 30,081 Provision for impairment of investment in rental properties 2,012 2,133 Amortization of debt issuance costs charged to interest expense 879 853 Stock-based compensation expense 1,769 — Straight-line rent, financing and sales-type lease adjustments ( 4,632 ) ( 1,610 ) Cost of debt extinguishment 126 22 Gain on sale of real estate ( 4,733 ) ( 7,619 ) Change in fair value of earnout liability ( 1,124 ) 4,177 Leasing fees paid ( 286 ) — Adjustment to provision for credit losses ( 1 ) ( 17 ) Other non-cash items 192 194 Changes in assets and liabilities, net of acquisition: Tenant and other receivables 582 ( 353 ) Prepaid expenses and other assets 1,072 291 Accounts payable and other liabilities ( 3,894 ) ( 5,851 ) Accrued interest payable 5,873 6,170 Net cash provided by operating activities 51,780 40,319 Investing activities Acquisition of rental property accounted for using the operating method ( 88,532 ) — Cash paid for Internalization — ( 30,861 ) Capital expenditures and improvements ( 1,334 ) ( 48 ) Proceeds from disposition of rental property, net 22,105 35,383 Change in deposits on investments in rental property 100 — Net cash (used in) provided by investing activities ( 67,661 ) 4,474 Financing activities Proceeds from issuance of common stock and Class A common stock, net of offering costs, discounts, and commissions ( 173 ) 131 Cash paid for deferred offering costs — ( 811 ) Borrowings on unsecured term notes — 60,000 Principal payments on mortgages and unsecured term notes ( 50,802 ) ( 151,781 ) Borrowings on unsecured revolving credit facility 15,000 167,000 Repayments on unsecured revolving credit facility — ( 11,000 ) Cash distributions paid to stockholders ( 36,402 ) ( 29,148 ) Cash distributions paid to non-controlling interests ( 3,174 ) ( 2,681 ) Debt issuance and extinguishment costs paid ( 946 ) ( 102 ) Net cash (used in) provided by financing activities ( 76,497 ) 31,608 Net (decrease) increase in cash and cash equivalents and restricted cash ( 92,378 ) 76,401 Cash and cash equivalents and restricted cash at beginning of period 110,728 20,311 Cash and cash equivalents and restricted cash at end of period $ 18,350 $ 96,712 Reconciliation of cash and cash equivalents and restricted cash Cash and cash equivalents at beginning of period $ 100,486 $ 12,455 Restricted cash at beginning of period 10,242 7,856 Cash and cash equivalents and restricted cash at beginning of period $ 110,728 $ 20,311 Cash and cash equivalents at end of period $ 10,205 $ 93,151 Restricted cash at end of period 8,145 3,561 Cash and cash equivalents and restricted cash at end of period $ 18,350 $ 96,712 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 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, and retail commercial properties under long-term lease agreements. At March 31, 2021, the Corporation owned a diversified portfolio of 661 individual commercial properties with 660 properties located in 41 U.S. states and one property located 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 were issued OP Units pursuant to the Internalization (defined below) or in exchange for their interests in properties acquired by the OP. As the Corporation conducts substantially all of its operations through the OP, it is structured as what is referred to as an umbrella partnership real estate investment trust (“UPREIT”). The Corporation, the OP, and its consolidated subsidiaries are collectively referred to as the “Company.” Prior to February 7, 2020, the Corporation was externally managed by Broadstone Real Estate, LLC (“BRE”) and Broadstone Asset Management, LLC (the “Asset Manager”) subject to the direction, oversight, and approval of the Company’s board of directors (the “Board of Directors”). The Asset Manager was a wholly owned subsidiary of BRE and all of the Corporation’s officers were employees of BRE. Accordingly, both BRE and the Asset Manager were related parties of the Company. Refer to Note 3 for further discussion concerning related parties and related party transactions. On February 7, 2020, the Corporation, the OP, BRE, and certain of their respective subsidiaries and affiliates, completed through a series of mergers (the “Mergers”) the internalization of the external management functions previously performed for the Corporation and the OP by BRE and the Asset Manager (such transactions, collectively, the “Internalization”). Upon consummation of the Internalization, the Company’s management team and corporate staff, who were previously employed by BRE, became employees of an indirect subsidiary of the OP and the Company became internally managed. Upon Internalization, the prior Property Management Agreement and Asset Management Agreement were terminated. The Internalization was not considered a “Termination Event” under the terms of the agreements and therefore no fees were paid under them as a result of the Internalization. On September 18, 2020, the Corporation effected a four -for-one stock 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 completed its initial public offering (“IPO”) and issued an aggregate of 37,000 shares of a new class of common stock, $ 0.00025 par value per share (“Class A Common Stock”) at $ 17.00 per share, which includes shares issued pursuant to the underwriters’ partial exercise of their over-allotment option on October 20, 2020, 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 Class A Common Stock were listed on the New York Stock Exchange (“NYSE”) under the symbol “BNL.” On March 20, 2021, each share of Class A Common Stock automatically converted into one share of Common Stock, and effective March 22, 2021, all shares of Common Stock were listed and freely tradeable on the NYSE under the symbol “BNL.” See Note 13. The following table summarizes the outstanding equity and economic ownership interest of the Corporation and the OP: March 31, 2021 December 31, 2020 (in thousands) Shares of Common Stock OP Units Total Diluted Shares Shares of Common Stock OP Units Total Diluted Shares Ownership interest 145,813 11,361 157,174 145,609 11,399 157,008 Percent ownership of OP 92.8 % 7.2 % 100.0 % 92.7 % 7.3 % 100.0 % Refer to Note 15 for further discussion regarding the calculation of weighted average shares outstanding. 5 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, 2020, included in the Company’s 2020 Annual Report on Form 10-K, filed with the SEC on February 25, 2021. 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 and certain other conditions are met, it qualifies for the exemption from providing certain disclosure requirements associated with investments in VIEs. The portion of the OP not owned by the Corporation is presented as non-controlling interests as of and during the periods presented. Basis of Accounting The Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. Use of Estimates The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include, but are not limited to, the allocation of purchase price between tangible and intangible assets acquired and liabilities assumed, the 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, 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 March 31, 2021 was based on the most current information available to the Company. Based upon current market conditions resulting from the COVID-19 pandemic, 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 months ended March 31, 2021 and 2020, the Company recorded impairment charges associated with one property in each respective period. Impairment indicators primarily included changes in the Company’s long-term hold strategy with respect to the individual properties. 6 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 months ended March 31, 2021 and 2020, the Company recorded impairment charges of $ 2,012 and $ 2,133 , respectively. Restricted Cash Restricted cash includes escrow funds the Company maintains pursuant to the terms of certain mortgages, and lease agreements, and undistributed proceeds from the sale of properties under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”), and is reported within Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets. Restricted cash consisted of the following: March 31, December 31, (in thousands) 2021 2020 Escrow funds and other $ 8,145 $ 7,852 Undistributed 1031 proceeds — 2,390 $ 8,145 $ 10,242 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) March 31, 2021 December 31, 2020 Rent received in advance $ 13,331 $ 13,651 Provision for Uncollectible Rent In accordance with ASC 842, Leases , provisions for uncollectible rent are recorded as an offset to Lease revenues, net on the accompanying Consolidated Statements of Income and Comprehensive Income (Loss). The following table summarizes the changes in the provision for uncollectible rent: For the Three Months Ended March 31, (in thousands) 2021 2020 Beginning balance $ 201 $ — Provision for uncollectible rent 142 1,033 Ending balance $ 343 $ 1,033 Fair Value Measurements Recurring Fair Value Measurements Earnout Liability – In connection with the Internalization, the Company recognized an earnout liability that will be due and payable to the former owners of BRE if certain milestones are achieved during specified periods of time following the closing of the Internalization (the “Earnout Periods”). Under the terms of the agreement, the milestones related to either (a) the 40-day dollar volume-weighted average price of a share of the Company’s common stock (“VWAP per REIT Share”), following the completion of an IPO of the Company’s common stock, or (b) the Company’s AFFO per share, prior to the completion of an IPO. The Company utilizes third-party valuation experts to assist in estimating the fair value of the earnout liability, and develops estimates by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis. These estimates require the Company to make various assumptions about share price volatility and, prior to the IPO, about the timing of an IPO and net asset prices, each of which are unobservable and considered Level 3 inputs in the fair value hierarchy. A 7 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 d 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 March 31, 2021: Significant Unobservable Inputs Weighted Average Assumption Used Range Peer stock price volatility 40.0 % 26.11% - 53.79% The table below provides a summary of the significant unobservable inputs used to estimate the fair value of the earnout liability as of March 31, 2020: Significant Unobservable Inputs Weighted Average Assumption Used Range Expected IPO date March 15, 2021 November 2020 through May 2021 Peer stock price volatility 30.0 % 22.96% - 43.91% 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 was primarily based on the fair value of its real estate investment portfolio, together with the fair value of its other assets and liabilities. The fair value of the Company’s real estate investment portfolio as of the measurement date was determined using market capitalization rates that ranged between 6.05 % and 7.09 %. The following table presents a reconciliation of the change in the earnout liability: For the Three Months Ended March 31, (in thousands) 2021 2020 Beginning balance $ 7,509 $ — Allocation of Internalization purchase price at February 7, 2020 — 40,119 Change in fair value subsequent to Internalization ( 1,124 ) 4,177 Ending balance $ 6,385 $ 44,296 The decrease in fair value subsequent to the Internalization was driven by a lower share price. The decrease was 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 financial instruments measured at fair value on a recurring basis are as follows: March 31, 2021 (in thousands) Total Level 1 Level 2 Level 3 Interest rate swap, assets $ 239 $ — $ 239 $ — Interest rate swap, liabilities ( 43,662 ) — ( 43,662 ) — Earnout liability ( 6,385 ) — — ( 6,385 ) December 31, 2020 (in thousands) Total Level 1 Level 2 Level 3 Interest rate swap, liabilities $ ( 72,103 ) $ — $ ( 72,103 ) $ — Earnout liability ( 7,509 ) — — ( 7,509 ) 8 Long-term Debt – The fair value of the Company’s debt was estimated using Level 2 and Level 3 inputs based on recent financing transactions, estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, current London Interbank Offered Rate (“LIBOR”), U.S. Treasury obligation interest rates, and on the discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect the Company’s judgment as to the approximate current lending rates for loans or groups of loans with similar maturities and assumes that the debt is outstanding through maturity. Market information, as available, or present value techniques were utilized to estimate the amounts required to be disclosed. Since such amounts are estimates that are based on limited available market information for similar transactions and do not acknowledge transfer or other repayment restrictions that may exist on specific loans, it is unlikely that the estimated fair value of any such debt could be realized by immediate settlement of the obligation. The following table summarizes the carrying amount reported on the Condensed Consolidated Balance Sheets and the Company’s estimate of the fair value of the Mortgages, net, Unsecured term notes, net, and Unsecured revolving credit facility, which reflects the fair value of interest rate swaps: (in thousands) March 31, 2021 December 31, 2020 Carrying amount $ 1,511,830 $ 1,547,667 Fair value 1,608,249 1,679,188 Non-recurring Fair Value Measurements The Company’s non-recurring fair value measurements at March 31, 2021 and December 31, 2020 consisted of the fair value of impaired real estate assets that were determined using Level 3 inputs. Right-of-Use Assets and Lease Liabilities The Company is a lessee under non-cancelable operating leases associated with its corporate headquarters and other office spaces as well as with leases of land (“ground leases”). The Company records right-of-use assets and lease liabilities associated with these leases. The lease liability is equal to the net present value of the future payments to be made under the lease, discounted using estimates based on observable market factors. The right-of-use asset is generally equal to the lease liability plus initial direct costs associated with the leases. The Company includes in the recognition of the right-of-use asset and lease liability those renewal periods that are reasonably certain to be exercised, based on the facts and circumstances that exist at lease inception. Amounts associated with percentage rent provisions are considered variable lease costs and are not included in the initial measurement of the right-of-use asset or lease liability. The Company has made an accounting policy election, applicable to all asset types, not to separate lease from nonlease components when allocating contract consideration related to operating leases. Right-of-use assets and lease liabilities associated with operating leases were included in the accompanying Condensed Consolidated Balance Sheets as follows: March 31, December 31, (in thousands) Financial Statement Presentation 2021 2020 Right-of-use assets Prepaid expenses and other assets $ 2,919 $ 3,075 Lease liabilities Accounts payable and other liabilities 2,531 2,659 Stock-Based Compensation The Company has issued restricted stock awards (“RSAs”) and performance-based restricted stock units (“PRSUs”) under its 2020 Omnibus Equity and Incentive Plan (the “Equity Incentive Plan”). The Company accounts for stock-based incentives in accordance with ASC 718, Compensation – Stock Compensation , which requires that such compensation be recognized in the financial statements based on the award’s estimated grant date fair value. The value of such awards is recognized as compensation expense in General and administrative expenses in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss) over the appropriate vesting period on a straight-line basis or at the cumulative amount vested at each balance sheet date, if greater. The Company records forfeitures during the period in which they occur by reversing all previously recorded stock compensation expense associated with the forfeited shares. Dividends declared on RSAs issued under the Equity Incentive Plan are recorded as Cumulative distributions in excess of retained earnings on the Condensed Consolidated Balance Sheets. Accumulated dividends related to forfeited RSAs will be reversed through compensation expense in the period the forfeiture occurs. Dividends accrued on the PRSUs are recorded as Cumulative distributions in excess of retained earnings on the Condensed Consolidated Balance Sheets. Accumulated dividends accrued related to forfeited PRSUs are reversed in the period the forfeiture occurs. 9 Recently Adopted Accounting Standards In January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-01, Reference Rate Reform (Topic 848): Scope , which refines the scope of ASC 848, to include all derivative contracts subject to a transition for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest (PAI) as a result of reference rate reform (the “discounting transition”). ASU 2021-01 gives market participants the ability to apply certain aspects of the contract modification and hedge accounting expedients to derivative contracts affected by a discounting transition. ASU 2021-01 permits an entity to elect certain hedging relief if it has designated a derivative as a hedging instrument in a hedging relationship and the terms of the derivative have changed as a result of the discounting transition. The Company will apply the amendments in ASU 2021-01 related to contract modifications and hedging relationships prospectively. Other Recently Issued Accounting Standards In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity . The guidance in ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in ASU 2020-06 also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity , by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments in ASU 2020-06 are effective for the Company for fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this new guidance. 3. Related-Party Transactions Prior to the Internalization on February 7, 2020, BRE, a related party in which certain directors of the Corporation had either a direct or indirect ownership interest, and the Asset Manager were considered to be related parties. Earnout Consideration In connection with the Internalization, the Company incurred a contingent obligation that would be payable to certain members of the Company’s Board of Directors and employees who had previously been owners and/or employees of BRE, upon the occurrence of certain events (see Note 4). The earnout consideration at March 31, 2021, consisted of $ 6,385 recorded as Earnout liability, $ 11,380 recorded as a component of Additional paid-in capital, and $ 19,430 recorded as a component of Non-controlling interests on the Condensed Consolidated Balance Sheets. The earnout consideration at March 31, 2020, consisted of $ 44,296 recorded as Earnout liability on the Condensed Consolidated Balance Sheets. 4. Internalization On February 7, 2020, the Company completed the Internalization and the Company’s management team and corporate staff, who were previously employed by BRE, became employees of an indirect subsidiary of the OP. The effect of the Internalization has been reflected in the Company’s operating results beginning on February 7, 2020. Condensed Pro Forma Financial Information (Unaudited) The following pro forma information summarizes selected financial information from the Company’s combined results of operations, as if the Internalization had occurred on January 1, 2019. These results contain certain adjustments totaling $ 5,646 of income for the three months ended March 31, 2020. 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 compensation and related costs, incremental general and administrative expenses related to the Internalization, and 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. 10 The condensed pro forma financial information is as follows: For the Three Months Ended (in thousands) March 31, 2020 Revenues $ 78,231 Net income 13,751 5. Acquisitions of Rental Property The Company closed on the following acquisitions during the three months ended March 31, 2021: (in thousands, except number of properties) Number of Real Estate Date Property Type Properties Acquisition Price February 5, 2021 Healthcare 1 $ 4,843 February 26, 2021 Restaurant (a) $ 181 March 11, 2021 Retail 13 $ 26,834 March 30, 2021 Retail 11 41,324 March 31, 2021 Healthcare 3 14,140 28 $ 87,322 (b) (a) Acquisition of additional land adjacent to an existing property. (b) Acquisition price does not include capitalized acquisition costs of $ 1,235 . The Company did no t complete any acquisitions of rental property during the three months ended March 31, 2020. The Company allocated the purchase price of these properties to the fair value of the assets acquired and liabilities assumed. The following table summarizes the purchase price allocation for completed real estate acquisitions: For the Three Months Ended (in thousands) March 31, 2021 Land $ 19,584 Land improvements 4,355 Buildings and improvements 57,893 Acquired in-place leases (c) 6,725 $ 88,557 ( c ) The weighted average amortization period for acquired in-place leases is 16 years for acquisitions completed during the three months ended March 31, 2021. The above acquisitions were funded using a combination of available cash on hand and revolving credit facility borrowings. All real estate acquisitions closed during the three months ended March 31, 2021, qualified as asset acquisitions and, as such, acquisition costs have been capitalized. 6. Sale of Real Estate The Company closed on the following sales of real estate, none of which qualified as discontinued operations: For the Three Months Ended March 31, (in thousands, except number of properties) 2021 2020 Number of properties disposed 8 10 Aggregate sale price $ 23,062 $ 37,185 Aggregate carrying value ( 17,372 ) ( 27,764 ) Additional sales expenses ( 957 ) ( 1,802 ) Gain on sale of real estate $ 4,733 $ 7,619 11 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 March 31, 2021, the Company had 644 real estate properties which were leased under leases that have been classified as operating leases, 10 that have been classified as direct financing leases, and one that has been classified as a sales-type lease. Of the 10 leases classified as direct financing leases, three include land portions which are accounted for as operating leases. The sales-type lease includes a land portion which is accounted for as an operating lease. 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) March 31, 2021 December 31, 2020 Land $ 572,381 $ 555,748 Land improvements 282,426 279,360 Buildings and improvements 2,898,615 2,857,510 Equipment 11,870 11,870 3,765,292 3,704,488 Less accumulated depreciation ( 369,683 ) ( 349,977 ) $ 3,395,609 $ 3,354,511 Depreciation expense on investment in rental property was as follows: For the Three Months Ended March 31, (in thousands) 2021 2020 Depreciation $ 23,743 $ 23,515 Estimated lease payments to be received under non-cancelable operating leases with tenants at March 31, 2021 are as follows: (in thousands) Remainder of 2021 $ 224,633 2022 302,580 2023 306,227 2024 302,556 2025 295,351 Thereafter 2,106,544 $ 3,537,891 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. Investment in Rental Property – Direct Financing Leases The Company’s net investment in direct financing leases was comprised of the following: (in thousands) March 31, 2021 December 31, 2020 Undiscounted estimated lease payments to be received $ 44,989 $ 45,782 Estimated unguaranteed residual values 15,203 15,203 Unearned revenue ( 31,035 ) ( 31,753 ) Reserve for credit losses ( 166 ) ( 166 ) Net investment in direct financing leases $ 28,991 $ 29,066 12 Undiscounted estimated lease payments to be received under non-cancelable direct financing leases with tenants at March 31, 2021 are as follows: (in thousands) Remainder of 2021 $ 2,387 2022 3,241 2023 3,304 2024 3,361 2025 3,475 Thereafter 29,221 $ 44,989 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 March 31, (in thousands) 2021 2020 Contractual rental amounts billed for operating leases $ 73,245 $ 72,828 Adjustment to recognize contractual operating lease billings on a straight-line basis 4,367 1,665 Variable rental amounts earned 91 3 Earned income from direct financing leases 730 987 Earned income from sales-type leases 14 — Operating expenses billed to tenants 4,388 3,732 Other income from real estate transactions 5 49 Adjustment to revenue recognized for uncollectible rental amounts billed ( 142 ) ( 1,033 ) Total Lease revenues, net $ 82,698 $ 78,231 8. Intangible Assets and Liabilities The following is a summary of intangible assets and liabilities and related accumulated amortization: (in thousands) March 31, 2021 December 31, 2020 Lease intangibles: Acquired above-market leases $ 50,206 $ 54,616 Less accumulated amortization ( 15,782 ) ( 18,928 ) Acquired above-market leases, net 34,424 35,688 Acquired in-place leases 344,674 340,958 Less accumulated amortization ( 90,506 ) ( 85,733 ) Acquired in-place leases, net 254,168 255,225 Total intangible lease assets, net $ 288,592 $ 290,913 Acquired below-market leases $ 107,226 $ 107,788 Less accumulated amortization ( 29,735 ) ( 28,135 ) Intangible lease liabilities, net $ 77,491 $ 79,653 Leasing fees $ 15,517 $ 15,462 Less accumulated amortization ( 4,844 ) ( 4,724 ) Leasing fees, net $ 10,673 $ 10,738 Amortization of intangible lease assets and liabilities was as follows: (in thousands) For the Three Months Ended March 31, Intangible Financial Statement Presentation 2021 2020 Acquired in-place leases and leasing fees Depreciation and amortization $ 6,947 $ 7,695 Above-market and below-market leases Lease revenues, net 753 1,140 13 Amortization expense for the three months ended March 31, 2020, includes $ 577 of accelerated amortization resulting from early lease terminations, compared to none for the three months ended March 31, 2021. Estimated future amortization of intangible assets and liabilities at March 31, 2021 is as follows: (in thousands) Remainder of 2021 $ 18,746 2022 22,844 2023 22,531 2024 21,773 2025 20,477 Thereafter 115,403 $ 221,774 9. Unsecured Credit Agreements The following table summarizes the Company’s unsecured credit agreements: Outstanding Balance (in thousands, except interest rates) March 31, 2021 December 31, 2020 Interest Rate (c) (d) Maturity Date Unsecured revolving credit facility (a) $ 15,000 $ — daily LIBOR + 1.00% (e) Sep. 2023 2022 Unsecured Term Loan (a) 60,000 60,000 one-month LIBOR + 1.00% (f) Feb. 2022 2023 Unsecured Term Loan (a) 265,000 265,000 one-month LIBOR + 1.10% (g) Jan. 2023 2024 Unsecured Term Loan (a) 190,000 190,000 one-month LIBOR + 1.00% (f) Jun. 2024 2026 Unsecured Term Loan (a) 400,000 450,000 one-month LIBOR + 1.00% (h) 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 1,405,000 1,440,000 Debt issuance costs, net (b) ( 6,717 ) ( 6,204 ) $ 1,398,283 $ 1,433,796 (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 March 31, 2021 and December 31, 2020, one-month LIBOR was 0.11 % and 0.14 %, respectively. At March 31, 2021 daily LIBOR was 0.08 %. (d) In January 2021, the Company received a credit rating of BBB, changing the applicable margin on variable rate unsecured debt effective February 1, 2021. ( e ) At December 31, 2020, interest rate was one-month LIBOR plus 1.20 %. ( f ) At December 31, 2020, interest rate was one-month LIBOR plus 1.25 %. ( g ) At December 31, 2020, interest rate was one-month LIBOR plus 1.35 %. ( h ) At December 31, 2020, interest rate was one-month LIBOR plus 1.85 %. At March 31, 2021, the weighted average interest rate on all outstanding borrowings was 2.45 %, exclusive of interest rate swap agreements. On March 12, 2021, the Company amended the 2026 Unsecured Term Loan and made a $ 50,000 paydown on the loan. Prior to the amendment, the borrowings under the 2026 Unsecured Term Loan were subject to interest at variable rates based on LIBOR plus a margin based on the OP’s current credit rating ranging between 1.45 % and 2.40 % per annum with the applicable margin being 1.60 % immediately prior to the amendment. The amendment reduced the margin to a range between 0.85 % and 1.65 % per annum and based on the OP’s credit rating of BBB, the applicable margin was 1.0 % beginning March 12, 2021. All other terms and conditions of the 2026 Unsecured Term Loan remained materially the same as those in effect prior to this amendment. For the three months ended March 31, 2021, the Company paid $ 951 in debt issuance costs associated with the amended 2026 Unsecured Term Loan. 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 the term of the associated debt or expensed as incurred. Based on the assessment, $ 946 of debt issuance costs incurred in the three months ended March 31, 2021, were deemed to be related to the modification of existing debt, and therefore have been deferred and are being amortized over the term of the associated debt. 14 Additionally, $ 126 of unamortized debt issuance costs were expensed in the three months ended March 31, 2021, and included in Cost of debt extinguishment in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss). 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 March 31, (in thousands) 2021 2020 Debt issuance costs amortization $ 914 $ 888 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 March 31, 2021, the Company believes it was in compliance with all of its loan covenants. Failure to comply with the covenants would result in a default which, if the Company were unable to cure or obtain a waiver from the lenders, could accelerate the repayment of the obligations. Further, in the event of default, the Company may be restricted from paying dividends to its stockholders in excess of dividends required to maintain its REIT qualification. Accordingly, an event of default could have a material and adverse impact on the Company. 10. Mortgages The Company’s mortgages consist of the following: Origination Maturity (in thousands, except interest rates) Date Date Interest March 31, December 31, Lender (Month/Year) (Month/Year) Rate 2021 2020 Wilmington Trust National Association Apr-19 Feb-28 4.92 % $ 47,646 $ 47,945 (a) (b) (c) (j) Wilmington Trust National Association Jun-18 Aug-25 4.36 % 19,848 19,947 (a) (b) (c) (i) PNC Bank Oct-16 Nov-26 3.62 % 17,396 17,498 (b) (c) Sun Life Mar-12 Oct-21 5.13 % 10,361 10,469 (b) (e) Aegon Apr-12 Oct-23 6.38 % 6,846 7,039 (b) (f) M&T Bank Oct-17 Aug-21 one - month LIBOR+3% 4,733 4,769 (b) (d) (g) (h) 106,830 107,667 Debt issuance costs, net ( 271 ) ( 285 ) $ 106,559 $ 107,382 (a) Non-recourse debt includes the indemnification/guaranty of the Corporation and/or OP pertaining to fraud, environmental claims, insolvency and other matters. (b) Debt secured by related rental property and lease rents. (c) Debt secured by guaranty of the OP. (d) Debt secured by guaranty of the Corporation. ( e ) Mortgage was assumed in March 2012 as part of an UPREIT transaction. The debt was recorded at fair value at the time of the assumption. ( f ) Mortgage was assumed in April 2012 as part of the acquisition of the related property. The debt was recorded at fair value at the time of the assumption. ( g ) The Company entered into an interest rate swap agreement in connection with the mortgage, as further described in Note 11. ( h ) Mortgage was assumed in October 2017 as part of an UPREIT transaction. The debt was recorded at fair value at the time of the assumption. ( i ) Mortgage was assumed in June 2018 as part of the acquisition of the related property. The debt was recorded at fair value at the time of assumption. ( j ) Mortgage was assumed in April 2019 as part of the acquisition of the related property. The debt was recorded at fair value at the time of assumption. At March 31, 2021, investment in rental property of $ 172,440 was pledged as collateral against the Company’s mortgages. Estimated future principal payments to be made under the above mortgages and the Company’s unsecured credit agreements (see Note 9) at March 31, 2021 are as follows: (in thousands) Remainder of 2021 $ 17,169 2022 62,907 2023 287,582 2024 192,260 2025 20,195 Thereafter 931,717 $ 1,511,830 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. 15 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 March 31, 2021 December 31, 2020 Bank of America, N.A. November 2023 2.80 % one-month LIBOR $ 25,000 $ ( 1,622 ) $ ( 1,848 ) Bank of Montreal July 2024 1.16 % one-month LIBOR 40,000 ( 896 ) ( 1,380 ) Bank of Montreal January 2025 1.91 % one-month LIBOR 25,000 ( 1,236 ) ( 1,725 ) Bank of Montreal July 2025 2.32 % one-month LIBOR 25,000 ( 1,696 ) ( 2,351 ) Bank of Montreal January 2026 1.92 % one-month LIBOR 25,000 ( 1,271 ) ( 2,039 ) Bank of Montreal January 2026 2.05 % one-month LIBOR 40,000 ( 2,277 ) ( 3,523 ) Bank of Montreal December 2026 2.33 % one-month LIBOR 10,000 ( 720 ) ( 1,156 ) Bank of Montreal December 2026 1.99 % one-month LIBOR 25,000 ( 1,314 ) ( 2,372 ) Bank of Montreal December 2027 2.37 % one-month LIBOR 25,000 ( 1,858 ) ( 3,234 ) Bank of Montreal May 2029 2.09 % one-month LIBOR 25,000 ( 1,286 ) ( 2,994 ) Capital One, National Association December 2021 1.05 % one-month LIBOR 15,000 ( 105 ) ( 141 ) Capital One, National Association December 2024 1.58 % one-month LIBOR 15,000 ( 553 ) ( 799 ) Capital One, National Association January 2026 2.08 % one-month LIBOR 35,000 ( 2,035 ) ( 3,078 ) Capital One, National Association April 2026 2.68 % one-month LIBOR 15,000 ( 1,325 ) ( 1,843 ) Capital One, National Association July 2026 1.32 % one-month LIBOR 35,000 ( 639 ) ( 1,806 ) Capital One, National Association December 2027 2.37 % one-month LIBOR 25,000 ( 1,860 ) ( 3,199 ) M&T Bank August 2021 1.02 % one-month LIBOR 4,731 ( 14 ) ( 25 ) (a), (b) M&T Bank September 2022 2.83 % one-month LIBOR 25,000 ( 960 ) ( 1,139 ) M&T Bank November 2023 2.65 % one-month LIBOR 25,000 ( 1,524 ) ( 1,785 ) Regions Bank December 2023 1.18 % one-month LIBOR 25,000 ( 576 ) ( 763 ) Regions Bank May 2029 2.11 % one-month LIBOR 25,000 ( 1,324 ) ( 3,004 ) Regions Bank June 2029 2.03 % one-month LIBOR 25,000 ( 1,167 ) ( 2,843 ) Truist Financial Corporation April 2024 1.99 % one-month LIBOR 25,000 ( 1,200 ) ( 1,487 ) Truist Financial Corporation April 2025 2.20 % one-month LIBOR 25,000 ( 1,543 ) ( 2,084 ) Truist Financial Corporation July 2025 1.99 % one-month LIBOR 25,000 ( 1,345 ) ( 1,941 ) Truist Financial Corporation December 2025 2.30 % one-month LIBOR 25,000 ( 1,719 ) ( 2,481 ) Truist Financial Corporation January 2026 1.93 % one-month LIBOR 25,000 ( 1,280 ) ( 2,019 ) U.S. Bank National Association June 2029 2.03 % one-month LIBOR 25,000 ( 1,174 ) ( 2,902 ) U.S. Bank National Association August 2029 1.35 % one-month LIBOR 25,000 239 ( 1,445 ) Wells Fargo Bank, N.A. February 2021 2.39 % one-month LIBOR 35,000 — ( 70 ) Wells Fargo Bank, N.A. October 2024 2.72 % one-month LIBOR 15,000 ( 1,154 ) ( 1,422 ) Wells Fargo Bank, N.A. April 2027 2.72 % one-month LIBOR 25,000 ( 2,388 ) ( 3,555 ) Wells Fargo Bank, N.A. January 2028 2.37 % one-month LIBOR 75,000 ( 5,601 ) ( 9,650 ) $ ( 43,423 ) $ ( 72,103 ) (a) Notional amount at December 31, 2020 was $ 4,768 . (b) Interest rate swap was assumed in October 2017 as part of an UPREIT transaction. 16 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 Condensed Recognized in Comprehensive Loss Consolidated Statements of (in thousands) Accumulated Other Amount of Income and Comprehensive For the Three Months Ended March 31, Comprehensive Loss Location Loss Income (Loss) 2021 $ 28,680 Interest expense $ 4,016 $ 16,108 2020 ( 58,062 ) Interest expense 885 20,991 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 $ 15,776 . 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 three months ended March 31, 2021. The Company has not experienced losses relating to these deposits and management does not believe that the Company is exposed to any significant credit risk with respect to these amounts. The Company has mortgages with three institutions that comprised 63 %, 16 %, and 10 % of total mortgages at March 31, 2021 and December 31, 2020. For the three months ended March 31, 2021 and 2020, the Company had no individual tenants or common franchises that accounted for more than 10% of total revenues. 13. Equity General On September 21, 2020, the Corporation completed its IPO and issued 37,000 shares of Class A Common Stock inclusive of the underwriters’ partial exercise of their over-allotment option on October 20, 2020. Aside from the conversion discussed below, the terms of the Class A Common Stock were identical to the terms of the Common Stock. Each share of Class A Common Stock automatically converted into one share of Common Stock on March 20, 2021, and effective March 22, 2021, all shares of Common Stock were listed and freely tradeable on the NYSE under the ticker “BNL.” The Common Stock and Class A Common Stock are collectively referred to as the Corporation’s “common stock.” 14. Stock-Based Compensation Restricted Stock Awards On March 1, 2021 and August 4, 2020, the Company awarded 199 and 341 shares of RSAs, respectively, under the Equity Incentive Plan to certain officers and employees. The holder of RSAs is generally entitled at all times on and after the date of issuance of the restricted common shares to exercise the rights of a stockholder of the Company, including the right to vote the shares and the right to receive dividends on the shares. The March 1, 2021 RSAs vest over a one, three or four year period from the date of grant. The August 4, 2020 RSAs vest over a three or four year period from the anniversaries of February 7, 2020. The vesting for the RSAs is subject to the employee’s continued service through the applicable vesting dates and in accordance with the terms of the individual award agreements. 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. The March 1, 2021 grant date fair value per share of $ 18.66 was based on the market price of the Company’s common stock on the grant date. 17 The following table presents information about the Company’s RSAs: For the Three Months Ended (in thousands) March 31, 2021 Compensation cost $ 1,695 Dividends declared on unvested RSAs 104 Grant date fair value of shares vested during the period 2,522 There were no RSAs at March 31, 2020. (in thousands, except recognition period) March 31, 2021 December 31, 2020 Unamortized value of RSAs $ 6,999 $ 5,001 Weighted average amortization period (in years) 3.0 2.8 The following table presents information about the Company’s RSA activity: For the Three Months Ended March 31, 2021 (in thousands, except per share amounts) Number of Shares Weighted Average Grant Date Fair Value per Share Unvested at beginning of period 341 $ 20.50 Granted 199 18.66 Vested 124 20.26 Forfeited — — Unvested at end of period 416 $ 19.62 There were no unvested shares at March 31, 2020. Restricted Stock Units On March 1, 2021, the Company issued target grants of 132 PRSUs under the Equity Incentive Plan to the officers of the Company. The awards are non-vested restricted stock units where the vesting percentages and the ultimate number of units vesting will be measured 50 % based on the relative total shareholder return (“rTSR”) of the Company’s common stock as compared to the rTSR of peer companies over a three-year period, as identified in the grant agreements, and 50% based on the rTSR of the Company’s common stock as compared to the rTSR of the MSCI US REIT Index over a three year measurement period. The payout schedules can produce vesting percentages ranging from 0 % to 200 % with a target of 100 %. rTSR means the percentage appreciation in the fair market value of one share over the three-year measurement period beginning on the date of grant, assuming the reinvestment of dividends on the ex-dividend date. The target number of units is based on achieving a rTSR equal to the 55 th percentile of the peer companies and MSCI US REIT Index. Dividends accrue during the measurement period and will be paid on the PRSUs ultimately earned at the end of the measurement period in either cash or common stock, at the direction of the Board’s Compensation Committee. The grant date fair value of the PRSUs was measured using a Monte Carlo simulation model based on assumptions including share price volatility. The following table presents information about the Company’s PRSUs: For the Three Months Ended (in thousands, except recognition period) March 31, 2021 Compensation cost $ 74 March 31, 2021 Unamortized value of PRSUs $ 2,600 Weighted average amortization period (in years) 2.9 There were no PRSUs at March 31, 2020. 18 The following table presents information about the Company’s PRSU activity: For the Three Months Ended March 31, 2021 (in thousands, except per share amounts) Number of Shares Weighted Average Grant Date Fair Value per Share Unvested at beginning of period — $ — Granted 132 24.40 Vested — — Forfeited ( 22 ) 24.40 Unvested at end of period 110 $ 24.40 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 March 31, (in thousands, except per share amounts) 2021 2020 Basic earnings: Net earnings attributable to Broadstone Net Lease, Inc. common shareholders $ 22,223 $ 10,816 Less earnings allocated to unvested restricted shares ( 104 ) — Net earnings used to compute basic earnings per common share $ 22,119 $ 10,816 Diluted earnings: Net earnings used to compute basic earnings per share $ 22,119 $ 10,816 Net earnings attributable to non-controlling interests 1,737 1,032 Net earnings used to compute diluted earnings per common share $ 23,856 $ 11,848 Weighted average number of common shares outstanding 145,672 106,108 Less weighted average unvested restricted shares (a) ( 334 ) — Weighted average number of common shares outstanding used in basic earnings per common share 145,338 106,108 Effects of convertible membership units (b) 11,386 10,102 Weighted average number of common shares outstanding used in diluted earnings per common share 156,724 116,210 Basic earnings per share $ 0.15 $ 0.10 Diluted earnings per share $ 0.15 $ 0.10 (a) Represents the weighted average effects of 416 unvested restricted shares of common stock as of March 31, 2021, 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 11,361 and 12,226 OP Units outstanding at March 31, 2021 and 2020, respectively. OP Units are included in the diluted earnings per share calculation. However, because such OP Units would also require that the share of the net income attributable to such OP units also be added back to net income, there is no effect to EPS. 16. Supplemental Cash Flow Disclosures Cash paid for interest was $ 9,397 and $ 14,010 for the three months ended March 31, 2021 and 2020, respectively. Cash paid for income taxes was $ 237 and $ 195 for the three months ended March 31, 2021 and 2020, respectively. The following are non-cash transactions and have been excluded from the accompanying Condensed Consolidated Statements of Cash Flows: • During the three months ended March 31, 2020, the Corporation issued 69 shares of Common Stock with a value of approximately $ 5,733 under the terms of the Distribution Reinvestment Plan (“DRIP”). The Company terminated the DRIP effective February 10, 2020. 19 • During the three months ended March 31, 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. • During the three months ended March 31, 2020, the Company adjusted the carrying value of mezzanine equity non-controlling interests by $ 2,416 , with an offset to Additional paid-in capital, in accordance with the Company’s accounting policy. • At March 31, 2021 and 2020, dividend amounts declared and accrued but not yet paid amounted to $ 39,329 and $ 13,160 , respectively. 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) March 31, 2021 December 31, 2020 Tenant improvement allowances $ 903 $ 1,981 The Company is a party to three separate tax protection agreements with the contributing members of three distinct UPREIT transactions and to the Founding Owners’ Tax Protection Agreement in connection with the Internalization. The tax protection agreements require the Company to indemnify the beneficiaries in the event of a sale, exchange, transfer, or other disposal of the contributed property, and in the case of the Founding Owners’ Tax Protection Agreement, the entire Company, in a taxable transaction that would cause such beneficiaries to recognize a gain that is protected under the agreements, subject to certain exceptions. The Company is required to allocate an amount of nonrecourse liabilities to each beneficiary that is at least equal to the minimum liability amount, as contained in the agreements. The minimum liability amount and the associated allocation of nonrecourse liabilities are calculated in accordance with applicable tax regulations, are completed at the OP level, and do not represent GAAP accounting. Therefore, there is no impact to the Condensed Consolidated Financial Statements. Based on values as of March 31, 2021, 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. Obligations Under Operating Leases Subsequent to the Internalization, the Company leases office space for its corporate headquarters and other locations under non-cancellable operating leases with expiration dates ranging from 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 an affiliated third party. 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. 20 The following table summarizes the total lease costs associated with operating leases: For the Three Months Ended March 31, (in thousands) Financial Statement Presentation 2021 2020 Operating lease costs Office leases General and administrative $ 158 $ 52 Ground leases Property and operating expense 33 33 Variable lease costs Ground leases Property and operating expense 14 18 Total lease costs $ 205 $ 103 The following table summarizes payments associated with obligations under operating leases, reported as Net cash provided by operating activities on the accompanying Condensed Consolidated Statements of Cash Flows: For the Three Months Ended March 31, (in thousands) 2021 2020 Operating lease payments $ 241 $ 128 Estimated future lease payments required under non-cancelable operating leases at March 31, 2021, and a reconciliation to the lease liabilities, is as follows: (in thousands) Remainder of 2021 $ 548 2022 690 2023 505 2024 120 2025 121 Thereafter 2,290 Total undiscounted cash flows 4,274 Less imputed interest ( 1,743 ) Lease liabilities $ 2,531 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 April 15, 2021, the Company paid distributions totaling $ 39,293 . On April 30, 2021 , the Board of Directors declared a quarterly distribution of $ 0.255 per share on the Company’s common stock and OP Units for the second quarter of 2021, which will be payable on or before July 15, 2021 to stockholders and unit holders of record as of June 30, 2021 . Subsequent to March 31, 2021, the Company drew additional borrowings on the Revolving Credit Facility in the aggregate amount of $ 24,000 . 21