Broadstone Net Lease, Inc. (Form: 10-Q, Received: 05/05/2021 16:12:08)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2021, or

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

Commission File Number 001-39529

BROADSTONE NET LEASE, INC.

(Exact name of registrant as specified in its charter)

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

800 Clinton Square

Rochester, New York

14604

(Address of principal executive offices)

(Zip Code)

(585) 287-6500

(Registrant’s telephone number, including area code)

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00025 par value

BNL

New York Stock Exchange

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

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

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

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

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

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

There were 145,811,829 shares of the Registrant’s Common Stock, $0.00025 par value per share, outstanding as of May 3, 2021.

BROADSTONE NET LEASE, INC.

TABLE OF CONTENTS

		Page
Part I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited)	2
	Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Cautionary Note Regarding Forward-Looking Statements	22
	Explanatory Note and Certain Defined Terms	22
	Overview	23
	Real Estate Portfolio Information	24
	Results of Operations	30
	Liquidity and Capital Resources	34
	Derivative Instruments and Hedging Activities	36
	Cash Flows	36
	Contractual Obligations	37
	Non-GAAP Measures	37
	Critical Accounting Policies	40
	Impact of Recent Accounting Pronouncements	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41
Part II - OTHER INFORMATION		42
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except per share amounts)

	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.

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.

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.

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.

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.

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.

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

change in these inputs to a different amount might result in a significantly higher or lower fair value measurement at the reporting date. Specifically, advancements in the estimated IPO date assumption increased the earnout liability’s fair value given the earnout’s fixed time horizon. Peer share price volatilities are used to estimate the Company’s expected share price volatility, and the Company’s corresponding ability to achieve the earnout targets. Increases in the volatility assumption would increase the earnout liability’s fair value. Increases in net asset values would also increase the earnout liability’s fair value.

The table below provides a summary of the significant unobservable inputs used to estimate the fair value of the earnout liability as of 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	)

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.

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.

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 not 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

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

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

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.

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.

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.

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.

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.

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.

•

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.

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.

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

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

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

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views regarding our business, financial performance, growth prospects and strategies, market opportunities, and market trends, that are intended to be made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” or the negative version of these words or other comparable words. All of the forward-looking statements included in this Quarterly Report on Form 10-Q are subject to various risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results, performance, and achievements could differ materially from those expressed in or by the forward-looking statements and may be affected by a variety of risks and other factors. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from such forward-looking statements.

Important factors that could cause results to differ materially from the forward-looking statements are described in Item 1. “Business,” Item 1A. “Risk Factors,” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Annual Report on Form 10-K, as filed with the SEC on February 25, 2021. The “Risk Factors” of our 2020 Annual Report should not be construed as exhaustive and should be read in conjunction with other cautionary statements included elsewhere in this Quarterly Report on Form 10-Q.

You are cautioned not to place undue reliance on any forward-looking statements included in this Quarterly Report on Form 10-Q. All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results, performance, and achievements will differ materially from the expectations expressed in or referenced by this Quarterly Report on Form 10-Q will increase with the passage of time. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by law.

Explanatory Note and Certain Defined Terms

Unless the context otherwise requires, the following terms and phrases are used throughout this MD&A as described below:

•

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

•

“cash capitalization rate” represents the estimated first year cash yield to be generated on a real estate investment property, which was estimated at the time of investment based on the contractually specified cash base rent for the first full year after the date of the investment, divided by the purchase price for the property;

•

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

•

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

•

“Revolving Credit Facility” means our $900 million unsecured revolving credit facility, dated September 21, 2020, with J.P. Morgan Chase Bank, N.A. and the other lenders party thereto.

Overview

We acquire, own, and manage primarily single-tenant commercial real estate properties that are net leased on a long-term basis to a diversified group of tenants. Since our inception in 2007, we have selectively invested in net leased assets in the industrial, healthcare, restaurant, office, and retail property types. As of March 31, 2021, our portfolio has grown to 661 properties, with 660 properties located in 41 U.S. states and one property located in British Columbia, Canada.

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

Diversified Portfolio. As of March 31, 2021, our portfolio comprised approximately 28.4 million rentable square feet of operational space, and was highly diversified based on property type, geography, tenant, and industry, and is cross-diversified within each (e.g., property-type diversification within a geographic concentration):

Property Type: We are focused primarily on industrial, healthcare, restaurant, office, and retail property types based on our extensive experience in and conviction around these sectors. Within these sectors, we have meaningful concentrations in manufacturing, distribution and warehouse, clinical, casual dining, quick service restaurant, strategic operations, corporate headquarters, food processing, flex/research and development, and cold storage.

Geographic Diversity: Our properties are located in 41 U.S. states and British Columbia, Canada, with no single geographic concentration exceeding 10.2% of our ABR.

Tenant and Industry Diversity: Our properties are occupied by approximately 185 different commercial tenants who operate 171 different brands that are diversified across 55 differing industries, with no single tenant accounting for more than 2.4% of our ABR.

Strong In-Place Leases with Significant Remaining Lease Term. As of March 31, 2021, our portfolio was approximately 99.7% leased based on rentable square footage with an ABR weighted average remaining lease term of approximately 10.6 years, excluding renewal options.

Standard Contractual Base Rent Escalation. Approximately 98.2% of our leases have contractual rent escalations, with an ABR weighted average minimum increase of 2.1%.

Extensive Tenant Financial Reporting. Approximately 88.1% of our ABR is received from tenants that are required to provide us with specified financial information on a periodic basis. An additional 7.1% of our ABR is received from tenants who are not required to provide us with specified financial information under the terms of our lease, but whose financial statements are available publicly, either through SEC filings or otherwise.

Real Estate Portfolio Information

The following charts summarize our portfolio diversification by property type, tenant, brand, industry and geographic location as of March 31, 2021. The percentages below are calculated based on our ABR of $302.3 million as of March 31, 2021.

Diversification by Property Type

Property Type	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
Industrial
Manufacturing		56	$	42,455		14.0	%		7,732		27.3	%
Distribution & Warehouse		31		40,250		13.3	%		7,414		26.1	%
Food Processing		14		18,386		6.1	%		2,132		7.5	%
Flex and R&D		7		16,934		5.6	%		1,457		5.1	%
Cold Storage		4		12,578		4.2	%		933		3.3	%
Services		18		7,168		2.4	%		429		1.5	%
Industrial Total		130		137,771		45.6	%		20,097		70.8	%
Healthcare
Clinical		50		24,958		8.3	%		1,062		3.7	%
Surgical		11		9,166		3.0	%		306		1.1	%
Animal Health Services		20		8,209		2.7	%		314		1.1	%
Life Science		9		7,994		2.6	%		550		1.9	%
Healthcare Services		26		7,520		2.5	%		302		1.1	%
Healthcare Total		116		57,847		19.1	%		2,534		8.9	%
Restaurant
Quick Service Restaurants		156		25,495		8.4	%		530		1.9	%
Casual Dining		88		19,858		6.6	%		563		2.0	%
Restaurant Total		244		45,353		15.0	%		1,093		3.9	%
Retail
Automotive		68		12,767		4.2	%		844		3.0	%
General Merchandise		71		12,215		4.1	%		855		3.0	%
Home Furnishings		15		6,932		2.3	%		860		3.0	%
Retail Total		154		31,914		10.6	%		2,559		9.0	%
Office
Strategic Operations		7		13,639		4.5	%		1,021		3.6	%
Corporate Headquarters		6		10,016		3.3	%		671		2.4	%
Call Center		4		5,716		1.9	%		392		1.4	%
Office Total		17		29,371		9.7	%		2,084		7.4	%
Total		661	$	302,256		100.0	%		28,367		100.0	%

Diversification by Tenant

Tenant	Property Type	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
Red Lobster Hospitality & Red Lobster Restaurants LLC^*	Casual Dining		24	$	7,306		2.4	%		196		0.7	%
Jack's Family Restaurants LP^*	Quick Service Restaurants		43		7,026		2.3	%		147		0.5	%
Axcelis Technologies, Inc.	Flex and R&D		1		5,859		1.9	%		417		1.5	%
Hensley & Company^*	Distribution & Warehouse		3		5,756		1.9	%		577		2.0	%
Outback Steakhouse of Florida LLC^*1	Casual Dining		22		5,192		1.7	%		140		0.5	%
BluePearl Holdings, LLC^*	Animal Health Services		12		5,137		1.7	%		154		0.5	%
Krispy Kreme Doughnut Corporation	Quick Service Restaurants/ Food Processing		27		5,034		1.7	%		156		0.6	%
Big Tex Trailer Manufacturing, Inc.^*	Automotive/Distribution & Warehouse/Manufacturing/ Corporate Headquarters		17		4,860		1.6	%		1,302		4.6	%
Siemens Medical Solutions USA, Inc. & Siemens Corporation	Manufacturing/Flex and R&D		2		4,718		1.6	%		545		1.9	%
Nestle' Dreyer's Ice Cream Company	Cold Storage		1		4,409		1.5	%		310		1.1	%
Total Top 10 Tenants			152		55,297		18.3	%		3,944		13.9	%

Arkansas Surgical Hospital	Surgical		1		4,260		1.4	%		129		0.4	%
Nationwide Mutual Insurance Company^*	Strategic Operations		2		4,165		1.4	%		407		1.4	%
American Signature, Inc.	Home Furnishings		6		4,142		1.4	%		474		1.7	%
Cascade Aerospace Inc.	Manufacturing		1		4,122		1.4	%		231		0.8	%
Tractor Supply Company	General Merchandise		15		3,872		1.3	%		300		1.1	%
Aventiv Technologies, LLC	Corporate Headquarters		1		3,819		1.2	%		154		0.5	%
Fresh Express Incorporated	Food Processing		1		3,819		1.2	%		335		1.2	%
Bob Evans Restaurants, LLC^*	Casual Dining		22		3,566		1.2	%		116		0.4	%
Zips Car Wash, LLC^*	Automotive		14		3,292		1.1	%		57		0.2	%
Centene Management Company, LLC	Strategic Operations		1		3,267		1.1	%		220		0.8	%
Total Top 20 Tenants			216	$	93,621		31.0	%		6,367		22.4	%

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

^*	Subject to a master lease.

Diversification by Brand

Brand	Property Type	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
Red Lobster^*	Casual Dining		24	$	7,306		2.4	%		196		0.7	%
Jack's Family Restaurants^*	Quick Service Restaurants		43		7,026		2.3	%		147		0.5	%
Axcelis	Flex and R&D		1		5,859		1.9	%		417		1.5	%
Hensley^*	Distribution & Warehouse		3		5,756		1.9	%		577		2.0	%
Bob Evans Farms^*1	Casual Dining/Food Processing		23		5,449		1.8	%		292		1.0	%
Wendy's^#	Quick Service Restaurants		38		5,433		1.8	%		113		0.4	%
BluePearl Veterinary Partners^*	Animal Health Services		12		5,137		1.7	%		154		0.5	%
Krispy Kreme	Quick Service Restaurants/ Food Processing		27		5,034		1.7	%		156		0.6	%
Big Tex Trailers^*	Automotive/Distribution & Warehouse/Manufacturing/ Corporate Headquarters		17		4,860		1.6	%		1,302		4.6	%
Siemens	Manufacturing/Flex and R&D		2		4,718		1.6	%		545		1.9	%
Total Top 10 Brands			190		56,578		18.7	%		3,899		13.7	%

Outback Steakhouse^*	Casual Dining		20		4,492		1.5	%		126		0.5	%
Nestle'	Cold Storage		1		4,409		1.5	%		310		1.1	%
Arkansas Surgical Hospital	Surgical		1		4,260		1.4	%		129		0.4	%
Taco Bell^#	Quick Service Restaurants		32		4,226		1.4	%		82		0.3	%
Nationwide Mutual Insurance Co.^*	Strategic Operations		2		4,165		1.4	%		407		1.4	%
Value City Furniture	Home Furnishings		6		4,142		1.4	%		474		1.7	%
Cascade Aerospace	Manufacturing		1		4,122		1.4	%		231		0.8	%
Tractor Supply Co.	General Merchandise		15		3,872		1.3	%		300		1.1	%
Securus Technologies	Corporate Headquarters		1		3,819		1.2	%		154		0.5	%
Chiquita	Food Processing		1		3,819		1.2	%		335		1.2	%
Total Top 20 Brands			270	$	97,904		32.4	%		6,447		22.7	%

^*	Subject to a master lease.

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

¹	Brand includes one BEF Foods, Inc property and 22 Bob Evans Restaurants, LLC properties.

Diversification by Industry

Industry	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		ABR as a % of Total Portfolio
Restaurants		244	$	46,018		15.2	%		1,118		4.0	%
Healthcare Facilities		88		44,345		14.7	%		1,738		6.1	%
Food Distributors		7		12,907		4.3	%		1,556		5.5	%
Auto Parts & Equipment		39		12,369		4.1	%		2,387		8.4	%
Specialized Consumer Services		47		11,790		3.9	%		720		2.5	%
Packaged Foods & Meats		6		11,371		3.7	%		1,130		4.0	%
Metal & Glass Containers		8		9,686		3.2	%		2,206		7.8	%
Healthcare Services		19		9,152		3.0	%		522		1.8	%
Home Furnishing Retail		16		8,711		2.9	%		1,149		4.1	%
Aerospace & Defense		6		7,760		2.6	%		921		3.3	%
Distributors		12		6,909		2.3	%		966		3.4	%
Specialty Stores		17		6,913		2.3	%		888		3.1	%
Electronic Components		2		6,658		2.2	%		466		1.7	%
Air Freight & Logistics		3		6,494		2.1	%		436		1.5	%
Industrial Machinery		16		6,021		2.0	%		1,174		4.1	%
Other (40 industries)		125		95,152		31.5	%		10,894		38.4	%
Untenanted properties		6		—		—			96		0.3	%
Total		661	$	302,256		100.0	%		28,367		100.0	%

Diversification by Geography

State	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio			State	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
TX		54	$	30,771		10.2	%		3,207		11.3	%	VA		13	$	4,368		1.4	%		110		0.4	%
IL		25		19,339		6.4	%		1,976		7.0	%	WA		15		4,155		1.4	%		150		0.5	%
CA		11		15,735		5.2	%		1,554		5.5	%	MO		9		3,882		1.3	%		733		2.6	%
FL		46		15,663		5.2	%		801		2.8	%	KY		17		3,473		1.2	%		167		0.6	%
WI		32		15,655		5.2	%		1,611		5.7	%	LA		3		3,128		1.0	%		175		0.6	%
MI		35		14,760		4.9	%		1,439		5.1	%	NE		6		2,959		1.0	%		509		1.8	%
OH		35		14,125		4.7	%		1,369		4.8	%	MD		4		2,882		1.0	%		293		1.0	%
IN		30		12,830		4.2	%		1,765		6.2	%	MS		8		2,736		0.9	%		334		1.2	%
NC		34		12,134		4.0	%		1,245		4.4	%	NM		8		2,731		0.9	%		97		0.3	%
MN		20		11,501		3.8	%		1,757		6.2	%	IA		4		2,704		0.9	%		622		2.2	%
NY		26		10,323		3.4	%		680		2.4	%	SC		13		2,466		0.8	%		308		1.1	%
TN		42		10,225		3.4	%		390		1.4	%	UT		3		2,328		0.8	%		280		1.0	%
MA		4		9,994		3.3	%		1,009		3.5	%	CT		2		1,653		0.6	%		55		0.2	%
PA		16		9,785		3.2	%		1,146		4.0	%	WV		8		1,642		0.5	%		36		0.1	%
AL		50		8,761		2.9	%		206		0.7	%	MT		7		1,544		0.5	%		43		0.2	%
AZ		8		8,553		2.8	%		761		2.7	%	CO		3		1,434		0.5	%		94		0.3	%
AR		11		7,380		2.4	%		282		1.0	%	NV		2		1,311		0.4	%		81		0.3	%
GA		19		6,554		2.2	%		976		3.4	%	ND		2		933		0.3	%		28		0.1	%
OK		18		6,440		2.1	%		786		2.8	%	DE		3		663		0.2	%		35		0.1	%
KS		10		5,407		1.8	%		639		2.3	%	WY		1		307		0.1	%		21		0.1	%
NJ		3		4,900		1.6	%		366		1.3	%	Total US		660	$	298,134		98.6	%		28,136		99.2	%
													Total Canada		1		4,122		1.4	%		231		0.8	%
													Grand Total		661	$	302,256		100.0	%		28,367		100.0	%

Lease Expirations

As of March 31, 2021, the ABR weighted average remaining term of our leases was approximately 10.6 years. Less than 5% of the properties in our portfolio are subject to leases without at least one renewal option. Approximately 44.9% of our rental revenue was derived from leases that will expire after 2030, and no more than 9.0% of our rental revenue was derived from leases that expire in any single year prior to 2030. The following chart sets forth our lease expirations based upon the terms of the leases in place as of March 31, 2021.

Expiration

Year

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041+

Number of

properties

Number of

leases

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

Expiration Year	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
2021		4	$	964		0.3	%		46		0.2	%
2022		3		2,409		0.8	%		86		0.3	%
2023		6		4,841		1.6	%		515		1.8	%
2024		11		13,662		4.5	%		1,689		6.0	%
2025		19		7,833		2.6	%		682		2.4	%
2026		34		18,586		6.1	%		1,404		4.9	%
2027		27		22,917		7.6	%		2,010		7.1	%
2028		35		27,171		9.0	%		2,736		9.6	%
2029		61		19,357		6.4	%		2,538		8.9	%
2030		86		49,088		16.2	%		4,927		17.4	%
2031		21		7,145		2.4	%		725		2.6	%
2032		44		26,225		8.7	%		3,014		10.6	%
2033		41		16,385		5.4	%		1,693		6.0	%
2034		31		5,479		1.8	%		361		1.3	%
2035		14		10,498		3.5	%		1,471		5.2	%
2036		71		16,914		5.6	%		969		3.4	%
2037		24		17,256		5.7	%		1,367		4.8	%
2038		33		6,805		2.3	%		306		1.1	%
2039		12		8,988		3.0	%		933		3.3	%
2040		41		6,887		2.3	%		347		1.2	%
Thereafter		37		12,846		4.2	%		452		1.6	%
Untenanted properties		6		—		—			96		0.3	%
Total		661	$	302,256		100.0	%		28,367		100.0	%

Results of Operations

The following discussion includes the results of our operations for the periods presented. We have included an analysis of the three months ended March 31, 2021, as compared to the three months ended December 31, 2020 and March 31, 2020. We have included the comparison of the immediately preceding quarter given our Internalization and initial public offering’s (“IPO”) significant impact to our results of operations and financial condition, and therefore comparability, of the prior year periods. We believe the quarter-over-quarter analysis is beneficial to investors as it compares the results of operations on a more comparable basis, and aligns with our strategic growth priorities under a different leverage and liquidity profile going forward.

Three Months Ended March 31, 2021 Compared to Three Months Ended December 31, 2020

Lease Revenues, net

	For the Three Months Ended
	March 31,			December 31,			Increase/(Decrease)
(in thousands)	2021			2020			$			%
Contractual rental amounts billed for operating leases	$	73,245		$	72,558		$	687			0.9	%
Adjustment to recognize contractual operating lease billings on a straight-line basis		4,367			4,256			111			2.6	%
Variable rental amounts earned		91			455			(364	)		(80.0	)%
Earned income from direct financing leases		730			756			(26	)		(3.4	)%
Earned income from sales-type leases		14			5			9		>100%
Operating expenses billed to tenants		4,388			4,389			(1	)		(0.0	)%
Other income from real estate transactions		5			(16	)		21		>(100)%
Adjustment to revenue recognized for uncollectible rental amounts billed		(142	)		(112	)		(30	)		26.8	%
Total Lease revenues, net	$	82,698		$	82,291		$	407			0.5	%

The increase in Lease revenues, net was primarily attributable to growth in our real estate portfolio through accretive property acquisitions during the fourth quarter of 2020. During the fourth quarter of 2020, we invested $100.3 million, excluding capitalized acquisition costs, in 19 properties at a weighted average initial cash cap rate of 6.9%. Most of these acquisitions closed during the month of December, and therefore did not materially contribute to Lease revenues, net for the three months ended December 31, 2020.

Operating Expenses

	For the Three Months Ended
	March 31,		December 31,		Increase/(Decrease)
(in thousands)	2021		2020		$			%
Operating expenses
Depreciation and amortization	$	30,713	$	30,182	$	531			1.8	%
Property and operating expense		4,605		4,986		(381	)		(7.6	)%
General and administrative		10,633		9,232		1,401			15.2	%
Provision for impairment of investment in rental properties		2,012		1,678		334			19.9	%
Total operating expenses	$	47,963	$	46,078	$	1,885			4.1	%

General and administrative

The increase in general and administrative expenses mainly reflects increased severance associated with the departure of an executive officer during the three months ended March 31, 2021.

Provision for impairment of investment in rental properties

During the three months ended March 31, 2021, we recognized $2.0 million of impairment on our investments in rental properties, compared to $1.7 million during the three months ended December 31, 2020. The following table presents the impairment charges for their respective period:

	For the Three Months Ended
	March 31,		December 31,
(in thousands, except number of properties)	2021		2020
Number of properties		1		1
Carrying value prior to impairment charge		2,818	$	4,228
Fair value		806		2,550
Impairment charge	$	2,012	$	1,678

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

Other income (expenses)

	For the Three Months Ended
	March 31,			December 31,			Increase/(Decrease)
(in thousands)	2021			2020			$			%
Other income (expenses)
Interest income	$	5		$	4		$	1			25.0	%
Interest expense		(16,108	)		(17,123	)		(1,015	)		(5.9	)%
Cost of debt extinguishment		(126	)		(3	)		123		>100%
Gain on sale of real estate		4,733			5,260			(527	)		(10.0	)%
Income taxes		(413	)		141			(554	)	>(100)%
Internalization expenses		—			(182	)		(182	)		(100.0	)%
Change in fair value of earnout liability		1,124			(6,706	)		7,830		>100%
Other income (expenses)		10			15			(5	)		(33.3	)%

Interest expense

The decrease in interest expense reflects a decrease in our weighted average cost of borrowings combined with decreased average outstanding borrowings in the comparable period. In January 2021, we received an initial credit rating of BBB with a stable outlook from S&P Global Ratings (“S&P”), which had the effect of lowering the applicable margin on our then existing $965 million of bank loans by 25 basis points beginning in February 2021, as well as a 20 basis point decrease in the applicable margin on Revolving Credit Facility borrowings. We also repriced our 2026 Unsecured Term Loan in March 2021, reducing the applicable margin by an additional 60 basis points, and simultaneously repaid $50 million.

Change in fair value of earnout liability

As part of the Internalization, we may be required to pay additional earnout consideration if certain milestones are achieved during the Earnout Periods. We record the fair value of this contingent consideration in the Condensed Consolidated Balance Sheets, and update the fair value at the end of each reporting period. To the extent the change in fair value relates to a portion of the earnout consideration that is classified as a liability, we record the change through earnings. We estimate the fair value of the earnout liability by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis to estimate fair value. These estimates require us to make various assumptions about future share prices, and other items that are unobservable and are considered Level 3 inputs in the fair value hierarchy. The change in the fair value of the earnout liability during the three months ended March 31, 2021, reflects a decrease in our share price as compared to December 31, 2020.

Net income and Net earnings per diluted share

	For the Three Months Ended
	March 31,		December 31,		Increase/(Decrease)
(in thousands, except per share data)	2021		2020		$		%
Net income	$	23,960	$	17,619	$	6,341		36.0	%
Net earnings per diluted share		0.15		0.11		0.04		36.4	%

The increase in net income is primarily due to a $7.8 million increase in income from the change in fair value of our earnout liability and a $1.0 million decrease in interest expense. These factors were partially offset by a $1.4 million increase in general and administrative expenses.

GAAP net income includes items such as gain or loss on sale of real estate and provisions for impairment, among others, which can vary from quarter to quarter and impact period-over-period comparisons.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Lease Revenues, net

	For the Three Months Ended
	March 31,						Increase/(Decrease)
(in thousands)	2021			2020			$			%
Contractual rental amounts billed for operating leases	$	73,245		$	72,828		$	417			0.6	%
Adjustment to recognize contractual operating lease billings on a straight-line basis		4,367			1,665			2,702		>100%
Variable rental amounts earned		91			3			88		>100%
Earned income from direct financing leases		730			987			(257	)		(26.0	)%
Earned income from sales-type leases		14			—			14			100.0	%
Operating expenses billed to tenants		4,388			3,732			656			17.6	%
Other income from real estate transactions		5			49			(44	)		(89.8	)%
Adjustment to revenue recognized for uncollectible rental amounts billed		(142	)		(1,033	)		891			(86.3	)%
Total Lease revenues, net	$	82,698		$	78,231		$	4,467			5.7	%

The increase in Lease revenues, net, was primarily attributable to growth in our real estate portfolio through accretive property acquisitions during 2020. During the fourth quarter of 2020, we invested $100.3 million, excluding capitalized acquisition costs, in 19 properties at a weighted average initial cash cap rate of 6.9%. Most of these acquisitions closed during the month of December, and therefore did not contribute to Lease revenues, net for the three months ended March 31, 2020.

Operating Expenses

	For the Three Months Ended
	March 31,				Increase/(Decrease)
(in thousands)	2021		2020		$			%
Operating expenses
Depreciation and amortization	$	30,713	$	31,219	$	(506	)		(1.6	)%
Asset management fees		—		2,461		(2,461	)		(100.0	)%
Property management fees		—		1,275		(1,275	)		(100.0	)%
Property and operating expense		4,605		4,115		490			11.9	%
General and administrative		10,633		5,842		4,791			82.0	%
Provision for impairment of investment in rental properties		2,012		2,133		(121	)		(5.7	)%
Total operating expenses	$	47,963	$	47,045	$	918			2.0	%

Asset management fees and Property management fees

The decrease in asset management fees and property management fees was due to the completion of the Internalization in February 2020, which terminated the associated agreements with our third-party manager.

General and administrative

The increase in general and administrative expenses mainly reflects the impact of the Internalization associated with our newly acquired employee base. Following the Internalization, our asset and property management fees were replaced with compensation and related expenses, along with associated general and administrative expenses for the three months ended March 31, 2020.

Provision for impairment of investment in rental properties

During the three months ended March 31, 2021, we recognized $2.0 million of impairment on our investments in rental properties, compared to $2.1 million during the three months ended March 31, 2020. The following table presents the impairment charges for their respective periods:

	For the Three Months Ended
	March 31,
(in thousands, except number of properties)	2021		2020
Number of properties		1		1
Carrying value prior to impairment charge	$	2,818	$	22,133
Fair value		806		20,000
Impairment charge	$	2,012	$	2,133

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

Other income (expenses)

	For the Three Months Ended
	March 31,						Increase/(Decrease)
(in thousands)	2021			2020			$			%
Other income (expenses)
Interest income	$	5		$	9		$	(4	)		(44.4	)%
Interest expense		(16,108	)		(20,991	)		(4,883	)		(23.3	)%
Cost of debt extinguishment		(126	)		(22	)		104		>100%
Gain on sale of real estate		4,733			7,619			(2,886	)		(37.9	)%
Income taxes		(413	)		(549	)		(136	)		(24.8	)%
Internalization expenses		—			(1,205	)		(1,205	)		(100.0	)%
Change in fair value of earnout liability		1,124			(4,177	)		5,301		>100%
Other income (expenses)		10			(22	)		32		>100%

Interest expense

The decrease in interest expense primarily reflects a decrease in our average outstanding borrowings, combined with a decrease in our weighted average cost of borrowings. In September 2020, we used the proceeds of our IPO to repay $456.7 million of outstanding borrowings, including accrued interest, significantly reducing our leverage profile. In January 2021, we received an initial credit rating of BBB with a stable outlook from S&P, which had the effect of lowering the applicable margin on our then existing $965 million of bank loans by 25 basis points beginning in February 2021. We also repriced and partially repaid our 2026 Unsecured Term Loan in March 2021, reducing the applicable margin and principal balance by an additional 60 basis points and $50 million, respectively.

Gain on sale of real estate

Our recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market. During the three months ended March 31, 2021, we recognized gains of $4.7 million on the sale of eight properties, compared to gains of $7.6 million on the sale of 10 properties during the three months ended March 31, 2020.

Internalization expenses

During the three months ended March 31, 2020, we incurred $1.2 million of third-party fees and consulting expenses associated with the Internalization that closed on February 7, 2020. We did not incur these expenses during the three months ended March 31, 2021.

Change in fair value of earnout liability

The change in the fair value of the earnout liability during the three months ended March 31, 2021, reflects a decrease in our period end share price.

Net income and Net earnings per diluted share

	For the Three Months Ended
	March 31,				Increase/(Decrease)
(in thousands, except per share data)	2021		2020		$		%
Net income	$	23,960	$	11,848	$	12,112	>100%
Net earnings per diluted share		0.15		0.10		0.05		50.0	%

The increase in net income, is primarily due to a $5.3 million increase in income from the change in fair value of our earnout liability, a $4.9 million decrease in interest expense, revenue growth of $4.5 million, and a $1.2 million decrease in internalization expenses. These factors were partially offset by a $2.9 million decrease in the gain on sale of real estate.

Liquidity and Capital Resources

General

We acquire real estate using a combination of debt and equity capital and with cash from operations that is not otherwise distributed to our stockholders. Our focus is on maximizing the risk-adjusted return to our stockholders through an appropriate balance of debt and equity in our capital structure. We are committed to maintaining an investment grade balance sheet through active management of our leverage profile and overall liquidity position. We believe our leverage strategy has allowed us to take advantage of the lower cost of debt while simultaneously strengthening our balance sheet, as evidenced by our investment grade credit ratings of BBB from S&P and Baa3 from Moody’s Investors Service (“Moody’s”). We manage our leverage profile using a ratio of Net Debt to Annualized Adjusted EBITDAre, a non-GAAP financial measure, which we believe is a useful measure of our ability to repay debt and a relative measure of leverage, and is used in communications with lenders and with rating agencies regarding our credit rating. We seek to maintain on a sustained basis a Net Debt to Annualized Adjusted EBITDAre ratio that is generally less than 6.0x. As of March 31, 2021, we had total debt outstanding of $1.5 billion, Net Debt of $1.5 billion, and a Net Debt to Annualized Adjusted EBITDAre ratio of approximately 5.25x.

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

Liquidity/REIT Requirements

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

Short-term Liquidity Requirements

Our short-term liquidity requirements consist primarily of funds necessary to pay for our operating expenses, including our general and administrative expenses as well as interest payments on our outstanding debt, and to pay distributions. We do not currently anticipate making significant capital expenditures or incurring other significant property costs because of the strong occupancy levels across our portfolio and the nature of our leases. We expect to meet our short-term liquidity requirements primarily from cash and cash equivalents balances and net cash provided by operating activities, supplemented by borrowings under our Revolving Credit Facility.

As detailed in the contractual obligations table below, we have approximately $61.7 million of expected obligations due to be paid throughout the remainder of 2021, primarily consisting of $17.2 million of mortgage maturities, and $43.1 million of interest expense due, including the impact of our interest rate swaps. We expect our cash provided by operating activities, as discussed below, will be sufficient to pay for our current obligations including interest expense on our borrowings. We expect to either repay the maturing mortgages with available cash on hand generated from our results of operations or borrowings under our Revolving Credit Facility, or refinance with property-level borrowings.

Long-term Liquidity Requirements

Our long-term liquidity requirements consist primarily of funds necessary to repay debt and invest in additional revenue generating properties. Debt capital is provided through unsecured term notes, revolving credit facilities, and senior unsecured notes. Further, we anticipate having the ability to access the public unsecured bond market, which was historically largely unavailable to us prior to our IPO.

The source and mix of our debt capital in the future will be impacted by market conditions as well as our continued focus on lengthening our debt maturity profile to better align with our portfolio’s lease terms, staggering debt maturities to reduce the risk that a significant amount of debt will mature in any single year in the future, and managing our exposure to interest rate risk. Our $60 million 2022 Unsecured Term Loan has a short-term maturity date of February 2022. We expect to either repay the 2022 Unsecured Term Loan with available cash on hand, or with borrowings under our Revolving Credit Facility. With outstanding borrowings of $15 million at March 31, 2021, we have $885 million of available capacity under our Revolving Credit Facility.

We expect to meet our long-term liquidity requirements primarily from borrowings under our Revolving Credit Facility, future debt and equity financings, and proceeds from limited sales of our properties. Our ability to access these capital sources may be impacted by unfavorable market conditions, particularly in the debt and equity capital markets, that are outside of our control. In addition, our success will depend on our operating performance, our borrowing restrictions, our degree of leverage, and other factors. Our acquisition growth strategy significantly depends on our ability to obtain acquisition financing on favorable terms. We seek to reduce the risk that long-term debt capital may be unavailable to us by strengthening our balance sheet by investing in real estate with creditworthy tenants and lease guarantors, and by maintaining an appropriate mix of debt and equity capitalization. We also, from time to time, obtain or assume non-recourse mortgage financing from banks and insurance companies secured by mortgages on the corresponding specific property. Mortgages, however, are not currently a strategic focus of the active management of our capital structure.

Equity Capital Resources

On September 21, 2020, we completed our IPO and issued 37 million shares of stock for net proceeds of $588.3 million, including shares issued subsequently pursuant to the underwriters’ partial exercise of their over-allotment option. We used $216.5 million of the net proceeds to fully repay the outstanding borrowings and accrued interest under our then existing revolving credit agreement and $240.2 million of the proceeds to fully repay the outstanding principal and accrued interest associated with an unsecured term loan.

As we continue to invest in accretive real estate properties, we expect to balance our debt and equity capitalization, while maintaining a Net Debt to Annualized Adjusted EBITDAre ratio below 6.0x on a sustained basis, through the anticipated use of follow-on equity offerings and an at-the-market (“ATM”) program. As of March 31, 2021, we have successfully deployed the remaining proceeds from our IPO.

Unsecured Indebtedness and Capital Markets Activities as of and for the Three Months Ended March 31, 2021

The following table sets forth our outstanding Revolving Credit Facility, unsecured term loans and Senior Notes at March 31, 2021.

(in thousands, except interest rates)	Outstanding Balance		Interest Rate	Maturity Date
Revolving Credit Facility	$	15,000	daily LIBOR + 1.00%	Sept. 2023
2022 Unsecured Term Loan		60,000	one-month LIBOR + 1.00%	Feb. 2022
2023 Unsecured Term Loan		265,000	one-month LIBOR + 1.10%	Jan. 2023
2024 Unsecured Term Loan		190,000	one-month LIBOR + 1.00%	Jun. 2024
2026 Unsecured Term Loan		400,000	one-month LIBOR + 1.00%	Feb. 2026
Senior Notes
Series A		150,000	4.84%	Apr. 2027
Series B		225,000	5.09%	Jul. 2028
Series C		100,000	5.19%	Jul. 2030
		475,000
Total		1,405,000

As announced on January 21, 2021, S&P assigned the Company an initial credit rating of 'BBB' with a stable outlook. As a result of this credit rating, the margin of our existing bank loans was reduced by 25 basis points beginning in February 2021, the applicable margin on borrowings under our Revolving Credit Facility was reduced by 20 basis points, and our access to a diverse set of advantageous funding sources should expand. During the quarter, Moody’s reaffirmed our ‘Baa3’ credit rating and updated their outlook from ‘stable’ to ‘positive.

On March 12, 2021, we amended our $450 million 2026 Unsecured Term Loan, reducing the applicable margin an additional 60 basis points based on our current credit rating. In connection with the amendment, we repaid in full the outstanding commitments for two lenders and elected to repay an additional $10 million in outstanding principal, bringing the outstanding balance to $400 million as of March 31, 2021.

On March 31, 2021, we drew $15 million on our Revolving Credit Facility to fund an acquisition. We have $885 million of remaining capacity on our Revolving Credit Facility as of March 31, 2021.

Debt Covenants

We are subject to various covenants and financial reporting requirements pursuant to our debt facilities, which are summarized below. As of March 31, 2021, we believe we were in compliance with all of our covenants on all outstanding borrowings. In the event of default, either through default on payments or breach of covenants, we may be restricted from paying dividends to our stockholders in excess of dividends required to maintain our REIT qualification. For each of the previous three years, we paid dividends out of our cash flows from operations in excess of the distribution amounts required to maintain our REIT qualification.

Covenants		Requirement
Leverage Ratio		≤ 0.60 to 1.00
Secured Indebtedness Ratio		≤ 0.40 to 1.00
Unencumbered Coverage Ratio		≥ 1.75 to 1.00
Fixed Charge Coverage Ratio		≥ 1.50 to 1.00
Total Unsecured Indebtedness to Total Unencumbered Eligible Property Value		≤ 0.60 to 1.00
Dividends and Other Restricted Payments		Only applicable in case of default

Derivative Instruments and Hedging Activities

We are exposed to interest rate risk arising from changes in interest rates on the floating-rate borrowings under our unsecured credit facilities and a certain mortgage. Borrowings pursuant to our unsecured credit facilities and the mortgage bear interest at floating rates based on LIBOR plus an applicable margin. Accordingly, fluctuations in market interest rates may increase or decrease our interest expense, which will in turn, increase or decrease our net income and cash flow.

We attempt to manage our interest rate risk by entering into interest rate swaps. As of March 31, 2021, we had 32 interest rate swaps outstanding in an aggregate notional amount of $824.7 million. Under these agreements, we receive monthly payments from the counterparties equal to the related variable interest rates multiplied by the outstanding notional amounts. In turn, we pay the counterparties each month an amount equal to a fixed interest rate multiplied by the related outstanding notional amounts. The intended net impact of these transactions is that we pay a fixed interest rate on our variable-rate borrowings. The interest rate swaps have been designated by us as cash flow hedges for accounting purposes and are reported at fair value. We assess, both at inception and on an ongoing basis, the effectiveness of our qualifying cash flow hedges. We have not entered, and do not intend to enter, into derivative or interest rate transactions for speculative purposes.

Cash Flows

Cash and cash equivalents and restricted cash totaled $18.4 million, $110.7 million, and $96.7 million at March 31, 2021, December 31, 2020 and March 31, 2020, respectively. The table below shows information concerning cash flows for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020:

	For the Three Months Ended
(In thousands)	March 31, 2021			December 31, 2020			March 31, 2020
Net cash provided by operating activities	$	51,780		$	46,064		$	40,319
Net cash (used in) provided by investing activities		(67,661	)		(76,443	)		4,474
Net cash (used in) provided by financing activities		(76,497	)		32,120			31,608
Increase in cash and cash equivalents and restricted cash	$	(92,378	)	$	1,741		$	76,401

The increase in net cash provided by operating activities during the three months ended March 31, 2021 as compared to the three months ended December 31, 2020 and March 31, 2020, was mainly due to growth in our real estate portfolio and cost savings associated with the Internalization.

The change in net cash (used in) provided by investing activities during the three months ended March 31, 2021 as compared to the three months ended December 31, 2020, was mainly due to decreased acquisition volume quarter-over-quarter. The change in net cash (used in) provided by investing activities during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, was mainly due to increased acquisition volume and decreased proceeds from disposal of properties in 2021 offset by decrease in cash paid in connection with the Internalization.

The change in net cash (used in) provided by financing activities during the three months ended March 31, 2021 as compared to the three months ended December 31, 2020 mainly reflects a net repayment of debt in 2021 as compared to net proceeds from our IPO in 2020. During the three months ended March 31, 2021, we made a $50 million paydown on our 2026 Unsecured Term Loan using cash on hand and remaining proceeds from our IPO in 2020. During the three months ended December 31, 2020 our underwriters partially exercised their overallotment option, resulting in the issuance of an additional 3.5 million shares for net proceeds of approximately $55.9 million. The change in net cash (used in) provided by financing activities during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, mainly reflects a net repayment of debt in 2021, compared to net borrowings during the three months ended March 31, 2020.

Contractual Obligations

The following table provides information with respect to our contractual commitments and obligations as of March 31, 2021 (in thousands). Refer to the discussion in the Liquidity and Capital Resources section above for further discussion over our short and long-term obligations.

Year of Maturity	Term Loans		Revolving Credit Facility^(a)		Senior Notes		Mortgages and Notes Payable		Interest Expense^(b)		Tenant Improvement Allowances^(c)		Operating Leases		Total
Remainder of 2021	$	—	$	—	$	—	$	17,169	$	43,052	$	903	$	548	$	61,672
2022		60,000		—		—		2,907		55,574		—		690		119,171
2023		265,000		15,000		—		7,582		51,007		—		505		339,094
2024		190,000		—		—		2,260		45,921		—		120		238,301
2025		—		—		—		20,195		42,362		—		121		62,678
Thereafter		400,000		—		475,000		56,717		82,083		—		2,290		1,016,090
Total	$	915,000	$	15,000	$	475,000	$	106,830	$	319,999	$	903	$	4,274	$	1,837,006

^(a)	We may extend the Revolving Credit Facility twice, each for a six-month period, subject to certain conditions, including the payment of an extension fee equal to 0.0625% of the revolving commitments.

^(b)	Interest expense is projected based on the outstanding borrowings and interest rates in effect as of March 31, 2021. This amount includes the impact of interest rate swap agreements.

^(c)	We expect to pay tenant improvement allowances out of cash flows from operations or from additional borrowings.

At March 31, 2021 and December 31, 2020, investment in rental property of $172.4 million and $173.5 million, respectively, was pledged as collateral against our mortgages.

Additionally, we are a party to three separate tax protection agreements with the contributing members of three distinct UPREIT transactions and we entered into the Founding Owners’ Tax Protection Agreement in connection with the Internalization. The tax protection agreements require us to indemnify the beneficiaries in the event of a sale, exchange, transfer, or other disposal of the contributed property, and in the case of the Founding Owners’ Tax Protection Agreement, the entire Company, in a taxable transaction that would cause such beneficiaries to recognize a gain that is protected under the agreements, subject to certain exceptions. Based on values as of March 31, 2021, taxable sales of the applicable properties would trigger liability under the four agreements of approximately $22.3 million. Based on information available, we do not believe that the events resulting in damages as detailed above have occurred or are likely to occur in the foreseeable future. Accordingly, we have excluded these commitments from the contractual commitments table above.

Non-GAAP Measures

FFO and AFFO

We compute FFO in accordance with the standards established by the Board of Governors of Nareit, the worldwide representative voice for REITs and publicly traded real estate companies with an interest in the U.S. real estate and capital markets. Nareit defines FFO as GAAP net income or loss adjusted to exclude net gains (losses) from sales of certain depreciated real estate assets, depreciation and amortization expense from real estate assets, gains and losses from change in control, and impairment charges related to certain previously depreciated real estate assets. To derive Adjusted Funds From Operations (“AFFO”), we modify the Nareit computation of FFO to include other adjustments to GAAP net income related to certain non-cash and non-recurring revenues and expenses, including straight-line rents, the change in fair value of our earnout liability, cost of debt extinguishments, amortization of lease intangibles, amortization of debt issuance costs, amortization of net mortgage premiums, (gain) loss on interest rate swaps and other non-cash interest expense, realized gains or losses on foreign currency transactions, internalization expenses, stock-based compensation, severance, extraordinary items, and other specified non-cash items. We believe that excluding such items assists

management and investors in distinguishing whether changes in our operations are due to growth or decline of operations at our properties or from other factors.

Our leases include cash rents that increase over the term of the lease to compensate us for anticipated increases in market rentals over time. Our leases do not include significant front-loading or back-loading of payments, or significant rent-free periods. Therefore, we find it useful to evaluate rent on a contractual basis as it allows for comparison of existing rental rates to market rental rates. In situations where we granted short-term rent deferrals as a result of the COVID-19 pandemic, and such deferrals were probable of collection and expected to be repaid within a short term, we continued to recognize the same amount of GAAP lease revenues each period. Consistent with GAAP lease revenues, the short-term deferrals associated with COVID-19 did not impact our AFFO.

We further exclude the change in fair value of our earnout liability, costs or gains recorded on the extinguishment of debt, non-cash interest expense and gains, the amortization of debt issuance costs, net mortgage premiums, and lease intangibles, realized gains and losses on foreign currency transactions, internalization expenses, stock-based compensation and severance, as these items are not indicative of ongoing operational results. We use AFFO as a measure of our performance when we formulate corporate goals.

FFO is used by management, investors, and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers, primarily because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. We believe that AFFO is a useful supplemental measure for investors to consider because it will help them to better assess our operating performance without the distortions created by non-cash revenues or expenses. FFO and AFFO may not be comparable to similarly titled measures employed by other REITs, and comparisons of our FFO and AFFO with the same or similar measures disclosed by other REITs may not be meaningful.

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

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

	For the Three Months Ended
(in thousands, except per share data)	March 31, 2021			December 31, 2020			March 31, 2020
Net income	$	23,960		$	17,619		$	11,848
Real property depreciation and amortization		30,690			30,161			31,210
Gain on sale of real estate		(4,733	)		(5,260	)		(7,619	)
Provision for impairment on investment in rental properties		2,012			1,678			2,133
FFO	$	51,929		$	44,198		$	37,572
Straight-line rent adjustment		(4,632	)		(5,125	)		(1,612	)
Adjustment to provision for credit losses		(1	)		(6	)		(17	)
Cost of debt extinguishment		126			3			22
Amortization of debt issuance costs		914			917			888
Amortization of net mortgage premiums		(35	)		(36	)		(35	)
Gain on interest rate swaps and other non-cash interest expense		(41	)		(41	)		(42	)
Amortization of lease intangibles		(728	)		(1,150	)		(1,138	)
Internalization expenses		—			182			1,205
Stock-based compensation		1,769			1,193			—
Severance		1,243			68			26
Change in fair value of earnout liability		(1,124	)		6,706			4,177
Other expenses		(10	)		(15	)		22
AFFO	$	49,410		$	46,894		$	41,068

EBITDA, EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre

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

performance under GAAP, and our EBITDA and EBITDAre may not be comparable to similarly titled measures of other companies. You should not consider our EBITDA and EBITDAre as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.

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

The following table reconciles net income (which is the most comparable GAAP measure) to EBITDA and EBITDAre:

	For the Three Months Ended
(in thousands)	March 31, 2021			December 31, 2020			March 31, 2020
Net income	$	23,960		$	17,619		$	11,848
Depreciation and amortization		30,713			30,182			31,219
Interest expense		16,108			17,123			20,991
Income taxes		413			(141	)		549
EBITDA	$	71,194		$	64,783		$	64,607
Provision for impairment of investment in rental properties		2,012			1,678			2,133
Gain on sale of real estate		(4,733	)		(5,260	)		(7,619	)
EBITDAre	$	68,473		$	61,201		$	59,121

The following table reconciles EBITDAre to Adjusted EBITDAre. Information is also presented with respect to Annualized EBITDAre and Annualized Adjusted EBITDAre:

	For the Three Months Ended
(in thousands)	March 31, 2021			December 31, 2020			March 31, 2020
EBITDAre	$	68,473		$	61,201		$	59,121
Adjustment for current quarter acquisition activity ^(a)		1,365			1,703			—
Adjustment for current quarter disposition activity ^(b)		(278	)		(318	)		(285	)
Adjustment to exclude non-recurring and other expenses ^(c)		2,100			182			1,205
Adjustment to exclude change in fair value of earnout liability		(1,124	)		6,706			4,177
Adjustment exclude write-off of accrued rental income		442			242			3,993
Adjustment to exclude cost of debt extinguishments		126			—			22
Adjusted EBITDAre	$	71,104		$	69,716		$	68,233
Annualized EBITDAre	$	273,888		$	244,805		$	236,484
Annualized Adjusted EBITDAre	$	284,414		$	278,867		$	272,932

^(a)	Reflects an adjustment to give effect to all acquisitions during the quarter as if they had been acquired as of the beginning of the quarter.

^(b)	Reflects an adjustment to give effect to all dispositions during the quarter as if they had been sold as of the beginning of the quarter.

^(c)	Amounts include $1.2 million of severance and $0.9 million of accelerated stock-based compensation associated with the departure of executive officers in 2021, and expense directly associated with the Internalization in 2020.

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

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

(in thousands)	March 31, 2021			December 31, 2020			March 31, 2020
Debt
Revolving Credit Facility	$	15,000		$	—		$	353,300
Unsecured term notes, net		1,383,283			1,433,796			1,672,587
Mortgages and notes payable, net		106,559			107,382			110,464
Debt issuance costs		6,988			6,489			7,767
Gross Debt		1,511,830			1,547,667			2,144,118
Cash and cash equivalents		(10,205	)		(100,486	)		(93,151	)
Restricted cash		(8,145	)		(10,242	)		(3,561	)
Net Debt	$	1,493,480		$	1,436,939		$	2,047,406
Net Debt to Annualized EBITDAre	5.45x			5.87x			8.66x
Net Debt to Annualized Adjusted EBITDAre	5.25x			5.15x			7.50x

Critical Accounting Policies

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses as well as other disclosures in the financial statements. On an ongoing basis, management evaluates its estimates and assumptions; however, actual results may differ from these estimates and assumptions, which in turn could have a material impact on our financial statements. A summary of our significant accounting policies and procedures are included in Note 2, “Summary of Significant Accounting Policies,” in the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. We believe there have been no significant changes during the three months ended March 31, 2021, to the items that we disclosed as our critical accounting policies in our 2020 Annual Report on Form 10-K.

Impact of Recent Accounting Pronouncements

For information on the impact of recent accounting pronouncements on our business, see Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks, one of the most predominant of which is a change in interest rates. Increases in interest rates can result in increased interest expense under our Revolving Credit Facility and other variable-rate debt. Increases in interest rates can also result in increased interest expense when our fixed rate debt matures and needs to be refinanced. We attempt to manage interest rate risk by entering into long-term fixed rate debt or by entering into interest rate swaps to convert certain variable-rate debt to a fixed rate. The interest rate swaps have been designated by us as cash flow hedges for accounting purposes and are reported at fair value. We have not entered, and do not intend to enter, into derivative or interest rate transactions for speculative purposes. Further information concerning our interest rate swaps can be found in Note 11 in our Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report on Form 10-Q.

Our fixed-rate debt includes our Senior Notes, mortgages, and variable-rate debt converted to a fixed rate with the use of interest rate swaps. Our fixed-rate debt and outstanding interest rate swaps had carrying values and fair values of approximately $1.4 billion and $1.5 billion, respectively, as of March 31, 2021. Changes in market interest rates impact the fair value of our fixed-rate debt and interest rate swaps, but they have no impact on interest incurred or on cash flows. For instance, if interest rates were to increase 1%, and the fixed-rate debt balance were to remain constant, we would expect the fair value of our debt to decrease, similar to how the price of a bond decreases as interest rates rise. A 1% increase in market interest rates would have resulted in a decrease in the fair value of our fixed-rate debt and interest rate swaps of approximately $74.5 million as of March 31, 2021.

Borrowings pursuant to our Revolving Credit Facility and other variable-rate debt bear interest at rates based on LIBOR plus an applicable margin, and totaled $934.7 million as of March 31, 2021, of which $824.7 million was swapped to a fixed rate by our use of interest rate swaps. Taking into account the effect of our interest rate swaps, a 1% increase or decrease in interest would have a corresponding $1.1 million increase or decrease in interest expense annually.

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

As of March 31, 2021, our financial instruments were not exposed to significant market risk due to foreign currency exchange risk.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of and for the quarter ended March 31, 2021, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1.Legal Proceedings.

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

Item 1A. Risk Factors.

There have been no material changes from the risk factors set forth in our Form 10-K.

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

None.

Item 3.Defaults Upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

None.

Item 6.Exhibits

No.		Description

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

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

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

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

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

10.1*		Form of Broadstone Net Lease, Inc. 2020 Omnibus Equity and Incentive Plan Restricted Stock Unit Award Agreement

10.2		Third Amendment to Capital One Term Loan Agreement, dated as of March 12, 2021, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, as administrative agent, and the lenders party thereto (filed as Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed March 18, 2021 and incorporated herein by reference)

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

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

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

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

101.INS		Inline XBRL Instance Document – the instance document does not appear in Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

*	Filed herewith.

†

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

SIGNATURES

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

		BROADSTONE NET LEASE, INC.

Date: May 5, 2021		/s/ Christopher J. Czarnecki
		Christopher J. Czarnecki
		Chief Executive Officer and President

Date: May 5, 2021		/s/ Ryan M. Albano
		Ryan M. Albano
		Executive Vice President and Chief Financial Officer

EXHIBIT 10.1

Broadstone Net lease, inc. 2020 omnibus Equity and Incentive Plan

RESTRICTED STOCK UNIT - Notice of Grant

Broadstone Net Lease, Inc. (the “Company”), a Maryland corporation and internally managed real estate investment trust, hereby grants to the Grantee set forth below (the “Grantee”) Restricted Stock Units (the “Restricted Stock Units”), pursuant to the terms and conditions of this Notice of Grant (the “Notice”), the Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Award Agreement”), and the Broadstone Net Lease, Inc. 2020 Omnibus Equity and Incentive Plan (the “Plan”). Capitalized terms used but not defined herein shall have the meaning attributed to such terms in the Award Agreement or, if not defined therein, in the Plan, unless the context requires otherwise. Each Restricted Stock Unit represents the right to receive one (1) Share at the time and in the manner set forth in the Award Agreement.

Date of Grant:

Name of Grantee:

Target Number of
Restricted Stock Units:

Maximum Number of

Restricted Stock Units:

Vesting:

The Restricted Stock Units shall vest pursuant to the terms and conditions set forth in Section 3 of the Award Agreement.

Performance Period:

; cumulative performance measured at the end of such 3-year period.

The Restricted Stock Units shall be subject to the execution and return of this Notice by the Grantee to the Company within 30 days of the date hereof (including by utilizing an electronic signature and/or web-based approval and notice process or any other process as may be authorized by the Company). By executing this Notice, the Grantee acknowledges that his or her agreement to the covenants set forth in Section 6 of the Award Agreement is a material inducement to the Company in granting this Award to the Grantee.

This Notice may be executed by facsimile or electronic means (including, without limitation, PDF) and in one or more counterparts, each of which shall be considered an original instrument, but all of which together shall constitute one and the same agreement, and shall become binding when one or more counterparts have been signed by each of the parties hereto and delivered to the other party hereto.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have executed this Notice of Grant as of the Date of Grant set forth above.

BROADSTONE NET LEASE, INC.

By:

Name: Christopher J. Czarnecki

Title: CEO & President

GRANTEE

Name:

[Signature Page to Notice of Restricted Stock Unit Grant for Broadstone Net Lease 2020 Omnibus Equity And Incentive Plan]

Exhibit A

BROADSTONE NET LEASE, INC.

2020 OMNIBUS EQUITY AND INCENTIVE PLAN

RESTRICTED STOCK UNIT

Award Agreement

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (the “Award Agreement”) is entered into by and among Broadstone Net Lease, Inc. (the “Company”) and the individual set forth on the signature page to that certain Notice of Grant (the “Notice”) to which this Award Agreement is attached. The terms and conditions of the Restricted Stock Units granted hereby, to the extent not controlled by the terms and conditions contained in the Plan, shall be as set forth in the Notice and this Award Agreement. Capitalized terms used but not defined herein shall have the meaning attributed to such terms in the Notice or, if not defined therein, in the Plan, unless the context requires otherwise.

No Right to Continued Employee Status or Consultant Service

Nothing contained in this Award Agreement shall confer upon the Grantee the right to the continuation of his or her Employee status, or, in the case of a Consultant or Director, to the continuation of his or her service arrangement, or in either case to interfere with the right of the Company or any of its Subsidiaries or other Affiliates to Terminate the Grantee.

Term of Restricted Stock Units

This Award Agreement shall remain in effect until the Restricted Stock Units have fully vested and been settled or been forfeited by the Grantee as provided in this Award Agreement.

3.Vesting of Restricted Stock Units.

(a)Subject to Section 5, the Restricted Stock Units (up to the Maximum Number of Restricted Stock Units as set forth on the Notice) shall vest on such day following the expiration of the Performance Period that the Committee determines the level of performance achieved (the “Measurement Date”), subject to the Grantee’s not having Terminated prior to Measurement Date and only to the extent the performance goals set forth on Schedule 1 (the “Performance Goals”) are achieved. Except as set forth in Section 5 or in an employment agreement or severance agreement between the Company or one of its Subsidiaries and the Grantee, if the Grantee Terminates for any reason, the portion of the Restricted Stock Units that has not vested as of such date shall terminate upon such Termination and be deemed to have been forfeited by the Grantee without consideration.

(b)(i) Notwithstanding anything to the contrary in Section 3(a), if a Change in Control is consummated prior to the Grantee’s Termination, and the Restricted Stock Units are assumed in connection with such Change in Control, achievement of the Performance Goals shall be determined by the Board in its good faith discretion as of the date on which such Change in Control is consummated and the portion of the Restricted Stock Units that would have vested pursuant to the Schedule 1 based on such level of achievement (such amount, the “CIC

Restricted Stock Units”) shall remain issued, outstanding, and eligible to vest, and shall fully vest (100%) upon the expiration of the original Performance Period, subject to, except as set forth in Section 5(c), the Grantee’s not having Terminated prior to the expiration of the original Performance Period. For the avoidance of doubt, any portion of the Restricted Stock Units other than the CIC Restricted Stock Units (if any) shall be deemed to have been forfeited by the Grantee without consideration effective as of the date on which the Change in Control is consummated.

(ii) In the event the Restricted Stock Units are not assumed, or substituted for an equivalent award. by the Company’s successor, the CIC Restricted Stock Units, as determined in the manner described in Section 3(b)(i) shall immediately become fully (100%) vested immediately prior to the consummation of the Change in Control, and any portion of the Restricted Stock Units other than the CIC Restricted Stock Units (if any) shall be deemed to have been forfeited by the Grantee without consideration effective as of the date on which the Change in Control is consummated.

Settlement

Within thirty (30) days following the date on which any portion of the Restricted Stock Units vest pursuant to Section 3 of this Award Agreement and Schedule 1, the Company shall deliver to the Grantee one (1) Share in settlement of each Restricted Stock Unit that becomes vested on such vesting date.

Termination of Service

(a)Except as otherwise set forth in an employment or severance agreement between the Company or one of the Subsidiaries and the Grantee, and subject to the remainder of this Section 5, if the Grantee incurs a Termination for any reason, whether voluntarily or involuntarily, then the portion of the Restricted Stock Units that have not previously vested (after taking into account any vesting in connection with such Termination pursuant to this Section 5) shall terminate and be forfeited as of the date of the Grantee’s Termination.

(b)Subject to the remainder of this Section 5, if the Grantee incurs a Termination due to the Grantee’s death or Disability, Grantee or the Grantee’s estate, as applicable will be entitled to receive a pro rata portion of the number Restricted Stock Units (calculated in respect of the number of days the Grantee was employed during the Performance Period prior to the date of Termination) determined to be vested and earned based on actual achievement of the Performance Goals through the expiration of the Performance Period, as determined by the Committee on the Measurement Date. The pro rata portion of the RSUs deemed to be vested and earned, if any, will be settled at the same time as the similarly situated RSUs are settled for other active employee grantees, together with any accrued dividend amounts in the Grantee’s Account pursuant to Section 7 in respect of such pro rata RSUs.

(c)If a Change in Control is consummated prior to the Grantee’s Termination and the Restricted Stock Units were assumed in connection with such Change in Control in accordance with Section 3(b), in the event the Grantee’s employment is Terminated by the Company (or its

successor) without Cause or by the Grantee for Good Reason, in either case, on or within the 12 month period following the consummation of such Change in Control, the CIC Restricted Stock Units to the extent then outstanding at the time of the Grantee’s Termination shall become fully (100%) vested upon the Grantee’s Termination. For purposes of this Agreement “Good Reason” shall mean (x) if the Grantee is party to an employment or a severance agreement with the Company or one of the Subsidiaries in which “Good Reason” is defined, the occurrence of any circumstances defined as “Good Reason” in such employment or severance agreement, or (y) if the Grantee is not party to an employment or severance agreement with the Company or one of the Subsidiaries in which “Good Reason” is defined, (i) a material diminution in the Grantee’s annual base salary or target annual bonus opportunity, (ii) a relocation (without the written consent of the Grantee) of Grantee’s principal place of employment by more than thirty-five (35) miles from the principal location or (iii) a material diminution in the Grantee’s title, position, authority, duties, or responsibilities. A termination of employment by the Grantee for Good Reason shall be effectuated by giving the Company written notice of the termination, setting forth the conduct of the Company that constitutes Good Reason, within 30 days of the first date on which the Grantee has knowledge of such conduct. The Grantee shall further provide the Company at least 30 days following the date on which such notice is provided to cure such conduct. Failing such cure, a termination of employment by the Grantee for Good Reason shall be effective on the day following the expiration of such cure period.

(d)If the Grantee incurs, at any time, a Termination by the Company for Cause or by the Grantee without Good Reason, then all outstanding unvested Restricted Stock Units shall be forfeited and terminate immediately without consideration upon the effective date of such Termination for Cause or without Good Reason.

Prohibited Activities

(a)No Sale or Transfer. Unless otherwise required by law, the Restricted Stock Units shall not be (i) sold, transferred or otherwise disposed of, (ii) pledged or otherwise hypothecated or (iii) subject to attachment, execution or levy of any kind, other than by will or by the laws of descent or distribution; provided, however, that any transferred Restricted Stock Units will be subject to all of the same terms and conditions as provided in the Plan and this Award Agreement and the Grantee’s estate or beneficiary appointed in accordance with the Plan will remain liable for any withholding tax that may be imposed by any federal, state or local tax authority.

(b)Right to Terminate Restricted Stock Units and Recovery. The Grantee understands and agrees that the Company has granted the Restricted Stock Units to the Grantee to reward the Grantee for the Grantee’s future efforts and loyalty to the Company and its Affiliates by giving the Grantee the opportunity to participate in the potential future appreciation of the Company. Accordingly, if (i) the Grantee materially violates the Grantee’s obligations relating to the non-disclosure or non-use of confidential or proprietary information under any Restrictive Agreement to which the Grantee is a party, (ii) the Grantee materially breaches or violates the Grantee’s obligations relating to non-disparagement under any Restrictive Agreement to which the Grantee is a party, (iii) the Grantee materially breaches or violates any non-solicitation obligations under any Restrictive Agreement to which the Grantee is a party, (iv)

the Grantee breaches or violates any non-competition obligations under any Restrictive Agreement to which the Grantee is a party, or (v) the Grantee is convicted of a felony against the Company or any of its Affiliates, then, in addition to any other rights and remedies available to the Company, the Company shall be entitled, at its option, exercisable by written notice, to terminate the Restricted Stock Units (including the shares issued in respect of the vested portion of the Restricted Stock Units) without consideration, and such Restricted Stock Units (or Shares) will be of no further force and effect. “Restrictive Agreement” shall mean any agreement between the Company or any Subsidiary and the Grantee that contains non-competition, non-solicitation, non-hire, non-disparagement, or confidentiality restrictions applicable to the Grantee.

(c)Other Remedies. The Grantee specifically acknowledges and agrees that its remedies under this Section 6 shall not prevent the Company or any Subsidiary from seeking injunctive or other equitable relief in connection with the Grantee’s breach of any Restrictive Agreement. In the event that the provisions of this Section 6 should ever be deemed to exceed the limitation provided by applicable law, then the Grantee and the Company agree that such provisions shall be reformed to set forth the maximum limitations permitted.

No Rights as Stockholder; Dividend Equivalent Rights.

The Grantee shall have no rights as a stockholder with respect to the Shares covered by the Restricted Stock Units until the effective date of issuance of the Shares and the entry of the Grantee’s name as a shareholder of record on the books of the Company following delivery of the Shares in settlement of the Restricted Stock Units.

The Grantee shall not be entitled to receive any dividends with respect to the RSUs unless and until such RSUs become vested. During the Performance Period, during any period between the expiration of the Performance Period and the Measurement Date, and during any period during which the RSUs are vested but not yet settled, if and when any dividends are declared on Shares, on the date such dividend is paid, the Company will credit to a bookkeeping account (the “Account”) maintained by the Company (or a third party on behalf of the Company) for the Grantee’s benefit an amount equal to the amount of such dividend that would have been paid on the same number of RSUs that are unvested and outstanding pursuant to this Award Agreement as of the record date of such dividend. Such credited amount shall be subject to the vesting and forfeiture provisions applicable to the RSUs to which such credited amount relates, as set forth this Award Agreement. Any credited amount that becomes vested as set forth herein, will be payable at the same time as Shares are otherwise delivered upon the settlement of the vested RSUs, if any, to which the credited amounts relate as set forth in this Award Agreement and will be payable in cash or stock, in the sole discretion of the Committee as determined at the time of payment.

Taxation Upon Settlement of the Restricted Stock Units; Tax Withholding; Parachute Tax Provisions

The Grantee understands that the Grantee will recognize income, for Federal, state and local income tax purposes, as applicable, in respect of the vesting and/or settlement of the Restricted

Stock Units. The acceptance of the Shares by the Grantee shall constitute an agreement by the Grantee to report such income in accordance with then applicable law and to cooperate with Company and its subsidiaries in establishing the amount of such income and corresponding deduction to the Company and/or its subsidiaries for its income tax purposes.

The Grantee is responsible for all tax obligations that arise as a result of the vesting and settlement of the Restricted Stock Units. The Company may withhold from any amount payable to the Grantee an amount sufficient to cover any Federal, state or local withholding taxes which may become required with respect to such vesting and settlement or take any other action it deems necessary to satisfy any income or other tax withholding requirements as a result of the vesting and settlement of the Restricted Stock Units. The Company shall have the right to require the payment of any such taxes and require that the Grantee, or the Grantee’s beneficiary, to furnish information deemed necessary by the Company to meet any tax reporting obligation as a condition to delivery of any Shares pursuant to settlement of the Restricted Stock Units. The Grantee may pay his or her withholding tax obligation in connection with the vesting and settlement of the Restricted Stock Units, by making a cash payment to the Company. In addition, the Committee, in its sole discretion, may allow the Grantee, to pay his or her withholding tax obligation in connection with the vesting and settlement of the Restricted Stock Units, by (x) having withheld a portion of the Shares then issuable to him or her upon settlement of the Restricted Stock Units or (z) surrendering Shares that have been held by the Grantee for at least six (6) months (or such lesser period as may be permitted by the Committee) prior to the settlement of the Restricted Stock Units, in each case having an aggregate Fair Market Value equal to the withholding taxes.

In connection with the grant of the Restricted Stock Units, the parties wish to memorialize their agreement regarding the treatment of any potential golden parachute payments as set forth in Exhibit A attached hereto.

Securities Laws

(a)Upon the acquisition of any Shares pursuant to the settlement of the Restricted Stock Units, the Grantee will make such written representations, warranties, and agreements as the Committee may reasonably request in order to comply with securities laws or with this Award Agreement. Grantee hereby agrees not to offer, sell or otherwise attempt to dispose of any Shares issued to the Grantee upon settlement of the Restricted Stock Units in any way which would: (x) require the Company to file any registration statement with the Securities and Exchange Commission (or any similar filing under state law or the laws of any other county) or to amend or supplement any such filing or (y) violate or cause the Company to violate the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, or any other Federal, state or local law, or the laws of any other country. The Company reserves the right to place restrictions on any Shares the Grantee may receive as a result of the settlement of the Restricted Stock Units.

(b)Notwithstanding anything to the contrary herein, in the event that (i) the Grantee is subject to the Company’s insider trading policy, including any policy permitting officers and directors to sell Shares only during certain “window” periods, in effect from time to time

(collectively, the “Policy”) or the Grantee is otherwise prohibited from selling Shares in the public market and any Shares underlying the Grantee’s Restricted Stock Units are scheduled to be delivered on a settlement date (the “Original Settlement Date”) that (A) does not occur during an open “window period” applicable to the Grantee or on a day on which the Grantee is permitted to sell Shares underlying any portion of the Restricted Stock Units that has vested pursuant to a written plan that meets the requirements of Rule 10b5-1 under the Exchange Act, as determined by the Company in accordance with the Policy, as applicable, or (B) does not occur on a date when the Grantee is otherwise permitted to sell Shares on the open market, and (ii) the Company elects not to satisfy the Grantee’s tax withholding obligations by withholding Shares from the Grantee’s distribution, then such Shares shall not be delivered on such Original Distribution Date and shall instead be delivered, as applicable, on (x) the first business day of the next occurring open “window period” applicable to the Grantee pursuant to the Policy, or (y) the next business day on which the Grantee is not otherwise prohibited from selling Shares in the open market, but in no event later than March 15th of year following the year in which the Restricted Stock Units vest.

10.

Modification, Amendment, and Termination of Restricted Stock Units

This Award Agreement may not be modified, amended, terminated and no provision hereof may be waived in whole or in part except by a written agreement signed by the Company and the Grantee and no modification shall, without the consent of the Grantee, alter to the Grantee’s material detriment or materially impair any rights of the Grantee under this Award Agreement except to the extent permitted under the Plan.

11.

Notices

Unless otherwise provided herein, any notices or other communication given or made pursuant to the Notice, this Award Agreement or the Plan shall be in writing and shall be deemed to have been duly given (i) as of the date delivered, if personally delivered (including receipted courier service) or overnight delivery service, with confirmation of receipt; (ii) on the date the delivering party receives confirmation, if delivered by facsimile to the number indicated or by email to the address indicated or through an electronic administrative system designated by the Company; (iii) one (1) business day after being sent by reputable commercial overnight delivery service courier, with confirmation of receipt; or (iv) three (3) business days after being mailed by registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below:

(a)If to the Company at the address below:

Broadstone Net Lease, Inc.

800 Clinton Square

Rochester, NY 14604

Attn: General Counsel

Phone:

(b)If to the Grantee, at the most recent address, facsimile number or email contained in the Company’s records.

12.

Award Agreement Subject to Plan and Applicable Law

This Award Agreement is made pursuant to the Plan and shall be interpreted to comply therewith. A copy of the Plan is attached hereto. Any provision of this Award Agreement inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan. The Plan shall control in the event there shall be any conflict between the Plan, the Notice, and this Award Agreement, and it shall control as to any matters not contained in this Award Agreement. The Committee shall have authority to make constructions of this Award Agreement, and to correct any defect or supply any omission or reconcile any inconsistency in this Award Agreement, and to prescribe rules and regulations relating to the administration of this Award and other Awards granted under the Plan.

This Award Agreement shall be governed by the laws of the State of Maryland, without regard to the conflicts of law principles thereof, and subject to the exclusive jurisdiction of the courts therein. The Grantee hereby consents to personal jurisdiction in any action brought in any court, federal or state, within the State of New York having subject matter jurisdiction in the matter.

13.

Section 409A

The Restricted Stock Units are intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and, accordingly, to the maximum extent permitted, this Award Agreement shall be interpreted to be exempt from Section 409A of the Code or, if not exempt, in compliance therewith. Nothing contained herein shall constitute any representation or warranty by the Company regarding compliance with Section 409A of the Code. The Company shall have no obligation to take any action to prevent the assessment of any additional income tax, interest or penalties under Section 409A of the Code on any Person and the Company, its Subsidiaries and Affiliates, and each of their respective employees and representatives, shall have no liability to the Grantee with respect thereto.

14.

Headings and Capitalized Terms

Unless otherwise provided herein, capitalized terms used herein that are defined in the Plan and not defined herein shall have the meanings set forth in the Plan. Headings are for convenience only and are not deemed to be part of this Award Agreement. Unless otherwise indicated, any reference to a Section herein is a reference to a Section of this Award Agreement.

15.

Severability and Reformation

If any provision of this Award Agreement shall be determined by a court of law of competent jurisdiction to be unenforceable for any reason, such unenforceability shall not affect the enforceability of any of the remaining provisions hereof; and this Award Agreement, to the fullest extent lawful, shall be reformed and construed as if such unenforceable provision, or part

thereof, had never been contained herein, and such provision or part thereof shall be reformed or construed so that it would be enforceable to the maximum extent legally possible.

16.

Binding Effect

This Award Agreement shall be binding upon the parties hereto, together with their personal executors, administrator, successors, personal representatives, heirs and permitted assigns.

17.

Entire Agreement

This Award Agreement, together with the Plan, supersedes all prior written and oral agreements and understandings among the parties as to its subject matter and constitutes the entire agreement of the parties with respect to the subject matter hereof. If there is any conflict between the Notice, this Award Agreement and the Plan, then the applicable terms of the Plan shall govern.

18.

Waiver

Waiver by any party of any breach of this Award Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right whether or not of the same or a similar nature. The failure of any party to take action by reason of such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or condition giving rise to such rights continues.

Schedule 1

(a) Subject to the provisions of the Award Agreement, the number of RSUs subject to this Award that will be vested and earned, if the service conditions are met, will be determined, based on the Total Shareholder Return (“TSR”) of the Company relative to the TSR of the Peer Group (as defined below), in accordance with payout schedule set forth below.

(b) The number of RSUs to vest will be determined based on Company performance against the applicable Peer Group as set forth below, with achievement between the stated percentages (after reaching 50% payout level) being interpolated on a straight-line basis:


Company’s Percentile Rank as compared to applicable comparator group	Percentage of Target RSUs Vesting
Less than 30^th percentile	0%
30^th percentile	50%
55^th percentile	100%
80^th percentile	200%

(c) Promptly following the completion of the Performance Period (and no later than sixty (60) days following the end of the Performance Period), the Committee will review and certify (i) what percentile rank of relative TSR has been achieved, and (ii) the number of RSUs that will become vested for each Participant, if any, subject to the terms of this Agreement. TSR shall be measured for each of the Company and the Peer Group based on the percentage appreciation (positive or negative) in the Fair Market Value of one share over the Performance Period, assuming the reinvestment of dividends on the ex-dividend date.

(d) For purposes of this Agreement, the term “Peer Group” shall mean (x) in respect of 50% of the target number of RSUs, the MSCI US REIT Index on a non-weighted basis; and (y) in respect to 50% of the target number of RSUs, the peer companies set forth on Schedule 2. The companies consisting of the applicable Peer Group will be subject to the discretion of the Committee to make adjustments to recognize special or non-recurring situations or circumstances with respect to the Company or any other company in the Peer Group for any year in the Performance Period, including, but not limited to, merger and acquisition activity, a spin-off/divestiture, or bankruptcy.

(e) The vesting of the number of RSUs considered earned in accordance with this Schedule and Section 3 of the Award Agreement shall occur on the Measurement Date (i.e., date the Committee makes its determinations of performance achievement), subject to the Grantee’s continued service with the Company or any of its Subsidiaries through such date and the terms and conditions of the Award Agreement.

(f) All determinations by the Committee shall be final, conclusive and binding on the Grantee, and on all other persons, to the maximum extent permitted by law.

Schedule 2

Performance Peer Group


Agree Realty Corporation (ADC)	National Retail Properties, Inc. (NNN)	VEREIT, Inc. (VER)
Essential Properties Realty Trust, Inc. (EPRT)	Realty Income Corporation (O)	W. P. Carey Inc. (WPC)
Four Corners Property Trust, Inc. (FCPT)	Spirit Realty Capital, Inc. (SRC)
Lexington Realty Trust (LXP)	STORE Capital Corporation (STOR)

Exhibit A

PARACHUTE TAX PROVISIONS

This Exhibit A sets forth the terms and provisions applicable to the Grantee pursuant to the provisions of Section 8 of the Award Agreement. This Exhibit A shall be subject in all respects to the terms and conditions of the Award Agreement.

(a)To the extent that the Grantee, would otherwise be eligible to receive a payment or benefit pursuant to the terms of this Award Agreement, any employment or other agreement with the Company or any Subsidiary or otherwise in connection with, or arising out of, the Grantee’s employment with the Company or any Subsidiary or a change in ownership or effective control of the Company or of a substantial portion of its assets (any such payment or benefit, a “Parachute Payment”), that a nationally recognized United States public accounting firm selected by the Company (the “Accountants”) determines, but for this sentence would be subject to excise tax imposed by Section 4999 of the Code (the “Excise Tax”), subject to clause (c) below, then the Company shall pay to the Grantee whichever of the following two alternative forms of payment would result in the Grantee’s receipt, on an after-tax basis, of the greater amount of the Parachute Payment notwithstanding that all or some portion of the Parachute Payment may be subject to the Excise Tax: (1) payment in full of the entire amount of the Parachute Payment (a “Full Payment”), or (2) payment of only a part of the Parachute Payment so that the Grantee receives the largest payment possible without the imposition of the Excise Tax (a “Reduced Payment”).

(b)If a reduction in the Parachute Payment is necessary pursuant to clause (a), then the reduction shall occur in the following order: (1) cancellation of acceleration of vesting on any equity awards for which the exercise price exceeds the then fair market value of the underlying equity; (2) reduction of cash payments (with such reduction being applied to the payments in the reverse order in which they would otherwise be made, that is, later payments shall be reduced before earlier payments); and (3) cancellation of acceleration of vesting of equity awards not covered under (1) above; provided, however, that in the event that acceleration of vesting of equity awards is to be cancelled, acceleration of vesting of full value awards shall be cancelled before acceleration of options and stock appreciation rights and within each class such acceleration of vesting shall be cancelled in the reverse order of the date of grant of such equity awards, that is, later equity awards shall be canceled before earlier equity awards; and provided, further, that to the extent permitted by Code Section 409A and Sections 280G and 4999 of the Code, if a different reduction procedure would be permitted without violating Code Section 409A or losing the benefit of the reduction under Sections 280G and 4999 of the Code, the Grantee may designate a different order of reduction.

(c)For purposes of determining whether any of the Parachute Payments (collectively the “Total Payments”) will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Total Payments shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of the Code, and all “parachute payments” in excess of the “base amount” (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the opinion of the Accountants, such Total Payments (in

whole or in part): (1) do not constitute “parachute payments,” including giving effect to the recalculation of stock options in accordance with Treasury Regulation Section 1.280G-1, Q&A 33, (2) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the “base amount” or (3) are otherwise not subject to the Excise Tax, and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code.

(d)All determinations hereunder shall be made by the Accountants, which determinations shall be final and binding upon the Company and the Grantee.

(e)The federal tax returns filed by the Grantee (and any filing made by a consolidated tax group which includes the Company) shall be prepared and filed on a basis consistent with the determination of the Accountants with respect to the Excise Tax payable by the Grantee. The Grantee shall make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his or her federal income tax return as filed with the Internal Revenue Service, and such other documents reasonably requested by the Company, evidencing such payment (provided that the Grantee may delete information unrelated to the Parachute Payment or Excise Tax and provided, further that the Company at all times shall treat such returns as confidential and use such return only for purpose contemplated by this paragraph).

(f)In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Grantee shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Grantee but the Grantee shall control any other issues. In the event that the issues are interrelated, the Grantee and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue. In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Grantee shall permit the representative of the Company to accompany the Grantee, and the Grantee and his representative shall cooperate with the Company and its representative.

(g)The Company shall be responsible for all charges of the Accountants.

(h)The Company and the Grantee shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this Exhibit A.

(i)Nothing in this Exhibit A is intended to violate the Sarbanes-Oxley Act of 2002 and to the extent that any advance or repayment obligation hereunder would do so, such obligation shall be modified so as to make the advance a nonrefundable payment to the Grantee and the repayment obligation null and void.

(j)Notwithstanding the foregoing, any payment or reimbursement made pursuant to this Exhibit A shall be paid to the Grantee promptly and in no event later than the end of the calendar year next following the calendar year in which the related tax is paid by the Grantee or

where no taxes are required to be remitted, the end of the Grantee’s calendar year following the Grantee’s calendar year in which the audit is completed or there is a final and nonappealable settlement or other resolution of the litigation.

(k)The provisions of this Exhibit A shall survive the termination of the Grantee’s employment with the Company or any Subsidiary for any reason and the termination of the Award Agreement.

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(Rule 13a-14(a)/15d-14(a) Certification)

I, Christopher J. Czarnecki, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Broadstone Net Lease, Inc. for the quarter ended

March 31, 2021;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2021	/s/ Christopher J. Czarnecki
	Christopher J. Czarnecki
	Chief Executive Officer and President
	(Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(Rule 13a-14(a)/15d-14(a) Certification)

I, Ryan M. Albano, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Broadstone Net Lease, Inc. for the quarter ended

March 31, 2021;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2021	/s/ Ryan M. Albano
	Ryan M. Albano
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(Section 1350 Certification)

In connection with the Quarterly Report on Form 10-Q of Broadstone Net Lease, Inc. (the “Company”) for the quarter ended March 31, 2021 (the “First Quarter 10-Q”), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Christopher J. Czarnecki, Chief Executive Officer and President of the Company, certifies, to the best of his knowledge, that:

1.	The First Quarter 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

2.	The information contained in the First Quarter 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 5, 2021	/s/ Christopher J. Czarnecki
	Christopher J. Czarnecki
	Chief Executive Officer and President

The foregoing certification is being furnished solely to accompany the Quarterly Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(Section 1350 Certification)

In connection with the Quarterly Report on Form 10-Q of Broadstone Net Lease, Inc. (the “Company”) for the quarter ended March 31, 2021 (the “First Quarter 10-Q”), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Ryan M. Albano, Executive Vice President and Chief Financial Officer of the Company, certifies, to the best of his knowledge, that:

1.	The First Quarter 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

2.	The information contained in the First Quarter 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 5, 2021	/s/ Ryan M. Albano
	Ryan M. Albano
	Executive Vice President and Chief Financial Officer