SECURITIES AND EXCHANGE COMMISSION
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31,
20182021
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
_______ to
_______Commission file number
000-55774001-39529
BROADSTONE NET LEASE, INC.
(Exact name of registrant as specified in its charter)
Maryland
| 26-1516177
| |
| | |
(State or other jurisdiction of
incorporation or organization) | | |
| |
800 Clinton Square Rochester , New York | | |
(Address of principal executive offices) | | |
(585)287-6500
(585) 287-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Securities Exchange Act of 1934: NoneAct:
| | | | |
| | | | |
Common Stock, $0.00025 par value | | | | The New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934:Act: Common Stock, par value
$0.001$0.00025 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
☐☒ No
☒☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐ No
☒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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
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 | | ☐ |
| | | | |
| ☒
| ☐ | | Smaller reporting company | | ☐ |
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| | | | 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act).
Yes ☐No ☒There is no established market for the registrant’s shares of common stock. There were approximately 19,485,596.955 shares of common stock held by non-affiliates as
As of June 30,
2018, the2021 (the last business day of the registrant’s most recently completed second fiscal
quarter, for anquarter), the aggregate market value of
$1,617,304,547, assuming a marketthe registrant’s shares of common stock, $0.00025 par value,
held bynon-affiliates
of
$83the registrant, was $3.7 billion based on the last reported sale price of $23.41 per share
on the
offering price per share as ofNew York Stock Exchange on June 30,
2018, in the registrant’s ongoing private offering exclusive of any available discounts for certain categories of purchasers.2021.
There were
22,597,882.214 163,445,094shares of the Registrant’s
common stock, $0.001Common Stock, $0.00025 par value per share outstanding as of
March 1, 2019.February 17, 2022.
Documents Incorporated by Reference
Part III, Items 10, 11, 12, 13, and 14 of this annual report incorporate by reference certain specific portions of Broadstone Net Lease, Inc.’s definitive proxy statement for its
20192022 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the registrant’s fiscal year. Only those portions of the proxy statement that are specifically incorporated by reference herein shall constitute a part of this
annual report.Annual Report on Form10-K.
BROADSTONE NET LEASE, INC.
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Item 1.
| | Business
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Item 2.
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| | PART II | | | | |
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| | PART III
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| | PART III | | | | |
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| | PART IV | | | | |
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Cautionary Note Regarding
Forward-LookingForward-Looking StatementsExcept where the context suggests otherwise, as used in this Form 10-K, the terms “we,” “us,” “our,” and “our company” refer to Broadstone Net Lease, Inc., a Maryland corporation, and, as required by context, Broadstone Net Lease, LLC, a New York limited liability company, which we refer to as our “Operating Company,” and to their respective subsidiaries.
This Annual Report on Form
10-K may contain
contains forward-looking statements,
withinwhich 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
meaningsafe 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”)
, regarding, among other things, our plans, strategies, and prospects, both business and financial.. Forward-looking statements include
butall statements that are not
limited to,historical facts. In some cases, you can identify these forward-looking statements
that represent our beliefs concerning future operations, strategies, financial results, or other developments. Forward-looking statements can be identified by the use of
forward-looking terminologywords such as
but not limited to,“outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,”
“expect,“could,”
“intend,“seeks,”
“anticipate,“approximately,”
“estimate,“projects,”
“would be,“predicts,”
“believe,“intends,”
or “continue”“plans,” “estimates,” “anticipates,” or the negative
version of these words or other
variationscomparable words. All of
comparable terminology.Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. Because thesethe forward-looking statements are basedincluded in this Annual Report on estimates and assumptions that Form
10-K
are subject to
significantvarious 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
economic,decisions, all of which are difficult or impossible to predict accurately and
competitive uncertainties, many of which are beyond our
control or are subject to change, actual results could be materially different.control. Although we believe that
our plans, intentions, andthe expectations reflected in
or suggested by thesesuch forward-looking statements are
based on reasonable
we cannot assure you that we will achieveassumptions, our actual results, performance, and achievements could differ materially from those expressed in or
realize these plans, intentions, or expectations.The following are some, but not all,by the forward-looking statements and may be affected by a variety of the assumptions, risks uncertainties, and other factors. Accordingly, there are or will be important factors that could cause our actual outcomes or results to differ materially from those presented in oursuch forward-looking statements:
Our ability to generate cash flows sufficient to pay our dividends to stockholders or meet our debt service obligations.
Our ability to achieve our investment objectives and growth plans.
Our dependence upon the financial health and performance of our Manager and Asset Manager and their ability to retain or hire key personnel.
We may be subject to substantial third-party fees, in some instances to affiliated third parties.
Potential conflicts of interest because of our UPREIT structure (as defined below) and the relationship with our Manager and Asset Manager.
General business and economic conditions, fluctuating interest rates, and volatility and uncertainty in the credit markets and broader financial markets.
Competition in the acquisition and disposition of properties and in the leasing of our properties, which may impact our ability to acquire, dispose of, or lease properties on advantageous terms.
Risks associated with investing in real estate, including tenant, geographic, and industry concentrations with respect to our properties; bankruptcies or insolvencies of tenants or from tenant defaults generally; impairments in the value of our real estate assets; the illiquidity of our real estate investments; potential liability relating to environmental matters; and potential damages from natural disasters, acts of terrorism, or war.
Our access to capital and ability to borrow money in sufficient amounts and on favorable terms.
Our continued qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and compliance with REIT requirements, including the annual distribution requirements.
Changes in applicable laws, rules, and regulations, including the tax laws.
AdditionalImportant factors that maycould cause risks and uncertainties include those discussedresults to differ materially from the forward-looking statements are described in the Item 1. “Business,” Item 1A. “Risk Factors,” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report. ReadersReport on Form
10-K.
The “Risk Factors” section should not be construed as exhaustive and should be read in conjunction with other cautionary statements included elsewhere in this Annual Report on Form10-K.
You are cautioned not to place undue reliance on
theseany forward-looking statements
which speak onlyincluded in this Annual Report on Form10-K.
All forward-looking statements are made as of the date
of this
Annual Report onForm 10-K is filed
and the risk that actual results, performance, and achievements will differ materially from the expectations expressed in or referenced by this Annual Report on Form10-K
will increase with the
Securities and Exchange Commission (the “SEC”). Exceptpassage 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, we do not undertake any obligation to update or revise any forward-looking statements containedlaw. Explanatory Note and Certain Defined Terms
Except where the context suggests otherwise, as used in this
Annual Report on Form
10-K.
10-K,
the terms “BNL,” “we,” “us,” “our,” and “our company” refer to Broadstone Net Lease, Inc., a Maryland corporation incorporated on October 18, 2007, and, as required by context, Broadstone Net Lease, LLC, a New York limited liability company, which we refer to as the or our “OP,” and to their respective subsidiaries.
Unless the context otherwise requires, the following terms and phrases are used throughout this Annual Report on Form10-K
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 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 excluding capitalized acquisitions costs;
“CPI” means the Consumer Price Index for All Urban Consumers(CPI-U):
U.S. City Average, All Items, as published by the U.S. Bureau of Labor Statistics, or other similar index which is a measure of
| the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services; |
“occupancy” or a specified percentage of our portfolio that is “occupied” or “leased” means as of a specified date the quotient of (1) the total rentable square footage of our properties minus the square footage of our properties that are vacant and from which we are not receiving any rental payment, and (2) the total square footage of our properties; and
“Revolving Credit Facility” means our $900 million unsecured revolving credit facility, dated September 21, 2020, with J.P. Morgan Chase Bank, N.A. and the other lenders party thereto.
“Internalization” means the internalization of the external management functions on February 7, 2020.
We are an
externally managedinternally-managed real estate investment trust (“REIT”)
formed as a Maryland corporation in 2007 to acquirethat acquires, owns, and
holdmanages primarily single-tenant commercial real estate properties
throughoutthat 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
United States, substantially allindustrial, healthcare, restaurant, retail, and office property types. During the year ended December 31, 2021, we invested $654.7 million, excluding capitalized acquisition costs, in 116 properties at a weighted average initial cash capitalization rate of
which are leased to the properties’ operators under long-term net leases. Under6.3%. The acquisitions included properties in industrial (47%, based on ABR), retail (26%), healthcare (23%), and restaurant (4%) asset classes located across 28 states with a
“netweighted average initial lease
” the tenant occupying the leased property (usually as a single tenant) does so in much the same manner as if the tenant were the owner of the property. There are various forms of net leases, most typically classified as triple-net or double-net. Triple-net leases typically require that the tenant pay all expenses associated with the property (e.g., real estate taxes, insurance, maintenance, repairs, and capital costs). Double-net leases typically require that the tenant pay all operating expenses associated with the property (e.g., real estate taxes, insurance, and maintenance), but exclude some or all major repairs (e.g., roof, structure, and parking lot). Accordingly, the owner receives the rent “net” of these expenses, rendering the cash flow associated with the lease predictable for the term of the lease. Under a net lease, the tenant generally agrees to lease the property for a significant term and
agrees that it will either have no ability, or only limited ability,minimum annual rent increases of 15.9 years and 1.5%, respectively. As of December 31, 2021, our portfolio has grown to
terminate the lease or abate rent prior to the expiration of the term of the lease as a result of real estate driven events such as casualty, condemnation, or failure by the landlord to fulfill its obligations under the lease.726 properties, with 725 properties located in 42 U.S. states and one property located in British Columbia, Canada.
We focus on
investing in real estate that is operated by
acreditworthy single
tenant where the real estate istenants in industries characterized by positive business drivers and trends. We target properties that are an integral part of the
tenant’s business. Our diversified portfolio of real estate includes retail properties (such as quick servicetenants’ businesses and
casual dining restaurants), healthcare facilities, industrial manufacturing facilities, warehouse and distribution centers, and corporate offices, among others. We target properties with creditworthy tenants that lookare therefore opportunities to
engage in asecure long-term
lease relationship.net leases. Through long-term
net leases, our tenants are able to retain operational control of their
mission criticalstrategically important locations, while
conservingallocating their debt and equity capital to fund
their fundamentalcore business
operations.operations rather than real estate ownership.
As of December 31,
2018, we owned a diversified2021, our portfolio
of 621 individual net leased commercial properties located in 42 states and comprisingcomprised approximately
19.032.2 million rentable square feet of operational
space. As of December 31, 2018, 100%space, and was highly diversified based on property type, geography, tenant, and industry, and is cross-diversified within each (property-type diversification within a geographic concentration):: We are focused primarily on industrial, healthcare, restaurant, retail, and office 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, quick service restaurant, food processing, casual dining, general merchandise, and flex/research and development. Geographic Diversification
of our
ABR.Tenant and Industry Diversification
properties
were subject to leases and were 99.7%are occupied by
161approximately 204 different commercial tenants
who operate 189 different brands that are diversified across 56 differing industries, with no single tenant accounting for more than
3.5%2.1% of our
contractual rental revenue over the next 12 months (“NTM Rent”).We elected to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), beginningABR
StrongIn-Place
Leases with
our taxable year ended December 31, 2008.Significant Remaining Lease Term As
a REIT, we are not subject to federal income tax to the extent that we meet certain requirements, including that we distribute at least 90% of
our annual taxable income to our stockholders and satisfy other requirements based on the composition of our asset portfolio and sources of income.We operate under the direction of our board of directors, which is responsible for the management and control of our affairs. Our board of directors has retained Broadstone Real Estate, LLC (the “Manager”), to provide certain property management services for our properties, and Broadstone Asset Management, LLC, a wholly owned subsidiary of the Manager (the “Asset Manager”), to manage our day-to-day affairs and implement our investment strategy, subject to our board of directors’ direction, oversight, and approval. The agreements governing the services provided by the Manager and the Asset Manager have been renewed through the year ending December 31, 2021, our portfolio was approximately 99.8% leased with an ABR weighted average remaining lease term of approximately 10.5 years, excluding renewal options.
Standard Contractual Base Rent Escalation
Extensive Tenant Financial Reporting
and
will automatically renew for successivean additional
three-year terms thereafter, subject to earlier termination as detailed in the respective agreements.9.4% of our tenants report financial statements publicly, either through SEC filings or otherwise.
We conduct substantially all of our activities through, and all of our properties are held directly or indirectly by, the Operating Company.OP, which is commonly referred to as an umbrella partnership real estate investment trust or UPREIT. We are the sole managing member of the Operating Company and asOP. As of December 31, 2018,2021, we owned approximately 92.7%94.0% of its issued and outstanding membership units of the OP (“OP Units”), with the remaining 7.3%6.0% of its membership unitsOP Units held
by persons who were issued
membership unitsOP Units pursuant to the Internalization or in exchange for their interests in properties acquired by the
Operating Company.
As we conduct substantially all of our operations through the Operating Company, we are structured as what is referred to as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”). The UPREIT structure allows a property owner to contribute property to the Operating Company in exchange for membership units in the Operating Company and generally defer taxation of a resulting gain until the contributor later disposes of the membership units or the property is sold in a taxable transaction. The membership units of the Operating Company held by members of the Operating Company other than us are referred to herein and in our consolidated financial statements as “non-controlling interests,” “non-controlling membership units,” or “membership units,” and are convertible into shares of our common stock on a one-for-one basis, subject to certain restrictions. We allocate consolidated earnings to holders of our common stock and non-controlling membership unit holders of the Operating Company based on the weighted average number of shares of our common stock and non-controlling membership units outstanding during the year. For the year ended December 31, 2018, the weighted average number of units outstanding was 1.67 million.
We commenced our ongoing private offering of shares of our common stock (our “private offering”) in 2007. The first closing of our private offering occurred on December 31, 2007, and we have conducted additional closings at least once every calendar quarter since then. Currently, we close sales of additional shares of our common stock monthly. In November 2017, we instituted a monthly equity cap and queue program for new and additional investments in our common stock. The cap does not apply to investments made pursuant to our Distribution Reinvestment Plan (“DRIP”) or equity capital received in connection with UPREIT transactions. See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities” of this Form 10-K for further information.
Shares of our common stock are offered in our private offering at a price equal to a determined share value (the “Determined Share Value”), which is established at least quarterly by the committee of our board of directors comprised of our independent directors (“Independent Directors Committee”) based on the net asset value (“NAV”) of our portfolio, input from management and third-party consultants, and other such factors as the Independent Directors Committee may determine. Our determination of NAV applies valuation definitions and methodologies prescribed by Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, in order to fair value our net assets. Our net assets are primarily comprised of our investment in rental property and debt, as well as other assets and liabilities such as cash, interest rate swaps, and accounts payable. The values ascribed to our mortgages, unsecured notes, and interest rate swaps are marked to market each quarter. See further discussion related to Determined Share Value in Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Form 10-K under the caption Determined Share Value. Shares of our common stock are currently being offered in our private offering at $85.00 per share. For the year ended December 31, 2018, we issued 3.22 million shares of our common stock in our private offering, including 0.64 million shares of common stock issued pursuant to our DRIP. Cash received for newly issued shares totaled $215.7 million and shares with a value of $52.2 million were issued pursuant to DRIP transactions. In addition, we issued 194,035 units in our Operating Company valued at $15.8 million during the year ended December 31, 2018, in exchange for properties contributed through UPREIT transactions. We intend to use substantially all of the net proceeds from our private offering, supplemented with additional borrowings, to continue to invest in additional net leased properties and for general corporate purposes. We conduct our private offering in reliance upon the exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), provided by Rule 506(c) of Regulation D promulgated under the Securities Act.
As of December 31, 2018, there were 22,013,751 shares of our common stock issued and outstanding, and 1,737,047 non-controlling membership units in the Operating Company issued and outstanding.
2018 Highlights
Increased total revenues to $237.5 million, representing growth of 30.8% compared to the year ended December 31, 2017.
OP.Generated earnings per share on a GAAP (as defined below) basis, including amounts attributable to non-controlling interests, of $3.43, representing an increase of $0.22 per diluted share, or 6.9%, compared to the year ended December 31, 2017.
2021 Highlights
Generated funds from operations (“FFO”), a non-GAAP financial measure, of $6.88 per diluted share, representing an increase of $0.88 per diluted share, or 14.7%. compared to the year ended December 31, 2017.
Operating Highlights
Generated adjusted funds from operations (“AFFO”), a non-GAAP financial measure, of $5.66 per diluted share, representing an increase of $0.28 per diluted share, or 5.2%, compared to the year ended December 31, 2017.
Increased our monthly distribution to stockholders from $0.415 per share at December 31, 2017, to $0.43 per share in February 2018.
Increased the Determined Share Value from $81.00 per share at December 31, 2017, to $86.00 at December 31, 2018.
Closed 2635 real estate acquisitions totaling $606.8approximately $654.7 million, excluding capitalized acquisition expenses,costs, adding 113116 new properties with a weighted average initial cash capitalization rate of 6.9%6.3%. The properties acquired had aan ABR weighted average remaining lease term of 11.015.9 years at the time of acquisition and ABR weighted average annual rent increases of 1.8%1.5%.
Received $283.7
Sold 31 properties, at a weighted average cash capitalization rate of 6.7%, for net proceeds of $83.8 million, in investments from new and existing stockholders, including property contributed in exchange for Operating Company membership units through UPREIT transactions, and had more than 3,100 stockholders asrecognizing a gain of the end of the year.$13.5 million above net book value.
Continued
Increased occupancy 60 basis points to focus on optimizing our portfolio by selectively pruning and strategically disposing of 20 properties, representing approximately 2.0% of our portfolio value as of December 31, 2017, for $54.0 million in net proceeds.99.8%.
Continued to enhance and diversify our sources
Collected 100% of debt capital. In July 2018, we issued an aggregate of $325.0 million of unsecured, fixed-rate, interest-only senior notes through a private placement.
Collected more than 99% ofbase rents due during 2018the year.
Generated net income of $109.5 million or $0.67 per diluted share for the year ended December 31, 2021.
Generated funds from operations (“FFO”) of $256.2 million or $1.56 per diluted share for the year ended December 31, 2021.
Generated adjusted funds from operations (“AFFO”) of $216.0 million or $1.31 per diluted share for the year ended December 31, 2021.
Received initial credit rating of ‘BBB’ with stable outlook from S&P Global Ratings (“S&P”) in January 2021 and maintainedupgraded credit rating of ‘Baa2’ with stable outlook from Moody’s Investors Service (“Moody’s”) in September 2021.
Completed our first publicfollow-on
equity offering, issuing 11,500,000 common shares for net proceeds of $253.5 million. Established $400 millioncommon equity offering program (“ATM Program”) and sold 1,071,500 shares of common stock under this program for net proceeds of $27.3 million. Closed $375 million inaugural10-year
public bond offering at a
100% leased portfolio throughoutfixed rate of 2.600%. Ended the year.fourth quarter with total outstanding debt and Net Debt of $1.7 billion and a Net Debt to Annualized Adjusted EBITDAre ratio of 5.13x.
FFO,
AFFO, Net Debt, and
AFFOAnnualized Adjusted EBITDAre are performance measures that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We present these
non-GAAP
measures as we believe certain investors and other users of our financial information use them as part of their evaluation of our historical operating performance. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this
Annual Report on Form
10-K
under the heading
Net Income and Non-GAAP
Measures
(FFO and AFFO)non-GAAP
measures as well as a reconciliation of each to the most comparable GAAP measure.
Our
PropertiesBusiness and
Investment ObjectivesWe target acquisitions of fee simple interests in individual properties priced between $5 million and $75 million. Portfolios may be significantly larger, depending on balance sheet capacity and whether the portfolio is diversified or concentrated by tenant, geography, or brand. Our investment policy (“Investment Policy”) has three primary objectives:
preserve, protect, and return capital to investors,
Growth Strategiesrealize increasedOur primary business objectives are to maximize cash available for distributions and long-term capital appreciation from growth inflows, the value of our properties,portfolio, and
total returns to our stockholders through pursuit of the following business and growth strategies:maximize the level of sustainable cash distributions
Internal Growth through Long-Term Net Leases with Strong Contractual Rent Escalations
to
our investors.We primarily acquire freestanding, single-tenant commercial properties located in the United States either directly from our creditworthy tenants in sale-leaseback transactions, where they sell us their properties and simultaneously lease them back throughenter into long-term net leases or throughthat include strong rent escalations over the purchaselease term. As of
| December 31, 2021, substantially all of our portfolio (based on ABR) was subject to net leases, our leases had an ABR weighted average remaining lease term of approximately 10.5 years, excluding renewal options, and approximately 97.3% of our leases had contractual rent escalations, with an ABR weighted average minimum increase of 2.0%. |
Disciplined and Targeted Acquisition Growth while Maintaining Our Diversified Portfolio
properties
already under athat are both individually compelling and contribute to our portfolio’s overall diversification based on property type, geography, tenant, and industry. We believe our reputation,in-depth
market knowledge, and extensive network of established relationships in the net lease
(i.e.,industry will continue to provide us access to potential attractive investment opportunities.Selectively Identify Attractive Adjacent Opportunities to Our Core Property Types
Actively Manage Our Balance Sheet to Maximize Capital Efficiency
a
prudent balance between debt and equity financing and to maintain funding sources that lock in long-term investment spreads, limit interest rate sensitivity, and align with our lease
assumption). Under either scenario, our properties are generally under lease and fully occupied at the time of acquisition. Our real estate portfolio asterms. As of December 31,
2018,2021, we had total debt outstanding and Net Debt of $1.7 billion, and a ratio of Net Debt to Annualized Adjusted EBITDAre of 5.13x. In the future, we will seek to maintain, on a sustained basis, a level of Net Debt that is
reflectivegenerally less than 6.0x our Annualized Adjusted EBITDAre.Proactively Manage Our Portfolio
of our
Investment Policy, with a focus onportfolio through risk mitigation strategies and opportunistic sales. We regularly review and monitor each of our properties
to identify changes in
growth markets with at least ten yearsthe business performance and credit quality of
lease term remaining that are expected to achieve financial returns on equity of greater than 9.5%, net of fees, calculated based onour tenants, individual property level performance metrics, and the
average return recognized across all acquisitions during a calendar year, provided that all acquisitions must have a minimum remaining lease term of seven years and a minimum return on equity of 8.5%, net of fees, unless otherwise approved by the Independent Directors Committee. Our criteria for selecting properties are based on the following underwriting principles:fundamental value and characteristics of the underlyinglocal real estate
market conditions. Our proactive approach to asset management helps to identify and address issues, such as tenant credit deterioration, changes in real estate fundamentals, general market disruption (such as from theCOVID-19
pandemic), or otherwise, including determining to sell any of our properties where we believe the risk profile has changed and become misaligned with our then current risk-adjusted return objectives.
Our Real Estate Investment Portfolio
transaction structure and pricing.
We believe we can achieve an appropriate risk-adjusted return through these underwriting principles and conservatively project a property’s potential to generate targeted returns from current and future cash flows. We believe targeted returns are achieved through a combination of in-place income at the time of acquisition, rent growth, and a property’s potential for appreciation.
To achieve an appropriate risk-adjusted return, we maintain a diversified portfolio of real estate spread across multiple tenants, industries, and geographic locations. The following charts summarize our portfolio diversification by property type, tenant, brand, industry, and geographic location as of December 31, 2018.2021. The percentages below are calculated based on our NTM RentABR of $334.1 million as of December 31, 2018, divided by total NTM Rent. Late payments, non-payments, or other unscheduled payments are not considered in the calculation. NTM Rent includes the impact of contractual rent escalations.
2021.
Property Type, by % of NTM Rent
Property Type
| | % NTM Rent
| |
Retail - other
| | | 12.4
| %
|
Retail – casual dining
| | | 10.5
| %
|
Retail – quick service restaurants ("QSR")
| | | 10.1
| %
|
Retail Total
| | | 33.0
| %
|
Industrial – warehouse/distribution
| | | 12.5
| %
|
Industrial – manufacturing
| | | 9.5
| %
|
Industrial – flex
| | | 6.0
| %
|
Industrial – other
| | | 3.2
| %
|
Industrial Total
| | | 31.2
| %
|
Healthcare – clinical
| | | 14.3
| %
|
Healthcare – surgical
| | | 4.5
| %
|
Healthcare – other
| | | 3.7
| %
|
Healthcare Total
| | | 22.5
| %
|
Office
| | | 9.7
| %
|
Other
| | | 3.6
| %
|
Total
| | | 100.0
| %
|
Tenant Industry, by % of NTM Rent
Industry
| | % NTM Rent
| |
Restaurants
| | | 20.9
| %
|
Healthcare Facilities
| | | 20.1
| %
|
Home Furnishing Retail
| | | 5.1
| %
|
Specialized Consumer Services
| | | 4.5
| %
|
Auto Parts & Equipment
| | | 4.3
| %
|
Packaged Foods & Meats
| | | 3.8
| %
|
Air Freight & Logistics
| | | 3.2
| %
|
Healthcare Services
| | | 2.9
| %
|
Industrial Machinery
| | | 2.3
| %
|
Distributors
| | | 2.0
| %
|
Industrial Conglomerates
| | | 1.9
| %
|
Multi-line Insurance
| | | 1.7
| %
|
Life Sciences Tools & Services
| | | 1.7
| %
|
Application Software
| | | 1.6
| %
|
Aerospace & Defense
| | | 1.5
| %
|
Top 15 Tenant Industries
| | | 77.5
| %
|
Other (31 industries)
| | | 22.5
| %
|
Total
| | | 100.0
| %
|
Geographic Diversification by %Property Type
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | |
| | |
| |
| | | | | | | | | | | | | | | | | | | | |
| | | 64 | | | $ | 50,377 | | | | 15.1 | % | | | 9,147 | | | | 28.4 | % |
| | | 45 | | | | 48,665 | | | | 14.6 | % | | | 9,221 | | | | 28.6 | % |
| | | 16 | | | | 21,495 | | | | 6.4 | % | | | 2,405 | | | | 7.5 | % |
| | | 7 | | | | 17,132 | | | | 5.1 | % | | | 1,457 | | | | 4.5 | % |
| | | 4 | | | | 12,686 | | | | 3.8 | % | | | 933 | | | | 2.9 | % |
| | | 20 | | | | 8,168 | | | | 2.4 | % | | | 454 | | | | 1.4 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 51 | | | | 25,596 | | | | 7.6 | % | | | 1,049 | | | | 3.3 | % |
| | | 28 | | | | 12,444 | | | | 3.7 | % | | | 463 | | | | 1.4 | % |
| | | 27 | | | | 10,297 | | | | 3.1 | % | | | 405 | | | | 1.3 | % |
| | | 12 | | | | 10,226 | | | | 3.1 | % | | | 329 | | | | 1.0 | % |
| | | 9 | | | | 7,655 | | | | 2.3 | % | | | 549 | | | | 1.7 | % |
| | | 1 | | | | — | | | | — | | | | 18 | | | | 0.1 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Quick Service Restaurants | | | 148 | | | | 24,726 | | | | 7.4 | % | | | 505 | | | | 1.6 | % |
| | | 87 | | | | 21,269 | | | | 6.4 | % | | | 559 | | | | 1.7 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 112 | | | | 18,441 | | | | 5.5 | % | | | 1,416 | | | | 4.4 | % |
| | | 65 | | | | 11,932 | | | | 3.6 | % | | | 762 | | | | 2.4 | % |
| | | 13 | | | | 7,030 | | | | 2.1 | % | | | 797 | | | | 2.5 | % |
| | | 1 | | | | — | | | | — | | | | 34 | | | | 0.1 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 7 | | | | 10,406 | | | | 3.1 | % | | | 679 | | | | 2.1 | % |
| | | 5 | | | | 9,655 | | | | 2.9 | % | | | 615 | | | | 1.9 | % |
| | | 4 | | | | 5,887 | | | | 1.8 | % | | | 391 | | | | 1.2 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2018,
Diversification by Tenant
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | ABR as a %
of Total
Portfolio | | | | | | SF as a %
of Total
Portfolio | |
Jack’s Family Restaurants LP* | | Quick Service Restaurants | | | 43 | | | $ | 7,166 | | | | 2.1 | % | | | 147 | | | | 0.4 | % |
Red Lobster Hospitality & Red Lobster Restaurants LLC* | | Casual Dining | | | 22 | | | | 6,994 | | | | 2.1 | % | | | 181 | | | | 0.6 | % |
Joseph T. Ryerson & Son, Inc | | Distribution & Warehouse | | | 11 | | | | 6,395 | | | | 1.9 | % | | | 1,537 | | | | 4.8 | % |
Axcelis Technologies, Inc. | | Flex and R&D | | | 1 | | | | 5,859 | | | | 1.8 | % | | | 417 | | | | 1.3 | % |
| | Distribution & Warehouse | | | 3 | | | | 5,756 | | | | 1.7 | % | | | 577 | | | | 1.8 | % |
BluePearl Holdings, LLC** | | Animal Health Services | | | 13 | | | | 5,398 | | | | 1.6 | % | | | 160 | | | | 0.5 | % |
Outback Steakhouse of Florida LLC* 1 | | Casual Dining | | | 22 | | | | 5,278 | | | | 1.6 | % | | | 140 | | | | 0.4 | % |
| | General Merchandise | | | 21 | | | | 5,246 | | | | 1.6 | % | | | 417 | | | | 1.3 | % |
Dollar General Corporation | | General Merchandise | | | 53 | | | | 5,218 | | | | 1.6 | % | | | 492 | | | | 1.5 | % |
Krispy Kreme Doughnut Corporation | | Quick Service Restaurants/ Food Processing | | | 27 | | | | 5,034 | | | | 1.5 | % | | | 156 | | | | 0.5 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Siemens Medical Solutions USA, Inc. & Siemens Corporation | | Manufacturing/Flex and R&D | | | 2 | | | | 4,936 | | | | 1.5 | % | | | 545 | | | | 1.7 | % |
Big Tex Trailer Manufacturing, Inc.* | | Automotive/Distribution & Warehouse/Manufacturing/ Corporate Headquarters | | | 17 | | | | 4,859 | | | | 1.4 | % | | | 1,302 | | | | 4.0 | % |
Santa Cruz Valley Hospital | | Healthcare Facilities | | | 1 | | | | 4,500 | | | | 1.3 | % | | | 148 | | | | 0.5 | % |
Nestle’ Dreyer’s Ice Cream Company | | Cold Storage | | | 1 | | | | 4,476 | | | | 1.3 | % | | | 310 | | | | 1.0 | % |
Arkansas Surgical Hospital | | Surgical | | | 1 | | | | 4,367 | | | | 1.3 | % | | | 129 | | | | 0.4 | % |
| | Home Furnishings | | | 6 | | | | 4,224 | | | | 1.3 | % | | | 474 | | | | 1.5 | % |
| | Manufacturing | | | 1 | | | | 4,087 | | | | 1.2 | % | | | 231 | | | | 0.7 | % |
Aventiv Technologies, LLC | | Corporate Headquarters | | | 1 | | | | 3,896 | | | | 1.2 | % | | | 154 | | | | 0.5 | % |
Fresh Express Incorporated | | Food Processing | | | 1 | | | | 3,869 | | | | 1.2 | % | | | 335 | | | | 1.0 | % |
| | Manufacturing | | | 3 | | | | 3,561 | | | | 1.1 | % | | | 843 | | | | 2.6 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| 1 | Tenant’s properties include 20 Outback Steakhouse restaurants and two Carrabba’s Italian Grill restaurants. |
| Subject to a master lease. |
| Includes properties leased by multiple tenants, some, not all, of which are subject to master leases. |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | ABR as a %
of Total
Portfolio | | | | | | SF as a %
of Total
Portfolio | |
Jack’s Family Restaurants * | | Quick Service Restaurants | | | 43 | | | $ | 7,166 | | | | 2.1 | % | | | 147 | | | | 0.4 | % |
| | Casual Dining | | | 22 | | | | 6,994 | | | | 2.1 | % | | | 181 | | | | 0.6 | % |
| | Distribution & Warehouse | | | 11 | | | | 6,395 | | | | 1.9 | % | | | 1,537 | | | | 4.8 | % |
| | Flex and R&D | | | 1 | | | | 5,859 | | | | 1.8 | % | | | 417 | | | | 1.3 | % |
| | Distribution & Warehouse | | | 3 | | | | 5,756 | | | | 1.7 | % | | | 577 | | | | 1.8 | % |
BluePearl Veterinary Partners ** | | Animal Health Services | | | 13 | | | | 5,398 | | | | 1.6 | % | | | 160 | | | | 0.5 | % |
| | Casual Dining/Food Processing | | | 21 | | | | 5,285 | | | | 1.6 | % | | | 281 | | | | 0.9 | % |
| | General Merchandise | | | 21 | | | | 5,246 | | | | 1.6 | % | | | 417 | | | | 1.3 | % |
| | General Merchandise | | | 53 | | | | 5,218 | | | | 1.6 | % | | | 492 | | | | 1.5 | % |
| | Quick Service Restaurants/ Food Processing | | | 27 | | | | 5,034 | | | | 1.5 | % | | | 156 | | | | 0.5 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Manufacturing/Flex and R&D | | | 2 | | | | 4,936 | | | | 1.5 | % | | | 545 | | | | 1.7 | % |
| | Automotive/Distribution & Warehouse/Manufacturing/ Corporate Headquarters | | | 17 | | | | 4,859 | | | | 1.4 | % | | | 1,302 | | | | 4.0 | % |
| | Casual Dining | | | 20 | | | | 4,566 | | | | 1.4 | % | | | 126 | | | | 0.4 | % |
| | Quick Service Restaurants | | | 31 | | | | 4,549 | | | | 1.4 | % | | | 89 | | | | 0.2 | % |
Santa Cruz Valley Hospital | | Healthcare Facilities | | | 1 | | | | 4,500 | | | | 1.3 | % | | | 148 | | | | 0.5 | % |
| | Cold Storage | | | 1 | | | | 4,476 | | | | 1.3 | % | | | 310 | | | | 1.0 | % |
Arkansas Surgical Hospital | | Surgical | | | 1 | | | | 4,367 | | | | 1.3 | % | | | 129 | | | | 0.4 | % |
| | Home Furnishings | | | 6 | | | | 4,224 | | | | 1.3 | % | | | 474 | | | | 1.5 | % |
| | Quick Service Restaurants | | | 31 | | | | 4,136 | | | | 1.3 | % | | | 80 | | | | 0.2 | % |
| | Manufacturing | | | 1 | | | | 4,087 | | | | 1.2 | % | | | 231 | | | | 0.7 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| 1 | Brand includes one BEF Foods, Inc. property and 20 Bob Evans Restaurants, LLC properties. |
| Subject to a master lease. |
| Includes properties leased by multiple tenants, some, not all, of which are subject to master leases. |
Diversification by Industry
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | ABR as a %
of Total
Portfolio | | | | | | SF as a %
of Total
Portfolio | |
| | | 102 | | | $ | 53,099 | | | | 15.9 | % | | | 2,028 | | | | 6.3 | % |
| | | 238 | | | | 46,766 | | | | 14.0 | % | | | 1,106 | | | | 3.4 | % |
| | | 11 | | | | 16,578 | | | | 5.0 | % | | | 1,820 | | | | 5.7 | % |
| | | 25 | | | | 14,311 | | | | 4.3 | % | | | 2,528 | | | | 7.9 | % |
| | | 7 | | | | 12,978 | | | | 3.9 | % | | | 1,556 | | | | 4.8 | % |
| | | 39 | | | | 12,443 | | | | 3.7 | % | | | 2,387 | | | | 7.4 | % |
Specialized Consumer Services | | | 47 | | | | 12,078 | | | | 3.6 | % | | | 720 | | | | 2.2 | % |
| | | 8 | | | | 9,796 | | | | 2.9 | % | | | 2,206 | | | | 6.9 | % |
| | | 25 | | | | 9,685 | | | | 2.9 | % | | | 1,140 | | | | 3.5 | % |
| | | 18 | | | | 9,105 | | | | 2.7 | % | | | 515 | | | | 1.6 | % |
| | | 5 | | | | 8,955 | | | | 2.7 | % | | | 1,785 | | | | 5.5 | % |
| | | 16 | | | | 8,845 | | | | 2.6 | % | | | 1,149 | | | | 3.6 | % |
| | | 7 | | | | 8,693 | | | | 2.6 | % | | | 952 | | | | 3.0 | % |
General Merchandise Stores | | | 83 | | | | 8,269 | | | | 2.5 | % | | | 747 | | | | 2.3 | % |
| | | 2 | | | | 6,674 | | | | 2.0 | % | | | 466 | | | | 1.4 | % |
| | | 91 | | | | 95,812 | | | | 28.7 | % | | | 11,031 | | | | 34.3 | % |
| | | 2 | | | | — | | | | — | | | | 52 | | | | 0.2 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Diversification by Geography
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | ABR as a
% of Total
Portfolio | | | | | | SF as a %
of Total
Portfolio | | | | | | | | | | | | | | ABR as a
% of Total
Portfolio | | | | | | SF as a %
of Total
Portfolio | |
| | | 67 | | | $ | 35,461 | | | | 10.6 | % | | | 3,491 | | | | 10.8 | % | | | | | | | | | 3 | | | | 4,904 | | | | 1.5 | % | | | 366 | | | | 1.1 | % |
| | | 24 | | | | 20,130 | | | | 6.0 | % | | | 1,981 | | | | 6.2 | % | | | | | | | | | 10 | | | | 4,822 | | | | 1.5 | % | | | 959 | | | | 3.0 | % |
| | | 35 | | | | 19,687 | | | | 5.9 | % | | | 2,069 | | | | 6.4 | % | | | | | | | | | 15 | | | | 4,223 | | | | 1.3 | % | | | 150 | | | | 0.5 | % |
| | | 46 | | | | 16,398 | | | | 4.9 | % | | | 854 | | | | 2.7 | % | | | | | | | | | 4 | | | | 3,394 | | | | 1.0 | % | | | 194 | | | | 0.6 | % |
| | | 47 | | | | 16,230 | | | | 4.9 | % | | | 1,537 | | | | 4.8 | % | | | | | | | | | 6 | | | | 3,027 | | | | 0.9 | % | | | 509 | | | | 1.6 | % |
| | | 10 | | | | 15,559 | | | | 4.7 | % | | | 1,493 | | | | 4.6 | % | | | | | | | | | 4 | | | | 2,917 | | | | 0.9 | % | | | 293 | | | | 0.9 | % |
| | | 36 | | | | 14,925 | | | | 4.5 | % | | | 1,400 | | | | 4.3 | % | | | | | | | | | 8 | | | | 2,782 | | | | 0.8 | % | | | 96 | | | | 0.3 | % |
| | | 9 | | | | 13,098 | | | | 3.9 | % | | | 909 | | | | 2.8 | % | | | | | | | | | 8 | | | | 2,772 | | | | 0.8 | % | | | 334 | | | | 1.0 | % |
| | | 35 | | | | 12,936 | | | | 3.9 | % | | | 1,308 | | | | 4.1 | % | | | | | | | | | 4 | | | | 2,718 | | | | 0.8 | % | | | 622 | | | | 1.9 | % |
| | | 29 | | | | 12,763 | | | | 3.8 | % | | | 1,759 | | | | 5.5 | % | | | | | | | | | 16 | | | | 2,471 | | | | 0.7 | % | | | 109 | | | | 0.3 | % |
| | | 20 | | | | 12,738 | | | | 3.8 | % | | | 2,021 | | | | 6.3 | % | | | | | | | | | 13 | | | | 2,469 | | | | 0.7 | % | | | 308 | | | | 1.0 | % |
| | | 51 | | | | 11,445 | | | | 3.4 | % | | | 855 | | | | 2.7 | % | | | | | | | | | 4 | | | | 2,423 | | | | 0.7 | % | | | 125 | | | | 0.4 | % |
| | | 45 | | | | 10,825 | | | | 3.2 | % | | | 536 | | | | 1.7 | % | | | | | | | | | 3 | | | | 2,379 | | | | 0.7 | % | | | 280 | | | | 0.9 | % |
| | | 26 | | | | 10,660 | | | | 3.2 | % | | | 680 | | | | 2.1 | % | | | | | | | | | 2 | | | | 1,699 | | | | 0.5 | % | | | 55 | | | | 0.2 | % |
| | | 29 | | | | 10,355 | | | | 3.1 | % | | | 1,538 | | | | 4.8 | % | | | | | | | | | 7 | | | | 1,544 | | | | 0.5 | % | | | 43 | | | | 0.1 | % |
| | | 5 | | | | 10,291 | | | | 3.1 | % | | | 1,026 | | | | 3.2 | % | | | | | | | | | 2 | | | | 1,336 | | | | 0.4 | % | | | 81 | | | | 0.2 | % |
| | | 11 | | | | 7,506 | | | | 2.3 | % | | | 282 | | | | 0.9 | % | | | | | | | | | 4 | | | | 1,154 | | | | 0.4 | % | | | 133 | | | | 0.4 | % |
| | | 20 | | | | 7,126 | | | | 2.1 | % | | | 944 | | | | 2.9 | % | | | | | | | | | 2 | | | | 943 | | | | 0.3 | % | | | 28 | | | | 0.1 | % |
| | | 14 | | | | 6,737 | | | | 2.0 | % | | | 1,010 | | | | 3.1 | % | | | | | | | | | 2 | | | | 414 | | | | 0.1 | % | | | 24 | | | | 0.1 | % |
| | | 21 | | | | 6,036 | | | | 1.8 | % | | | 691 | | | | 2.1 | % | | | | | | | | | 1 | | | | 307 | | | | 0.1 | % | | | 21 | | | | 0.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 17 | | | | 5,388 | | | | 1.6 | % | | | 204 | | | | 0.6 | % | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 10 | | | | 5,008 | | | | 1.5 | % | | | 639 | | | | 2.0 | % | | | | | | | | | 1 | | | | 4,087 | | | | 1.2 | % | | | 231 | | | | 0.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
We typically lease our properties pursuant to long-term net leases with initial terms of 10 years or more that often have renewal options. Substantially all of our
leases are net, meaning our tenants are generally obligated to pay all expenses associated with the leased property (such as real estate taxes, insurance, maintenance, repairs, and capital costs). We seek to use master lease structures where it fits market practice in the particular property type, pursuant to which we seek to lease multiple properties
are subjectto a single tenant on an all or none basis. We believe the master lease structure is most prevalent and applicable to leases
substantially all of which were net leases. We do not currently engage in
the development of real estate, which could cause a delay in timing between the funds used to invest in propertiesour restaurant and
the corresponding cash inflows from rental receipts. Our cash flows from operations are primarily generated through our real estate investment portfolioretail property types and
the monthly lease payments under our long-term leases with our tenants.To mitigate the impact of inflation on our fixed revenue streams and increase valueless relevant to our stockholders,other property types, such as healthcare and industrial. Additionally, when we striveacquire properties associated with a tenant that has an existing master lease structure with us, we seek to implement periodic rent escalations within our leases.add the new properties to the existing master lease structure to strengthen the existing lease with such tenant. As of December 31, 2018, substantially all2021, master leases contributed approximately 32.7% of our leases had contractual rent escalations, with an annual weighted average of 2.0%. A majorityoverall ABR, 73.7% of our leases have fixed annual rent increases,restaurant property ABR (156 of our 235 restaurant properties), and the remaining leases have annual lease escalations based on increases in the Consumer Price Index (“CPI”), or periodic escalations over the term37.9% of the lease (e.g., a 10% increase every five years). These lease escalations mitigate the riskour retail property ABR (84 of earnings erosion on our fixed revenue streams in the case191 properties).
As of
an inflationary economic environment, and provide increased return in otherwise stable market conditions. Our focus on single-tenant, net leases shifts certain risks to the tenant and shelters us from volatility in the cost of taxes, insurance, services, and maintenance of the property. For a portionDecember 31, 2021, approximately 99.8% of our portfolio,
we have leases that are not fully triple-net, and, therefore, we bear responsibility for certain maintenance and structural component replacements (e.g., roof, structure, or parking lot) that may be required in the future, although the tenants are still requiredrepresenting all but two of our properties, was subject to
pay all operating expenses associated with the property (e.g., real estate taxes, insurance, and maintenance). In circumstances where we cannot implement a
triple-net lease, we attempt to limit our exposure through the use of warranties and other remedies that reduce the likelihood of a significant capital outlay during the term of the lease.
We will also occasionally incur other property-level expenses that are not paid by our tenants. We do not currently anticipate making significant capital expenditures or incurring other significant property costs on an aggregate basis during the term of the property leases in our current portfolio.Due to the fact thatBecause substantially all of our properties are leased under long-term leases, we are not currently required to perform significant ongoing leasing activities on our properties. The leaseslease for eightone of our properties, representing less than 1%0.5% of our annual rental streams (calculated based on NTM Rent),ABR, will expire before 2021.during 2022, and leases for an additional seven properties, representing approximately 1.6% of our ABR, will expire during 2023. As of December 31, 2018,2021, the ABR weighted average remaining term of our leases (calculated based on NTM Rent) was approximately 12.1 years, excluding renewal options, which are exercisable at the option of our tenants upon expiration of their base lease term. Approximately10.5 years. Less than 5% of the properties in our portfolio are subject to leases without at least one renewal option. Furthermore, the weighted average remaining lease term on the $606.8 million in properties acquired during the year ended December 31, 2018,Approximately 49.4% of our rental
revenue was 11.0 years at the time of acquisition. Morederived from leases that will expire after 2030, and no more than 55%7.0% of our rental revenue is derived from leases that expire during 2030 and thereafter. As of December 31, 2018, no more than 9% of our rental revenue iswas derived from leases that expire in any single year in the next ten years.prior to 2030. The following chart sets forth our lease expirations based upon the terms of ourthe leases in place as of December 31, 2018.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1 | | | | 7 | | | | 11 | | | | 20 | | | | 35 | | | | 28 | | | | 33 | | | | 71 | | | | 99 | | | | 30 | | | | 54 | | | | 50 | | | | 32 | | | | 16 | | | | 86 | | | | 24 | | | | 33 | | | | 12 | | | | 33 | | | | 49 | |
| | | 2 | | | | 8 | | | | 11 | | | | 23 | | | | 32 | | | | 28 | | | | 30 | | | | 39 | | | | 55 | | | | 25 | | | | 39 | | | | 24 | | | | 21 | | | | 12 | | | | 21 | | | | 9 | | | | 29 | | | | 7 | | | | 6 | | | | 11 | |
Lease Maturity Schedule, by %Table of NTM Rent
Contents
The following table presents
thecertain information based on lease expirations by
year, including the number of tenants and properties with leases expiring, the square footage covered by the leases expiring, the NTM Rent, and the percentage of NTM Rent for the leases expiring. Late payments, non-payments or other unscheduled payments are not considered in the NTM Rent amounts. NTM Rent includes the impact of contractual rent escalations.year. Amounts are in thousands, except
thefor number of
tenants and properties.
Year | | Number of Tenants | | | Number of Properties | | | Square Footage | | | NTM Rent | | | Percentage of NTM Rent | |
2019 | | | 2 | | | | 3 | | | | 21 | | | $ | 259 | | | | 0.1 | % |
2020 | | | 5 | | | | 5 | | | | 112 | | | | 1,374 | | | | 0.6 | % |
2021 | | | 8 | | | | 12 | | | | 101 | | | | 2,092 | | | | 0.9 | % |
2022 | | | 6 | | | | 5 | | | | 127 | | | | 3,402 | | | | 1.4 | % |
2023 | | | 13 | | | | 14 | | | | 705 | | | | 6,998 | | | | 3.0 | % |
2024 | | | 13 | | | | 16 | | | | 1,787 | | | | 14,557 | | | | 6.2 | % |
2025 | | | 10 | | | | 18 | | | | 271 | | | | 4,352 | | | | 1.8 | % |
2026 | | | 19 | | | | 30 | | | | 832 | | | | 12,688 | | | | 5.4 | % |
2027 | | | 22 | | | | 34 | | | | 1,970 | | | | 19,986 | | | | 8.5 | % |
2028 | | | 21 | | | | 34 | | | | 1,869 | | | | 20,905 | | | | 8.9 | % |
2029 | | | 14 | | | | 61 | | | | 2,474 | | | | 18,097 | | | | 7.7 | % |
2030 and thereafter | | | 87 | | | | 389 | | | | 8,713 | | | | 131,092 | | | | 55.5 | % |
Our top tenants and brands at
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| | |
| | |
| | |
| |
| | | 1 | | | $ | 1,566 | | | | 0.5 | % | | | 46 | | | | 0.1 | % |
| | | 7 | | | | 5,375 | | | | 1.6 | % | | | 538 | | | | 1.7 | % |
| | | 11 | | | | 13,996 | | | | 4.2 | % | | | 1,689 | | | | 5.2 | % |
| | | 20 | | | | 8,403 | | | | 2.5 | % | | | 698 | | | | 2.2 | % |
| | | 35 | | | | 19,055 | | | | 5.7 | % | | | 1,414 | | | | 4.4 | % |
| | | 28 | | | | 23,296 | | | | 7.0 | % | | | 2,019 | | | | 6.3 | % |
| | | 33 | | | | 22,765 | | | | 6.8 | % | | | 2,282 | | | | 7.1 | % |
| | | 71 | | | | 21,807 | | | | 6.5 | % | | | 2,711 | | | | 8.4 | % |
| | | 99 | | | | 52,934 | | | | 15.8 | % | | | 5,089 | | | | 15.8 | % |
| | | 30 | | | | 7,897 | | | | 2.4 | % | | | 700 | | | | 2.2 | % |
| | | 54 | | | | 28,534 | | | | 8.5 | % | | | 3,248 | | | | 10.1 | % |
| | | 50 | | | | 18,754 | | | | 5.6 | % | | | 1,950 | | | | 6.0 | % |
| | | 32 | | | | 5,850 | | | | 1.8 | % | | | 376 | | | | 1.2 | % |
| | | 16 | | | | 11,694 | | | | 3.5 | % | | | 1,552 | | | | 4.8 | % |
| | | 86 | | | | 25,693 | | | | 7.7 | % | | | 2,854 | | | | 8.9 | % |
| | | 24 | | | | 17,256 | | | | 5.2 | % | | | 1,367 | | | | 4.2 | % |
| | | 33 | | | | 6,839 | | | | 2.0 | % | | | 306 | | | | 0.9 | % |
| | | 12 | | | | 9,145 | | | | 2.7 | % | | | 933 | | | | 2.9 | % |
| | | 33 | | | | 5,906 | | | | 1.8 | % | | | 317 | | | | 1.0 | % |
| | | 24 | | | | 12,789 | | | | 3.8 | % | | | 1,506 | | | | 4.7 | % |
| | | 25 | | | | 14,533 | | | | 4.4 | % | | | 541 | | | | 1.7 | % |
| | | 2 | | | | — | | | | — | | | | 52 | | | | 0.2 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | 726 | | | $ | 334,087 | | | | 100.0 | % | | | 32,188 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | |
Substantially all of our leases provide for periodic contractual rent escalations. As of December 31, 2018,2021, leases contributing 97.3% of our ABR provided for increases in future annual base rent, generally ranging from 1.5% to 2.5% annually, with an ABR weighted average annual minimum increase equal to 2.0% of base rent. Generally, our rent escalators increase rent on specified dates by a fixed percentage. Our escalations provide us with a source of organic growth and a measure of inflation protection. Additional information on lease escalation frequency and weighted average annual escalation rates as of December 31, 2021 is displayed below.
| | | | | | | | |
Lease Escalation Frequency | | | | |
| |
| | | 78.6 | % | | | 2.2 | % |
| | | 0.1 | % | | | 1.8 | % |
| | | 3.1 | % | | | 2.9 | % |
| | | 1.2 | % | | | 2.4 | % |
| | | 8.6 | % | | | 1.8 | % |
Other escalation frequencies | | | 5.7 | % | | | 1.9 | % |
| | | 2.7 | % | | | — | |
| | | | | | | | |
Total/Weighted Average (2) | | | 100.0 | % | | | 2.0 | % |
| | | | | | | | |
| (1) | Represents the ABR weighted average annual minimum increase of the entire portfolio as if all escalations occurred annually. For leases where rent escalates by the greater of a stated fixed percentage or the change in CPI, we have assumed an escalation equal to the stated fixed percentage in the lease. As of December 31, 2021, leases contributing 8.4% of our ABR provide for rent increases equal to the lesser of a stated fixed percentage or the change in CPI. As any future increase in CPI is unknowable at this time, we have not included an increase in the rent pursuant to these leases in the weighted average annual minimum increase presented. |
The escalation provisions of our leases (by percentage of ABR) as of December 31, 2021, are listeddisplayed in the tables below. The percentagesfollowing chart:
If requested by a tenant, we may, subject to the tenant’s history, creditworthiness, and other relevant considerations, agree to reimburse or provide a loan to the tenant for property expansion or improvement costs that it incurs in connection with improvements at a property, 100% of which it leases from us. In exchange for such reimbursement or loan, we generally receive contractually specified rent that increases proportionally with our funding. For example, we may agree to reimburse a tenant, up to a specified amount, for property expansion or improvement costs that it incurs in improving a commercial facility on its property. Generally, as we reimburse the tenant for property expansion or improvement costs, the rent will increase proportionally with our funding, which typically allows us to achieve a consistent cash yield on our funding throughout improvement.
We seek to acquire primarily freestanding, single-tenant commercial real estate properties located in the United States that are
calculated based onunder lease and fully occupied at the
NTM Rent associated withtime of acquisition. We also seek to maintain our portfolio’s diversification by property type, geography, tenant, and industry in an effort to reduce fluctuations in income caused by under-performing individual real estate assets or adverse economic conditions affecting an entire industry or geographic region. When evaluating whether a property acquisition would contribute to our overall portfolio’s diversification, we expect to take into account the
percentage a single property, tenant, or brand
dividedwould represent in our overall portfolio, as well as geographic concentrations, both by
total NTM Rent. Late payments, non-payments, or other unscheduled payments are not considered in the
calculation. NTM Rent includes the impact of contractual rent escalations.
Top Ten Tenants, by % of NTM Rent
Tenant | | Property Type | | % NTM Rent | | | Properties | |
Art Van Furniture, LLC | | Retail | | | 3.5 | % | | | 10 | |
Red Lobster Hospitality LLC & Red Lobster Restaurants LLC | | Retail | | | 3.1 | % | | | 25 | |
Jack’s Family Restaurants LP | | Retail | | | 2.5 | % | | | 36 | |
Outback Steakhouse of Florida, LLC(1) | | Retail | | | 2.3 | % | | | 24 | |
Krispy Kreme Doughnut Corporation | | Industrial/Retail | | | 2.1 | % | | | 27 | |
BluePearl Holdings, LLC | | Healthcare | | | 2.1 | % | | | 12 | |
Big Tex Trailer Manufacturing Inc. | | Industrial/Retail/Office | | | 2.0 | % | | | 17 | |
Siemens Medical Solutions USA, Inc. & Siemens Corporation | | Industrial | | | 1.9 | % | | | 2 | |
Nestle' Dreyer's Ice Cream Company | | Industrial | | | 1.8 | % | | | 1 | |
WendPartners & Subsidiaries | | Retail | | | 1.7 | % | | | 28 | |
Total Top Ten | | | | | 23.0 | % | | | 182 | |
All Other | | | | | 77.0 | % | | | 439 | |
Total | | | | | 100.0 | % | | | 621 | |
(1)
| Tenant’s properties include 22 Outback Steakhouse restaurants and two Carrabba’s Italian Grill restaurants.
|
Top Ten Brands, by % of NTM Rent
Brand | | Property Type | | % NTM Rent | | | Properties | |
Art Van Furniture | | Retail | | | 3.5 | % | | | 10 | |
Bob Evans Farms(1) | | Industrial/Retail | | | 3.2 | % | | | 27 | |
Red Lobster | | Retail | | | 3.1 | % | | | 25 | |
Wendy's | | Retail | | | 2.5 | % | | | 41 | |
Jack's Family Restaurants | | Retail | | | 2.5 | % | | | 36 | |
Taco Bell | | Retail | | | 2.2 | % | | | 41 | |
Krispy Kreme | | Industrial/Retail | | | 2.1 | % | | | 27 | |
BluePearl Veterinary Partners | | Healthcare | | | 2.1 | % | | | 12 | |
Outback Steakhouse | | Retail | | | 2.0 | % | | | 22 | |
Big Tex Trailers | | Industrial/Retail/Office | | | 2.0 | % | | | 17 | |
Total Top Ten | | | | | 25.2 | % | | | 258 | |
All Other | | | | | 74.8 | % | | | 363 | |
Total | | | | | 100.0 | % | | | 621 | |
(1)
| Brand includes two BEF Foods, Inc. properties and 25 Bob Evans Restaurants, LLC properties.
|
Our Investment Policy generally requires us to seek diversification of our investments. Based on the NTM Rent of the properties in the portfolio, determined as of the date of the prior quarter end, new investments may not cause us to exceed:
5% in any single property;
8% leased to any single tenant or brand;
10% located in any single metropolitan statistical area; or
20% located in any singlearea and by state.
We While we consider these criteria when evaluating acquisition opportunities, we may exceed these diversification targets from time to time with the approval of the Independent Directors Committee. To avoid undue risk concentrations in any single asset class or category, long-term asset allocation will be set with the following target percentages and within the following ranges, although these ranges may be temporarily waived by the Independent Directors Committee:
Asset Category
| | Target
| | | Range
|
Retail
| | 30%
| | | 15-45%
|
Healthcare
| | 20%
| | | 15-45%
|
Industrial
| | 25%
| | | 15-45%
|
Office
| | 15%
| | | 10-20%
|
Other
| | 10%
| | | 5-15%
|
While the Independent Directors Committee establishes diversification thresholds to manage risk, the management team does not review discrete financial information at this level. Refer to our discussion regarding segment reporting under the caption Segment Reporting in Note 2, “Summary of Significant Accounting Policies” within the Notes to the Consolidated Financial Statements within Item 8. “Financial Statements and Supplementary Data” of this Form 10-K.
We do not currently engage in the development of real estate, but may do so in the future. Our Investment Policy provides the Asset Manager with the authority to make, on our behalf, and without approval of the Independent Directors Committee: (i) any acquisition or sale transaction of any property or portfolio of related properties involving a purchase or sale price up to $100 million, and (ii) any acquisition of an individual property or portfolio of properties that would result in less than a 4% concentration in any tenant or less than a 5% concentration in any brand, each on an NTM Rent basis, provided that the transaction otherwise meets our Investment Policy, and any financing related to any such acquisition does not violate our Leverage Policy (as defined below), as established by the Independent Directors Committee from time to time. In addition to the foregoing thresholds, individual property and portfolio acquisitionsalso pursue opportunistic investments that do not meet the criteria set forth in the Investment Policy must be approved by the Independent Directors Committee: (i) for individual property acquisitions, when the purchase price exceeds $15 million, and (ii) for portfolio acquisitions, where one or more of the properties included in the portfolio do not meet the criteria set forth in the Investment Policy, when the aggregate purchase price allocated in thethese factors if we assess that a transaction presents compelling risk-adjusted returns. We intend to those non-conforming properties exceeds $15 million. For any calendar year, the aggregate amount of non-conforming properties that may be acquired pursuant to these latter terms, is limited to an aggregate amount, based on purchase price, equal to 1.5% of the approximate market value of ourprimarily acquire portfolios and assets as measured as of the first day of the calendar year.
Underwriting Criteria
When evaluating a property acquisition, our underwriting guidelines require that we consider the condition of the property, the creditworthiness of the tenant, the strength of any personal or corporate guarantees, the tenant’s historic performance at the property or similar properties, the location of the property, the overall economic condition of the community in which the property is located, and the property’s potential for appreciation. We apply our credit underwriting guidelines prior to acquiring a property, periodically throughout the lease term, and when we are re-leasing properties in our portfolio. While we seek creditworthy tenants, we do not require them to be investment grade credit rated. Our credit review process includes analyzing a tenant’s financial statements and other available information. When we obtain guarantees on our leases, we also analyze the creditworthiness of the guarantors. Depending on the circumstances, our process will include discussions with the tenant’s management team surrounding their business plan and strategy.
We evaluate the creditworthiness of our existing tenants on an ongoing basis by holding regularly scheduled real estate portfolio reviews, reviewing updated tenant financial statements on a quarterly or annual basis, depending on the terms of the lease, analyzing updated tenant credit ratings, and reviewing our ongoing analysis of the economy and trends in the industries in which our tenants operate. Our portfolio review committee, which includes members of our Manager’s senior management and asset and portfolio management teams, performs an in-depth review of each property in our portfolio at least once every 18 months. The review includes a review of real estate fundamentals and an analysis of the tenant’s recent financial statements, including key metrics such as rent coverage and leverage ratios, among other applicable credit metrics, credit ratings, and economic considerations relevant to the tenant. The Manager’s asset management team also periodically reviews tenant financial statements and relevant credit performance metrics. Our credit monitoring procedures also include regular communications with tenants, who are required to notify us of certain events under the terms of our leases, such as events of default and property damage. We believe our ongoing credit monitoring will enable us to identify material changes to a tenant’s credit quality in a timely basis and preserve our financial position. We have not identified any material changes to the credit quality of the tenants in our real estate portfolio as of December 31, 2018.
Leverage Policy
Moody’s Investors Service (“Moody’s”) has assigned the Operating Company an investment grade credit rating of Baa3 with a stable outlook, which allows us to take advantage of preferential borrowing margins and provides more attractive access to the debt markets, including the debt private placement market. The Operating Company’s credit rating is based on a number of factors, including an assessment of our financial strength, portfolio size and diversification, credit and operating metrics, corporate governance policies, and sustainability of cash flow and earnings. While Moody’s utilizes other factors outside of our leverage ratio in assigning ratings, we are strongly committed to maintaining a modest leverage profile commensurate with our investment grade rating. Our leverage policy (“Leverage Policy”) is to maintain a leverage ratio in the 35% to 45% range based on the approximate market value of our assets, recognizing that the actual leverage ratio may vary over time and there may be opportunistic reasons to exceed a 45% leverage ratio; provided, however, that we cannot exceed a 50% leverage ratio without the approval of the Independent Directors Committee. The Independent Directors Committee reviews our Leverage Policy at least annually; however, depending on market conditions and other factors, they may change our Leverage Policy from time to time.
We primarily utilize our unsecured revolving line of credit to finance acquisitions and manage our liquidity profile. Longer dated unsecured debt in the form of term loans and private placement notes are used as the primary sources of debt capital. Unsecured term loans are variable-rate debt for which we mitigate interest rate risk through the use of interest rate derivatives discussed below. The debt private placement market allows us to issue unsecured long-term, fixed-rate notes to help mitigate interest rate risk, lengthen our maturity profile, and diversify our sources of debt capital. The mix of financing sources may change over time based on market conditions. The unsecured borrowingswill generally contain affirmative and negative covenants which are tested against our financial performance.
While we do not use mortgage loans and notes payable (“mortgage financing”) as a strategic source of debt capital, we will occasionally utilize mortgage financing for a single property or a group of related properties acquired from a single seller. These loans may be further secured by guarantees from us, provided that we attempt to limit the use of guarantees to the extent possible. We may assume debt when conducting a transaction or we may mortgage existing properties. As of December 31, 2018, 11 of our 621 properties were secured by mortgage financing, and the aggregate outstanding principal balance of mortgage loans and notes payable was approximately $79.5 million.
To reduce our exposure to variable-rate debt, we enter into interest rate swap agreements to fix the rate of interest as a hedge against interest rate fluctuations on floating-rate debt. These interest rate hedges have staggered maturities to reduce the exposure to interest rate fluctuationsresult in any one year, and generally extend up to 10 years. The interest rate swaps are applied against a pool of variable-rate debt, which offers flexibility in maintaining our hedge designation concurrent with our ongoing capital markets activity. We attempt to limit our total exposure to floating-rate debt to notenant representing more than 5% of ABR.
We are focused primarily on investing in the approximate marketindustrial, healthcare, restaurant, retail, and office property types. Within each property type, we target specific acquisition opportunities in a highly selective manner.
. We focus on single-tenant manufacturing, warehouse and distribution facilities, food processing, refrigerated storage, flex-space, and research and development facilities where the tenant
| has a strong credit profile and experienced management team. We look for industrial assets where the real estate is mission critical to the tenant’s operations, where the property sits on an essential or strategic location for the tenant, and where it would be difficult or more expensive for the tenant to relocate. We look for industrial properties that are located in close proximity to major transportation thoroughfares such as airports, ports, railways, major freeways or interstate highways. |
. We focus on single-tenant medical office buildings, large regional physician practices, andoff-campus
clinics affiliated with major health systems, as well as laboratories, ambulatory surgical centers, service-type locations such as dental and dialysis centers, and animal health service clinics. We primarily focus on healthcare properties that have substantial tenant investments like special regulatory permits and buildouts that would make relocation difficult or costly. We look for healthcare properties that are mission critical to tenant operations, generally located adjacent to or near hospital campuses or other medical facilities, and where the tenant has a strong credit profile and is not easily displaced by regulatory changes. In certain instances, we will seek additional credit enhancements to augment the credit of the tenant. In states where a certificate of need statute exists, we ensure that our sites carry this designation to maintain long-term viability. . We focus our restaurant investments primarily in single-tenant quick service restaurant and casual dining properties, with an emphasis on restaurants that are located in strong retail markets. We underwrite restaurant properties primarily based on the fundamental value of
our assets, measured at quarter end.
To reduce counterparty concentration risk with respect to our interest rate hedges, we diversify the institutions that serve as swap counterparties,underlying real estate, site level performance, corporate owned location or experienced multi-unit franchise operators, and no more than 30% ofwhether the nominal value of our total hedged debt may be with any one institution, to be measured at the time we enter into an interest rate swap transaction and at quarter end.
As of December 31, 2018, our total outstanding indebtedness was $1,450.6 million and the ratio of our total indebtedness to the approximate market value of our assets was 41.5%.
Corporate Governance
We operate under the direction of our board of directors, whichproperty is responsible for the management and control of our affairs. Our board of directors has retained the Manager and the Asset Manager to manage our day-to-day affairs, to implement our investment strategy, and to provide certain property management services for our properties, with both subject to our board of directors’ direction, oversight, and approval. All of our officers are employees of the Manager.
Our board of directors is currently comprised of nine directors, six of whom are independent directors and serve on the Independent Directors Committee. The Independent Directors Committee reviews our relationship with, and the performance of, the Manager and the Asset Manager, and approves the terms of any affiliate transactions. In addition, the Independent Directors Committee is responsible for, among other things, approving our property and portfolio valuation policy, setting the Determined Share Value for our ongoing private offering, approving and setting our Investment Policy and Leverage Policy, and approving acquisitions above certain thresholds or outside of the criteria set forth in our Investment Policy.
Management and Our Structure
Pursuant to the terms of the asset management agreement among us, the Operating Company, and the Asset Manager (as amended, the “Asset Management Agreement”), the Asset Manager is responsible for, among other things, managing our day-to-day operations, establishing and monitoring acquisition and disposition strategies, overseeing all marketing communications and services related to our ongoing private offering, arranging mortgage and other financing, overseeing the acquisition of properties and their initial lease-up if they are not already subject to a master lease with multiple operating locations.
We focus one-commerce
resistant industries where the presence of a physical location is important to the end consumer and mission critical to the tenant. Our retail investments are primarily in single-tenant, net
lease upon acquisition, providing support forleased retail establishments in the
good faith valuation of our property portfoliogeneral merchandise, automotive, and
home furnishings industries, with an emphasis on market presence and necessity-based shopping. We underwrite retail properties primarily based on the
settingfundamental value of the
Determined Share Value byunderlying real estate, site level performance, corporate owned location or experienced multi-unit franchise operators, and whether the
Independent Directors Committee, overseeing investor closingsproperty is subject to a master lease with multiple operating locations. . We focus on single-tenant corporate headquarters, mission-critical business operations, and
transfers, arranging our annual stockholder meetings, and servicing and communicatingcall centers with
investors, including providing investment projections and reports. The Asset Manager also hascreditworthy tenants where the
power pursuantproperty is strategically located or important to the
Asset Management Agreement to nominate two directors to serve on our board of directors. The Manager owns and controls the Asset Manager.Pursuant to the property management agreement amongtenant’s business. Key considerations for us the Operating Company, and the Manager (as amended, the “Property Management Agreement”), the Manager provides property management services to our properties, including management, rent collection, and re-leasing services. In June 2015, Trident BRE, LLC, an affiliate of Stone Point Capital LLC (“Trident BRE”), acquired through an equity investment an approximate 45.6% equity ownership interest in the Manager. As of December 31, 2018, the Manager is owned, onwhen making office investments include a fully diluted basis, (i) approximately 47.06% by Trident BRE, (ii) approximately 41.51% by Amy L. Tait, our Chairman of the board of directors, Tait family trusts, and an investment entity for the families of Ms. Tait and the late Norman Leenhouts, one of our founders, and (iii) approximately 11.43% by employees of the Manager. The Manager is controlled by a four-person board of managers, two of whom are appointed by Trident BRE. In June 2015, in connection with Trident BRE’sstrong tenant credit profile, tenant’s previous investment in the Manager, (i) we acquired 100,000 convertible preferred units in the Manager (the “Convertible Preferred BRE Units”), for $100 per Convertible Preferred BRE Unit, in exchange for the issuanceproperty, occupancy costs relative to the Manager of 138,889 shares of our common stock, then valued at $72.00 per share, and (ii) the Manager purchased 510,416 shares of our common stock, for $72.00 per share. On July 31, 2018, we sold allmarket, divisibility of the Convertible Preferred BRE Units to Trident BRE for an aggregate sales price of $18.5 million. The Independent Directors Committee approved bothspace, and cost associated with repositioning the initial investment in and subsequent sale of the Convertible Preferred BRE Units. As of December 31, 2018, the Manager owned 359,553, or approximately 1.6%, of the issued and outstanding shares of our common stock.
space upon lease expiration.
As of December 31, 2018, the Manager employed approximately 21 individuals fully dedicated to our business and operations. Additionally, the Manager employed approximately 65 additional individuals who dedicate a significant portion of their time to our business and operations, in addition to various other tasks and responsibilities on behalf of the Manager and its affiliates.
For more information regarding the relationships among our company, Trident BRE, the Manager, and the Asset Manager and the fees we pay to the Manager and the Asset Manager pursuant to the Property Management Agreement and the Asset Management Agreement, see the captions Director Independence and Related Party Transactions and Certain Relationships and Related Transactions in our definitive proxy statement for our 2019 Annual Meeting of Stockholders (the “Proxy Statement”), which will be filed with the SEC within 120 days following the end of our fiscal year, and are incorporated herein by reference.
The chart below illustrates the relationships among our company, the Operating Company, the Manager, and the Asset Manager as of December 31, 2018.
Regulation
Our investments are subject to various federal, state, and local laws, ordinances, and regulations, including, among other things, zoning regulations, land use controls, and environmental controls relating to air and water quality, noise pollution, and indirect environmental impacts. We believe that we have all permits and approvals necessary under current law to operate our investments.
Competition
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and as such we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. A number of these exemptions are not currently relevant to us due to our external management structure.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 13(a) of the Exchange Act for complying with new or revised accounting standards. This permits an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to take advantage of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
We will remain an emerging growth company until the earliest to occur of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date on which we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, (iii) the date on which we have issued more than $1 billion in non-convertible debt securities during the preceding three-year period, and (iv) the end of the year following the five-year anniversary of the date of the first sale of our common stock under an initial public offering.
Competition
The commercial real estate market is highly competitive. We compete for tenants to occupy our properties in all of our markets with other owners and operators of commercial real estate. We compete based on a number of factors that include location, rental rates, security, suitability of the property’s design to prospective tenants’ needs, and the manner in which the property is operated and marketed. The number of competing properties in a particular market could have a material effect on our occupancy levels, rental rates, and the operating expenses of certain of our properties.
In addition, we compete with other entities engaged in real estate investment activities to locate suitable properties to acquire and purchasers to buy our properties. These competitors include other REITs, specialty finance companies, savingsprivate and loan associations,institutional real estate investors, sovereign wealth funds, banks, mortgage bankers, insurance companies, institutional investors, investment banking firms, lenders, governmental bodies,specialty finance companies, and other entities. Some of these competitors, including larger REITs, have substantially greater marketing and financial resources, including lower cost of capital, than we have. The relative size of their portfolios may allow them to absorb properties with lower returns andor allow them to accept more risk on a given property than we can prudently manage, including risks with respect to the creditworthiness of tenants. In addition, these same entities may seek financing through similar channels to us.us,
and may have a higher target leverage profile. Competition from these REITs and other third-party real estate investors may limit the number of suitable investment opportunities available to us. It also may result in higher prices, lower yields, and a narrower spread of yields over our borrowing costs, making it more difficult for us to acquire new investments on attractive terms.
Seasonality
As of December 31, 2021, we employed 76 full-time employees, comprised of professional employees engaged in origination, underwriting, closing, accounting and financial reporting, portfolio and asset management, capital markets, and other corporate activities essential to our business.
Our
investmentscommitment to our employees is central to our ability to continue to deliver strong performance and financial results for our stockholders and other stakeholders. We are
not materially impacted by seasonality.Employees
as passionate about our people as we are about real estate. We have no employees. Our officersseek to create and cultivate an inclusive and engaging work environment for our employees, which allows us to attract, retain, and develop top talent to manage our business. We strive to provide our employees with a work environment that is free from discrimination and harassment, that respects and honors their differences and unique life experiences, and that enables employees the opportunity to develop and excel in their role and reach their full potential. We seek to provide a collaborative, creative workplace where people with unique talents can flourish, where their opinions are employeesvalued, and where their contributions are rewarded.
As part of our Manager or its affiliatescommitment to our employees, we are focused on the following:
Diversity, Equity, and Inclusion (“DE&I”)—We are committed to providing equal opportunity in all aspects of employment and cultivating a diverse, equitable, and inclusive workplace. We believe that diverse backgrounds and experiences help drive our performance and are
not compensated by usimportant assets for
their serviceour company. To that end, we value and advance the diversity, equity, and inclusion of the people with whom we work. Our cross-functional DE&I committee spearheads our ongoing efforts to deepen our commitment to this important initiative and drive our education, including diversity trainings on topics such as
unconscious bias, employee engagement, policy reviews, recruitment, and monetary donations to external DE&I focused programs and organizations. DE&I is a critical business imperative that requires ongoing focus and commitment.; therefore, our
officers. The employees ofefforts to promote greater diversity, equity and inclusion within and beyond our
Manager and its affiliates manage our day-to-day operations and provide management, acquisition, advisory, and certain administrative services for us.
Income Taxes
Weworkplace have elected to be taxedbeen instituted as a REIT under the Internal Revenue Coderegular reporting item for our employees and have operated as such commencingour board of directors.
Career Development—We strive to create an engaging work experience that allows for career development and related opportunities. We offer numerous opportunities for our employees to engage in personal and professional development, including educational support and opportunities for tuition assistance and reimbursement, participation in industry conferences and networking events, individual leadership and management training, access to an online learning library providing an extensive collection of learning and development opportunities, lunch and learn meetings with the taxable year ended December 31, 2008. To qualify as a REIT, we must meet certain organizationalour CEO and operational requirements, including a requirement to distribute at least 90% ofsenior management team, group trainings (e.g., underwriting, real estate fundamentals, cyber security, computer skills, safety, ethics, harassment prevention, and DE&I related content), peer mentorship opportunities, and reimbursement for continuing education.
Employee Wellness—Our employees are our
annual REIT taxable income tomost valuable asset, and their individual and group contributions drive our
stockholders, which is computed without regard to the dividends-paid deductionperformance and
excluding net capital gain and does not necessarily equal net income as calculated in accordance with GAAP.success. As a
REIT,result, we are focused on and invest in our team’s overall health, wellness, and engagement. We employ numerous strategies and initiatives to
nurture and nourish our employees’ physical, mental, and emotional well-being, including, among other things, competitive employee benefits (with 100% employer-paid healthcare options), generous paid time off programs, fringe benefits to make both the
extent we satisfy this distribution requirement but distribute less than 100%Broadstone and home office environments more comfortable, transparent and open communication and dialogue between our senior executives and our employee base, events and opportunities for social connectedness and fun family-friendly corporate events, wellness and fitness events,on-site
flu vaccinations administered by a third-party
| health-services provider, flexibility in work location and schedules to meet specific employee needs, and access to an employee assistance program and other health and wellness resources. |
Community Engagement—We believe in our
REIT taxable income, we will be subjectresponsibility to
federal corporate income tax onhelp the
undistributed amount. If we failcommunities around us by providing support to
qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income atcharitable organizations and encourage living philanthropically. We offer regular
corporate income tax ratesvolunteer and
generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years followinggiving opportunities throughout the year
during which qualificationthat provide our employees with meaningful civic involvement. Since our inception, we have facilitated opportunities for our employees to contribute time and resources to benefit local nonprofit organizations. Our community engagement efforts are led by our employees through a dedicated committee that is
lost unlessresponsible for engaging with community organizations, planning and organizing various opportunities for employees to make a difference through volunteer giving and service, and civic involvement withnon-profit
organizations, and corporate donations. We believe that the
Internal Revenue Service grantsinitiatives described above will help us
relief under certain statutory provisions.Financial Information about Industry Segments
We currently operate in a single reportable segment, which includes the acquisition, leasing,attract, hire, and ownership of net leased properties. Refer to the caption Segment Reporting in Note 2, “Summary of Significant Accounting Policies” within the Notes to the Consolidated Financial Statements within Item 8. “Financial Statements and Supplementary Data” of this Form 10-K.
Company Information
retain employees.
Principal Executive Offices
Our principal executive offices are located at 800 Clinton Square, Rochester, New York, 14604, and our telephone number is (585)
We occupy approximately 24,072 square feet of space leased from Clinton Asset Holding Associates, L.P. We believe that our offices are adequate for our present and currently planned future operations and that adequate additional space will be available if needed in the future.Our tenants are generally required to maintain liability and property insurance coverage for the properties they lease from us pursuant to net leases. These leases generally require our tenants to name us (and any of our lenders that have a mortgage on the property leased by the tenant) as additional insureds on their liability policies and additional named insured and/or loss payee (or mortgagee, in the case of our lenders) on their property policies. Depending on the location of the property, certain losses of a catastrophic nature, such as those caused by earthquakes and floods, may be covered by insurance policies that are held by our tenant with limitations such as large deductibles orco-payments
that a tenant may not be able to meet. Certain other losses of a catastrophic nature, such as those caused by wind/hail, hurricanes, terrorism or acts of war, may be uninsurable or not economically insurable. In the event there is damage to our properties that is not covered by insurance and such properties are subject to recourse indebtedness, we will continue to be liable for the indebtedness, even if these properties are irreparably damaged. In addition to being a named insured on our tenants’ liability policies, we separately maintain commercial general liability coverage and, in certain instances, general or specific (e.g., flood) property-level insurance coverage on certain properties or pursuant to the terms of certain of our leases. We also maintain full property coverage on all untenanted properties and other property coverage as may be required by our lenders, which are not required to be carried by our tenants under our leases.
Our investments are subject to various laws, ordinances, and regulations, including, among other things, fire and safety requirements, zoning regulations, land use controls, and environmental controls relating to air and water quality, noise pollution, and indirect environmental impacts. We believe that we have all permits and approvals necessary under current law to operate our investments.
Americans with Disabilities Act (“ADA”)
Under Title III of the ADA, and rules promulgated thereunder, in order to protect individuals with disabilities, public accommodations must remove architectural and communication barriers that are structural in
nature from existing places of public accommodation to the extent “readily achievable.” In addition, under the ADA, alterations to a place of public accommodation or a commercial facility are to be made so that, to the maximum extent feasible, such altered portions are readily accessible to and usable by disabled individuals. The “readily achievable” standard takes into account, among other factors, the financial resources of the affected site and the owner, lessor or other applicable person.
Compliance with the ADA, as well as other federal, state, and local laws, may require modifications to properties we currently own or may purchase, or may restrict renovations of those properties. Failure to comply with these laws or regulations could result in the imposition of fines or an award of damages to private litigants, as well as the incurrence of the costs of making modifications to attain compliance, and future legislation could impose additional obligations or restrictions on our properties. Although our tenants are generally responsible for all maintenance and repairs of the property pursuant to our lease, including compliance with the ADA and other similar laws or regulations, we could be held liable as the owner of the property for a failure of one of our tenants to comply with these laws or regulations.
Federal, state, and local environmental laws and regulations regulate, and impose liability for, releases of hazardous or toxic substances into the environment. Under various of these laws and regulations, a current or previous owner, operator or tenant of real estate may be required to investigate and clean up or otherwise address hazardous or toxic substances, hazardous wastes or petroleum product releases or threats of releases at the property, and may be held liable to a government entity or to third parties for property damage and for investigation,clean-up,
and monitoring costs incurred by those parties in connection with the actual or threatened contamination. These laws may imposeclean-up
responsibility and liability without regard to fault, or whether or not the owner, operator, or tenant knew of or caused the presence of the contamination. The liability under these laws may be joint and several for the full amount of the investigation,clean-up,
and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may seek to obtain contributions from other identified, solvent, responsible parties of their fair share toward these costs. These costs may be substantial, and can exceed the value of the property. In addition, some environmental laws may create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. As the owner or operator of real estate, we also may be liable under common law to third parties for damages and injuries resulting from environmental contamination emanating from the real estate. The presence of contamination, or the failure to properly remediate contamination, on a property may adversely affect the ability of the owner, operator or tenant to sell or rent that property or to borrow using the property as collateral, and may adversely impact our investment in that property. Some of our properties contain, have contained, or are adjacent to or near other properties that have contained or currently contain storage tanks for the storage of petroleum products or other hazardous or toxic substances. Similarly, some of our properties currently are or were used in the past for commercial or industrial purposes that involve or involved the use of petroleum products or other hazardous or toxic substances, or are adjacent to or near properties that have been or are used for similar commercial or industrial purposes. These operations create a potential for the release of petroleum products or other hazardous or toxic substances, and we could potentially be required to pay to clean up any contamination. In addition, environmental laws regulate a variety of activities that can occur on a property, including the storage of petroleum products or other hazardous or toxic substances, air emissions, water discharges, and exposure to lead-based paint. Such laws may impose fines or penalties for violations and may require permits or other governmental approvals to be obtained for the operation of a business involving such activities. Any of the foregoing matters could have a material adverse effect on us.
Environmental laws also govern the presence, maintenance, and removal of asbestos-containing materials (“ACM”). Federal regulations require building owners and those exercising control over a building’s management to identify and warn, through signs and labels, of potential hazards posed by workplace exposure to
installed ACM in their building. The regulations also have employee training, record keeping, and due diligence requirements pertaining to ACM. Significant fines can be assessed for violation of these regulations. As a result of these regulations, building owners and those exercising control over a building’s management may be subject to an increased risk of personal injury lawsuits by workers and others exposed to ACM. The regulations may affect the value of a building containing ACM in which we have invested. Federal, state, and local laws and regulations also govern the removal, encapsulation, disturbance, handling, and/or disposal of ACM when those materials are in poor condition or in the event of construction, remodeling, renovation, or demolition of a building. These laws may impose liability for improper handling or a release into the environment of ACM and may provide for fines to, and for third parties to seek recovery from, owners or operators of real properties for personal injury or improper work exposure associated with ACM.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses, and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants, or others if property damage or personal injury occurs.
Before completing any property acquisition, we typically obtain environmental assessments in order to identify potential environmental concerns at the property. These assessments are carried out in accordance with the Standard Practice for Environmental Site Assessments (ASTM Practice E1527-13)
as set by ASTM International, formerly known as the American Society for Testing and Materials, and generally include a physical site inspection, a review of relevant federal, state, and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property’s chain of title, and review of historical aerial photographs and other information on past uses of the property. These assessments are limited in scope. If, however, recommended in the initial assessments, we may undertake additional assessments such as soil and/or groundwater sampling or other limited subsurface investigations and ACM or mold surveys to test for substances of concern. A prior owner or operator of a property or historical operations at or near our properties may have created a material environmental condition that is not known to us or the independent consultants preparing the site assessments. Material environmental conditions may have arisen after the review was completed or may arise in the future, and future laws, ordinances, or regulations may impose material additional environmental liability. If environmental concerns are not satisfactorily resolved in any initial or additional assessments, we may obtain environmental insurance policies to insure against potential environmental risk or loss depending on the type of property, the availability and cost of the insurance, and various other factors we deem relevant (e.g., an environmental occurrence affects one of our properties where our lessee may not have the financial capability to honor its indemnification obligations to us). Our ultimate liability for environmental conditions may exceed the policy limits on any environmental insurance policies we obtain, if any. Generally, our leases require the lessee to comply with environmental law and provide that the lessee will indemnify us for any loss or expense we incur as a result of lessee’s violation of environmental law or the presence, use or release of hazardous materials on our property attributable to the lessee. If our lessees do not comply with environmental law, or we are unable to enforce the indemnification obligations of our lessees, our results of operations would be adversely affected.
We cannot predict what other environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted, or what environmental conditions may
be found to exist on the properties in the future. Compliance with existing and new laws and regulations may require us or our tenants to spend funds to remedy environmental problems. If we or our tenants were to become subject to significant environmental liabilities, we could be materially and adversely affected.
We elected to be taxed as a REIT under the Internal Revenue Code of 1986, (as amended, the “Code”) beginning with our taxable year ended December 31, 2008. We believe that as of such date we have been organized and have operated in a manner to qualify for taxation as a REIT for U.S. federal income tax purposes. We intend to continue to be organized and operate in such a manner. In order to qualify as a REIT, we are required under the Code, among other things, to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax at the corporate rate to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gain. As a result of our distribution requirements, we rely, in part, on third-party sources to fund our capital needs. Additionally, if we were to lose REIT status we would face significant tax consequences that would substantially reduce our cash available for distribution to our stockholders.
Our filings with the SEC, including our annual reports on Form
10-K,
quarterly reports on Form
10-Q,
current reports on Form
8-K,
and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as our proxy statements, are accessible free of charge at
http://investors.bnl.broadstone.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. You may access materials we file with the SEC through the EDGAR database at the SEC’s website at
http://www.sec.gov.www.sec.gov.
We have adopted our Code of Ethics
and Business Conduct Policy to ensure that our business is conducted in accordance with the highest moral, legal, and ethical standards by our officers,
and directors,
as well as the Manager, the Asset Manager, and
the Manager’s employees. The Code of Ethics
and Business Conduct Policy is available on our website,
http://investors.bnl.broadstone.com,, together with the charters of the Board’s
Independent DirectorsAudit Committee,
AuditCompensation Committee, and Nominating and Corporate Governance
Committee.Committee, as well as other corporate governance policies and documents. Amendments to, and waivers granted to our directors and executive officers under our
codesCodes of
ethics,Ethics and Business Conduct Policy, if any, will be posted in this area of our website. Copies of these materials are available in print to any stockholder who requests them. Stockholders should direct such requests in writing to Investor Relations Department, Broadstone Net Lease, Inc., 800 Clinton Square, Rochester, New York 14604. Stockholders may also call (585)
The information about our website and its content is for your convenience only. The content of our website is not deemed to be incorporated by reference in this report or filed with the SEC.
You should carefully consider the matters discussed in the “Risk Factors” section beginning on page 25 of this Annual Report on Form10-K
for factors you should consider before investing in our Common Stock: Single-tenant leases involve significant risks of tenant default and tenant vacancies, which could materially and adversely affect us.
Actual or perceived threats associated with epidemics, pandemics or public health crises, including the ongoingCOVID-19
pandemic, could have a material adverse effect on our results of operations and the businesses of our tenants. We have limited opportunities to increase rents under our long-term leases with tenants, which could impede our growth and materially and adversely affect us.
We may not be able to achieve growth through acquisitions at a rate that is comparable to our historical results, which could materially and adversely affect us.
We may not be able to effectively manage our growth and any failure to do so could materially and adversely affect us.
The departure of any of our key personnel with long-standing business relationships could materially and adversely affect us.
Our portfolio is concentrated in certain states, and any adverse developments and economic downturns in these geographic markets could materially and adversely affect us.
The decrease in demand for restaurant, retail, and/or office space may materially and adversely affect us.
We may be unable to renew leases,re-lease
properties as leases expire, or lease vacant spaces on favorable terms or at all, which, in each case, could materially and adversely affect us. We could face potential material adverse effects from the bankruptcies or insolvencies of our tenants.
Global and U.S. financial markets and economic conditions may materially and adversely affect us and the ability of our tenants to make rental payments to us pursuant to our leases.
Inflation may materially and adversely affect us and our tenants.
As of December 31, 2021, we had approximately $1.7 billion principal balance of indebtedness outstanding, which may expose us to the risk of default under our debt obligations.
Market conditions could adversely affect our ability to refinance existing indebtedness on acceptable terms or at all, which could materially and adversely affect us.
Our Revolving Credit Facility and term loan agreements contain various covenants which, if not complied with, could accelerate our repayment obligations, thereby materially and adversely affecting us.
We are a holding company with no direct operations and rely on funds received from the OP to pay liabilities.
Failure to qualify as a REIT would materially and adversely affect us and the value of our Common Stock.
The market price and trading volume of shares of our Common Stock may be volatile.
We may not be able to make distributions to our stockholders at the times or in the amounts we expect, or at all.
The following are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. You should consider carefully the risks described below and the other information in this
Annual Report on Form
10-K,
including our
consolidated financial statementsConsolidated Financial Statements and the related notes. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.
General Investment
Risks
Related to Our Business and Properties
Single-tenant leases involve significant risks of tenant default and tenant vacancies, which could materially and adversely affect us.
Our portfolio consists primarily of single-tenant net leased properties and we are dependent on our tenants for substantially all of our revenue. As a result, our success depends on the financial stability of our tenants. The ability of our tenants to meet their obligations to us, including their obligations to pay rent, maintain certain insurance coverage, pay real estate taxes, and maintain the properties in a manner so as not to jeopardize their operating licenses or regulatory status depends on the performance of their business and industry, as well as general market and economic conditions, which are outside of our control. At any given time, any tenant may experience a downturn in its business that may weaken its operating results or the overall financial condition of individual properties or its business as whole. As a result, a tenant may fail to make rental payments when due, decline to extend a lease upon its expiration, become insolvent, or declare bankruptcy. The financial failure of, or default in payment by, a single tenant under its lease is likely to cause a significant or complete reduction in our rental revenue from that property and a reduction in the value of the property. We may also experience difficulty or a significant delay inre-leasing
or selling such property. The occurrence of one or more tenant defaults could materially and adversely affect us. This risk is magnified in situations where we lease multiple properties to a single tenant under a master lease. As of December 31, 2021, master leases contributed approximately 32.7% of our overall ABR (our largest master lease by ABR related to 43 properties and contributed 2.1% of our ABR, and our smallest master lease by ABR related to two properties and contributed 0.1% of our ABR), 73.7% of our restaurant property ABR (156 of our 235 restaurant properties), and 37.9% of our retail property ABR (84 of our 191 retail properties). A tenant failure or default under a master lease could reduce or eliminate rental revenue from multiple properties and reduce the value of such properties. Although the master lease structure may be beneficial to us because it restricts the ability of tenants to remove individual underperforming assets, there is no guarantee that a tenant will not default in its obligations to us or decline to renew its master lease upon expiration. The default of a tenant that leases multiple properties from us or its decision not to renew its master lease upon expiration could materially and adversely affect us.
Actual or perceived threats associated with epidemics, pandemics or public health crises, including the ongoingCOVID-19
pandemic, could have a material adverse effect on our results of operations and the businesses of our tenants. In response to theCOVID-19
pandemic, many countries and U.S. states, including the areas in which we operate, adopted certain measures to mitigate the ongoing public health crises. While such restrictions have largely been lifted, restrictions onactivities are still prevalent in many countries and U.S. states. TheCOVID-19
pandemic has negatively impacted nearly every industry directly or indirectly.
TheCOVID-19
pandemic, and future epidemics, pandemics, and other public health crises could materially and adversely affect us and our tenants’ results of operations, liquidity, and ability to access capital markets or pay distributions due to, among other factors: an ongoing reduction in general economic activity, which may cause one or more of our tenants to be unable to maintain profitability and make timely rental payments to us pursuant to their leases, request rent relief requests, or declare bankruptcy;
an increase in property vacancies, which could result in our obligation to pay the associated real estate taxes, insurance, and general property operating expenses;
a continuing complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action;
delays in the supply of material products or services to us or our tenants from vendors;
a reduction in our tenants’ available workforce as a result of local, state or federal “shelter in place” or “stay at home” rules and restrictions;
indications of a tenant’s inability to continue as a going concern, changes in our view of strategy relative to a tenant’s business or industry, or changes in our long-term hold strategies, which could be indicative of an impairment triggering event with respect to a particular property or properties;
a general decline in business activity and demand for real estate transactions, which could adversely affect our ability to grow our portfolio or sell properties upon desirable terms;
difficulty accessing debt and equity capital on attractive terms, if at all; and
an inability to maintain compliance with financial covenants of credit facility, senior notes, and other loan agreements, which may result in a default of such arrangements and potentially result in an acceleration of indebtedness, or increased interest expense should a waiver be required from the lending institutions.
The extent to which theCOVID-19
pandemic impacts our investments and operations will depend on future developments, including, among others, the duration of the pandemic, the emergence of additionalvariants, new information that may emerge concerning the severity ofCOVID-19,
and the actions taken to contain theCOVID-19
pandemic or treat the disease. These developments and the full impact of theCOVID-19
pandemic on our business are highly uncertain and cannot be predicted with confidence. Nevertheless, theCOVID-19
pandemic and any future epidemics, pandemics or public health crises could materially and adversely affect our business, financial condition, liquidity and results of operations, as well as our ability to pay distributions to our stockholders, for the reasons discussed above. We have limited opportunities to increase rents under our long-term leases with tenants, which could impede our growth and materially and adversely affect us.
We typically lease our properties pursuant to long-term net leases with initial terms of 10 years or more that often have renewal options. As of December 31, 2021, the ABR weighted average remaining term of our leases was approximately 10.5 years, excluding renewal options. Substantially all of our leases provide for periodic rent escalations, but thesebuilt-in
increases may be less than what we otherwise could achieve in the market. Most of our leases contain rent escalators that increase rent at a fixed amount on fixed dates, which may be less than prevailing market rates over the lease duration. For those leases that contain rent escalators based on CPI changes, our rent increases during periods of low inflation or deflation may be less than what we otherwise could achieve in the market. As a result, the long-term nature of our leases could impede our growth and materially and adversely affect us.
We may not be able to make distributionsachieve growth through acquisitions at a rate that is comparable to our stockholders at the times orhistorical results, which could materially and adversely affect us.
Our growth strategy depends significantly on acquiring new properties. From 2015 to 2019, and in 2021, our team acquired more than $500 million of net leased real estate each year, including approximately $1 billion during 2019. Our ability to continue to grow requires us to identify and complete acquisitions that meet our investment criteria and depends on general market and economic conditions.
Changes in the amountsvolume of real estate transactions, the availability of acquisition financing, capitalization rates, interest rates, competition, or other factors may negatively impact our acquisition opportunities in 2021 and beyond. If we are unable to achieve growth through acquisitions at a rate that is comparable to our historical results, it could materially and adversely affect us. Furthermore, our acquisition volume within each year has not always been consistent on a quarterly basis, nor can we guarantee it will be consistent in the future. As a result, our acquisition results that we report on a quarterly basis may not meet investors’ expectations and could negatively impact the value of our Common Stock.
We may not achieve the total returns we expect
or at all.from our future acquisitions, which could materially and adversely affect us.
As we pursue our growth strategy, we may encounter increasingly difficult market conditions that place downward pressure on the total returns we can achieve on our investments. Accordingly, future acquisitions may have lower yield characteristics than past and present opportunities. To the extent that our future growth is achieved through acquisitions that yield lower returns, it could materially and adversely affect us. In addition, if we fund future acquisitions with equity issuances, the dilutive impact could outweigh the benefits of acquisitions that achieve lower returns, which could materially and adversely affect us.
We may not be able to
continue to generate sufficient cash flowobtain acquisition financing or obtain other capital from
our properties to permit us to make the distributions we expect. If we pay distributions from the proceeds of our securities offering or from borrowings, the amount of capital we ultimately invest may be reduced, which may reduce the value of an investment in us.There is no public trading market for our common stock and we are not required to effectuate a liquidity event by a certain datethird-party sources on favorable terms or at all, and transfers of shares of our common stock are subject to a number of restrictions. As a result, it will be difficult for our stockholders to sell shares of our common stock and, if they are able to sell their shares, they are likely to sell them at a discount.
There is no current public market for our common stock, we do not expect that any such public market will develop in the future, and we have no obligation to list our shares on any public securities market or provide any other type of liquidity to our stockholders by a particular date, or at all. The shares of our common stock are not registered under the Securities Act or state securities laws and therefore cannot be resold unless they are subsequently registered under such laws or unless an exemption from registration is available. Although we have adopted a share redemption program pursuant to which our stockholders may request that we redeem shares of our common stock, it is subject to a number of restrictions. Accordingly, our investors should not expect to be able to sell their shares or otherwise liquidate their investment promptly, if at all, and there can be no assurance that the sales price of any shares which are sold would equal or exceed the price originally paid for the shares. Our investors must be prepared to bear the economic risk of holding their shares of our common stock for an indefinite period of time.
Our stockholders are limited in their ability to sell shares of our common stock pursuant to our share redemption program. Our stockholders may not be able to sell any of their shares of our common stock back to us, and if they do sell their shares, they may not receive the price they paid.
We have adopted a share redemption program to provide an opportunity for our stockholders to have shares of our common stock repurchased at a price equal to or at a discount from the current Determined Share Value in effect as of the date the shares are tendered for redemption, subject to a number of restrictions and limitations. No shares may be repurchased under our share redemption program until after the first anniversary of the date of purchase of such shares without approval from our Independent Directors Committee. Further, we are not obligated to repurchase shares of our common stock under the share redemption program. Notwithstanding the procedures outlined in the share redemption program, our board of directors or Independent Directors Committee may, in its sole discretion, reject any share redemption request made by any stockholder at any time. In addition, the share redemption program limits the number of shares that may be redeemed in any quarter. The total number of shares redeemed in any quarter pursuant to the share redemption program may not exceed (i) 1% of the total number of shares outstanding at the beginning of the applicable calendar year, plus (ii) 50% of the total number of any additional shares of our common stock issued during the prior calendar quarter pursuant to our DRIP; provided, however, that the total number of shares redeemed during any calendar year may not exceed 5% of the number of shares outstanding as of the first day of such calendar year. There is no fee in connection with a repurchase of shares pursuant to our share redemption program. Finally, our board of directors reserves the right to amend, suspend, or terminate the share redemption program at any time upon 30 days’ notice to our stockholders. As a result of the foregoing, a stockholder may not be able to sell any of its shares of our common stock back to us pursuant to our share redemption program. Moreover, if a stockholder does sell its shares of our common stock back to us pursuant to the share redemption program, the stockholder may not receive the same price it paid for any shares of our common stock being redeemed.
The Independent Directors Committee establishes the Determined Share Value on a quarterly basis. The Determined Share Value is not directly derived from any independent valuation or from the value of the existing property portfolio. Investors should use caution in using the Determined Share Value as the current value of shares of our common stock.
On a quarterly basis, the Independent Directors Committee establishes a Determined Share Value per share of our common stock, based on the net asset value of the portfolio, input from management and third-party consultants, and such other factors as the Independent Directors Committee may, in its sole discretion, determine, which we refer to as the Determined Share Value. Our net assets are primarily comprised of our investment in real property and debt, as well as other assets and liabilities such as cash, interest rate swaps, and accounts payable. The values ascribed to our mortgages and unsecured notes are marked to market each quarter. See the caption Determined Share Value in Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” within this Form 10-K for a complete discussion of the policies, procedures, and parties involved in calculating and reviewing the net asset value of the portfolio and setting the Determined Share Value. Shares of our common stock are offered in our ongoing private offering at a price per share equal to the current Determined Share Value and cash distributions can be reinvested in additional shares of our common stock pursuant to our DRIP at a price per share equal to 98% of the current Determined Share Value. In addition, shares of our common stock are redeemed by us pursuant to the terms of our share redemption program at a per share price equal to or at a discount to the current Determined Share Value. The Independent Directors Committee may, and currently does, engage consultants, appraisers, and other real estate or investment professionals to assist in their establishment of the Determined Share Value, but the Independent Directors Committee is not required to do so. As a result, the price of the shares of our common stock may not necessarily bear a direct relationship to our book or asset values or to any other established criteria for valuing issued or outstanding common stock and the actual value of an investor’s investment in shares of our common stock could be substantially less than what the stockholder may have paid to purchase the shares.
As with any valuation method, the methods used to determine the Determined Share Value are based upon a number of assumptions, estimates and judgments that may not be accurate or complete. Our assets are valued based upon appraisal standards and the values of our assets using these methods are not required to be a reflection of market value and will not necessarily result in a reflection of fair value under GAAP. Different parties using different property-specific and general real estate and capital market assumptions, estimates, judgments, and standards could derive different Determined Share Values, which could be significantly different from the Determined Share Values determined by the Independent Directors Committee. Further, estimated values can change rapidlymaterially and significantly due to a variety of factors, including changes in interest rates, credit performance, perceived risk, supply, demand,adversely affect our growth prospects and actual and projected cash flows. Any such changes could result in a change in Determined Share Value.
Accordingly, the Determined Share Value established as of any given time is not a direct representation or indication that, among other things, (i) a stockholder would be able to realize the full Determined Share Value if he or she attempts to sell their shares, (ii) a stockholder would ultimately realize distributions per share equal to the Determined Share Value upon liquidation of our assets and settlement of our liabilities or upon a sale of our company, (iii) shares of our common stock would trade at the Determined Share Value on a national securities exchange, (iv) a third party would offer the Determined Share Value in an arms-length transaction to purchase all or substantially all of our shares of common stock, or (v) the methodologies used to estimate the Determined Share Value would be acceptable to the requirements of any regulatory agency.
business.
In order to qualify as a REIT, we
retainare required under the
rightCode, among other things, to
prohibit certain acquisitions and transfers of sharesdistribute annually at least 90% of our
common stock, which limits our investors’ abilityREIT taxable income, determined without regard to
purchase or sell shares.We cannot maintain our qualification as a REIT if, among other requirements: (i) morethe dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax at the corporate rate to the extent that we distribute less than 50% of the value100% of our outstanding common stock is owned, directlyREIT taxable income, determined without regard to the dividends paid deduction and including any net capital gain. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, or indirectly, by fiverepay debt obligations from operating cash flow. Consequently, we expect to rely, in part, on third-party sources to fund our capital needs. We may not be able to obtain the financing on favorable terms or fewer stockholders duringat all. Our access to third-party sources of capital depends, in part, on:
general market conditions, including the
last halfimpact of
each taxable year, or (ii) fewer than 100 persons own our outstanding common stock during at least 335 days of a 12-month taxable year. In order to assist us in meeting certain REIT qualification requirements, our Articles of Incorporation restrict theCOVID-19
pandemic; the direct or indirect ownership by one person or entity to no more than 9.8% of the valuemarket’s perception of our then outstanding shares of capital stock (which includes common stockgrowth potential;
our current and any preferred stock we may issue) and no more than 9.8% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock unless exempted by our board of directors. We may, therefore, prohibit certain acquisitions and transfers of shares in an attempt to ensure our continued qualification as a REIT. These prohibitions may prevent our existing stockholders from acquiring additional shares, redeeming their shares, or selling their shares to others who may be deemed to, directly or indirectly, beneficially own our common stock.expected future earnings;
Risks Related to Our Business
Our success is dependent on
the performance of our Managerportfolio;
our cash flow and
Asset Managercash distributions; and
any adverse change in their financial health could cause our operations to suffer.Our ability to achieve our investment objectives and to pay distributions is dependent upon
the performancemarket price per share of our Manager and Asset Manager and any adverse change in their financial health could cause our operationsCommon Stock.
If we cannot obtain capital from third-party sources, we may not be able to
suffer. Our Manager and Asset Manager are sensitive to trends inacquire properties when strategic opportunities exist, meet the
general economy, as well as the commercial real estate and related markets. An economic downturn could result in reductions in overall transaction volume and size of sales and leasing activities and could put downward pressure on our Manager’s and Asset Manager’s revenuescapital and operating
results. Any such decline could cause our operating results to suffer.Loss of key personnel of the Manager could delay or hinder our investment strategy, which could limit our ability to make distributions and decrease the value of an investment in us.
We are dependent upon the contributions of key personnel of the Manager, each of whom would be difficult to replace. Our overall success and the achievementneeds of our investment objectives depends upon the performance ofexisting properties, or satisfy our senior leadership team, each of whom is an employee of the Manager. We rely on our senior leadership team to, among other things, identify and consummate acquisitions, design and implement our financing strategies, manage our investments, and conduct our day-to-day operations. Members of our senior leadership team could choose to leave employment with the Manager for any number of reasons. The loss of services of one or more members of our senior leadership team, or the Manager’s inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities, and weaken our relationships with lenders, business partners, existing and prospective tenants, and industry participants, all ofdebt service obligations, which could materially and adversely affect us.
In particular, Amy L. Tait and Christopher J. Czarnecki, our Founder and Chairman
Table of the board of directors and our Chief Executive Officer, President, and member of the board of directors, respectively, and employees of the Manager, have significant real estate experience which would be difficult to replace. Each of Ms. Tait and Mr. Czarnecki has an employment agreement with the Manager which includes non-competition and non-solicitation covenants; however, these agreements could be amended by the Manager from time to time. Although the Manager has “key employee” life and disability insurance on each of Ms. Tait and Mr. Czarnecki, the proceeds of that insurance will be used as determined by the board of managers of the Manager, which consists of two appointees of the Manager’s management and two appointees of Trident BRE, and may be diverted to uses other than replacing the deceased or incapacitated executive. We may suffer direct, reputational, and other costs in the event of the loss of the services of either Ms. Tait or Mr. Czarnecki.We have entered into an Asset Management Agreement with the Asset Manager and a Property Management Agreement with the Manager, each of which delegate many duties associated with our day-to-day operations (collectively, the “Restated Management Contracts”). The Restated Management Contracts include the concept of a Key Person Event, which is defined as any event or circumstance which results in both of Ms. Tait and Mr. Czarnecki (or their respective successors and replacements, as approved by the Independent Directors Committee) no longer continuing to serve as the Chairman and Chief Executive Officer (or comparable executive positions), respectively, of the Manager for a continuous period of 60 days. Following the occurrence of a Key Person Event, the Manager and our Independent Directors have a limited time to identify suitable replacements for Ms. Tait and/or Mr. Czarnecki. If such replacements are not identified, the Independent Directors Committee will have the right to terminate the Restated Management Contracts. For more information regarding the Restated Management Contracts and the occurrence of a Key Person Event, please see the captions titled Certain Relationships and Related Transactions and Relationship with the Asset Manager and Relationship with the Manager in the Proxy Statement.
Contents
We pay substantial fees to our Manager and Asset Manager. These fees were not negotiated at arm’s length, may be higher than fees payable to unaffiliated third parties and may reduce cash available for investment.
We pay substantial fees to our Manager and Asset Manager. These fees were originally agreed to prior to the company accepting outside capital from investors other than our sponsors and were not negotiated at arm’s length, although the fees have since been reaffirmed by the Independent Directors Committee in connection with the approval of the Restated Management Agreements in December 2017. The fees could be in excess of amounts that we would otherwise pay to third parties for such services. In addition, the full offering price paid by our investors in our private offering will not be invested in properties. The proceeds are primarily used to acquire and operate our properties, but may also be used by us for general corporate purposes and to pay fees due to the Manager and the Asset Manager. As a result, stockholders will only receive a full return of their invested capital if: (i) we sell our assets or our company for a sufficient amount in excess of the original purchase price of our assets; (ii) the market value of our company after we list our shares of common stock on a national securities exchange is substantially in excess of the original purchase price of our assets; or (iii) they recoup their invested capital through the cash distributions we pay over the time they hold an investment in shares of our common stock.
A cybersecurity incident
Security breaches and other technology disruptions could
negatively impactcompromise our
business.Our, the Manager’s,information systems and the Asset Manager’s information technology (“IT”) networksexpose us to liability, which could materially and related systems are essentialadversely affect us.
Information security risks generally have increased in recent years due to the
operationincreased technological sophistication and activities of
our business and our ability to perform day-to-day operations.perpetrators of cyber-attacks. Our business involves the storage and transmission of numerous classes of sensitive and confidential information and intellectual property, including tenants’ information, private information about our stockholders and
the Manager’sour employees, and financial and strategic information about us. We face risks associated with security breaches through cyber-attacks or cyber-intrusions, malware, computer viruses, attachments to
e-mails,
persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyber-attack or cyber-intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. If we
the Manager, or the Asset Manager, fail to assess and identify cybersecurity risks associated with our operations, we may become increasingly vulnerable to such risks. Additionally, the measures we
the Manager, or the Asset Manager have implemented to prevent security breaches and cyber incidents may not be effective. The theft, destruction, loss, misappropriation, or release of sensitive or confidential information or intellectual property, or interference with or disruptions of our IT networks and related systems or the technology systems of third parties on which we rely, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of tenants, potential liability, and competitive
disadvantage,disadvantage. Laws and regulations governing data privacy are constantly evolving. Many of these laws and regulations, including the California Consumer Protection Act, contain detailed requirements regarding collecting and processing personal information, restrict the use and storage of such information, and govern the effectiveness of consumer consent. Any of the above risks could materially and adversely affect us. Any expansion into adjacent opportunities to our core property types may prove to be unsuccessful, which could harm our growth prospects and materially and adversely affect us.
We may seek to capture adjacent opportunities to our core property types in the net lease space. Adjacent property types may not provide us with the opportunity to earn higher returns relative to more traditional assets in our core property types. In order to be successful in capturing adjacent opportunities, we will be required to carefully analyze and develop selection criteria taking into account different competitive and operating conditions. As a result, pursuing adjacent opportunities inherently involves more risk. If we are unsuccessful in identifying compelling opportunities, it could harm our growth prospects and materially and adversely affect us.
We may not be able to effectively manage our growth and any failure to do so could materially and adversely affect us.
We have grown rapidly and our growth strategy depends significantly on continued growth through acquisitions. Our future operating results will depend on our ability to effectively manage this growth. To accomplish this, we will need to:
invest in enhanced operational systems that can scale as our portfolio grows in size;
attract, integrate, and retain operations personnel as our Company grows in complexity; and
identify and supervise a number of suitable third-parties to provide services to us.
We cannot provide any assurance that we will be able to effectively manage our growth, which could materially and adversely affect us.
As we continue to acquire properties pursuant to our growth strategy, our portfolio may become less diversified which could materially and adversely affect us.
In pursuing our growth strategy, we may acquire properties that cause our portfolio to become less diversified. If our portfolio becomes less diverse, our business may become subject to greater risk, including
tenant bankruptcies, adverse industry trends, and economic downturns in a particular geographic area. As a result, if any such risks of a less diversified portfolio are realized, we could be materially and adversely affected.
We face increasing competition for acquiring properties from both publicly-traded REITs and private investors that have greater resources than we do, which could materially and adversely affect us.
We are facing increasing competition from other entities engaged in real estate investment activities, including publicly traded REITs, private and institutional real estate investors, sovereign wealth funds, banks, insurance companies, investment banking firms, lenders, specialty finance companies, and other entities. Some of our competitors are larger and may have considerably greater financial, technical, leasing, underwriting, marketing, and other resources than we do. Some competitors may have a lower cost of capital and access to funding sources that may not be available to us. In addition, other competitors may have higher risk tolerances or different risk assessments and may not be subject to the same operating constraints, including maintaining REIT status. This competition may result in fewer acquisitions, higher prices, lower yields, less desirable property types, and acceptance of greater risk. As a result, we cannot provide any assurance that we will be able to successfully execute our growth strategy. Any failure to grow through acquisitions as a result of the increasing competition we face could materially and adversely affect us.
We face significant competition for tenants, which could materially and adversely affect us, including our occupancy, rental rates, results of operations, and business.
We compete with numerous developers, owners, and operators of properties, many of which own properties similar to ours in the same markets in which our properties are located. If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates or to offer more substantial rent abatements, tenant improvements, early termination rights, or below-market renewal options to retain tenants when our leases expire. Competition for tenants could decrease or prevent increases of the occupancy and rental rates of our properties, which could materially and adversely affect us.
The departure of any of our key personnel with long-standing business relationships could materially and adversely affect us.
Our success and our ability to manage anticipated future growth depend, in large part, upon the efforts of our key personnel, particularly our Chief Executive Officer, Christopher J. Czarnecki. Mr. Czarnecki has extensive market knowledge and relationships and exercises substantial influence over our operational, financing, acquisition, and disposition activity. If we lost his services, our network of external relationships and resources would be materially diminished.
Our senior management team has worked together and collectively managed our business, operations, and portfolio since 2015 and has a strong investment track record. Many of our other key executive personnel, particularly our senior management team, also have extensive experience and strong reputations in the real estate industry and have been instrumental in setting our strategic direction, operating our business, identifying, recruiting, and training key personnel, and arranging necessary financing. The departure of any member of our senior management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities, and weaken our relationships with lenders, business partners, existing and prospective tenants, and industry personnel, which could materially and adversely affect us.
Our portfolio is concentrated in certain states, and any adverse developments and economic downturns in these geographic markets could materially and adversely affect us.
As of December 31, 2021, approximately 32.3% of our ABR came from properties in our top five states: Texas (10.6%), Illinois (6.0%), Wisconsin (5.9%), Florida (4.9%), and Michigan (4.9%). These geographic
concentrations could adversely affect our operating performance if conditions become less favorable in any of the states or markets within which we have a concentration of properties. We can provide no assurance that any of our markets will grow, not experience adverse developments, or that underlying real estate fundamentals will be favorable to owners and operators of industrial, healthcare, restaurant, office, and retail properties. A downturn in the economy in the states or regions in which we have a concentration of properties, or markets within such states or regions, or a slowdown in the demand for our tenants’ businesses caused by adverse economic, regulatory, or other conditions, including the current economic downturn resulting from theCOVID-19
pandemic, could adversely affect our tenants operating businesses in those states and impair their ability to pay rent to us, which, in turn could materially and adversely affect us. Our portfolio is also concentrated in certain property types and any adverse developments relating to one or more of these property types could materially and adversely affect us.
As of December 31, 2021, approximately 47.4% of our ABR came from industrial properties, 19.8% from healthcare properties, 13.8% from restaurant properties, 11.2% from retail properties, and 7.8% from office properties. Any adverse developments in one or more of these property types could materially and adversely affect us. For example, if our restaurant or retail tenants suffer weakening demand for their goods or services, it could adversely affect their ability to meet their rent and other obligations under their leases with us. It also may be difficult and expensive tore-tenant
a property designed for a particular property type with a new tenant that operates in an industry requiring a different property type. As a result, any adverse developments in one or more of our concentrated property types could materially and adversely affect us. The decrease in demand for restaurant, retail, and/or office space may materially and adversely affect us.
As of December 31, 2021, leases with tenants in the restaurant industry represented approximately 13.8% of our ABR, leases with tenants in the retail industry represented approximately 11.2% of our ABR, and leases with tenants for office space represented approximately 7.8% of our ABR. In the future, we may acquire additional restaurant, retail, and office properties. Accordingly, decreases in the demand for restaurant, retail, and/or office properties may have a greater adverse effect on us than if we had fewer investments in these industries. The market for restaurant, retail, and office properties has been, and could continue to be, adversely affected by weakness in the national, regional, and local economies including the impact of the ongoingCOVID-19
pandemic, the adverse financial condition of some large restaurant and retail companies, the ongoing consolidation in the restaurant and retail industries, and the excess amount of restaurant, retail and office space in a number of markets. For example, in recent years a number of companies in the restaurant industry have declared bankruptcy, gone out of business, or significantly reduced the number of their locations. As a result, we have experienced, and expect to continue to experience, challenges with some of our restaurant tenants, and have recorded asset impairments, which were immaterial on a consolidated basis, on certain assets as a result of increased credit losses. Similarly, the ongoing impacts of the disruption in the retail industry, particularly adverse changes in consumer spending and consumer preferences for particular goods, services, or store-based retailing could severely impact retail tenants’ ability to pay rent. Shifts fromin-store
to online shopping could increase due to changing consumer shopping patterns and the increase in consumer adoption and use of mobile electronic devices. Further, our assessment that certain businesses are insulated from suche-commerce
pressure may prove to be incorrect. To the extent that these conditions continue in the retail and restaurant industries, they are likely to negatively affect market rents for such properties and could materially and adversely affect us. In recent years, the market for office space has seen a shift in the use of space due to the widespread practices of telecommuting, videoconferencing, and renting shared workspaces, which accelerated at the onset of theCOVID-19
pandemic. These trends have led, and may in the future lead, to more efficient office layouts and a decrease in square feet leased per employee. The impact of alternative workspaces and technology could result in
tenant downsizings upon renewal, or tenants seeking office space outside of typical central business districts.
These trends could cause an increase in vacancy rates at office buildings and a decrease in demand for new supply, and could materially and adversely affect us.
If one or more of our top 20 tenants, which together represented approximately 30.3% of our ABR as of December 31, 2021, suffers a downturn in their business, it could materially and adversely affect us.
As of December 31, 2021, our top 20 tenants together represented 30.3% of our ABR. Our largest tenant is Jack’s Family Restaurants, a quick service restaurant chain, which leases 43 properties that in the aggregate represent approximately 2.1% of our ABR. Our top 20 tenants may experience a material business downturn weakening their financial position resulting in their failure to make timely rent payments and/or default under their leases. As a result, our revenue and cash flow could be materially and adversely affected.
We may be unable to renew leases,re-lease
properties as leases expire, or lease vacant spaces on favorable terms or at all, which, in each case, could materially and adversely affect us. Our results of operations depend on our ability to continue to successfully lease our properties, including renewing expiring leases,re-leasing
properties as leases expire, leasing vacant space, optimizing our tenant mix, or leasing properties on more economically favorable terms. As of December 31, 2021, one lease representing approximately 0.5% of our ABR will expire during 2022. Current tenants may decline, or may not have the financial resources available, to renew current leases and we cannot assure you that leases that are renewed will have terms that are as economically favorable to us as the expiring lease terms. If tenants do not renew the leases as they expire, we cannot provide any assurance that we will be able to find new tenants or that our properties will bere-leased
at rental rates equal to or above the current average rental rates or that substantial rent abatements, tenant improvement allowances, early termination rights, or below-market renewal options will not be required to attract new tenants. We may experience significant costs in connection withre-leasing
a significant number of our properties, which could materially and adversely affect us. As of December 31, 2021, two of our properties, representing approximately 0.2% of our portfolio, were unoccupied. We may experience difficulties in leasing this vacant space on favorable terms or at all. Any failure to renew leases,re-lease
properties as leases expire, or lease vacant space could materially and adversely affect us. Our business is subject to significantre-leasing
risk, particularly for specialty properties that are suitable for only one use. The loss of a tenant, either through lease expiration or tenant bankruptcy or insolvency, may require us to spend significant amounts of capital to renovate the property before it is suitable for a new tenant and cause us to incur significant costs. In particular, our specialty properties are designed for a particular type of tenant or tenant use. If tenants of specialty properties do not renew or default on their leases, we may not be able tore-lease
properties without substantial capital improvements, which may require significant cost and time to complete. Alternatively, we may not be able tore-lease
or sell the property without such improvements or may be required to reduce the rent or selling price significantly. This potential illiquidity may limit our ability to modify quickly our portfolio in response to changes in economic or other conditions, including tenant demand. Such occurrences could materially and adversely affect us. We may experience a higher number of tenant defaults because we lease most of our properties to tenants who do not have an investment grade credit rating.
We depend on the ability of our tenants to meet their obligations to pay rent to us due under our lease for substantially all of our revenue. As of December 31, 2021, only approximately 15.7% of our ABR came from tenants who had an investment grade credit rating. A substantial majority of our properties are leased to unrated tenants. Our investments in properties leased to such tenants may have a greater risk of default than investments in properties leased exclusively to investment grade tenants. The ability of an unrated tenant to meet its rent and other obligations under its lease with us may be subject to greater risk than our tenants that have an investment
grade rating. When we invest in properties where the tenant does not have a publicly available credit rating, we will use certain credit-assessment tools as well as rely on our own estimates of the tenant’s credit rating which includes reviewing the tenant’s financial information (e.g., financial ratios, net worth, revenue, cash flows, leverage and liquidity, if applicable). Our methods, however, may not adequately assess the risk of an investment and, if our assessment of credit quality proves to be inaccurate, we may be subject to defaults and investors may view our cash flows as less stable. If one or more of our unrated tenants defaults, it could have a material adverse effect on us.
Our underwriting and risk management procedures that we use to evaluate a tenant’s credit risk may be faulty, deficient, or otherwise fail to accurately reflect the risk of our investment, which could materially and adversely affect us.
Our underwriting and risk management procedures that we use to evaluate a tenant’s credit risk may not be sufficient to identify tenant problems in a timely manner or at all. To evaluate tenant credit risk, we utilize a third-party model, S&P Capital IQ, to help us determine a tenant’s implied credit rating when a public rating is not available. However, a rating from S&P Capital IQ is not the same as a published credit rating and lacks extensive company participation that is typically involved when a rating agency publishes a rating. Therefore, such rating may not be as indicative of creditworthiness as a rating published by a nationally recognized statistical rating organization. Tenant credit ratings, public or implied, however, are only one component of how we assess the risk of tenant insolvency. We also use our own internal estimate of the likelihood of an insolvency or default, based on the regularly monitored performance of our properties, our assessment of each tenant’s financial health, including profitability, liquidity, indebtedness, and leverage profile, and our assessment of the health and performance of the tenant’s particular industry. If our assessment of credit quality proves to be inaccurate, we may experience one or more tenant defaults, which could have a material adverse effect on us.
Any failure of one or more tenants to provide accurate or complete financial information could prevent us from identifying tenant problems that could materially and adversely affect us.
We rely on information from our tenants to determine a potential tenant’s credit risk as well as foron-going
risk management. As of December 31, 2021, approximately 84.6% of our ABR is received from tenants that are required to provide us with specified financial information on a periodic basis. An additional 9.4% 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. Ratings or conclusions derived from both S&P Capital IQ and our internal teams rely on such information provided to us by our tenants and prospective tenants without independent verification on our part, and we must assume the appropriateness of estimates and judgments that were made by the party preparing the financial information. A tenant’s failure to provide appropriate information may interfere with our ability to accurately evaluate a potential tenant’s credit risk or determine an existing tenant’s default risk, the occurrence of either could materially and adversely affect us. We could face potential material adverse effects from the bankruptcies or insolvencies of our tenants.
If a tenant, or the guarantor of a lease of a tenant, commences, or has commenced against it, any legal or equitable proceeding under any bankruptcy, insolvency, receivership, or other debtor’s relief statute or law (collectively, a “bankruptcy proceeding”), we may be unable to collect all sums due to us under that tenant’s lease or be forced to “take back” a property as a result of a default or a rejection of a lease by a tenant in a bankruptcy proceeding. If a tenant becomes bankrupt or insolvent, federal law may prohibit us from evicting such tenant based solely upon such bankruptcy or insolvency. In addition, a bankrupt or insolvent tenant may be authorized to reject and terminate its lease or leases with us. Any claims against such bankrupt tenant for unpaid future rent would be subject to statutory limitations that would likely result in our receipt of rental revenues that are substantially less than the contractually specified rent we are owed under the lease or leases. Any or all of the lease obligations of our tenants, or any guarantor of our tenants, could be subject to a bankruptcy proceeding
which may bar our efforts to collectpre-bankruptcy
debts from these entities or their properties, unless we are able to obtain an enabling order from the bankruptcy court. If our lease is rejected by a tenant in bankruptcy, we may only have a general unsecured claim against the tenant and may not be entitled to any further payments under the lease. We may also be unable tore-lease
a terminated or rejected space or tore-lease
it on comparable or more favorable terms. A bankruptcy proceeding could hinder or delay our efforts to collect past due balances and ultimately preclude collection of these sums, resulting in a decrease or cessation of rental payments, which could materially and adversely affect us. An increase in market interest rates could increase our interest costs on existing and future debt and could adversely affect our stock price, and a decrease in market interest rates could lead to additional competition for the acquisition of real estate, which could adversely affect our results of operations.
If interest rates increase, so could our interest costs for any new debt and our existing variable-rate debt obligations. Absent a simultaneous increase in acquisition yields, this increased cost could make the financing of any acquisition more expensive and lower our current period earnings. Rising interest rates could limit our ability to refinance existing debt when it matures or cause us to pay higher interest rates upon refinancing. See “Risks Related to Debt Financing” for additional information. In addition, an increase in interest rates could decrease the access current and prospective tenants have to credit, thereby decreasing the amount they are willing to pay to lease our assets and consequently limiting our ability, if necessary, to reposition our portfolio promptly in response to changes in economic or other conditions. Furthermore, the distribution yield on our Common Stock will influence the price of such Common Stock. Thus, an increase in market interest rates may lead prospective purchasers of our Common Stock to expect a higher distribution yield, which could adversely affect the market price of our common stock. See “Risks Related to Ownership of Our Common Stock” for more information. In addition, decreases in interest rates may lead to additional competition for the acquisition of real estate due to a reduction in desirable alternative income-producing investments. Increased competition for the acquisition of real estate may lead to a decrease in the yields on real estate we have targeted for acquisition. In such circumstances, if we are not able to offset the decrease in yields by obtaining lower interest costs on our borrowings, our results of operations will be adversely affected.
Our properties may be subject to impairment charges.
We routinely evaluate our real estate investments for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions and tenant performance. For example, the early termination of, or default under, a lease by a tenant may lead to an impairment charge. Since our investment focus is on properties net leased to a single tenant, the financial failure of, or other default by, a single tenant under its lease(s) may result in a significant impairment loss. If we determine that an impairment has occurred, we would be required to make a downward adjustment to the net carrying value of the property, which could have a material adverse effect on our results of operations in the period in which the impairment charge is recorded. Management has recorded impairment charges related to certain properties in each of the years ended December 31, 2021, 2020, and 2019, and may record future impairments based on actual results and changes in circumstances. Negative developments in the real estate market may cause management to reevaluate the business and macro-economic assumptions used in its impairment analysis. Changes in management’s assumptions based on actual results may have a material impact on the Company’s financial statements. See “Critical Accounting Polices – Long-Lived Asset Impairment” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of real estate impairment charges.
Changes in accounting standards may materially and adversely affect us.
From time to time the Financial Accounting Standards Board (“FASB”), and the SEC, who create and interpret appropriate accounting standards, may change the financial accounting and reporting standards or their interpretation and application of these standards that will govern the preparation of our financial statements. These changes could materially and adversely affect our reported financial condition and results of operations. In
some cases, we could be required to apply a new or revised standard retroactively, resulting in restating prior period financial statements. Similarly, these changes could materially and adversely affect our tenants’ reported financial condition or results of
operations.operations and affect their preferences regarding leasing real estate.
We may acquire properties or portfolios of properties through tax deferred contribution transactions, which could result in stockholder dilution and limit our ability to sell such assets.
In the future we may acquire properties or portfolios of properties through tax deferred contribution transactions in exchange for OP Units, which may result in stockholder dilution. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors’ ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of debt to the contributors to maintain their tax bases. As of December 31, 2021, we were party to tax protection agreements covering three properties. Based on values as of December 31, 2021, taxable sales of the applicable properties would trigger liability under the agreements of approximately $12.3 million. In addition, in connection with the Internalization, we entered into a tax protection agreement with Amy L. Tait, the Company’s founder, and certain members of her family (the “Founding Owners’ Tax Protection Agreement”), which has a potential liability of up to $10 million based on values as of December 31, 2021. These restrictions could limit our ability to sell certain assets or the OP (or our interest in the OP) at a time, or on terms, that would be favorable absent such restrictions.
Certain provisions of our leases or loan agreements may be unenforceable, which could materially and adversely affect us.
Our rights and obligations with respect to the leases at our properties, mortgage loans, or other loans are governed by written agreements. A court could determine that one or more provisions of such agreements are unenforceable, such as a particular remedy, a master lease covenant, a loan prepayment provision, or a provision governing our security interest in the underlying collateral of a borrower or lessee. We could be adversely impacted if this were to happen with respect to an asset or group of assets.
We may become subject to litigation, which could materially and adversely affect us.
In the future we may become subject to litigation, including, but not limited to, claims relating to our operations, past and future securities offerings, corporate transactions, and otherwise in the ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend to vigorously defend ourselves. However, we cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby materially and adversely affecting us. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could materially and adversely impact us, expose us to increased risks that would be uninsured, and materially and adversely impact our ability to attract directors and officers.
A failure to maintain effective internal controls could
have a material adverse effect on our business, financial condition,materially and
results of operations.adversely affect us.
Effective internal controls over financial reporting, disclosures, and operations are necessary for us to provide reliable financial reports and public disclosures, effectively prevent fraud, and operate successfully. If we cannot provide reliable financial reports and public disclosures or prevent fraud, our reputation and operating results would be harmed. Our internal controls over financial reporting and our operating internal controls may not prevent or detect financial misstatements or loss of assets because of inherent limitations, including the possibility of human error, management override of controls, or fraud. Effective internal controls can provide
only reasonable assurance with respect to financial statement accuracy, public disclosures, and safeguarding of assets. Any failure of these internal controls, including any failure to implement required new or improved controls as a result of changes to our business or otherwise, or if we experience difficulties in their implementation, could result in decreased investor confidence in the accuracy and completeness of our financial reports and public disclosures, civil litigation, or investigations by the SEC or other regulatory authorities, and we could fail to meet our reporting obligations, which could materially and adversely affect us.
A limited number of our leases may require us to pay property-related expenses that are not the obligations of our tenants, which could materially and adversely impactaffect us.
Under the terms of substantially all of our leases, our tenants are responsible for the payment or reimbursement of property expenses such as real estate taxes, insurance, maintenance, repairs, and capital costs in addition to satisfying their rent obligations. Under the provisions of a limited number of our existing leases and leases that we may enter into in the future, however, we may be required to pay some or all of the expenses of the property, such as the costs of environmental liabilities, roof and structural repairs, real estate taxes, insurance, certainnon-structural
repairs, and maintenance. If our properties incur significant expenses that must be paid by us under the terms of our leases, our business, financial condition, and results of operations
may be adversely affected and the amount of cash available to meet expenses and to make distributions to our stockholders and unitholders may be reduced. The costs of environmental contamination or liabilities related to environmental laws may materially and adversely affect us.
There may be known or unknown environmental liabilities associated with properties we previously owned, currently own, or may acquire in the future. Under various federal, state, and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from environmental matters, including the presence or discharge of hazardous or toxic substances, waste, or petroleum products at, on, in, under or migrating from such property, including costs to investigate or clean up such contamination and liability for personal injury, property damage, or harm to natural resources. Certain uses of some properties may have a heightened risk of environmental liability because of the hazardous materials used in performing services on those properties, such as industrial properties or auto parts and auto service businesses using petroleum products, paint, machine solvents, and other hazardous materials. We typically undertake customary environmental diligence prior to our acquisition of any property, including obtaining Phase I environmental site assessments. The Phase I environmental site assessments are limited in scope and therefore may not reveal all environmental conditions affecting a property. Therefore, there could be undiscovered environmental liabilities on the properties we own.
The known or potential presence of hazardous substances on a property may adversely affect our ability to sell, lease, or improve the property, or to borrow using the property as collateral. In addition, environmental laws may create liens on contaminated properties in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which they may be used or which businesses may be operated, and these restrictions may require substantial expenditures.
Our environmental liabilities may include property and natural resources damage, personal injury, investigation, andclean-up
costs, among other potential environmental liabilities. These costs could be substantial. Although we may obtain insurance for environmental liability for certain properties that are deemed to warrant coverage, our insurance may be insufficient to address any particular environmental situation and we
could failmay be unable to
meetcontinue to obtain insurance for environmental matters, at a reasonable cost or at all, in the future. If our
reporting obligations.environmental liability insurance is inadequate, we may become subject to material losses for environmental liabilities. Our ability to receive the benefits of any environmental liability insurance policy will depend on the financial stability of our insurance company and the position it takes with respect to our insurance
policies. If we
internalize our management functions, we could incur otherwere to become subject to significant
costs associated with being self-managed.Our board of directors may decide in the future to internalize our management functions. If we do so, we may elect to negotiate to acquire the Manager’s and the Asset Manager’s assets and hire the Manager’s personnel, each as related to the operation and management of our businesses. While we would no longer bear the costs of the various fees and expenses we expect to pay to the Manager and the Asset Manager under the Restated Management Contracts, our direct expenses would include additional general and administrative costs that are currently paid by the Manager and Asset Manager. In addition,environmental liabilities, we could be requiredmaterially and adversely affected.
Although our leases generally require our tenants to pay certain costsoperate in compliance with all applicable federal, state, and contract termination fees in connection withlocal environmental laws, ordinances, and regulations, and to indemnify us against any environmental liabilities arising from the tenants’ activities on the property, we could nevertheless be subject to liability, as a current or previous owner of real estate, including strict liability, by virtue of our current management agreements with the Managerownership interest and the Asset Manager. For additional information regarding these termination fees, please see the captions titled Certain Relationships and Related Transactions and Termination in the Proxy Statement. We would alsomay be required to employ personnelremove or remediate hazardous or toxic substances on, under, or in a property. Further, there can be no assurance that our tenants, or the guarantor of a lease, could or would satisfy their indemnification obligations under their leases. We may face liability regardless of our knowledge of the contamination, the timing of the contamination, the cause of the contamination, or the party responsible for the contamination of the property. The cost of compliance or defense against claims from a contaminated property could materially and would beadversely affect us.
We could become subject to potential liabilities commonly faced by employers, such as disability and workers’ compensation claims, potential labor disputes, and other employee-related liabilities and grievances as well asliability for asbestos-containing building materials in the buildings on our property, which could cause us to incur the compensation and benefits costsadditional expenses.
Some of our officersproperties may contain, or may have contained, asbestos-containing building materials. Environmental, health, and safety laws require that owners or operators of or employers in buildings with asbestos-containing materials (“ACM”) properly manage and maintain these materials, adequately inform or train those who may come into contact with ACM, and undertake special precautions, including removal or other employeesabatement, in the event that ACM is disturbed during building maintenance, renovation, or demolition. These laws may impose fines and consultants that are currently paid by the Manager and the Asset Manager. We cannot reasonably estimate the amountpenalties on employers, building owners, or operators for failure to comply with these laws. In addition, third parties may seek recovery from employers, owners, or operators for personal injury associated with exposure to asbestos. If we become subject to any of fees to the Manager and the Asset Manager we would savethese penalties or the costs we would incur if we became self-managed. If the expenses we assumeother liabilities as a result of an internalizationACM at one or more of our properties, it could have a material adverse effect on us.
Our properties may contain or develop harmful mold or suffer from other adverse conditions, which could lead to liability for adverse health effects and costs of remediation.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues also can stem from inadequate ventilation, chemical contamination from indoor or outdoor sources and other biological contaminants such as pollen, viruses, and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants, and others if property damage or personal injury occurs. Thus, conditions related to mold or other airborne contaminants could have a material adverse effect on us.
Risks Related to Investments in Real Estate
Our operating results are higher thanaffected by economic and regulatory changes that impact the expenses we avoid payingcommercial real estate market in general.
Our core business is the ownership of commercial real estate that is net leased on a long-term basis to businesses in the industrial, healthcare, restaurant, retail, and office sectors. Accordingly, our performance is subject to risks generally attributable to the Managerownership of commercial real property, including:
changes the supply and demand for single-tenant space in the industrial, healthcare, restaurant, office, and retail sectors;
increased competition for real property investments targeted by our investment strategy;
changes in consumer trends and preferences that affect the demand for products and services offered by our tenants;
inability to lease or sell properties upon expiration or termination of existing leases and renewal of leases at lower rental rates;
the subjectivity of real estate valuations and changes in such valuations over time;
the potential risk of functional obsolescence of properties over time;
competition from other properties.
The factors described above are out of our control, and we are unable to predict future changes in such factors. Any negative changes in these factors may cause the value of our real estate to decline, which could materially and adversely affect us.
Global and U.S. financial markets and economic conditions may materially and adversely affect us and the Asset Manager,ability of our fundstenants to make rental payments to us pursuant to our leases.
A significant portion of our portfolio is leased to tenants operating businesses that rely on discretionary consumer spending. The success of most of these businesses depends on the willingness of consumers to use discretionary income to purchase their products or services. Our results of operations are sensitive to changes in the overall economic conditions that impact our tenants’ financial condition and leasing practices. and a downturn in the economy could cause consumers to reduce their discretionary spending, which could result in tenant bankruptcies or otherwise have an adverse impact on our tenants’ ability to successfully manage their businesses and pay us amounts due under our lease agreements, thereby materially and adversely affecting us. Accordingly, adverse economic conditions such as high unemployment levels, an increase in interest rates, a decrease in available financing, high inflation, labor and workforce shortages, supply chain issues, tax rates, and fuel and energy costs may have an impact on the results of operations and financial conditions of our tenants. During periods of economic slowdown, rising interest rates and declining demand for real estate may result in a general decline in rents or an increased incidence of defaults under existing leases. A lack of demand for rental space could adversely affect our ability to maintain our current tenants and gain new tenants, which may affect our growth and results of operations. Accordingly, a decline in economic conditions could materially and adversely affect us.
Our real estate investments are illiquid.
Because real estate investments are relatively illiquid, our ability to adjust our portfolio promptly in response to economic, financial, investment, or other conditions may be limited. Return of capital and realization of gains, if any, from operations wouldan investment generally will occur upon disposition or refinancing of the underlying property. We may be lowerunable to realize our investment objective by sale, other disposition, or refinancing at attractive prices within any given period of time, or we may otherwise be unable to complete any exit strategy. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions, and changes in laws, regulations, or fiscal policies of the jurisdiction in which the property is located. Further, certain significant expenditures generally do not change in response to economic or other conditions, such as (i) debt service, (ii) real estate taxes, and (iii) operating and maintenance costs. The inability to dispose of a property at an acceptable price or at all, as well as the combination of variable revenue and relatively fixed expenditures may result, under certain market conditions, in reduced earnings and could have an adverse effect on our financial condition.
We face risks associated with climate change, which could materially and adversely impact us.
As a result of climate change, our properties in certain markets could experience increases in storm intensity, flooding, drought, wildfires, rising sea levels, and extreme temperatures. The potential physical impacts of climate change on our properties are uncertain and would be particular to the internalizationgeographic circumstances in areas in which we own property. Over time, these conditions could result in volatile or decreased demand for certain of our properties or, in extreme cases, the inability of our tenants to operate the properties at all. Climate change may also have indirect effects on our business by increasing the cost of insurance (or making insurance unavailable), increasing the cost of energy at our properties, or requiring us to spend funds to repair and protect our properties against such risks. Moreover, compliance with new laws or regulations related to climate change, including compliance with “green” building codes or other laws or regulations relating to reduction of carbon footprints and/or greenhouse gas emissions, may require us to make improvements to our existing properties or increase taxes and fees assessed on us or our properties. Any of these occurrences could materially and adversely impact us.
Inflation may materially and adversely affect us and our tenants.
Increased inflation could lead to interest rate increases that could have a negative impact on variable rate debt we currently have or that we may incur in the future. During times when inflation is greater than the increases in rent provided by many of our leases, rent increases will not keep up with the rate of inflation. Increased costs may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue, which may adversely affect the tenants’ ability to pay rent owed to us, which in turn could materially and adversely affect us. Inflation may also have an adverse effect on consumer spending, which could impact our tenants’ revenues and their ability to pay rent owed to us, which in turn could materially and adversely affect us.
Natural disasters, terrorist attacks, other acts of violence or war, or other unexpected events could materially and adversely impact us.
Natural disasters, terrorist attacks, other acts of violence or war, or other catastrophic events (, hurricanes, floods, earthquakes, or other types of natural disasters or wars or other acts of violence) could cause damage to our properties, materially interrupt our business operations (or those of our tenants), cause consumer confidence and spending to decrease, or result in increased volatility in the U.S. and worldwide financial markets and economy. Such occurrences also could result in or prolong an economic recession in the United States. We own properties in regions that have historically been impacted by natural disasters and it is probable such regions will continue to be impacted by such events. If a disaster occurs, we could suffer a complete loss of capital invested in, and any profits expected from, the affected properties. Any of these occurrences could materially and adversely affect us. Insurance on our properties may not adequately cover all losses and uninsured losses could materially and adversely affect us.
Our tenants are generally required to maintain comprehensive insurance coverage for the properties they
otherwiselease from us pursuant to our net leases. Pursuant to such leases, our tenants are required to name us (and any of our lenders that have a mortgage on the property leased by the tenant) as additional insureds on their liability policies and additional named insured and/or loss payee (or mortgagee, in the case of our lenders) on their property policies. Additionally, most tenants are required to maintain casualty coverage and most carry limits at 100% of replacement cost. Depending on the location of the property, losses of a catastrophic nature, such as those caused by earthquakes and floods, may be covered by insurance policies that are held by our tenant with limitations such as large deductibles orco-payments
that a tenant may not be able to meet. In addition, losses of a catastrophic nature, such as those caused by wind/hail, hurricanes, terrorism, or acts of war, may be uninsurable or not economically insurable. In the event there is damage to our properties that is not covered by insurance and
such properties are subject to recourse indebtedness, we will continue to be liable for the indebtedness, even if these properties are irreparably damaged. In addition, if uninsured damages to a property occur or a loss exceeds policy limits and we do not have adequate cash to fund repairs, we may be forced to sell the property at a loss or to borrow capital to fund the repairs.
Inflation, changes in building codes and ordinances, environmental considerations, and other factors, including terrorism or acts of war, may make any insurance proceeds we receive insufficient to repair or replace a property if it is damaged or destroyed. In that situation, the insurance proceeds received may not be adequate to restore our economic position with respect to the affected real property. Furthermore, in the event we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications without significant capital expenditures which may exceed any amounts received pursuant to insurance policies, as reconstruction or improvement of such a property would likely require significant upgrades to meet zoning and building code requirements. The loss of our capital investment in or anticipated future returns from our properties due to material uninsured losses could materially and adversely affect us.
Our costs of compliance with laws and regulations may require us or our tenants to make unanticipated expenditures that could reduce the investment return of our stockholders.
All real property and the operations conducted on real property are subject to numerous federal, state, and local laws and regulations. We cannot predict what laws or regulations will be enacted in the future, how future laws or regulations will be administered or interpreted, or how future laws or regulations will affect us or our properties. For example, we may be required to make substantial capital expenditures to comply with applicable fire and safety regulations, building codes, environmental regulations, and other land use regulations, and may be required to obtain approvals from various authorities with respect to our properties, including prior to acquiring a property or when undertaking improvements of any of our existing properties. Additionally, pursuant to the Americans with Disabilities Act (“ADA”), all public accommodations must meet federal requirements related to access and use by disabled persons. Compliance with ADA requirements could require property-level expenditures andnon-compliance
could result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. In most instances, our tenants are obligated to comply with these types of laws and regulations pursuant to our leases and cover costs associated with compliance. However, if required changes involve greater expenditures than anticipated or if the changes must be made on a more accelerated basis than anticipated, the ability of our tenants to cover such costs could be adversely affected and we may be required to expend our own funds. Further, there can be no assurance that existing laws and regulations will not adversely affect us or the timing or cost of any future acquisitions or improvements, or that additional regulations will not be adopted that increase such delays or result in additional costs. Accordingly, Compliance with new laws or regulations, or stricter interpretation of existing laws, may require us or our tenants to incur significant expenditures, impose significant liability, restrict or prohibit business activities, and could cause a material adverse effect on us.
Risks Related to Debt Financing
As of December 31, 2021, we had approximately $1.7 billion principal balance of indebtedness outstanding, which may expose us to the risk of default under our debt obligations.
As of December 31, 2021, we had approximately $1.7 billion principal balance of indebtedness outstanding. We have
been, potentially decreasingincurred, and plan to incur in the
amountfuture, financing through borrowings under term loans, senior notes, our Revolving Credit Facility, and mortgage loans secured by some or all of
our properties. In some cases, the mortgage loans we incur are guaranteed by us, the OP, or both. We may also borrow funds
availableif necessary to
satisfy the requirement that we distribute to
stockholders as dividends at least 90% of our
stockholders.annual REIT taxable income (computed without regard to the dividends paid deduction and our net capital gains), or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for U.S. federal income tax purposes.
Payments of principal and interest on borrowings may leave us with insufficient cash resources to meet our cash needs or make the distributions to our common stockholders currently contemplated or necessary to qualify as a REIT. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:
our cash flow may be insufficient to meet our required principal and interest payments;
cash interest expense and financial covenants relating to our indebtedness, including a covenant in our Revolving Credit Facility that restricts us from paying distributions if an event of default exists, other than distributions required to maintain our REIT status, may limit or eliminate our ability to make distributions to our common stockholders;
we may be forced to dispose of properties, possibly on unfavorable terms or in violation of certain covenants to which we may be subject;
we may default on our obligations and the lenders or mortgagees may foreclose on our properties or our interests in the entities that own the properties that secure their loans and receive an assignment of rents and leases;
we may be restricted from accessing some of our excess cash flow after debt service if certain of our tenants fail to meet certain financial performance metric thresholds;
our default under any loan with cross default provisions could result in a default on other indebtedness.
The occurrence of any of these events could materially and adversely affect us. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.
Disruptions in the financial markets and deteriorating economic conditions could adversely affect our ability to obtain debt financing on
attractivecommercially reasonable terms and adversely impact our ability to implement our investment strategy and achieve our investment objectives.
The United States and global financial markets have experienced significant volatility and disruption
withinin the
past decade. Therepast. During themid-2000s,
there was a widespread tightening in overall credit markets, devaluation of the assets underlying certain financial contracts, and increased borrowing by governmental entities. The turmoil in the capital markets resulted in constrained equity and debt capital available for investment in the real estate market, resulting in fewer buyers seeking to acquire properties, increases in capitalization rates, and lower property values.
Recently,While, capital has
beengenerally become more available,
andfuture events or sustained negative conditions may also reduce the
overall economy has improved. However, the failureavailability of
a sustained economic recovery or future disruptions in the financial markets and deteriorating economic conditions couldfinancing, make financing terms less attractive, as well as impact the value of our investments in properties.
We use external financing to refinance indebtedness as it matures and to partially fund our acquisitions. If sufficient sources of external financing are not available to us on cost effective terms, we could be forced to limit our planned business activities or take other actions to fund our business activities and repayment of debt such as selling assets or reducing our cash distributions. Uncertainty in the credit markets also could negatively impact our ability to make acquisitions, make it more difficult or impossible for us to sell properties, or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing.
Current economicMarket conditions
greatly increase the risks ofcould adversely affect our
investments.ability to refinance existing indebtedness on acceptable terms or at all, which could materially and adversely affect us.
We
report FFOuse external financing to refinance indebtedness as it matures and
AFFO, each of which is a non-GAAP financial measure.We report FFO and AFFO, each of which is a non-GAAP financial measure, which we believe to be appropriate supplemental measures to reflect our operating performance.
Although we calculate FFO in accordance with the standards established by the Funds From Operations White Paper — 2018 Restatement approved 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, not all REITs necessarily calculate FFO and AFFO and other similar measures in the same way, and therefore comparisons of our disclosures of such measures with that of other REITs may not be meaningful. FFO and AFFO should not be considered as an alternative to net income as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available topartially fund our cash needs,acquisitions. Credit markets may experience significant price volatility, displacement, and liquidity disruptions, including the bankruptcy, insolvency, or restructuring of certain financial institutions. As a result, we may be unable to fully refinance maturing indebtedness with new indebtedness, which could materially and adversely affect us. Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. Higher
interest rates on newly incurred debt may negatively impact us as well. If interest rates increase, our interest costs and overall costs of capital will increase, which could materially and adversely affect us and our ability to make distributions to our stockholders. FFO
We may incur mortgage debt on a particular property, which may subject us to certain risks, and AFFO should be reviewedthe occurrence of any such risk could materially and adversely affect us.
We may incur mortgage debt on a particular property, especially if we believe the property’s projected cash flow is sufficient to service the mortgage debt. In addition, incurring mortgage debt may increase the risk of loss since defaults on indebtedness secured by a property may result in conjunction with GAAP measurements as an indicationforeclosure actions initiated by lenders and our loss of the property securing the loan that is in default. For U.S. federal income tax purposes, a foreclosure of any of our performance.properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure but would not receive any of the proceeds. We may give full or partial guarantees to lenders to the OP or its affiliates. If we give a guaranty on behalf of the OP, we will be responsible to the lender for satisfaction of the debt if it is not paid by the OP. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one of our real properties may be affected by a default. If any of our properties are foreclosed upon due to a default, we could be materially and adversely affected.
Failure to hedge effectively against interest rate changes may materially and adversely affect us.
To reduce our exposure to variable-rate debt, we enter into interest rate swap agreements to fix the rate of interest as a hedge against interest rate fluctuations on floating-rate debt. These arrangements involve risks and may not be effective in reducing our exposure to interest rate changes. In addition, the counterparties to any hedging arrangements we enter into may not honor their obligations. Failure to hedge effectively against changes in interest rates relating to the interest expense of our future floating-rate borrowings may materially and adversely affect us.
Our Revolving Credit Facility and term loan agreements contain various covenants which, if not complied with, could accelerate our repayment obligations, thereby materially and adversely affecting us.
We are subject to various financial and operational covenants and financial reporting requirements pursuant to the agreements we have providedentered into governing our Revolving Credit Facility, term loans, and senior notes. These covenants require us to, among other things, maintain certain financial ratios, including leverage, fixed charge coverage, and debt service coverage, among others. As of December 31, 2021, we believe we were in compliance with all of our loan covenants. Our continued compliance with these covenants depends on many factors and could be impacted by current or future economic conditions, and thus there are no assurances that we will continue to comply with these covenants. Failure to comply with these covenants would result in a reconciliation ofdefault which, if we were unable to cure or obtain a waiver from the lenders, could accelerate our repayment obligations and thereby have a material and adverse impact on us.
Further, these measurescovenants, as well as any additional covenants to net income, which we believe tomay be the most comparable GAAP measure,subject in the caption Net Incomefuture because of additional borrowings, could cause us to forego investment opportunities, reduce or eliminate distributions to our common stockholders, or obtain financing that is more expensive than financing we could obtain if we were not subject to the covenants. Additionally, these restrictions may adversely affect our operating and Non-GAAP Measures (FFOfinancial flexibility and AFFO) may limit our ability to respond to changes in Item 7. “Management’s Discussionour business or competitive environment, all of which may materially and Analysisadversely affect us.
Failure to maintain our current credit ratings could materially and adversely affect our cost of capital, liquidity, and access to capital markets.
The spread we pay over applicable reference rates for our unsecured credit facilities is determined based upon our credit ratings. In March 2016, Moody’s assigned the OP an investment grade credit rating of Baa3 with
a stable outlook, which wasre-affirmed
most recently in July 2020. On January 21, 2021, S&P assigned both the Company and the OP an initial investment grade credit rating of ‘BBB’ with a stable outlook. On September 14, 2021, Moody’s upgraded our credit rating to ‘Baa2’ with a stable outlook. The ratings are based on a number of factors, including an assessment of our financial strength, portfolio size and diversification, credit and operating metrics, and sustainability of cash flow and earnings. If we are unable to maintain our current credit ratings it could adversely affect our cost of capital, liquidity, and access to capital markets. Factors that could negatively impact our credit ratings include, but are not limited to: a significant increase in our leverage on a sustained basis; a significant increase in the proportion of secured debt levels; a significant decline in our unencumbered asset base; and a significant decline in our portfolio diversification. We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined.
As of December 31, 2021, we had approximately $752.0 million of debt outstanding for which the interest rate was tied to LIBOR. Additionally, as of December 31, 2021, we had entered into interest rate swaps totaling $640.0 million that fix the LIBOR component of our debt through various tenors. On July 27, 2017, the Financial ConditionConduct Authority (the “FCA”) which regulates LIBOR, announced its intention to stop compelling banks to submit rates for the calculation of LIBOR after June 30, 2023.
The Alternative Reference Rates Committee (“ARRC”) has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for USD LIBOR in derivatives and
Results of Operations” of this Form 10-K.
Neitherother financial contracts. Our variable-interest debt instruments, including our unsecured revolving credit and term loan agreements, provide for alternate interest rate calculations using SOFR if LIBOR is no longer widely available or should the SEC noralternative interest rate prove more favorable. There can be no assurances as to what alternative interest rates may be and whether such interest rates, will be more or less favorable than LIBOR and any other regulatory body has passed judgment on the acceptabilityunforeseen impacts of the adjustments that we use to calculate FFO and AFFO. In the future, the SEC 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 characterizationpotential discontinuation of FFO and AFFO accordingly.
LIBOR
Risks Related to Our Organizational Structure
Maryland law
Our Charter contains provisions, including ownership and transfer restrictions, that may delay, discourage, or prevent a takeover or change of control transaction that could otherwise result in a premium price to our stockholders.
Our Charter contains various provisions that are intended to facilitate our qualification as a REIT. For example, our Charter restricts the direct or indirect ownership by one person or entity to no more than 9.8% of the value of our then outstanding shares of capital stock and no more than 9.8% of the value or number of shares, whichever is more restrictive, of our then outstanding Common Stock unless exempted by our board of directors. This restriction may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our Common Stock on terms that might be financially attractive to stockholders or which may cause a change in our management. In addition to deterring potential change of control transactions that may be favorable to our stockholders, these provisions may also decrease our stockholders’ ability to sell their shares of our Common Stock. As a result, these charter provisions may negatively impact the market price of our Common Stock.
We may issue preferred stock or separate classes or series of Common Stock, which could adversely affect the holders of our Common Stock.
Our Charter authorizes us to issue up to 520,000,000 shares of stock, and our board of directors, without any action by our stockholders, may amend our Charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that we have authority to issue. Holders of shares of our Common Stock do not have preemptive rights to acquire any shares issued by us in the future.
In addition, our board of directors may classify or reclassify any unissued shares of our Common Stock or preferred stock and establish the preferences, rights, and powers of any such stock. As a result, our board of
directors could authorize the issuance of preferred stock or separate classes or series of Common Stock with terms and conditions that could have priority, with respect to distributions and amounts payable upon our liquidation, over the rights of our Common Stock. The issuance of shares of such preferred or separate classes or series of Common Stock could dilute the value of an investment in shares of our Common Stock. The issuance of shares of preferred stock or a separate class or series of Common Stock could provide the holders thereof with specified dividend payments and payments upon liquidation prior or senior to those of the Common Stock, and could also have the effect of delaying, discouraging, or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for holders of our Common Stock.
Termination of the Employment Agreements with certain members of our senior management team could be costly.
The Employment Agreements with certain members of our senior management team provide that if their employment with us terminates under certain circumstances (including in connection with a change in control of our Company), we may be required to pay them significant amounts of severance compensation, thereby making it costly to terminate their employment.
Our board of directors may change our investment and financing policies without stockholder approval, which could materially and adversely alter the nature of an investment in us.
The methods of implementing our investment policies and strategy may vary as new real estate development trends emerge, new investment techniques are developed, and market conditions evolve. Our investment and financing policies are exclusively determined by our board of directors and senior management team. Accordingly, our stockholders do not control these policies. Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Although we are not required to maintain a particular leverage ratio, we generally intend to maintain on a sustained basis a level of Net Debt that is generally less than 6.0x our Annualized Adjusted EBITDAre. However, from time to time, our ratio of Net Debt to our Annualized Adjusted EBITDAre may exceed 6.0x. Our board of directors may alter or eliminate our current policy on borrowing at any time without stockholder approval. If this policy changed, we could become more highly leveraged, which could result in an increase in our debt service costs and obligations. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations, and liquidity risk. Changes to our policies with regard to the foregoing could materially and adversely affect us.
Our rights and the rights of our stockholders to
bring claimstake action against our
directors and officers
and directors.are limited.
Maryland law provides that a director of a Maryland corporation will not have any liability in that capacity if he or she performs his or her duties in accordance with the applicable standard of conduct. In addition,Our Charter limits the liability of our Articles of Incorporation provide that,directors and officers to us and our stockholders for money damages to the maximum extent permitted by Maryland law. Therefore, our directors and officers are subject to monetary liability resulting only from:
actual receipt of an improper benefit or profit in money, property, or services; or
active and deliberate dishonesty by the applicable limitations set forth thereindirector or under Maryland law, noofficer that was established by a final judgment as being material to the cause of action adjudicated.
As a result, we and our stockholders have rights against our directors and officers that are more limited than might otherwise exist. Accordingly, in the event that actions taken by any of our directors or officers impede the performance of our Company, your and our ability to recover damages from such director or officer will be liablelimited. Our Charter and Second Amended and Restated Bylaws also require us to us or our stockholders for monetary damages. Our Articles of Incorporation also provide that we will generally indemnify and advance
expenses to our directors our officers, and our Asset Manager and its affiliatesofficers for losses they may incur by reason of their service in those capacities subject to any limitations under Maryland law or in our Articles of Incorporation.Charter. Moreover, we have entered into separate indemnification agreements with each of our directors and executive officers. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law, which could reduce our stockholders’ and our recovery against such persons. In addition, we may be obligated to fund the defense costs incurred by these persons in some cases, which would reduce the cash available for distributions.
We have purchased insurance underare a policy that insures both usholding company with no direct operations and our officersrely on funds received from the OP to pay liabilities.
We are a holding company and
directors against exposure and liability normally insured against under such policies, including exposure on the indemnities described above.The limit on the number of shares of our common stock a person may own may discourage a takeover or business combination that could otherwise result in a premium price to our stockholders.
Our Articles of Incorporation authorize our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Our Articles of Incorporation restrict the direct or indirect ownership by one person or entity to no more than 9.8% of the value of our then outstanding shares of capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.8% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock unless exempted by our board of directors. This restriction may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease our stockholders’ ability to sell their shares of our common stock.
We may issue preferred stock or separate classes or series of common stock, the issuance of which could adversely affect the holders of our common stock.
Our Articles of Incorporation authorize us to issue up to 100,000,000 shares of stock, and our board of directors, without any action by our stockholders, may amend our Articles of Incorporation from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that we have authority to issue. Holders of shares of our common stock do not have preemptive rights to acquire any shares issued by us in the future.
In addition, our board of directors may classify or reclassify any unissued shares of our common stock or preferred stock and establish the preferences, rights and powers of any such stock. As a result, our board of directors could authorize the issuance of preferred stock or separate classes or series of common stock with terms and conditions that could have priority, with respect to distributions and amounts payable upon our liquidation, over the rights of our common stock. The issuance of shares of such preferred or separate classes or series of common stock could dilute the value of an investment in shares of our common stock. The issuance of shares of preferred stock or a separate class or series of common stock could also have the effect of delaying, discouraging, or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all orconduct substantially all of our assets) that might provide a premium price for holders of our common stock.
The Independent Directors Committee may change our investment policies without stockholder approval, which could alteroperations through the nature ofOP. We do not have, apart from an investmentinterest in us.
The methods of implementing our investment policies and strategy may vary as new real estate development trends emerge, new investment techniques are developed, and market conditions evolve. Our investment policies, the methods for their implementation, and our other objectives, policies, and procedures may be altered by the Independent Directors Committee without the approval of our stockholders.OP, any independent operations. As a result, we rely on distributions from the nature of an investment in us could change without the consentOP to pay any distributions we might declare on shares of our stockholders.
Common Stock. We will also rely on distributions from the OP to meet any of our obligations, including any tax liability on taxable income allocated to us from the OP. In addition, because we are a holding company, your claims as stockholders are structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of the OP and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation, or reorganization, our assets and those of the OP and its subsidiaries will be able to satisfy the claims of our stockholders only after all of our and the OP and its subsidiaries’ liabilities and obligations have been paid in full.
Our UPREIT structure may result in potential conflicts of interest withbetween the interests of our stockholders and members in the Operating Company whose interestsOP, which may not be aligned with thosematerially and adversely impede business decisions that could benefit our stockholders.
Conflicts of
our stockholders.We use an UPREIT structure becauseinterest could arise in the future as a contribution of property directly to us, rather than the Operating Company, is generally a taxable transaction to the contributing property owner. In the UPREIT structure, a contributor of a property may transfer the property to the Operating Company in exchange for membership units and defer taxation of a gain until the contributor later disposes of or exchanges its membership units for shares of our common stock. We believe that using an UPREIT structure gives us an advantage in acquiring desired properties from persons who may not otherwise sell their properties because of unfavorable tax results.
We may issue membership unitsresult of the Operatingrelationships between us and our affiliates, on the one hand, and the OP or any future member thereof, on the other. Our directors and officers have duties to our Company under applicable Maryland law in connection with certain transactions. Members in the Operating Companymanagement of our Company. At the same time, we, as the managing member of the OP, will have fiduciary duties and obligations to the right to vote on certain amendments toOP and its members under New York law and the limited liability company agreement of the Operating Company, as well as on certain other matters. Persons holding such voting rights may exercise themOP in a manner that conflictsconnection with the interestsmanagement of our stockholders. Asthe OP. Our fiduciary duties and obligations, as the managing member of the Operating Company,OP, and its members may come into conflict with the duties of our directors and officers to our Company.
While we
are obligatedintend to
actavoid situations involving conflicts of interest, there may be situations in
a manner that is in the best interest of all members of the Operating Company. Circumstances may arise in the future whenwhich the interests of
members in the
Operating CompanyOP may conflict with
our interests. Our activities specifically authorized by or described in the
interests of our stockholders. These conflictsOP Agreement may be
resolvedperformed by us and will not, in
any case or in the aggregate, be deemed a
manner stockholders dobreach of the OP Agreement or any duty owed by us to the OP or any member. In exercising our authority under the OP Agreement, we may, but are under no obligation to, take into account the tax consequences of any action we take. We and the OP have no liability to anon-managing
member under any circumstances as a result of an income tax liability incurred by suchnon-managing
member as a result of an action (or inaction) by us pursuant to our authority under the OP Agreement. The OP Agreement provides that the managing member will not
believebe liable to the OP, its members, or any other person bound by the OP Agreement for monetary damages for losses sustained, liabilities incurred, or benefits not derived by the OP or any member, except for liability for the member’s gross negligence or willful misconduct. Moreover, the OP Agreement provides that the OP is
required to indemnify the managing member, its affiliates, and certain related persons, and any manager, officer, stockholder, director, member, employee, representative, or agent of the managing member or its affiliates from and against any and all claims that relate to the operations of the OP, except if (i) the act was committed in
their best interest.bad faith, (ii) the act was the result of active and deliberate dishonesty and was material to the cause of action involved, or (iii) it personally gained in fact a financial income or other advantage to which it was not entitled under law.
The value of an investment in our
common stockCommon Stock may be reduced if we,
the OP, or any of our subsidiaries are required to register as an investment company under the Investment Company Act
of 1940, as amended (the “Investment Company Act”) and, if we are subject to registration under the Investment Company Act, we will not be able to continue our business.
Neither we, the
Operating Company,OP, nor any of our subsidiaries intend to register as an investment company under the Investment Company Act. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that would impose significant and onerous limitations on our operations, as well as require us to comply with various reporting, record keeping, voting, proxy disclosure, and other rules and regulations that would significantly alter our operations and significantly increase our operating expenses.
We believe that we, the
Operating Company,OP, and
most of the subsidiaries of the
Operating CompanyOP do not and will not fall within the definition of investment company under Section 3(a)(1) of the Investment Company Act as we intend to invest primarily in real
property. Such investments will be madeproperty through our wholly or majority-owned
subsidiaries, which we expect to have at least 60% of their assets in real property.subsidiaries. Accordingly, we believe that we
and the
Operating CompanyOP are and
its subsidiaries will be primarily engaged in the
non-investment
company business of such subsidiaries and therefore will not fall within the aforementioned definition of investment company.
To ensure that neither we nor any of our subsidiaries, including the Operating Company,OP, are required to register as an investment company, each entity may be unable to sell assets that it would otherwise want to sell and may need to sell assets that it would otherwise wish to retain. In addition, we, the Operating Company,OP, or our subsidiaries may be required to acquire additional income- or loss-generating assets that we might not otherwise acquire or forego opportunities to acquire interests in companies that we would otherwise want to acquire. Although we, the Operating Company,OP, and our subsidiaries intend to monitor our portfolio periodically and prior to each acquisition and disposition, any of these entities may not be able to remain outside the definition of investment company or maintain an exclusion from the definition of investment company. If we, the Operating Company,OP, or our subsidiaries are required to register as an investment company but fail to do so, the unregistered entity would be prohibited from engaging in our business, and criminal and civil actions could be brought against such entity. In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.
U.S. Federal Income Tax Risks
Risks Related To Conflicts of Interest
The officers
Failure to qualify as a REIT would materially and
employees of the Manager and its affiliates face competing demands relating to their time, which may cause our operating results to suffer.The officers and employees of the Manager and the Asset Manager are not prohibited from raising money for, or managing, other investment entities, or from engaging in business activities and investments unrelated to us. As a result, these persons may face conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and fewer resources to our business than is necessary or appropriate. If this occurs, the returns on an investment in our company may suffer.
The Manager and Asset Manager also currently sponsor and provide services to (i) Broadtree Residential, Inc., a private multifamily apartment REIT with approximately $270 million in assets as of December 31, 2018, and (ii) Broadstone Real Estate Access Fund, a continuously offered, non-diversified, closed-end management investment company that is operated as an interval fund with approximately $33 million in assets as of December 31, 2018. As of December 31, 2018, the Manager employed approximately 65 individuals who dedicate time to Broadstone Net Lease, Inc., Broadtree Residential, Inc., and Broadstone Real Estate Access Fund. The Manager and Asset Manager may sponsor and provide services to additional entities in the future.
Our officers and certain of our directors face conflicts of interest related to the positions they hold with affiliated entities, which could hinder our ability to successfully implement our business strategy and to generate returns for our investors.
Our executive officers and affiliated directors are also officers and managers of, and in some cases equity investors in, our Manager and other affiliated entities. Most significantly, Amy L. Tait, our Founder and Chairman of the board of directors, serves as an executive officer of the Manager, is a member of the Manager’s board of managers, and as of December 31, 2018, owns, together with Tait family trusts and an investment entity for the families of Ms. Tait and the late Norman Leenhouts, an approximately 41.51% equity ownership interest in the Manager; and Christopher J. Czarnecki, our Chief Executive Officer, President and member of our board of directors, is an executive officer of the Manager and a member of the Manager’s board of managers. Mr. Czarnecki and our other executive officers also own membership interests in the Manager. All of our executive officers are officers of the Manager and, in certain circumstances, other affiliated entities.
As a result, these individuals owe fiduciary duties to the Manager and other affiliated entities, which may conflict with the duties that they owe toadversely affect us and our stockholders. Their responsibilities to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities. If we do not successfully implement our business strategy, we may be unable to generate cash needed to make distributions to our stockholders and to maintain or increase the value of our assets.
The ManagerCommon Stock.
We elected to be taxed as a REIT under Sections 856 through 860 of the Code and the
Asset Managerapplicable U.S. Treasury regulations, which contain the requirements for qualifying as a REIT, which we refer to in this Form10-K
as the “REIT Requirements,” beginning with our taxable year ended December 31, 2008. We believe that we have been organized and
their respective affiliates, including some of our directorsoperated in a manner to qualify for taxation as a REIT for U.S. federal income tax purposes commencing with such year, and
officers, face conflicts of interest relatingwe intend to
our compensation arrangements with the Manager and the Asset Manager, which could resultcontinue operating in
actionssuch a manner. However, we cannot assure you that
are notwe have qualified as a REIT, or that we will remain qualified as such in the
best interests offuture. If we lose our
stockholders.Pursuant to the Restated Management Contracts, the Asset Manager and the Manager receive substantial fees from us in return for their services. These compensation arrangements could influence the advice and services provided to us by the Asset Manager and the Manager and present potential conflicts of interest for the officers, employees, and equity owners of the Manager and Asset Manager who also serve as our directors and officers.
Pursuant to the Asset Management Agreement, the Asset Manager is entitled to receive substantial compensation regardless of our performance or the quality of the services provided to us. As a result, the Asset Manager’s interests may not be wholly aligned with those of our stockholders. Our Asset Manager could be motivated to raise equity above and beyond our ability to prudently deploy such capital into accretive investments in order to generate higher annual asset management fees. Further, the acquisition fees and disposition fees payable by us to the Asset Manager may incentivize the Asset Manager to recommend or pursue property acquisitions or dispositions that it would otherwise not recommend or pursue, or upon different terms than it would otherwise find acceptable, if it was not entitled to such fees.
Pursuant to the Property Management Agreement, the Manager is entitled to receive a property management fee based on the gross rentals payable by the tenants in our properties regardless of the properties’ quality, our overall financial performance, or the quality of the services provided to us by the Manager. As a result, our Manager’s interests may not be wholly aligned with those of our stockholders. The management fees paid to the Manager could also incentivize the Asset Manager to recommend or pursue property acquisitions that it would otherwise not recommend or pursue, or upon different terms than it would otherwise find acceptable, if the Manager was not entitled to such fees.
For additional information regarding these compensation arrangements, see the caption entitled Certain Relationships and Related Transactions in the Proxy Statement.
The Asset Manager and Manager are entitled toREIT status, we will face significant termination fees in the event that we terminate the Asset Management Agreement or Property Management Agreement.
Pursuant to the Restated Management Contracts, in the event that we terminate the Asset Management Agreement or the Property Management Agreement other than for “cause” (as defined in the Asset Management Agreement and the Property Management Agreement), we are required to pay the Asset Manager or the Manager, as applicable, a significant termination fee. The termination fee payable pursuant to the Asset Management Agreement is equal to three times the asset management fee to which the Asset Manager was entitled during the 12-month period immediately preceding the date of the termination. The termination fee payable pursuant to the Property Management Agreement is equal to three times the property management fee to which the Manager was entitled during the 12-month period immediately preceding the date of the termination. In addition, the Asset Management Agreement provides that the Asset Manager is entitled to receive a disposition event fee equal to 1.0% of the aggregate consideration (as defined in the Asset Management Agreement) received in connection with the sale of our company. The existence of these fees may create conflicts of interest with respect to the termination of the Asset Management Agreement and the Property Management Agreement, or a sale of our company.
Trident BRE holds a significant ownership interest in the Manager, has the power to appoint two members of the board of managers of the Manager, and employs one of the non-independent members of our board of directors. Trident BRE’s interests may not be fully aligned with those of our other stockholders.
As of December 31, 2018, Trident BRE holds an approximate 47.06% equity ownership interest in the Manager, and has the power to appoint two of the four members of the board of managers of the Manager. In addition, Agha Khan, one of the two non-independent members of our board of directors designated by the Asset Manager, is an employee of Stone Point Capital LLC, an affiliate of Trident BRE. The other member of the board of managers of the Manager appointed by Trident BRE and Mr. Khan owe duties to Stone Point Capital LLC and Trident BRE and their affiliates in addition to their duties to the Manager and us, and may face conflicts of interests as a result. Trident BRE may influence the manner in which our Asset Manager (a wholly owned subsidiary of the Manager) seeks to acquire or dispose of properties or otherwise performs its duties under the Asset Management Agreement or cause the Manager or its affiliates to take on new activities unrelated to our business.
Risks Related to Investments in Real Estate
Our operating results are affected by economic and regulatory changes that impact the real estate market in general.
Our investments in real properties are subject to risks generally attributable to the ownership of real property, including:
changes in global, national, regional, or local economic, demographic, or real estate market conditions;
changes in supply of or demand for similar properties in an area;
increased competition for real property investments targeted by our investment strategy;
bankruptcies, financial difficulties, or lease defaults by tenants;
financial, accounting, legal or regulatory issues or litigation that may affect us or our tenants;
changes in interest rates and availability of financing;
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| changes in the terms of available financing, including more conservative loan-to-value requirements and shorter debt maturities;
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competition from other properties;
the inability of tenants to pay rent increases;
changes in laws, government rules, regulations, and fiscal policies, including changes in tax real estate, environmental, and zoning laws;
changes in the prices of fuel and energy consumption, cost of labor and material, and water and environmental restrictions, which may affect the businesses of tenants and their ability to meet their lease payments;
inability to lease properties upon termination of existing leases and renewal of leases at lower rental rates;
uninsured property liability and property damage or casualty losses;
unexpected expenditures for capital improvements, including requirements to bring properties into compliance with applicable federal, state, and local laws;
physical or weather-related damage to properties;
the potential risk of functional obsolescence of properties over time;
acts of terrorism and war; and
acts of God and other factors beyond our control.
All of these factors are beyond our control. Any negative changes in these factors could affect our ability to meet our obligations and make distributions to stockholders.
We are unable to predict future changes in global, national, regional, or local economic, demographic, or real estate market conditions. For example, a recession or rise in interest rates could make it more difficult for us to lease or dispose of properties and could make alternative interest-bearing and other investments more attractive and therefore potentially lower the relative value of the real estate assets we acquire. These conditions, or others we cannot predict, may adversely affect our results of operations and returns to our stockholders. In addition, the value of the properties we acquire may decrease following the date we acquire such properties due to the risks described above or any other unforeseen changes in market conditions. If the value of our properties decreases, we may be forced to dispose of our properties at a price lower than the price we paid to acquire our properties, which could adversely impact the results of our operations and our ability to make distributions and return capital to our investors.
We face competition for the purchase and financing of properties from entities with substantially more capital at their disposal that may cause us to have difficulty finding or maintaining properties that generate favorable returns.
We compete with many other entities engaged in real estate investment activities, including other REITs, specialty finance companies, savings and loan associations, sovereign wealth funds, banks, mortgage bankers, insurance companies, institutional investors, investment banking firms, lenders, governmental bodies, and other entities, many of which have greater resources than we do. Larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Further, the rental rates that we are able to receive on the properties we purchase depend substantially upon the presence of competition from these other property purchasers and, to a certain extent, upon the availability of mortgage financing at similar ratesconsequences that would allow a tenant to own its property. The availability of these alternative purchasers or sources of financing at lower rates has periodically caused competition for attractive properties and caused reduction in market rental rates, both of which could diminish returns to our investors.
A concentration of our investments in a certain state or geographic region may leave our profitability vulnerable to a downturn or slowdown in such state or region.
Our current Investment Policy provides that we may not invest more than 10% of the aggregate cost of our portfolio in properties located in any single metropolitan statistical area or more than 20% of the aggregate cost of our portfolio in properties located in any single state. However, if our Investment Policy was amended or for some other reason our investments became concentrated in a particular state or geographic region, and such state or geographic region experiences economic difficulty disproportionate to the nation as a whole, then the potential effects on our revenues, and as a result,substantially reduce our cash available for distribution to our stockholders could be more pronounced than if we had more fully diversified our investments geographically.
A significant portion of our property portfolio’s annual base rent is concentrated in specific industry classifications.
As of December 31, 2018, approximately 33.0%for each of the NTM Rent fromyears involved because:
we would not be allowed a deduction for distributions to stockholders in computing our property portfolio was generated by retail properties, including 20.9% intaxable income and would be subject to U.S. federal income tax at the restaurant industry. An additional 31.2% of the NTM Rent related to leases associated with industrial properties and 22.5% of our NTM Rent was associated with healthcare properties. In recent years a number of companies in the restaurant industry have declared bankruptcy, gone out of business or significantly reduced the number of their locations. In particular, corporate rate;
we
have experienced, and expect to continue to experience, challenges with some of our restaurant tenants, and have recorded asset impairments, which were immaterial on a consolidated basis, on certain assets as a result of increased credit losses.The ongoing impacts of the disruption in the retail industry, particularly adverse changes in consumer spending and consumer preferences for particular goods, services, or store-based retailing could severely impact retail tenants’ ability to pay rent. Shifts from in-store to online shopping could increase due to changing consumer shopping patterns and the increase in consumer adoption and use of mobile electronic devices. This expansion of e-commerce could have an adverse impact on our retail tenants' ongoing viability.
Any economic difficulties or downturns which disproportionately impact such industries could negatively affect market rents, thereby reducing rents payable to us, and they may lead to increased vacancy rates at our properties and diminish our ability to attract and retain tenants. This in turn could have an adverse effect on our results of operations and ability to pay distributions.
We are dependent on our tenants for substantially all of our revenue and our success is materially dependent on the financial stability of our tenants.
The substantial majority of each of our existing properties are occupied by only one master tenant, and as a result our success is dependent on the financial stability of these tenants in the aggregate. Our tenants encounter significant macroeconomic, governmental, and competitive forces. Adverse changes in consumer spending or consumer preferences for particular goods, services, or store-based retailing could severely impact the ability of certain of our tenants to pay rent. The default or financial distress of a tenant on its lease payments may cause us to lose some of the anticipated revenue from the property. Vacancies in properties reduce our revenues, increase property expenses, and could decrease the value of each such vacant property. In the event of a material default under a lease, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and possibly re-letting the property. If a lease is terminated, we cannot assure our investors that the property could be leased for the same amount of rent previously received or that we could sell the property without incurring a loss.
In addition, our ability to increase our revenues and operating income may depend on steady growth of demand for the products and services offered by our tenants. A significant decrease in demand for our tenants’ products and services for any reason could result in a reduction in tenant performance and consequently, adversely affect us.
If a tenant files for bankruptcy, we may be precluded from collecting all sums due to us.
If a tenant, or the guarantor of a lease of a tenant, commences, or has commenced against it, any legal or equitable proceeding under any bankruptcy, insolvency, receivership, or other debtor’s relief statute or law (collectively, a “bankruptcy proceeding”), we may be unable to collect all sums due to us under that tenant’s lease. Any or all of the lease obligations of our tenants, or any guarantor of our tenants, could be subject to a bankruptcy proceeding which may bar our efforts to collect pre-bankruptcy debts from these entities or their properties, increased state and local income taxes;
unless we are
able to obtain an enabling order from the bankruptcy court. If our lease is rejected by a tenant in bankruptcy, we may only have a general unsecured claim against the tenant and may not be entitled to
any further paymentsrelief under
the lease. A bankruptcy proceeding could hinder or delay our efforts to collect past due balances and ultimately preclude collection of these sums, resulting in a decrease or cessation of rental payments and reducing returns to our investors.If we are delayed or unable to find suitable investments, we may not be able to achieve our investment objectives and our investors’ returns may be reduced.
We may experience difficulty in finding attractive properties resulting in a delay of investmentapplicable statutory provisions of the proceeds from our ongoing offering. The proceeds of our ongoing private offering will generally be used to pay down existing advances under the Operating Company’s line of credit or invested at money market rates until such time as they are used to acquire a real estate property. Any proceeds from our ongoing private offering that are ultimately invested by the Operating Company at money market rates will likely produce less income than if such proceeds were immediately invested in real estate properties. As a result, our investors’ returns may be reduced to the extent we are delayed in our selection and acquisition of real estate properties.
Some properties may be suitable for only one use and may be costly to refurbish if a lease is terminated.
The properties we purchase may be designed for a particular type of tenant or tenant use. If a tenant of such property does not renew its occupancy or defaults on its lease, the property might not be marketable without substantial capital improvements. The cost of such improvements may reduce the amount of cash available for distributions to our investors. An attempt to lease or sell the property without such improvements could also result in a lower rent or selling price and may also reduce the amount of cash available for distributions to our investors.
Our real estate investments are illiquid.
Because real estate investments are relatively illiquid, our ability to adjust our portfolio promptly in response to economic or other conditions may be limited. Certain significant expenditures generally do not change in response to economic or other conditions, including: (i) debt service, (ii) real estate taxes, and (iii) operating and maintenance costs. This combination of variable revenue and relatively fixed expenditures may result, under certain market conditions, in reduced earnings and could have an adverse effect on our financial condition.
We can reinvest proceeds from sales of our properties in replacement properties without our investors’ approval.
We may, from time to time, sell a property and reinvest the proceeds in a replacement property rather than make a distribution to our investors. Our investors will not have a right to the cash received by the Operating Company from the sale of a property and must rely upon the ability of the Asset Manager to find replacement properties in which to reinvest the proceeds.
Long-term leases may not result in fair market lease rates over time; therefore, our income and our distributions to our stockholders could be lower than if we did not enter into long-term leases.
We generally lease our properties pursuant to long-term leases with terms of 10 or more years, often with extension options. Our long-term leases generally provide for rents to increase over time, due to fixed rent increases or increases based upon increases in the Consumer Price Index or financial metrics related to the tenant. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases the rent under our long-term leases is less than then-prevailing market rental rates. Further, we may have a limited ability to terminate those leases or to adjust the rent to then-prevailing market rental rates.
Certain provisions of our leases or loan agreements may be unenforceable.
Our rights and obligations with respect to the leases at our properties, mortgage loans, or other loans are governed by written agreements. A court could determine that one or more provisions of such agreements are unenforceable, such as a particular remedy, a master lease covenant, a loan prepayment provision, or a provision governing our security interest in the underlying collateral of a borrower or lessee. We could be adversely impacted if this were to happen with respect to an asset or group of assets.
Our costs of compliance with laws and regulations may reduce the investment return of our stockholders.
All real property and the operations conducted on real property are subject to numerous federal, state and local laws and regulations. We cannot predict what laws or regulations will be enacted in the future, how future laws or regulations will be administered or interpreted, or how future laws or regulations will affect us or our properties, including, but not limited to, environmental laws and regulations and the Americans with Disabilities Act of 1990. Compliance with new laws or regulations, or stricter interpretation of existing laws, may require us or our tenants to incur significant expenditures, impose significant liability, restrict or prohibit business activities, and could cause a material adverse effect on our results of operations.
Further, as a reporting company under the Exchange Act, we are required to comply with various reporting requirements, as well as additional laws, rules and regulations, including the Dodd-Frank Act and the Sarbanes-Oxley Act of 2002. Our efforts to comply with applicable laws and regulations involve significant, and potentially increasing, costs. In addition, these laws, rules, and regulations create legal bases for administrative, civil, and criminal proceedings against us in case of non-compliance, thereby increasing our risk of liability and potential sanctions.
We may be subject to known or unknown environmental liabilities and hazardous materials on our properties.
There may be known or unknown environmental liabilities associated with properties we own or acquire in the future. Certain uses of some properties may have a heightened risk of environmental liability because of the hazardous materials used in performing services on those properties, such as convenience stores with underground petroleum storage tanks or auto parts and auto service businesses using petroleum products, paint, machine solvents, and other hazardous materials. Some properties may contain asbestos or asbestos-containing materials, or may contain or may develop mold or other bio-contaminants. Asbestos-containing materials must be handled, managed, and removed in accordance with applicable governmental laws, rules, and regulations. Mold and other bio-contaminants can produce airborne toxins, may cause a variety of health issues in individuals and must be remediated in accordance with applicable governmental laws, rules, and regulations.
The Asset Manager undertakes customary environmental diligence prior to our acquisition of any property. As a current or previous owner of a real estate property, however, we may be required to remove or remediate hazardous or toxic substances on, under, or in such property under various federal, state, and local environmental laws, ordinances, and regulations. These laws may impose liability whether or not the Operating Company knew of, or was responsible for, the presence of such hazardous or toxic substances. Our use and operation of a property may also be restricted by environmental laws or require certain expenditures. Failure to comply with environmental laws may result in sanctions by governmental agencies or liability to third parties. The cost of compliance or defense against claims from a contaminated property will likely affect our results of operations and ability to make distributions.
Although our leases generally require our tenants to operate in compliance with all applicable federal, state, and local environmental laws, ordinances, and regulations, and to indemnify us against any environmental liabilities arising from the tenants’ activities on the property,Code, we could nevertheless be subject to liability, including strict liability, by virtue of our ownership interest. There also can be no assurance that our tenants, or the guarantor of a lease, could or would satisfy their indemnification obligations under their leases.
Natural disasters and other events beyond our control could impact our properties and operations and the insurance purchased for our properties might not be adequate to cover losses we incur.
Natural disasters or other catastrophic events (e.g., hurricanes, floods, earthquakes, or other types of natural disasters or wars or other acts of violence) may cause damage or disruption to our operations and damage to our properties. We own properties in regions that have historically been impacted by such natural disasters and it is probable such regions will continueelect to be impacted by such events. Although the Manager arranges for, or will require tenants to maintain, comprehensive insurance coverage on our properties, some catastrophic types of losses from such events may be either uninsurable or not economically insurable. If a disaster occurs, we could suffer a complete loss of capital invested in, and any profits expected from, the affected properties. If uninsured damages to a property occur or a loss exceeds policy limits and we do not have adequate cash to fund repairs, we may be forced to sell the property at a loss or to borrow capital to fund the repairs.
Risks Related to Debt Financing
Our business strategy relies on external financing and, as a result, we may be negatively affected by restrictions on additional borrowings and are subject to the risks associated with leverage, including our debt service obligations.
We use leverage so that we may make more investments than would otherwise be possible in order to maximize potential returns to stockholders. We have sought to reduce our overall leverage over the past few years, particularly in light of the Operating Company’s receiving an investment grade credit rating, but we still maintain a significant amount of debt, and may increase our debt going forward. Our ability to achieve our investment objectives will be affected by our ability to borrow money in sufficient amounts and on favorable terms. In addition, we may be unable to obtain the degree of leverage we believe to be optimal, which may cause us to have less cash for distribution to stockholders than we would have with an optimal amount of leverage.
We have incurred, and intend to incur in the future, unsecured borrowings and mortgage indebtedness, which may increase our business risks, could hinder our ability to make distributions, and could decrease the value of an investment in our shares.
We have incurred, and plan to incur in the future, financing through unsecured borrowings under term loans, senior notes, our revolving line of credit, and mortgage loans secured by some or all of our real properties. In some cases, the mortgage loans we incur are guaranteed by us, the Operating Company, or both. We may also borrow funds if necessary to satisfy the requirement that we distribute to stockholders as dividends at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable to assure that we maintain our qualificationtaxed as a REIT for federal income tax purposes. Our current Leverage Policy targetsfour taxable years following the year during which qualification was lost; and
for the five years followingre-election
of REIT status, upon a
leverage ratio equal to 35% to 45%taxable disposition of
the approximate market valuean asset owned as of
our assets. The actual leverage ratio will vary over time but may not exceed 50% without the approval of the Independent Directors Committee. Depending on market conditions and other factors, the Independent Directors Committee may change our Leverage Policy from time to time in its discretion.We may incur mortgage debt on a particular property, especially if such
re-election,
we
believe the property’s projected cash flow is sufficient to service the mortgage debt. If there is a shortfall in cash flow, however, then the amount available for distributions to our stockholders may be affected. In addition, incurring mortgage debt may increase the risk of loss since defaults on indebtedness secured by a property may result in foreclosure actions initiated by lenders and our loss of the property securing the loan that is in default. For tax purposes, a foreclosure of any of our properties would be
treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure but would not receive any of the proceeds. We may give full or partial guarantees to lenders to the Operating Company or its affiliates. If we give a guaranty on behalf of the Operating Company, we will be responsible to the lender for satisfaction of the debt if it is not paid by the Operating Company. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one of our real properties may be affected by a default. If any of our properties are foreclosed upon due to a default, our results of operations and ability to pay distributions to our stockholders may be adversely affected.
Our line of credit and term loan agreements contain various covenants which, if not complied with, could accelerate our repayment obligations, thereby materially and adversely affecting our liquidity, financial condition, results of operations, and ability to pay distributions to stockholders.
We are subject to various financialcorporate level tax with respect to any
built-in
gain inherent in such asset at the time ofre-election.
Any such corporate tax liability could be substantial and
operational covenants and financial reporting requirements pursuant to the agreements we have entered into governingwould reduce our
line of credit, term loans, and senior notes. These covenants require us to,cash available for, among other things,
maintain certain financial ratios, including leverage, fixed charge coverage, and debt service coverage, among others. As of December 31, 2018, we were in compliance with all of our
loan covenants. Our continued compliance with these covenants depends on many factors and could be impacted by current or future economic conditions, and thus there are no assurances that we will continue to comply with these covenants. Failure to comply with these covenants would result in a default which, if we were unable to obtain a waiver from the lenders, could accelerate our repayment obligations and thereby have a material adverse impact on our liquidity, financial condition, results of operations and
ability to pay distributions to stockholders.
Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to our stockholders.
We have a significant amount of debt. Although we believe we have effectively hedged the risk of interest rate increases through swaps and the issuance of fixed-rate debt, we will need to refinance our debt in the future. Accordingly, increases in interest rates would increase our interest costs, which could have a material adverse effect on our operating cash flow and ability to pay distributions. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to sell one or more of our properties at times which may not permit realization of the maximum or anticipated return on such investments.
An inability to refinance existing mortgage debt as it matures could impact distributions to our stockholders.
Since the mortgage loans secured by certain of our properties amortize over a period longer than their maturity, we will owe substantial amounts of principal on the maturity of such loans. If we cannot refinance these loans on favorable terms, more of our cash from operations may be required to service the loans, properties may have to be sold to fund principal repayments, or properties may be lost to foreclosure. This could adversely affect our results of operations and reduce cash available for distributions.
Failure to maintain our current credit rating could adversely affect our cost of capital, liquidity, and access to capital markets.
The spread we pay over LIBOR for our unsecured credit facilities is determined based upon our credit rating. In March of 2016, Moody’s assigned the Operating Company an investment grade credit rating of Baa3 with a stable outlook, which was re-affirmed most recently in June of 2018. The rating is based on a number of factors, including an assessment of our financial strength, portfolio size and diversification, credit and operating metrics, and sustainability of cash flow and earnings. If we are unable to maintain our current credit rating it could adversely affect our cost of capital, liquidity, and access to capital markets. Factors that could negatively impact our credit rating include, but are not limited to: a significant increase in our leverage on a sustained basis; a significant increase in the proportion of secured debt levels; a significant decline in our unencumbered asset base; and a significant decline in our portfolio diversification.
We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined.
As of December 31, 2018, we had approximately $886 million of debt outstanding for which the interest rate was tied to London Interbank Offered Rate (“LIBOR”). On July 27, 2017, the Financial Conduct Authority (the “FCA”) announced its intention to cease sustaining LIBOR after 2021. It is not possible to predict the effect of the FCA’s announcement, and there is currently no definitive information regarding the future utilization of LIBOR, including any changes in the methods by which LIBOR is determined, the frequency in which LIBOR is determined and published, or any other reforms to the determination and publication of LIBOR, or a potential transition from LIBOR to a successor benchmark. As such, the potential effect of any such event on our cost of capital cannot yet be determined and any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations and cash flows.
Federal Income Tax Risks
Failure to qualify as a REIT would reduce our net income and the investment return of our stockholders would be adversely affected.
If we fail to qualify as a REIT, for any taxable year, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. A loss of our REIT status would reduce distributions to our stockholders due to our additional tax liability. In addition, distributions to our stockholders would no longer qualify for the dividends-paid deduction, and we would no longernot be required to make distributions.distributions to our stockholders. If this occurs, we may need to borrow funds or liquidate some of our properties in order to pay theany applicable taxes.
Legislative, regulatory, or administrative changes As a result of all these factors, our failure to qualify as a REIT also could impair our ability to execute our growth strategy and raise capital, and could materially and adversely affect us or our stockholders.
Legislative, regulatory, or administrative changes could be enacted or promulgated at any time, either prospectively or with retroactive effect, and may adversely affect us or our stockholders.
On December 22, 2017, the tax legislation commonly referred to as the Tax Cuts and Jobs Act was signed into law, generally applying in taxable years beginning after December 31, 2017. While the changes in the Tax Cuts and Jobs Act generally appear to be favorable with respect to REITs, the extensive changes to non-REIT provisions in the Code may have unanticipated effects on us, our stockholders, or our tenants. Moreover, Congressional leaders have recognized that the process of adopting extensive tax legislation in a short amount of time without hearings and substantial time for review is likely to have led to drafting errors, issues needing clarification, and unintended consequences that will have to be revisited in subsequent tax legislation. At this point, it is not clear if or when Congress will address these issues or when the IRS will issue administrative guidance on the changes made in the Tax Cuts and Jobs Act.
Our stockholders and prospective investors are urged to consult with their own tax advisors with respect to the Tax Cuts and Jobs Act and the status of other legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in sharestrading price of our common stock.
RecharacterizationCommon Stock.
Qualification as a REIT involves the application of
sale-leaseback transactionstechnical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may
cause usaffect our ability to
lose ourqualify as a REIT. In order to qualify as a REIT,
status, which would reducewe must satisfy a number of requirements, including requirements regarding the
investment returnownership of our
stockholders.We may purchase propertiesstock, requirements regarding the composition of our assets and lease them backa requirement that at least 95% of our gross income in any year must be derived from qualifying sources, such as “rents from real property.” Also, we must make distributions to the sellers of such properties. If the IRS were to challenge our characterization of such transaction as a “true-lease” and recharacterize the transaction as a financing transaction or loan for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction is recharacterized, we may fail to satisfy the REIT qualification asset tests or income tests and, consequently, lose our REIT status. Alternatively, the amountstockholders aggregating annually at least 90% of our REIT taxable income, could be recalculated, which might also cause us to fail to meet the distribution requirements for a taxable year.
Our stockholders may have current tax liability on distributions based on an election to reinvest in our common stock.
A stockholder who participates in our DRIP will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stockcomputed without regard to the extent the amount reinvested was not a tax-free return of capital. As a result, unless a stockholder is a tax-exempt entity, the investordividends paid deduction and our net capital gains. In addition, legislation, new regulations, administrative interpretations, or court decisions may havematerially and adversely affect our investors, our ability to use funds from other sources to pay the investor’s tax liability on the value of the shares of common stock received.
Even if we qualify as a REIT for U.S. federal income tax purposes, or the desirability of an investment in a REIT relative to other investments.
Even if we remain qualified as a REIT for U.S. federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to our stockholders.
Even if we remain qualified as a REIT for U.S. federal income tax purposes, we may still be subject to some U.S. federal, state, and local income, property, and excise taxes on our income or property. For example:
In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income to our stockholders (which is determined(computed without regard to the dividends-paiddividends paid deduction and excludesour net capital gain), and to the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income (computed without regard to the dividends paid deduction and including our net capital gain), we will be subject to U.S. federal corporate income tax on the undistributed income.income, as well as applicable state and local income taxes.
If we should fail to distribute, or fail to be treated as having distributed, with respect to each calendar year at least the sum of (i) 85% of our REIT ordinary income for such year, (ii) 95% of our REIT capital gain net income for such year, and (iii) any undistributed taxable income from prior periods, we would be subject to a 4% nondeductible excise tax on the excess of such required distribution over the sum of (a) the amounts actually distributed and (b) the amounts we retained and upon which we paid U.S. federal income tax at the corporate level.
If we have (i) net income from the sale or other disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business or(ii) other non-qualifying net
income from foreclosure property, we will be subject to tax at the U.S. federal corporate income tax rate on such income. To the extent that income from “foreclosure property” is otherwise qualifying income for purposes of the 75% gross income test, this tax is not applicable. If we have net income from prohibited transactions (which are, in general, certain sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than sales of foreclosure property and sales that qualify for certain statutory safe harbors), such income will be subject to a 100% tax.
We
may be subject to tax on gain recognized in a taxable disposition of assets acquired from anon-REIT
C corporation by way of a carryover basis transaction, when such gain is recognized on a disposition of an asset duringa 5-year period
beginning on the date on which we acquired the asset. To the extent ofany “built-in gain,”
such gain will be subject to U.S. federal income tax at the federal
| corporate income taxrate. Built-in gain means the excess of (i) the fair market value of the asset as of the beginning of the applicable recognition period over (ii) our adjusted basis in such asset as of the beginning of such recognition period. |
If we should fail to satisfy the 75% gross income test or the 95% gross income test (which are discussed below), but have nonetheless maintained our qualification as a REIT because certain other requirements have been met, we will be subject to a 100% tax on the greater of the gross income amount by which we fail the 75% or the 95% test multiplied in either case by a fraction generally intended to reflect our profitability without regard to our long-term capital gain.
Similarly, if we should fail to satisfy the asset tests or other requirements applicable to REITs, as described below, yet nonetheless qualify as a REIT because there is reasonable cause for the failure and other applicable requirements are met, we may be subject to a penalty. The amount of the penalty will be at least $50,000 per failure, and, in the case of certain asset test failures, will be equal to the amount of net income generated by the assets in question multiplied by the highest corporate tax rate if that amount exceeds $50,000 per failure.
We may performadditional, non-customary services
for tenants of our buildings through a taxable REIT subsidiary (“TRS”), including real estateor non-real estate
related services; however, any earnings related to such services are subject to federal and state income taxes. We will be subject to a 100% tax on transactions with our TRSs if such transactions are not at arm’s length.
If the OP fails to qualify as a partnership for U.S. federal income tax purposes, we would cease to qualify as a REIT and suffer other adverse consequences.
We believe that the OP will be treated as a partnership for U.S. federal income tax purposes. As a partnership, the OP would generally not be subject to U.S. federal income tax on its income. Instead, for U.S. federal income tax purposes, if the OP is treated as a partnership, each of its partners, including us, would be allocated, and may be required to pay tax with respect to, such partner’s share of its income. The OP may be required to determine and pay an imputed underpayment of tax (plus interest and penalties) resulting from an adjustment of the OP’s items of income, gain, loss, deduction, or credit at the partnership level. We cannot assure you that the IRS will not challenge the status of the OP or any other subsidiary in which we own an interest as a disregarded entity or partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating the OP or any such other subsidiary as an entity taxable as a corporation for U.S. federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT. Also, the failure of the OP or any subsidiary to qualify as a disregarded entity or partnership could cause it to become subject to U.S. federal and state corporate income tax, which would significantly reduce the amount of cash available for debt service and for distribution to its partners, including us.
To satisfy the REIT distribution requirements, we may be forced to take certain actions to raise funds if we have insufficient cash flow which could materially and adversely affect us and the trading price of our Common Stock.
To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our REIT taxable income each year, computed without regard to the dividends paid deduction and our net capital gains, and we will be subject to corporate income tax on our undistributed taxable income to the extent that we distribute less than 100% of our REIT taxable income each year, computed without regard to the dividends paid deduction. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we paypaid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
If we have net income from the sale of foreclosure property that we hold or acquire primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.
If we sell a property, other than foreclosure property, that we hold or acquire primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% “prohibited transaction” tax.
We may perform additional, non-customary services for tenants of our buildings through a taxable REIT subsidiary, including real estate or non-real estate related services; however, any earnings that exceed allowable limits related to such services are subject to federal and state income taxes.
To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions to make distributions to our stockholders, which could increase our operating costs, hinder our ability to meet our investment objectives, and decrease the value of our stockholders’ investment.
To qualify as a REIT, we must distribute to our stockholders each year 90% of our REIT taxable income (which is determined without regard to the dividends-paid deduction and excludes net capital gain). At times, we may not have sufficient funds In order to satisfy these distribution requirements and may need to borrow funds to maintain our REIT status and avoid the payment of income and excise taxes. Thesetaxes, we may need to
take certain actions to raise funds if we have insufficient cash flow, such as borrowing
needsfunds, raising additional equity capital, selling a portion of our assets or finding another alternative to make distributions to our stockholders. We may be forced to take those actions even if the then-prevailing market conditions are not favorable for those actions. This situation could
resultarise from,
(i)among other things, differences in timing between the actual receipt of cash and
inclusionrecognition of income for
U.S. federal income tax
purposes; (ii)purposes, or the effect of
non-deductible
capital
expenditures; (iii)expenditures or othernon-deductible
expenses, the creation of
reserves;reserves, or
(iv) required debt or amortization payments.
We may need to borrow funds at times when market conditions are unfavorable. Such
borrowingsactions could increase our costs and reduce the value of our
common stock. Common Stock. These sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential, our current debt levels, the market price of our Common Stock, and our current and potential future earnings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and could materially and adversely affect us and the trading price of our Common Stock. Further, to qualify as a REIT, we must also satisfy tests on an ongoing basis concerning, among other things, the sources of our income, nature of our assets, and the amounts we distribute to our stockholders. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT
requirementsRequirements may hinder our ability to operate solely on the basis of maximizing profits.
The IRS may treat sale-leaseback transactions as loans, which could jeopardize our REIT status or require us to make an unexpected distribution.
We may purchase properties and lease them back to the sellers of such properties. The IRS may take the position that certain of these sale-leaseback transactions that we treat as leases are not “true leases” but are, instead, financing arrangements or loans for U.S. federal income tax purposes.
If a sale-leaseback transaction were sore-characterized,
we might fail to satisfy the REIT asset tests, the income tests, or distribution requirements and consequently lose our REIT status effective with the year ofre-characterization
unless we elect to make an additional distribution to maintain our REIT status. The primary risk relates to the disallowance of deductions for depreciation and cost recovery relating to such property, which could affect the calculation of our REIT taxable income and could cause us to fail the REIT distribution requirement that requires a REIT to distribute at least 90% of its REIT taxable income, computed without regard to the dividends paid deduction and any net capital gain. In this circumstance, we may elect to distribute an additional dividend of the increased taxable income so as not to fail the REIT distribution test. This distribution would be paid to all stockholders at the time of declaration rather than the stockholders that held our shares in the taxable year affected by there-characterization.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum U.S. federal income tax rate applicable to income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts, and estates is 20%. Ordinary dividends payable by REITs, however, generally are not eligible for the 20% rate applicable to “qualified dividends” except to the extent the REIT dividends are attributable to “qualified dividends” received by the REIT itself or generally attributable to income upon which we (or a predecessor) have paid U.S. federal corporate income tax. However, fornon-corporate
U.S. stockholders, ordinary dividends payable by REITs that are not designated as capital gain dividends or treated as “qualified dividends” generally are eligible for a deduction of 20% of the amount of such ordinary REIT dividends, for taxable years beginning before January 1, 2026. More favorable rates will nevertheless continue to apply for regular corporate “qualified dividends.” Although these rules do not adversely affect the taxation of REITs or dividends payable by REITs, to the extent that the 20% rate continues to apply to regular corporate qualified dividends, investors who are individuals, trusts and estates may regard investments in REITs to be relatively less attractive than investments in the stocks ofnon-REIT
corporations.
The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for U.S. federal income tax purposes.
A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.
Complying with the REIT Requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Any income from a hedging transaction that we enter into to manage the risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets, or from certain terminations of such hedging positions, does not constitute “gross income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. To the extent that we enter into other types of hedging transactions or fail to properly identify such transaction as a hedge, the income is likely to be treated asnon-qualifying
income for purposes of the 75% and 95% gross income tests. As a result of these rules, we may be required to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because any TRS in which we own an interest may be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in any TRS in which we own an interest will generally not provide any tax benefit, except that such losses in some cases may be carried back against past taxable income in the TRS and may be carried forward against future taxable income in the TRS (subject to certain limitations). Complying with the REIT Requirements may force us to liquidate or forgo otherwise attractive investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our income, and the amounts we distribute to our stockholders. In connection with the Internalization, we were treated as having acquired substantial amounts of goodwill that may not qualify for the 75% asset test. Compliance with these limitations, particularly given the goodwill that we acquired in the Internalization, may hinder our ability to make, and, in certain cases, maintain ownership of certain attractive investments that might not qualify for the 75% asset test. If we fail to comply with the REIT asset test requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. These actions could have the effect of reducing our income, increasing our income tax liability, and reducing amounts available for distribution to our stockholders. In addition, we may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, and may be unable to pursue investments (or, in some cases, forego the sale of such investments) that would be otherwise advantageous to us in order to satisfy the REIT Requirements. Accordingly, satisfying the REIT Requirements could materially and adversely affect us. Moreover, if we are compelled to liquidate our investments to meet any of these asset, income, or distribution tests, or to repay obligations to our lenders, we may be unable to comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting gain if such sales constitute prohibited transactions.
In certain circumstances, we may be liable for certain tax obligations of certain of the members of the
Operating Company.OP.
In certain circumstances, we may be liable for tax obligations of certain of the members of the Operating Company.OP. In connection with certain UPREIT transactions, we have entered or will enter into tax protection agreements under
which we have agreed to minimize the tax consequences toindemnify members of the Operating Company resulting from the saleOP against adverse tax consequences if we were to sell, convey, transfer, or other dispositionotherwise dispose of our assets in taxable transactions, with specific exceptions and limitations. Pursuant to the tax protection agreements, we have also agreed to ensure that such members of the Operating CompanyOP are allocated minimum amounts of the Operating Company’sOP’s indebtedness. If we fail to meet our obligations under the tax protection agreements, we may be required to reimburse those members of the Operating CompanyOP for the amount of the tax liabilities they incur, subject to certain limitations. We may enter into additional tax protection agreements in the future in connection with other UPREIT transactions. Although it may be in our stockholders’ best interest that we sell a property, it may be economically disadvantageous for us to do so because of these obligations. In order to limit our exposure to a tax obligation, our use of proceeds from any sales or dispositions of certain properties will be limited. With respect to the existing tax protection agreements with property contributors (excluding the Internalization), as of December 31, 2021, our potential indemnification obligation for the taxable sale of those properties is approximately $12.3 million.
In
addition,connection with the
indemnification obligations may be significant.
New partnership audit rules could increaseInternalization, we entered into the Founding Owners’ Tax Protection Agreement, pursuant to which we have agreed to indemnify the Founding Owners against the applicable income tax liability borne by usliabilities resulting from: (1) the sale, exchange, transfer, conveyance, or other disposition of the assets of BRE that we acquired in the eventInternalization (the “Contributed Property”) in a taxable transaction prior to February 7, 2030; and (2) our failure to offer the Founding Owners the opportunity to guarantee specific types of the OP’s indebtedness in order to enable them to continue to defer the applicable income tax liabilities associated with the allocation of that indebtedness. Our maximum liability under the Founding Owners’ Tax Protection Agreement is capped at $10 million.
The Blocker Corp Mergers may have adverse tax consequences.
As a
general matter, notwithstanding that we qualify to be taxed as a REIT for U.S. federal income tax
auditpurposes, if we acquire appreciated assets from anon-REIT
C corporation in a transaction in which the adjusted tax basis of the assets in its hands is determined by reference to the adjusted tax basis of the assets in the hands of the C corporation, we will be subject to entity-level tax on any gain recognized in connection with a disposition (such as a taxable sale) of any such assets during the5-year
period following such acquisition. In addition, in order to qualify as a REIT, we must not have, at the end of any taxable year, any earnings and profits accumulated in anon-REIT
year. Because each of Trident BRE Holdings I, Inc. and Trident BRE Holdings II, Inc. (the “Blocker Corps”) were taxable as anon-REIT
C corporation and we acquired their appreciated assets in connection with the Internalization in transactions (the “Blocker Corp Mergers”) in which the adjusted tax basis of the assets in our hands was determined by reference to the adjusted tax basis of the assets in the hands of each of the Blocker Corps prior to the Blocker Corp Mergers, we will be subject to corporate income tax on the“built-in
gain” with respect to the Blocker Corps’ assets at the time of the Blocker Corp Mergers if we dispose of those assets in a taxable transaction within five years following the Blocker Corp Mergers. Thisbuilt-in
gain is measured by the difference between the value of the Blocker Corps’ assets at the time of the Blocker Corp Mergers and the adjusted basis in those assets. We estimate thisbuilt-in
gain to be approximately $56.4 million. The assets of the Blocker Corps we acquired in the Blocker Corp Mergers are the Blocker Corps’ interests in BRE. When BRE merged into the OP in atax-deferred
transaction and the Blocker Corps received OP Units, thebuilt-in
gain associated with the Blocker Corps’ assets became represented as part of an intangible asset on our balance sheet. The disposition of that intangible asset in a taxable transaction within five years following the Blocker Corp Mergers could trigger a corporate income tax on thatbuilt-in
gain. The most likely transaction in which that intangible asset is disposed of would be a sale of the OP (or our interest in the OP) in a taxable transaction. Thus, if the OP (or our interest in the OP) is sold in a taxable transaction within five years following the Blocker Corp Mergers, we could incur a corporate income tax on approximately $56.4 million ofbuilt-in
gain. Because the Blocker Corps were each taxable as a regular C corporation, we assumed any earnings and profits accumulated by the Blocker Corps for taxable periods prior to and including the Blocker Corp Mergers,
referred to as “C corporation earnings and profits.” To qualify as a REIT, we cannot have any C corporation earnings and profits at the end of any taxable year. We estimated the C corporation earnings and profits of the Blocker Corps to be approximately $2.3 million in total at the time of the Blocker Corp Mergers and we used a nationally recognized accounting firm to prepare a study to assist management in confirming that calculation. During 2020, we made sufficient distributions in excess of our earnings and profits (including the C corporation earnings and profits from the Blocker Corps) so we would not have to pay a special dividend to eliminate such C corporation earnings and profits. In effect, the inclusion of the C corporation earnings and profits from the Blocker Corps increased the portion of our distributions during 2020 that were taxable as dividends. However, if we were determined to succeed to more C corporation earnings and profits as a result of the Blocker Corp Mergers, we may have to pay a special dividend and/or employ applicable deficiency dividend procedures to eliminate such earnings and profits. If we need to make a special dividend or pay a deficiency dividend and do not otherwise have cash on hand to do so, we may need to (i) sell assets at unfavorable prices, (ii) borrow on unfavorable terms, (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures, or repayment of debt, or (iv) make a taxable distribution of Common Stock as part of a
subsidiary partnership.New partnership audit rules applydistribution in which stockholders may elect to partnership taxable years beginning after December 31, 2017, and may alter who bears the liability in the event any subsidiary partnership including our Operating Company is audited and an adjustment is assessed. Under the new rules, the partnership itself may be liable forreceive Common Stock or cash (subject to a hypothetical increase in partner-level taxes (including interest and penalties) resulting from an adjustment of partnership tax items on audit, regardless of changes in the compositionlimit measured as a percentage of the partners (or their relative ownershiptotal distribution), in order to comply with REIT Requirements. These alternatives could increase our costs or reduce our equity. In addition, if we were to rely upon the remedial deficiency dividend procedures, we would be required to pay interest based on the amount of any such deficiency dividends.
In addition to the foregoing, as a result of the partnership) between the year under audit and the yearBlocker Corp Mergers, we inherited any liability with respect to unpaid taxes of each of the adjustment. Under certain procedures,Blocker Corps for any periods prior to the partnership-level tax liability may take into account the fact that we generally do not pay federal income tax. The new rules also include an elective alternative method under which the additional taxes resulting from the adjustment are assessed from the affected partners, subjectBlocker Corp Mergers.
Changes to a higher rate of interest than otherwise would apply. It is not clear at this time what effect these new rules will have on us. However, these rules could increase the U.S. federal income taxes, interest,tax laws, including the recent enactment of certain tax reform measures, could have a material and penalties otherwise borne by us in the event of aadverse effect on us.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury, which may result in revisions to regulations and interpretations and changes to the application of existing tax auditrules by U.S. federal, state, local, and foreign governments, in addition to statutory changes, including those contemplated by the new presidential administration in the United States. No assurance can be given as to whether, or in what form, any proposals affecting REITs or their stockholders will be enacted.
There may also be future changes in U.S. federal tax laws, regulations, rules, and judicial and administrative interpretations applicable to us and our business, the effect of which cannot be predicted. Our stockholders and prospective investors are urged to consult with their own tax advisors with respect to the status of legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in shares of our Common Stock.
Risks Related to Ownership of Our Common Stock
The market price and trading volume of shares of our Common Stock may be volatile.
The market price of shares of our Common Stock may fluctuate. In addition, the trading volume in shares of our Common Stock, may fluctuate and cause significant price variations to occur. Historically, these changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our Common Stock could fluctuate based upon factors that have little or nothing to do with us in particular. If the market price of shares of our Common Stock declines significantly, you may be unable to resell your shares of our Common Stock at or above the public offering price. We cannot assure you that the market price of shares of our Common Stock will not fluctuate or decline significantly, including a decline below the public offering price, in the future.
Some of the factors that could negatively affect our share price or result in fluctuations in the market price or trading volume of shares of our Common Stock include:
actual or anticipated declines in our quarterly operating results or distributions;
changes in government regulations;
changes in laws affecting REITs and related tax matters;
the announcement of new contracts by us or our competitors;
reductions in our FFO, AFFO, or earnings estimates;
publication of research reports about us or the real estate industry;
increases in market interest rates that lead purchasers of shares of our Common Stock to demand a higher yield;
future equity issuances, or the perception that they may occur, including issuances of Common Stock upon exercise or vesting of equity awards or redemption of OP Units;
changes in market valuations of similar companies;
adverse market reaction to any increased indebtedness we incur in the future;
additions or departures of key management personnel;
actions by institutional stockholders;
differences between our actual financial and operating results and those expected by investors and analysts;
changes in analysts’ recommendations or projections;
speculation in the press or investment community; and
the realization of any of the other risk factors presented herein.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on our cash flows, our ability to execute our business strategy, and our ability to make distributions to our stockholder.
We may not be able to make distributions to our stockholders at the times or in the amounts we expect, or at all.
We intend to make cash distributions to our stockholders in amounts such that all or substantially all of our taxable income in each year, subject to adjustments, is distributed. However, we may not be able to continue to generate sufficient cash flow from our properties to permit us to make the distributions we expect. Our ability to continue to make distributions in the future may be adversely affected by the risk factors described in this Annual Report on Form10-K.
We can provide no assurance that we will be able to make or maintain distributions and certain agreements relating to our indebtedness may, under certain circumstances, limit or eliminate our ability to make distributions to our common stockholders. For instance, our Revolving Credit Facility contains provisions that restrict us from paying distributions if an event of default exists, other than distributions required to maintain our REIT status. We can give no assurance that rents from our properties will increase, or that future acquisitions of real properties or other investments will increase our cash available for distributions to stockholders. In addition, any distributions will be authorized at the sole discretion of our board of directors, and their form, timing, and amount, if any, will depend upon a number of factors, including our actual and projected results of operations, FFO, AFFO, liquidity, cash flows and financial condition, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, applicable law, and such other factors as our board of directors deems relevant. Distributions are expected to be based upon our FFO, AFFO, financial condition, cash flows and liquidity, debt service requirements, and capital expenditure requirements for our properties. If we do not have sufficient
cash available for distributions, we may need to fund the shortage out of working capital or borrow to provide funds for such distributions, which would reduce the amount of proceeds available for real estate investments and increase our future interest costs. Our inability to make distributions, or to make distributions at expected levels, could result in a decrease in trading price of our Common Stock.
We may change the dividend policy for our Common Stock in the future.
The decision to declare and pay dividends on our Common Stock, as well as the form, timing, and amount of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, cash flows, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness, the annual distribution requirements under the REIT provisions of the Code, state law, and such other factors as our board of directors considers relevant. Any change in our dividend policy could have a material adverse effect on the market price of our Common Stock.
Increases in market interest rates may result in a decrease in the value of shares of our Common Stock.
One of the factors that will influence the price of shares of our Common Stock will be the distribution yield on shares of our Common Stock (as a percentage of the price of shares of our Common Stock) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of shares of our Common Stock to expect a higher distribution yield and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution. Thus, higher market interest rates could cause the per share trading price of our Common Stock to decrease.
There may be future dilution to earnings related to shares of our Common Stock.
The market price of shares of our Common Stock could decline as a result of issuances or sales of a subsidiary partnership.large number of shares of our Common Stock in the market, or the perception that such issuances or sales could occur. Additionally, future issuances or sales of substantial amounts of shares of our Common Stock may be at prices below the initial public offering price of the shares of our Class A Common Stock and may result in further dilution in our earnings and FFO per share and/or materially and adversely impact the per share trading price of our Common Stock.
Future offerings of debt, which would be senior to shares of our Common Stock upon liquidation, and/or preferred equity securities that may be senior to shares of our Common Stock for purposes of distributions or upon liquidation, may materially and adversely affect the market price of shares of our Common Stock.
In the future, we may attempt to increase our capital resources by making additional offerings of debt or preferred equity securities (or causing the OP to issue debt securities). Upon liquidation, holders of our debt securities and preferred stock and lenders with respect to other borrowings will receive distributions of our available assets prior to our stockholders. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences, and privileges more favorable than those of our Common Stock and may result in dilution to owners of our Common Stock. Our stockholders are not entitled to preemptive rights or other protections against dilution. Our preferred stock, if issued, could have a preference on liquidating distributions or a preference on distribution payments that could limit our right to make distributions to our stockholders. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future offerings. Our stockholders bear the risk of our future offerings reducing the per share trading price of our Common Stock.
Sales of substantial amounts of our capital stock in the public markets may dilute your voting power and your ownership interest in us.
Our Charter provides that we may issue up to 500,000,000 shares of Common Stock, $0.00025 par value, and 20,000,000 shares of preferred stock, $0.001 par value per share. Moreover, under Maryland law and as
provided in our Charter, a majority of our entire board of directors has the power to amend our Charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue without stockholder approval. Future issuances of shares of our Common Stock, securities convertible or exchangeable into Common Stock, or shares of our preferred stock may dilute the ownership interest of our common stockholders. Because our decision to issue additional equity or convertible or exchangeable securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future issuances. In addition, we are not required to offer any such securities to existing stockholders on a preemptive basis. Therefore, it may not be possible for existing stockholders to participate in such future issuances, which may dilute the existing stockholders’ interests in us.
| UnresolvedUnresolved Staff Comments.
|
There are no unresolved staff comments.
Please refer to Item 1. “Business” of this
Annual Report on Form
10-K
for information concerning our properties.
We
From time to time, we are subject to various lawsuits, claims and other legal proceedings and claims that arise in the ordinary course of our business. These mattersWe are generally covered by insurance or are subjectnot currently a party to our right to be indemnified by our tenantslegal proceedings that we include inbelieve would reasonably be expected to have material adverse effect on our leases. Management isbusiness, financial condition, or results of operations. We are not aware of any material pending 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.
None
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our Common Stock is no established public trading market fortraded on the New York Stock Exchange under the ticker symbol “BNL.”
As of February 17, 2022, there were approximately 543 holders of record of our Common Stock. However, because many of our shares of common stock
are held by brokers and
other institutions on behalf of shareholders, we
do not expect a public trading market to develop. Therebelieve there are
no issued or outstanding options or warrants to purchase our common stock. Each outstanding membership unit of the Operating Company is convertible into one shareconsiderably more beneficial holders of our
common stock, subject to certain conditions and limitations. As of March 1, 2019, there were 22,597,882.214 shares of our common stock issued and outstanding and 1,737,047.086 non-controlling membership units in the Operating Company issued and outstanding. We have not agreed to register for sale under the Securities Act any shares of our common stock. No shares of our common stock have been or are currently expected to be publicly offered by us.Stockholders
As of March 1, 2019, there were 3,208 holders of shares of our common stock.
Determined Share Value
Our shares of common stock are sold by us in our ongoing private offering at a price equal to the Determined Share Value, which is established at least quarterly by the Independent Directors Committee based on the NAV of our portfolio, input from management and third-party consultants, and such other factors as the Independent Directors Committee may determine. The Independent Directors Committee bears sole responsibility for establishing the Determined Share Value. Our determination of NAV applies valuation definitions and methodologies prescribed by ASC 820, Fair Value Measurements and Disclosures, in order to fair value our net assets. Our net assets are primarily comprised of our investment in rental property and debt. Our net asset valuation also includes other assets and liabilities such as cash, interest rate swaps, and accounts payable, among others, and excludes intangible assets and liabilities. The values ascribed to our mortgages, unsecured notes, and interest rate swaps are marked to market each quarter. Members of our senior executive, portfolio management, accounting, and finance teams are responsible for performing the valuation process and computing the NAV. The Independent Directors Committee is responsible for overseeing the valuation process for the purpose of maintaining independence from conflicts of interest with the management group that determines the NAV and who are employed by the Manager. To assist in assessing management’s calculation of the NAV and the valuation of the investment in rental property in the determination of the Determined Share Value by the Independent Directors Committee, we engage a third-party valuation specialist to provide: (i) a high-level/negative assurance review of management’s quarterly portfolio valuation and estimated NAV calculation, which currently occurs as of the end of each of the first, second, and fourth quarters of each calendar year, (ii) a review of individual property appraisals, which are completed for each property on a rolling two-year basis, and (iii) a full positive assurance valuation and review of the portfolio, which currently occurs during the third quarter of each calendar year. The third-party valuation specialist is not responsible for determining the NAV. The positive and negative assurance provided by the third-party valuation specialist has generally found that the real estate values used to establish the Determined Share Values by the Independent Directors Committee have been reasonable and within market parameters.
The Determined Share Value at any given point in time will be based on the NAV as of a historical balance sheet date. The following table presents our Determined Share Value for each of the past two years, together with the corresponding NAV per diluted share as of the preceding quarter-end:
Period | | NAV as of | | NAV per diluted share | | | Determined Share Value | |
February 1, 2019 – April 30, 2019 | | December 31, 2018 | | $ | 84.92 | | | $ | 85.00 | |
November 1, 2018 – January 31, 2019 | | September 30, 2018 | | $ | 85.66 | | | $ | 86.00 | |
August 1, 2018 –October 31, 2018 | | June 30, 2018 | | $ | 84.63 | | | $ | 85.00 | |
May 1, 2018 – July 31, 2018 | | March 31, 2018 | | $ | 83.14 | | | $ | 83.00 | |
February 1, 2018 – April 30, 2018 | | December 31, 2017 | | $ | 81.40 | | | $ | 81.00 | |
November 1, 2017 – January 31, 2018 | | September 30, 2017 | | $ | 80.55 | | | $ | 81.00 | |
August 1, 2017 –October 31, 2017 | | June 30, 2017 | | $ | 79.90 | | | $ | 80.00 | |
May 1, 2017 – July 31, 2017 | | March 31, 2017 | | $ | 79.90 | | | $ | 80.00 | |
February 1, 2017 – April 30, 2017 | | December 31, 2016 | | $ | 79.28 | | | $ | 79.00 | |
The Determined Share Value is applied to outstanding shares prospectively, and is used for purchases, distribution reinvestment, and redemptions. Adjustments to the NAV in arriving at the Determined Share Value are typically the result of the Independent Directors Committee’s understanding of current market conditions and review of assumptions used to value net assets by management in arriving at the NAV. The adjustments do not follow a systematic methodology, but instead allow the Independent Directors Committee to use judgment in determining whether temporary market fluctuations are indicative of changes in core real estate values.
The adjustments to NAV per share in arriving at the Determined Share Value for the periods presented above account for the inherent imprecision in the valuation estimates. In May 2019, the Independent Directors Committee will review the NAV calculations as of March 31, 2019, and will assess whether adjustments to the current Determined Share Value of $85 are appropriate.
The fair value of our investment in rental property is performed using the market approach, whereby we assign an implied market capitalization rate to derive the property valuations. Newly acquired properties are valued at purchase price for the first six months they are in the portfolio. All other individual property valuations are calculated by dividing the contractual rental payments over the next 12 months by the implied market capitalization rate. The market capitalization rate assumption reflects our analysis of what a market participant would be willing to pay for a property given the contractual monthly rental payments, third-party appraisals, and an analysis of a tenant’s creditworthiness, among other factors. We deem this methodology to be appropriate based on the nature of our leases, whereby the tenants are generally responsible for the maintenance, insurance, and property taxes associated with the properties they lease from us. Net leases provide predictable cash flows, which we then apply against the market capitalization rates. This methodology is consistent with the valuation techniques used to determine the aggregate purchase price of acquisitions. As our acquisition targets are generally fully occupied, single-tenant, net leased properties, we do not anticipate paying for material capital expenditures, and therefore, exclude such expenditures from our valuations. We estimate the fair value of debt (which incorporates the fair value of interest rate swap assets and liabilities) utilizing methodologies consistent with those used to prepare our GAAP financial statements and disclosures and discussed in Note 2 of Item 8. “Financial Statements and Supplementary Data” of this Form 10-K.
The following table provides a breakdown of the major components of our estimated NAV and NAV per diluted share amounts as of December 31, 2018 and September 30, 2018:
(in thousands, except per share amounts) NAV as of: | | December 31, 2018 | | | September 30, 2018 | |
Investment in rental property | | $ | 3,462,675 | | | $ | 3,214,063 | |
Debt | | | (1,434,403 | ) | | | (1,259,645 | ) |
Other assets and liabilities, net | | | (11,467 | ) | | | (263 | ) |
NAV | | $ | 2,016,805 | | | $ | 1,954,155 | |
Number of outstanding shares, including noncontrolling interests | | | 23,751 | | | | 22,814 | |
NAV per diluted share | | $ | 84.92 | | | $ | 85.66 | |
The following table details the implied market capitalization rates (shown on a weighted average basis) used to value the investment in rental property, by property type, as of December 31, 2018, and September 30, 2018, supporting the Determined Share Value in effect for the periods of February 1, 2019 through April 30, 2019, and November 1, 2018, through January 31, 2019, respectively:
Market capitalization rates, as of: | | Retail | | | Industrial | | | Healthcare | | | Office | | | Other | | | Portfolio Total | |
December 31, 2018 | | | 6.44 | % | | | 6.93 | % | | | 6.89 | % | | | 7.09 | % | | | 7.28 | % | | | 6.78 | % |
September 30, 2018 | | | 6.44 | % | | | 6.96 | % | | | 6.92 | % | | | 7.07 | % | | | 7.23 | % | | | 6.78 | % |
While we believe our assumptions are reasonable, a change in these assumptions would impact the calculation of the value of our real estate investments. For example, assuming all other factors remain unchanged, an increase in the weighted average implied market capitalization rate used as of December 31, 2018, of 0.25% would result in a decrease in the fair value of our investment in rental property of 3.6%, and our NAV per diluted share would have been $79.72. Conversely, a decrease in the weighted average implied capitalization rate used as of December 31, 2018, of 0.25% would result in an increase in the fair value of our investment in rental property of 3.8%, and our NAV per diluted share would have been $90.51. Assuming all other factors remain unchanged, an increase in the weighted average implied market capitalization rate used as of September 30, 2018, of 0.25% would have resulted in a decrease in the fair value of our investment in rental property of 3.6%, and our NAV per diluted share would have been $80.64. Conversely, a decrease in the weighted average implied capitalization rate used as of September 30, 2018, of 0.25% would have resulted in an increase in the fair value of our investment in rental property of 3.8%, and our NAV per diluted share would have been $91.06.
Our methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different Determined Share Value. Accordingly, we have disclosed the following risk factors relative to our Determined Share Value:
There is no current public market for our common stock, we do not expect that any such public market will develop in the future, and we have no obligation to list our shares on any public securities market or provide any other type of liquidity to our stockholders by a particular date, or at all, and transfers of shares of our common stock are subject to a number of restrictions. As a result, it will be difficult for our stockholders to sell shares of our common stock and, if they are able to sell their shares, they are likely to sell them at a discount.
Common Stock than record holders.The provisions of our share redemption program limit our stockholders’ ability to sell shares of our common stock. Our stockholders may not be able to sell any of their shares of our common stock back to us, and if they do sell their shares, they may not receive the price they paid.
The Independent Directors Committee establishes the Determined Share Value on a quarterly basis. The Determined Share Value is not directly derived from any independent valuation or from the value of the existing property portfolio. Investors should use caution in using the Determined Share Value as the current value of shares of our common stock.
Unregistered Sales of Equity Securities and Use of Proceeds
Sales of Common Stock and Issuance of Membership Units
from Registered Securities
We
commenced our ongoing private offeringpaid distributions to holders of shares of our
common stock in 2007. TheCommon Stock on a quarterly basis. We paid a $0.250 quarterly distribution for the first
closingquarter of
our private offering occurred on December 31, 2007,2021, a $0.255 quarterly distribution for the second and
we have conducted additional closings at least once every calendarthird quarter
since then. Currently, we close sales of
additional shares2021, and a $0.265 quarterly distribution for the fourth quarter of
our common stock monthly. In November 2017, we instituted a monthly equity cap and queue program for new and additional investments in our common stock. The cap does not apply to investments made pursuant to our DRIP, or to equity capital received in connection with UPREIT transactions.2021. On February
8, 2019, we announced that17, 2022, the
equity cap had been set at $20.0 millionBoard declared a quarterly dividend for
investments made in the
monthsfirst quarter of
February 2019 through April 2019.As2022 of the date of the filing of this Form 10-K, shares of our common stock are being offered in our private offering at $85$0.265 per share. We intendshare, payable to use substantially all of the net proceeds from our private offering, supplemented with additional borrowings, to continue to invest in additional net leased properties. As of December 31, 2018, there were 22,013,751 shares of our common stock issued and outstanding, and 1,737,047 noncontrolling membership units in the Operating Company issued and outstanding.
The following table provides information regarding the sale of shares of our common stock pursuant to our ongoing private offering during the quarter ended December 31, 2018 (in thousands, except year and Determined Share Value amounts).
Month | | Year | | Common Shares Sold | | | Weighted Average Determined Share Value – Common Shares(1) | | | Total Proceeds – Common Shares Sold | | | Common Shares DRIP | | | Weighted Average Determined Share Value – DRIP(2) | | | Total Proceeds – Common Share DRIP(3) | | | Total Proceeds | |
October | | 2018 | | | 235 | | | $ | 85.00 | | | $ | 20,000 | | | | 56 | | | $ | 83.30 | | | $ | 4,671 | | | $ | 24,671 | |
November | | 2018 | | | 296 | | | | 85.75 | | | | 25,355 | | | | 56 | | | | 83.30 | | | | 4,718 | | | | 30,073 | |
December | | 2018 | | | 256 | | | | 85.98 | | | | 22,012 | | | | 57 | | | | 84.28 | | | | 4,771 | | | | 26,783 | |
Total | | | | | 787 | | | | | | | $ | 67,367 | | | | 169 | | | | | | | $ | 14,160 | | | $ | 81,527 | |
(1)
| Shares of our common stock are sold in our ongoing private offering at a price per share equal to the then-applicable Determined Share Value.
|
(2)
| DRIP shares are purchased at a discounted price of 98% of the Determined Share Value.
|
(3)
| For common shares reinvested under our DRIP there is no corresponding cash flow from the transaction. Refer to Note 14, “Equity” to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data” of this Form 10-K for further discussion.
|
None of the shares of our common stock set forth in the table above were registered under the Securities Act in reliance upon the exemption from registration under the Securities Act provided by Rule 506(c) under Regulation D promulgated under the Securities Act. All of the shares of our common stock set forth in the table above were sold to persons who represented to us in writing that they qualified as an “Accredited Investor” as such term is defined by Regulation D promulgated under the Securities Act, and provided us with additional documentation to assist us in verifying such person’s status as an Accredited Investor.
In connection with property acquisitions that are structured as UPREIT transactions, the owner of a property will transfer its interest in the property to the Operating Company in exchange for membership units in the Operating Company. There were no such membership unit issuances during the quarter ended December 31, 2018.
None of the membership units in the Operating Company have been registered under the Securities Act in reliance upon the exemptions from registration under the Securities Act provided by Rule 506(c) under Regulation D promulgated under the Securities Act and Section 4(a)(2) of the Securities Act. All of the membership units in the Operating Company were sold to persons who represented to us in writing that they qualified as an Accredited Investor, and provided us with additional documentation to assist us in verifying such person’s status as an Accredited Investor, including third-party verification as permitted under Regulation D.
Senior Notes
On March 16, 2017, we and the Operating Company entered into a Note and Guaranty Agreement with each of the purchasers of a private offering of unsecured, fixed-rate, interest-only senior notes (“Series A Notes”). The closing of the issuance of the Series A Notes occurred on April 18, 2017. The Series A Notes were issued by the Operating Company and are guaranteed by us. The Series A Notes were issued at par, bear interest at a rate of 4.84% per annum (priced at 240 basis points above the 10-year U.S. Treasury yield at the time of pricing), and mature on April 18, 2027.
On July 2, 2018, we and the Operating Company entered into a Note and Guaranty Agreement with each of the purchasers of a private offering of unsecured, fixed-rate, interest-only senior notes. Pursuant to the terms of the Note and Guaranty Agreement, the Operating Company issued and sold $325.0 million aggregate principal amount of notes in two series: (i) $225.0 million aggregate principal amount of Series B Guaranteed Senior Notes (the “Series B Notes”), and (ii) $100.0 million aggregate principal amount of Series C Guaranteed Senior Notes (the “Series C Notes”). The Series B Notes and Series C Notes were issued by the Operating Company and were guaranteed by us. Pursuant to the Note and Guaranty Agreement, $100.0 million aggregate principal amount of the Series B Notes were issued on July 2, 2018, with the remaining $125.0 million aggregate principal amount issued on September 13, 2018. The Series B Notes were issued at par, bear interest at a rate of 5.09% per annum (priced at 210 basis points above the 10-year U.S. Treasury yield at the time of pricing), and mature on July 2, 2028. Pursuant to the Note and Guaranty Agreement, $50.0 million aggregate principal amount of the Series C Notes were issued on July 2, 2018, with the remaining $50.0 million aggregate principal issued on September 13, 2018. The Series C Notes were issued at par, bear interest at a rate of 5.19% per annum (priced at 220 basis points above the 10-year U.S. Treasury yield at the time of pricing), and mature on July 2, 2030.
The Series A Notes, Series B Notes and Series C Notes were not registered under the Securities Act in reliance upon the exemptions from registration provided by Section 4(a)(2) of the Securities Act, and all such notes were sold to persons who represented to us in writing that they qualified as an Accredited Investor.
Except as set forth above, we have not sold any securities which were not registered under the Securities Act during the previous three years.
Distribution and Distribution Reinvestment
Distributions are paid when and as declared by our board of directors, currently on a monthly basis. Distribution payments are expected to be made approximately 15 days after the end of each month to stockholdersholders of record on the record date, which is generally the next-to-the-last business day of the prior month. Subscribers making an investment at an end of month closing will beginMarch 31, 2022 and to accrue dividends in the subsequent month and, if they are stockholders of recordbe paid on the record date at the end of such month, they will receive their initial distribution approximatelyor before April 15, days after the subsequent month is complete.
We2022.
While we intend to
make distributions sufficientcontinue paying regular quarterly dividends to
satisfystockholders, the
requirements for qualification as a REIT for tax purposes. Generally, income distributed as dividendsauthorization of future dividend declarations will
not be
taxable to us under the Internal Revenue Code if we distribute at least 90% of our REIT taxable income. Dividends will be declared at the discretion of our board of directors
butand will
be guided, in substantial part, by a desire to cause us to comply withdepend on our actual cash flow, our financial condition, capital requirements, the annual distribution requirements under the REIT
qualification requirements.At its February 8, 2019, meeting,provisions of the Code, and such other factors as our board of directors declared monthly distributions of $0.44 per share of our common stock and unit of membership interest in the Operating Companydeems relevant. The actual cash flow available to pay dividends will be paidaffected by us to our stockholders and members of the Operating Company (other than us) of record as follows:
Dividend Per Share/ Unit | | | Record Date | | Payment Date (on or before) |
$ | 0.44 | | | February 27, 2019 | | March 15, 2019 |
$ | 0.44 | | | March 28, 2019 | | April 15, 2019 |
$ | 0.44 | | | April 29, 2019 | | May 15, 2019 |
Pursuant to our DRIP, our stockholders and holders of membership units in the Operating Company (other than us), may elect to have cash distributions reinvested in additional shares of our common stock. Shares of our common stock acquired through our DRIP have the same rights and are subject to the same restrictions on transferability as all other shares of our common stock and are eligible for redemption pursuant to our share redemption program. Our DRIP is administered by the Asset Manager.
All of our stockholders and holders of membership units in the Operating Company that are Accredited Investors are eligible to participate in our DRIP. We may elect to deny an investor participation in our DRIP if the investor resides in a jurisdiction or foreign country where, in our judgment, the burden or expense of compliance with applicable securities laws makes the investor’s participation impracticable or inadvisable. A stockholder or holder of membership units of the Operating Company may be required to cease participation in our DRIP if the investor no longer meets the suitability standards or cannot make the other investor representations set forth in the then-current subscription agreement with respect to our shares of common stock. Participants in our DRIP must agree to notify us promptly when they no longer meet these standards.
A stockholder or holder of membership units in the Operating Company may elect to participate in our DRIP by completing the appropriate portion of the subscription agreement or other approved enrollment form available from time to time from the Asset Manager. An investor’s participation in our DRIP will begin with the next distribution made after receipt of the investor’s enrollment form. Participants in our DRIP generally are required to have the full amount of their cash distributions with respect to all securities owned by them reinvested pursuant to our DRIP. The Asset Manager has the discretion, however, upon the request of a participant, to accommodate a participant’s request for less than all of the participant’s securities to be subject to participation in our DRIP. An investor may also change the number of shares participatingfactors, including, among others, the risks discussed under “Risk Factors” in the dividend reinvestment at any time if the investor completes a new enrollment form or other form provided for that purpose.
Cash distributions will be reinvested in additional shares of common stock pursuant to our DRIP at a per share price equal to 98% of the Determined Share Value as of the applicable distribution date. Fractional shares may be issued pursuant to our DRIP.
If an investor elects to participate in our DRIPPart I, Item 1A and is subject to federal income taxation, the investor will incur a tax liability on an amount equal to the fair value on the relevant distribution date of the shares of our common stock purchased with reinvested distributions, even though the investor has elected not to receive the distributions used to purchase those shares of common stock in cash. We will withhold estimated taxes on the amount of distributions or distributions paid if the investor fails to furnish a valid taxpayer identification number, fails to properly report distributions or fails to certify that the investor is not subject to withholding. Notwithstanding the foregoing, the tax consequences of participating in our DRIP will vary depending upon each participant’s particular circumstances, and all participants are urged to consult their own tax advisor regarding the specific tax consequences of participation.
Participation in our DRIP may be terminated by an investor at any time by providing us with written notice. For an investor’s termination to be effective for a particular distribution, we must have received a notice of termination at least 10 business days prior to the record date of the distribution period to which the distribution relates. Any transfer of an investor’s shares will effect a termination of the participation of those shares in the DRIP. We will terminate an investor’s participation to the extent that a reinvestment of an investor’s distributions in our shares would cause the investor to exceed the ownership limitations contained in our Articles of Incorporation.
We may amend our DRIP at any time upon written notice to each participant at least 10 days prior to the effective date of the amendment. We may terminate our DRIP upon written notice to each participant at least 30 days prior to the effective date of the termination.
The following table summarizes distributions paid in cash and pursuant to our DRIP for the years ended December 31, 2017, and 2018 (in thousands).
Month | | Year | | Cash Distribution - Common Stockholders | | | Cash Distribution - Membership Units | | | Distribution Paid Pursuant to DRIP on Common Stock (1) | | | Distribution Paid Pursuant to DRIP on Membership Units (1) | | | Total Amount of Distribution | |
January | | 2017 | | | 3,319 | | | | 488 | | | | 2,738 | | | | 98 | | | | 6,643 | |
February | | 2017 | | | 3,394 | | | | 488 | | | | 2,836 | | | | 98 | | | | 6,816 | |
March | | 2017 | | | 3,522 | | | | 493 | | | | 2,972 | | | | 99 | | | | 7,086 | |
April | | 2017 | | | 3,555 | | | | 493 | | | | 3,068 | | | | 99 | | | | 7,215 | |
May | | 2017 | | | 3,618 | | | | 493 | | | | 3,167 | | | | 99 | | | | 7,377 | |
June | | 2017 | | | 3,680 | | | | 493 | | | | 3,220 | | | | 99 | | | | 7,492 | |
July | | 2017 | | | 3,742 | | | | 493 | | | | 3,296 | | | | 99 | | | | 7,630 | |
August | | 2017 | | | 3,815 | | | | 512 | | | | 3,378 | | | | 122 | | | | 7,827 | |
September | | 2017 | | | 3,883 | | | | 512 | | | | 3,420 | | | | 123 | | | | 7,938 | |
October | | 2017 | | | 3,969 | | | | 512 | | | | 3,495 | | | | 123 | | | | 8,099 | |
November | | 2017 | | | 4,003 | | | | 536 | | | | 3,594 | | | | 123 | | | | 8,256 | |
December | | 2017 | | | 4,030 | | | | 536 | | | | 3,664 | | | | 123 | | | | 8,353 | |
January | | 2018 | | | 4,021 | | | | 536 | | | | 3,769 | | | | 123 | | | | 8,449 | |
February | | 2018 | | | 4,029 | | | | 521 | | | | 3,839 | | | | 123 | | | | 8,512 | |
March | | 2018 | | | 4,201 | | | | 539 | | | | 4,052 | | | | 128 | | | | 8,920 | |
April | | 2018 | | | 4,267 | | | | 540 | | | | 4,084 | | | | 127 | | | | 9,018 | |
May | | 2018 | | | 4,331 | | | | 536 | | | | 4,106 | | | | 127 | | | | 9,100 | |
June | | 2018 | | | 4,386 | | | | 602 | | | | 4,154 | | | | 128 | | | | 9,270 | |
July | | 2018 | | | 4,382 | | | | 602 | | | | 4,255 | | | | 127 | | | | 9,366 | |
August | | 2018 | | | 4,393 | | | | 617 | | | | 4,333 | | | | 130 | | | | 9,473 | |
September | | 2018 | | | 4,386 | | | | 618 | | | | 4,463 | | | | 130 | | | | 9,597 | |
October | | 2018 | | | 4,434 | | | | 617 | | | | 4,541 | | | | 130 | | | | 9,722 | |
November | | 2018 | | | 4,498 | | | | 617 | | | | 4,589 | | | | 129 | | | | 9,833 | |
December | | 2018 | | | 4,571 | | | | 618 | | | | 4,641 | | | | 130 | | | | 9,960 | |
Total | | | | $ | 96,429 | | | $ | 13,012 | | | $ | 89,674 | | | $ | 2,837 | | | $ | 201,952 | |
(1)
| Distributions are paid in shares of common stock.
|
The following table summarizes our distributions paid during the years ended December 31, 2018, and 2017, including the source of distributions and a comparison against FFO (in thousands). Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Form 10-K underAnnual Report.
Equity Compensation Plan Information
The information concerning our Equity Compensation Plan will be included in the
caption Net Income and Non-GAAP Measures (FFO and AFFO) for further discussion of our FFO. | | For the years ended December 31, | |
| | 2018 | | | 2017 | |
Distributions: | | | | | | | | |
Paid in cash | | $ | 60,394 | | | $ | 51,884 | |
Reinvested in shares | | | 50,826 | | | | 38,848 | |
Total Distributions | | $ | 111,220 | | | $ | 90,732 | |
Source of Distributions: | | | | | | | | |
Cash flow from operating activities | | $ | 111,220 | | | $ | 90,732 | |
FFO | | $ | 150,664 | | | $ | 111,434 | |
We intendProxy Statement to fund future distributions from cash generated by operations; however, we may fund distributions from the sale of assets, borrowings, or proceeds from the sale of our securities.
Repurchases of Equity Securities
We have adopted a share redemption program to provide an opportunity for our stockholders to have shares of our common stock repurchased, subject to certain restrictions and limitations, at a price equal to or at a discount from the current Determined Share Value in effect as of the date the shares are tendered for redemption. Cash used to fund share redemptions has historically been provided through a combination of cash generated by operations, the sale of assets, and borrowings. Additionally, we may use proceeds from the sale of our securities to fund redemption requests, although to date we have not done so. During the three months ended December 31, 2018, we fulfilled repurchase requests and repurchased shares of our common stock pursuantbe filed relating to our share redemption program as follows. We did not defer or reject any redemption requests during this period.
Period | | Total Number of Shares Requested to be Redeemed (1) | | | Total Number of Shares Redeemed | | | Average Price Paid Per Share (2) | | | Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program | |
October 2018 | | | — | | | | — | | | $ | — | | | | (3 | ) |
November 2018 | | | — | | | | — | | | $ | — | | | | (3 | ) |
December 2018 | | | 20,819 | | | | 20,819 | | | $ | 83.59 | | | | (3 | ) |
(1)
| Repurchases of shares of our common stock pursuant to the share redemption program will be made quarterly, at the end of the quarter, upon written request to us delivered at least 10 calendar days prior to the last business day of the applicable calendar quarter, and the redemption price paid for redeemed shares will be paid in cash within three business days of the last business day of the applicable calendar quarter.
|
(2)
| Shares held for more than 12 months, but less than five years, will be redeemed at a purchase price equal to 95% of the Determined Share Value in effect as of the last business day of the quarter in which the shares are timely tendered for redemption and shares held for five years or more will be redeemed at a purchase price equal to 100% of the Determined Share Value in effect as of the last business day of the quarter in which the shares are timely tendered for redemption, subject to certain exceptions as set forth in the share redemption program.
|
(3)
| The total number of shares redeemed pursuant to the share redemption program in any quarter may not exceed (i) 1% of the total number of shares outstanding at the beginning of the applicable calendar year, plus (ii) 50% of the total number of any additional shares of our common stock issued during the prior calendar quarter pursuant to our DRIP; provided, however, that the total number of shares redeemed during any calendar year may not exceed 5% of the number of shares outstanding as of the first day of such calendar year.
|
Performance Graph
The following graph is a comparison of the cumulative total return of shares of our common stock, the Russell 2000, and the MCSI US REIT Index. The graph assumes that $100 was invested on December 31,
2013,2016, in each of shares of our common stock, the Russell 2000 and the MCSI US REIT Index, and that all dividends were reinvested.
With respect to shares of our common stock, we have assumed that dividends were reinvested in additional shares of common stock pursuant to our DRIP at a per share price equal to 98% of the Determined Share Value as of the applicable distribution date. There can be no assurance that the performance of our shares will continue in line with the same or similar trends depicted in the graph below. The MCSI US REIT Index is a free float-adjusted market capitalization index that is comprised of equity REITs. The index is based on MSCI USA Investable Market Index (IMI), its parent index, which captures large, mid, and small capitalization securities. While funds used in this benchmark typically target institutional investors and have characteristics that differ from us (including differing fees), we feel that the MCSI US REIT Index is an appropriate and accepted index for the purpose of evaluating returns on investments in direct real estate funds.
| | December 31, | |
| | | 2013 | | | | 2014 | | | | 2015 | | | | 2016 | | | | 2017 | | | | 2018 | |
Broadstone Net Lease | | | 100.00 | | | | 118.38 | | | | 132.03 | | | | 146.85 | | | | 164.65 | | | | 186.18 | |
Russell 2000 | | | 100.00 | | | | 104.89 | | | | 100.26 | | | | 121.63 | | | | 139.44 | | | | 124.09 | |
MSCI US REIT Index | | | 100.00 | | | | 130.38 | | | | 133.67 | | | | 145.16 | | | | 152.52 | | | | 145.55 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | | | | | |
| | | 100.00 | | | | 112.10 | | | | 126.74 | | | | 133.39 | | | | 128.21 | | | | 170.09 | |
| | | 100.00 | | | | 114.65 | | | | 102.02 | | | | 128.06 | | | | 153.62 | | | | 176.39 | |
| | | 100.00 | | | | 105.07 | | | | 100.27 | | | | 126.18 | | | | 116.62 | | | | 166.84 | |
The information in this “Performance Graph” section is not
"soliciting“soliciting material,
"” is not deemed
"filed"“filed” with the SEC, and is not to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except as shall be expressly set forth by specific reference in such filing.
The selected financial data as of and for the years ended December 31, 2018, 2017, 2016, 2015, and 2014 presented below should be read in conjunction with our consolidated financial statements and the related notes thereto contained in Item 8. “Financial Statements and Supplementary Data” and in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K. The selected financial data presented below has been derived from our audited consolidated financial statements.
Our results of operations for the periods presented below are not indicative of those expected in future periods.
| | As of December 31, | |
(In thousands) | | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
Balance Sheet Data | | | | | | | | | | | | | | | | | | | | |
Investment in rental property, net | | $ | 2,683,746 | | | $ | 2,227,758 | | | $ | 1,684,971 | | | $ | 1,283,155 | | | $ | 826,003 | |
Total assets | | | 3,096,797 | | | | 2,578,756 | | | | 1,952,054 | | | | 1,463,907 | | | | 899,132 | |
Mortgage and notes payable, net | | | 78,952 | | | | 67,832 | | | | 106,686 | | | | 99,462 | | | | 106,416 | |
Unsecured term notes, net and revolver | | | 1,366,873 | | | | 1,109,912 | | | | 759,891 | | | | 562,103 | | | | 360,848 | |
Total liabilities | | | 1,567,877 | | | | 1,294,555 | | | | 953,517 | | | | 715,962 | | | | 504,951 | |
Total Broadstone Net Lease, Inc. stockholders’ equity | | | 1,417,099 | | | | 1,186,825 | | | | 911,788 | | | | 670,163 | | | | 366,059 | |
Total equity | | $ | 1,528,920 | | | $ | 1,284,201 | | | $ | 998,537 | | | $ | 747,945 | | | $ | 394,181 | |
| | For the Years Ended December 31, | |
(In thousands, except per share amounts) | | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
Operating Data | | | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 237,479 | | | $ | 181,563 | | | $ | 142,869 | | | $ | 98,086 | | | $ | 68,152 | |
Total operating expenses | | | 128,933 | | | | 96,681 | | | | 79,231 | | | | 55,703 | | | | 36,148 | |
Interest expense | | | 52,855 | | | | 34,751 | | | | 29,963 | | | | 22,605 | | | | 18,058 | |
Net income | | | 75,105 | | | | 59,555 | | | | 40,268 | | | | 20,890 | | | | 17,163 | |
Net Earnings per common share, basic and diluted | | $ | 3.43 | | | $ | 3.21 | | | $ | 2.76 | | | $ | 2.15 | | | $ | 2.59 | |
Other Data | | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 128,011 | | | | 97,940 | | | | 67,189 | | | | 38,616 | | | | 32,773 | |
Net cash used in investing activities | | | (510,459 | ) | | | (611,835 | ) | | | (470,573 | ) | | | (484,619 | ) | | | (194,510 | ) |
Net cash provided by financing activities | | | 391,338 | | | | 500,891 | | | | 399,350 | | | | 464,775 | | | | 156,899 | |
Distributions declared | | | 112,969 | | | | 92,768 | | | | 76,955 | | | | 45,271 | | | | 34,574 | |
Distributions declared per common share | | $ | 5.15 | | | $ | 4.975 | | | $ | 4.915 | | | $ | 4.86 | | | $ | 4.63 | |
FFO(1) | | | 150,664 | | | | 111,434 | | | | 80,664 | | | | 50,990 | | | | 34,633 | |
FFO per share, basic and diluted | | $ | 6.88 | | | $ | 6.00 | | | $ | 5.53 | | | $ | 5.24 | | | $ | 5.22 | |
AFFO(1) | | | 124,065 | | | | 99,952 | | | | 78,780 | | | | 52,273 | | | | 33,956 | |
AFFO per share, basic and diluted | | $ | 5.66 | | | $ | 5.38 | | | $ | 5.40 | | | $ | 5.37 | | | $ | 5.12 | |
(1)
| Refer to
| Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption Net Income and Non-GAAP Measures (FFO and AFFO) for further discussion of FFO and AFFO, including a reconciliation of net income to FFO and AFFO.Operations |
Item 7.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statementsConsolidated Financial Statements and the accompanying notesNotes to the consolidated financial statementsConsolidated Financial Statements appearing in Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form
We acquire, own, and manage primarily single-tenant commercial real estate properties that are net leased on a Maryland corporation, formed on October 18,long-term basis to a diversified group of tenants. Since our inception in 2007, that elected to be taxed as a REIT commencing withwe have selectively invested in net leased assets in the taxableindustrial, healthcare, restaurant, retail, and office property types. During the year
ended December 31, 2008. 2021, we invested $654.7 million, excluding capitalized acquisition costs, in 116 properties at a weighted average initial cash capitalization rate of 6.3%. The acquisitions included properties in industrial (47%, based on ABR), retail (26%), healthcare (23%), and restaurant (4%) asset classes located across 28 states with a weighted average initial lease term and minimum annual rent increases of 15.9 years and 1.5%, respectively. As of December 31, 2021, our portfolio has grown to 726 properties, with 725 properties located in 42 U.S. states and one property located in British Columbia, Canada.
We focus on investing in
income producing,real estate that is operated by creditworthy single tenants in industries characterized by positive business drivers and trends. We target properties that are an integral part of the tenants’ businesses and are therefore opportunities to secure long-term net
leased commercial properties. We currently lease propertiesleases. Through long-term net leases, our tenants are able to
retail, healthcare, industrial, office,retain operational control of their strategically important locations, while allocating their debt and
other commercial businesses under long-term lease agreements, generally on a triple-net basis.We seek to make investments in additional properties and manage our portfolio to preserve, protect, and returnequity capital to investors, realize increased cash available for distributions and long-term capital appreciation from growth in the value of our properties, and maximize the level of sustainable cash distributions to our investors.
We conduct substantially all of our activities through, and all of our properties are held directly or indirectly by, the Operating Company. We are the sole managing member of the Operating Company and as of December 31, 2018, 2017, and 2016, we owned approximately 92.7%, 92.4%, and 91.4%, respectively, of its issued and outstanding membership units, with the remainder held by persons who were issued membership units in exchange for their interests in properties acquired by the Operating Company.
fund core business operations rather than real estate ownership.
. As of December 31,
2018, we owned a diversified2021, our portfolio
of 621 individual net leased commercial properties located in 42 states and comprisingcomprised approximately
19.032.2 million rentable square feet of operational
space. As of December 31, 2018, 100%space, and was highly diversified based on property type, geography, tenant, and industry, and is cross-diversified within each (property-type diversification within a geographic concentration): : We are focused primarily on industrial, healthcare, restaurant, retail, and office 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, quick service restaurant, food processing, casual dining, flex/research and development, and general merchandise. Geographic Diversification
of our
ABR.Tenant and Industry Diversification
properties
were subject to leases to 161are occupied by approximately 204 different commercial tenants
who operate 189 different brands that are diversified across 56 differing industries, with no single tenant accounting for more than
3.5%2.1% of our
NTM Rent. We collected more than 99%ABR.StrongIn-Place
Leases with Significant Remaining Lease Term of
rents dueDecember 31, 2021, our portfolio was approximately 99.8% leased with an ABR weighted average remaining lease term of approximately 10.5 years, excluding renewal options.Standard Contractual Base Rent Escalation
Extensive Tenant Financial Reporting
Factors That Impact Our Result of Operations
Our results of operations and financial condition are affected by numerous factors, many of which are beyond our control. Key factors that typically impact our results of operations and financial condition, include rental rates, property dispositions, lease renewals and occupancy, acquisition activity, net lease terms, interest expense, general and administrative expenses, tenant bankruptcies, and impairments.
Our ability to grow rental revenue from our existing portfolio will depend on our ability to realize the rental escalations built into our leases. As of December 31, 2021, leases contributing approximately 97.3% of our ABR provided for increases in future annual base rent, generally ranging from 1.5% to 2.5% annually, with an ABR
weighted average minimum increase of 2.0%. Generally, our rent escalators increase rent on specified dates by a fixed percentage. Approximately 13.6% of our rent escalators are based on an increase in the CPI over a specified period and 2.7% of our leases are flat leases, meaning they do not provide for rent increases during 2018.their terms. During periods of low inflation, small increases in the CPI will result in limited increases in rental revenue from our leases that contain rent escalators based on CPI increases. However, when the CPI decreases or does not change over the relevant period, our rental revenue from such leases is not reduced and will remain the same.
From time to time, we strategically dispose of properties, primarily when we believe the risk profile has changed and become misaligned with our then current risk-adjusted return objectives. The resulting gains or losses on dispositions may materially impact our operating results, and the recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market at the time a property is listed for sale.
Lease Renewals and Occupancy
As of December 31, 2021, the ABR weighted average remaining term of our
portfolio was approximately 10.5 years, excluding renewal options, and approximately 14.5% of our leases
calculated based(based on ABR) will expire prior to January 1, 2027. The stability of the rental revenue generated by our properties depends principally on our
contractual NTM Renttenants’ ability to pay rent and our ability to collect rents, renew expiring leases orre-lease
space upon the expiration or other termination of leases, lease currently vacant properties, and maintain or increase rental rates at our leased properties. To the extent our properties become vacant and are not subject to a lease, we would forego rental income while remaining responsible for the payment of property taxes and maintaining the property until it isre-leased,
which could negatively impact our operating results. Our portfolio was 99.8% occupied as of December 31,
2018, was approximately 12.1 years, excluding renewal options, which are exercisable at2021. Our historical growth in revenues and earnings has been achieved through rent escalations associated with existingin-place
leases, coupled with rental income generated from accretive property acquisitions. Our ability to grow revenue will depend, to a significant degree, on our ability to identify and complete acquisitions that meet our investment criteria. Changes in capitalization rates, interest rates, or other factors may impact our acquisition opportunities in the
option offuture. Market conditions may also impact the total returns we can achieve on our
tenants upon expiration of their base lease term.Liquidity and Capital Resources
General
We acquire real estate using a combination ofinvestments. Our acquisition volume also depends on our ability to access third-party 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. Therefore, we attempt to maintain a conservative leverage profile, with total debt equal to 35% to 45% of the approximate market value of our assets. We believe our current leverage model 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 rating. Our actual leverage ratio will vary over time but may not exceed 50% without the approval of the Independent Directors Committee. As of December 31, 2018 and 2017, the leverage ratio was approximately 41.5% and 41.6%, respectively, of the approximate market value of our assets. From a management perspective and in communications with the credit rating agencies, we also consider our leverage position as a multiple of Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”), a non-GAAP financial measure. EBITDA is a metric we use to measure leverage in the context of our cash flow expectations and projections. Given the significance of our recent growth, however, adding $606.8 million in investments during the year ended December 31, 2018, $683.6 million in investments during 2017, and $518.8 million in investments during 2016, coupled with our continued strategic growth initiatives, historical EBITDA may not provide investors with an adequate picture of the contractual cash inflows associated with these investments. Our investments are typically made throughout the year (with a significant portion typically occurring in the fourth quarter of the year), and therefore the full-year, or “normalized,” cash flows will not be realized until subsequent years. Accordingly, we look at contractual, “normalized,” cash flows and EBITDA as an appropriate metric to manage our leverage profile. We utilize this analysis inclusive of our focus on debt-to-market value metrics.
financing. Net Lease Terms
Liquidity
Our primary cash expenditures include the monthly interest payments we make on the debt we use to finance our real estate investment portfolio, asset management and property management fees of servicing the portfolio, acquisition expenses related to the growth of our portfolio, and the general and administrative expenses of operating our business. Since substantially
Substantially all of our leases are net leases
pursuant to which our
tenants aretenant generally
responsible for the maintenance, insurance, and property taxesis obligated to pay most recurring expenses associated with the
leased property including real estate taxes, insurance, maintenance, and repairs. The remaining leases generally require that we pay some property expenses such as real estate taxes, insurance, or certainnon-structural
repairs and maintenance. Additionally, we seek to use master lease structures where it fits market practice in the particular property type, pursuant to which we seek to lease multiple properties
they lease from us. In certain circumstances, the terms of the lease require us to
pay these expenses, although, in most cases we are reimbursed by the tenants. Accordingly, we do not currently anticipate making significant capital expenditures or incurring other significant property costsa single tenant on an
aggregate basis duringall or none basis. Master leases strengthen our ability to preserve rental revenue and prevent costs associated with vacancies for underperforming properties. We believe the
term of the propertymaster lease structure is most prevalent and applicable to leases in our
current portfolio. To the extent that we have vacant properties, we will incur certain costs to operaterestaurant and
maintain the properties; however, we do not currently expect these costs to be material.As shown in the table below, net cash provided by operating activities increased by $30.1 million to $128.0 million during the year ended December 31, 2018, from $97.9 million for the year ended December 31, 2017. Net cash provided by operating activities increased by $30.8 million to $97.9 million for the year ended December 31, 2017. The increase in cash provided by operating activities is primarily due to the increase in the size of our real estate investment portfolio. We funded real estate investment activity with a combination of cash from operations, proceeds from the issuance of unsecured debt obligations, and proceeds from the issuance of common stock. We paid cash dividendsretail property types, while less relevant to our stockholdersother property types, such as healthcare and holders of non-controlling membership units of $60.5 million, $52.1 million, and $42.7 for the years ended December 31, 2018, 2017, and 2016, respectively. Cash used to fund the increase in dividends between periods related primarily to the increase in cash provided by our operations. Cash and cash equivalents and restricted cash totaled $19.0 million, $10.1 million, and $23.1 million at December 31, 2018, December 31, 2017, and December 31, 2016, respectively.
| | For the years ended December 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Net cash provided by operating activities | | $ | 128,011 | | | $ | 97,940 | | | $ | 67,189 | |
Net cash used in investing activities | | | (510,459 | ) | | | (611,835 | ) | | | (470,573 | ) |
Net cash provided by financing activities | | | 391,338 | | | | 500,891 | | | | 399,350 | |
Increase (decrease) in cash and cash equivalents and restricted cash | | $ | 8,890 | | | $ | (13,004 | ) | | $ | (4,034 | ) |
Substantially all of our cash from operations is generated by our real estate portfolio.industrial. As of December 31, 2018, the historical cost basis2021, master leases contributed approximately 32.7% of our real estate investment portfolio totaled $2,683.7 million, consisting of investments in 621 properties. In 2018 theseoverall ABR (our largest master lease by ABR related to 43 properties generated monthly straight-line rent revenues of approximately $18.8 million, and monthly contractual cash revenues of approximately $17.2 million. During the year ended December 31, 2018, we closed 26 real estate acquisitions totaling $606.8 million, excluding capitalized acquisition expenses, adding 113 new properties to our portfolio. During 2019, the new properties will provide approximately $3.9 million in monthly straight-line rent revenues and approximately $3.6 million in monthly contractual cash revenues. As of December 31, 2017, the historical cost basiscontributed 2.1% of our real estate investment portfolio totaled $2,227.8 million, consistingABR, and our smallest master lease by ABR related to two properties and contributed 0.1% of investments in 528 properties. During the year ended December 31, 2017,our ABR), 73.7% of our restaurant property ABR (156 of our 235 restaurant properties), and 37.9% of our retail property ABR (84 of our 191 retail properties).
We anticipate that we
closed 29 real estate acquisitions totaling $683.6 million, excluding capitalized acquisition expenses, adding 124 new properties to our portfolio. The 2017 acquired properties generated monthly straight-line rent revenues of approximately $4.7 million and monthly contractual cash revenues of approximately $4.1 million during 2018.Capital Resources
We intend towill continue to grow through additional real estate investments. To accomplish this objective, we must continue to identify acquisitions that are consistent with our investment policy and raise additional debt and equity capital. We have financed our acquisition of properties using a combination of equity investments, unsecured term loans, revolving debt, senior unsecured notes, and mortgage loans. We seek to maintain an appropriate balance of debt and equity capital in our overall leverage policy, while maintaining a focus on increasing core value for existing stockholders, which we seek to achieve through earnings growth and share price appreciation.
The mix of our financing sources may change over time based on market conditions and our liquidity needs. The availability of debt to finance commercial real estate can be impacted by economic and other factors that are beyond our control. We seek to reduce the risk that long-term debt capital may be unavailable to us by strengthening our balance sheet through our investments in real estate with creditworthy tenants and lease guarantors, and maintaining an appropriate mix of debt and equity capitalization. Specifically, we recognized a greater than 99% rent collection rate during the years ended December 31, 2018 and 2017. The assignment and reaffirmation of an investment grade credit rating of Baa3 on our debt is further evidence of our active management of a conservative capital structure. As we grow our real estate portfolio, we also intend to manage our debt maturities to reduce the risk that a significant amount of our debt will mature in any single year in the future. For example, during the third quarter of 2018, we used proceeds from the longer term Series B and Series C Notes (as defined below) to repay a portion of our shorter term Revolver and 2015 Unsecured Term Loan (each as defined below). Refer to ContractualObligations below for further details of the maturities on our contractual obligations, including long-term debt maturities.
We achieved our investment grade credit rating based on our conservative leverage profile, diversified real estate investment portfolio, and earnings stability provided by the creditworthiness of our tenants, which we intend to maintain concurrent with our growth objectives. Factors that could negatively impact our credit rating include, but are not limited to: a significant increase in our leverage on a sustained basis, a significant increase in the proportion of secured debt levels, a significant decline in our unencumbered asset base, weakening of our corporate governance structure, and a significant decline in our real estate portfolio diversification. We have aligned our strategic growth priorities with these factors, as we believe the favorable debt pricing and access to multiple sources of debt capital resulting from the investment grade credit rating provides us with an advantageous cost of capital and risk-adjusted return on investment for our stockholders.
Equity Capital Resources
Our equity capital for our real estate acquisition activity is provided from the proceeds of our ongoing private offering, including distributions reinvested through our DRIP. During the year ended December 31, 2018, we raised $283.7 million in equity capital to be used in our acquisition activities, of which $215.7 million was received through new cash investments, $52.2 million was raised through our DRIP, and $15.8 million was raised in exchange for Operating Company membership units through UPREIT transactions. For the year ended December 31, 2017, we raised $316.2 million in equity capital, of which $263.1 million was received through new cash investments, $40.2 million was raised through our DRIP, and $12.9 million was raised in exchange for Operating Company membership units through UPREIT transactions.
Debt Capital Resources
Our debt capital is provided through unsecured term notes, revolving debt facilities, and senior unsecured notes. 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 leverage profile. Rather, we enter into mortgages and notes payable as ancillary business transactions on an as-needed basis, most often as the result of lease assumption transactions.
As of December 31, 2018, our outstanding borrowings included $755.0 million of unsecured term loans, $475.0 million of senior unsecured notes, and a $425.0 million line of credit with $141.1 million of outstanding borrowings. As of December 31, 2017, our outstanding borrowings included $690.0 million of unsecured term loans, $150.0 million of senior unsecured notes, and a $425.0 million line of credit with $273.0 million of outstanding borrowings.
Recent Activity
On January 10, 2019, subsequent to year end, we exercised the first of two extension options available to us under our 2015 Unsecured Term Loan (as defined below), extending the maturity date of the loan through February 6, 2020, in exchange for the payment of a 0.10% fee.
On February 27, 2019, subsequent to year end, we entered into a new $450.0 million seven-year unsecured term loan agreement (the “2019 Unsecured Term Loan”). At closing, we borrowed $300.0 million and used the proceeds to fully repay the 2015 Unsecured Term Loan. The remaining $150.0 million can be drawn through August 27, 2019. The 2019 Unsecured Term Loan includes an accordion feature that can increase the facility size up to a total of $550.0 million of available capacity. Borrowings under the 2019 Unsecured Term Loan are payable interest only during the term, with the principal amount due at the maturity date of February 27, 2026. The rate of interest payable on borrowings under the 2019 Unsecured Term Loan, at our option, is equal to LIBOR plus a margin. Based on our investment grade credit rating, the applicable margin is currently 1.85%.
On February 28, 2019, we amended our Credit Agreement (as defined below) to increase the amount available under the Revolver (as defined below), from $425.0 million to $600.0 million. This increased the available capacity under the Credit Facility from $1.0 billion to $1.055 billion, including its accordion feature.
Existing Credit Facilities
Unsecured Term Loans and Revolving Credit Facility
On June 23, 2017, we closed on an $800.0 million unsecured credit facility (the “Credit Facility”). The Credit Facility contains an accordion feature that can increase the facility size up to a total of $1.0 billion of available capacity, and during the fourth quarter of 2017 was expanded to $880.0 million through the addition of two lenders. As of December 31, 2018 and 2017, the facility was comprised of (i) a $425.0 million senior unsecured revolving credit facility (the “Revolver”), (ii) a five-and-a-half-year, $265.0 million senior unsecured delayed draw term loan (the “5.5-Year Term Loan”), and (iii) a seven-year, $190.0 million senior unsecured delayed draw term loan (the “7-Year Term Loan”). As discussed above, the Credit Facility was amended on February 28, 2019 to increase the size of the Revolver to $600.0 million.
The following table summarizes the amounts drawn and available to be drawn on the Credit Facility as of December 31, 2018 (in thousands, excluding Loan Tranche and Maturity Date).
Loan Tranche | | Amount Drawn | | | Amount Available | | | Total Capacity | | | Maturity Date |
Revolver | | $ | 141,100 | | | | 283,900 | | | $ | 425,000 | | | January 21, 2022(1) |
5.5-Year Term Loan | | | 265,000 | | | | — | | | | 265,000 | | | January 23, 2023 |
7-Year Term Loan | | | 190,000 | | | | — | | | | 190,000 | | | June 21, 2024 |
(1)
| The Revolver contains one extension option that would extend the maturity date by five months, to June 21, 2022, subject to certain conditions set forth in the Credit Facility, including payment of an extension fee equal to 0.0625% of the revolving commitments.
|
Borrowings under the Revolver, 5.5-Year Term Loan and 7-Year Term Loan are payable interest only during the term, with the principal amount due at maturity. The rate of interest payable on these borrowings, at our option, is equal to LIBOR plus a margin. Based on our investment grade credit rating, the applicable margins for the Revolver, 5.5-Year Term Loan, and 7-Year Term Loan were 1.20%, 1.35%, and 1.90%, respectively, as of December 31, 2018 and 2017. The margins are adjustable based on our credit rating; however, we do not expect the credit rating to change in the near future.
An applicable facility fee of 0.25% per annum is payable on the amount of the revolving commitments and is adjustable based on our credit rating.
2015 Unsecured Term Loan
In addition to the Credit Facility, at December 31, 2018 and 2017, we also had $300.0 million and $325.0 million, respectively, outstanding under the 2015 Unsecured Term Loan. The 2015 Unsecured Term Loan was set to mature on February 6, 2019, and provided for two one-year extension options, at our option, subject to compliance with all covenants and the payment of a 0.10% fee. As discussed above, we exercised the first option on January 9, 2019, extending the maturity to February 6, 2020, and subsequently repaid the 2015 Unsecured Term Loan in full using proceeds from the 2019 Unsecured Term Loan. Borrowings under the 2015 Unsecured Term Loan are payable interest only during the term, with the principal amount due in full at maturity. The 2015 Unsecured Term Loan bore interest at LIBOR plus a margin of 1.40% as December 31, 2018 and 2017, based on our credit rating.
Senior Notes
To mitigate interest rate risk, we have strategically added unsecured, fixed-rate, interest-only senior promissory notes (“Senior Notes”) to our capital structure. At December 31, 2018 and 2017, we had $475.0 million and $150.0 million, respectively, of Senior Notes outstanding. The Senior Notes were issued in three series (Series A, B, and C) as described below.
Series A Notes
On April 18, 2017, we issued $150.0 million of Senior Notes (the “Series A Notes”). The Series A Notes are payable interest only during their term, bear interest at a fixed rate of 4.84% per annum, and mature on April 18, 2027.
Series B and Series C Notes
On July 2, 2018, we issued $325.0 million of Senior Notes in two series: (i) $225.0 million of 10-year Senior Notes (“Series B Notes”) maturing on July 2, 2028, and (ii) $100.0 million of 12-year Senior Notes (“Series C Notes”) maturing on July 2, 2030. The Series B and Series C Notes are payable interest only during their term, and bear interest at a fixed rate of 5.09% per annum and 5.19% per annum, respectively.
In addition to funding acquisitions, a portion of the net proceeds from the Series B Notes and Series C Notes was used to repay outstanding borrowings under the Revolver as well as $25.0 million of the outstanding principal balance of our 2015 Unsecured Term Loan.
Debt Covenants
We are subject to various covenants and financial reporting requirements pursuant to the loan agreements we have entered into. The table below summarizes the applicable financial covenants, which are substantially the same across each of our loan agreements, including the 2019 Unsecured Term Loan. As of December 31, 2018, we were in compliance with all of our covenants. In the event of default, either through default on payments or breach of covenants, we may be restricted from paying dividends to our stockholders above the annual 90% REIT taxable income distribution requirement. For each of the previous three years, we paid dividends out of our cash flows from operations in excess of the required distribution amounts.
Covenants
| | Required
| | Actual
(as of
December 31,
2018)
| |
Leverage Ratio(1)
| | ≤ 0.60 to 1.00
| | | 0.43
| |
Secured Indebtedness Ratio(2)
| | ≤ 0.40 to 1.00
| | | 0.02
| |
Unencumbered Coverage Ratio(3)
| | ≥ 1.75 to 1.00
| | | 4.07
| |
Fixed Charge Coverage Ratio(4)
| | ≥ 1.50 to 1.00
| | | 3.02
| |
Total Unsecured Indebtedness to Total
Unencumbered Eligible Property Value(5)
| | ≤ 0.60 to 1.00
| | | 0.48
| |
Dividends and Other Restricted Payments
| | Only applicable
in case of default
| | Not
Applicable
| |
(1)
| The leverage ratio is calculated as the ratio of total indebtedness to total market value.
|
(2)
| The secured indebtedness ratio is the ratio of secured indebtedness to total market value.
|
(3)
| The unencumbered coverage ratio is the ratio of unencumbered net operating income (as defined in the agreements) for all eligible properties to unsecured interest expense for the most recent fiscal quarter.
|
(4)
| The fixed charge coverage ratio is the ratio of adjusted EBITDA to fixed charges for the most recent fiscal quarter.
|
(5)
| The ratio is calculated as the ratio of total unsecured indebtedness to unencumbered property value.
|
Capital Strategy
We believe our leverage policy and capital structure provide us with several advantages, including the ability to:
create a growing and diversified real estate portfolio with a flexible capital structure that allows for independent investing and financing decisions;
capitalize on competitive debt pricing;
add value to our stockholders through earnings growth on a growing pool of assets; and
issue unsecured debt having relatively limited negative financial covenants and maintain the distributions necessary to retain our REIT status in the event of contractual default, which we believe increases our corporate flexibility.
We intend to exercise the extension provisions of our debt instruments, refinance, or replace the existing borrowings as they become due, including through additional private debt placements, all with the goal of limiting future debt service to interest payments only. As a result, we do not intend to make principal payments on these obligations in the foreseeable future. Additionally, we may be required to increase our borrowing capacity to partially fund future acquisitions. We assess market conditions and the availability and pricing of debt on an ongoing basis, which are critical inputs in our strategic planning and decision-making process. While we believe the current market conditions provide our stockholders with an advantageous capitalization structure and risk-adjusted return, we believe our conservative capital structure is appropriate to absorb temporary market fluctuations. Significant adverse market conditions could impact the availability ofincur debt to fund future acquisitions, our ability to recognize growth in earnings and return on investment for stockholders, and our ability to recastacquisition activity, which will increase the debt facilities at cost-advantageous pricing points. In the event of such conditions, we would plan to revise our capitalization structure and strategic initiatives to maximize return on investment for our investors. To the extent that we are unable to recast our debt facilities, our cash flows from operations will not be adequate to pay the principal amount of debt, andinterest expense we may be forced to liquidate properties to satisfy our obligations.
To reduce our exposure to variable-rate debt,incur. In addition, although we enter into interest rate swap agreements to fix the rate of interest as a hedge against interest rate fluctuations on floating-rate debt. These interest rate hedges have staggered maturities to reduce the exposure to interest rate fluctuations in any one year, and generally extend up to 10 years. The interest rate swaps are applied against a pool of debt, which offers flexibility in maintaining our hedge designation concurrent with our ongoing capital markets activity. We attempt to limit our total floating-rate debt exposure, to no more than 5% of the approximate market value of assets, measured at quarter end. To reduce counterparty concentration risk with respect tochanges in the interest rate hedges, we diversify the institutions that serve as swap counterparties, and no more than 30% of the nominal value ofenvironment could either increase or decrease our total hedged debt may be with any one institution, to be measured at the time we enter into anweighted average interest rate swap transactionin the future. Any changes to our debt structure or debt financing associated with property acquisitions, could materially influence our operating results depending on the terms of any such debt. In January 2021, we received an initial credit rating of ‘BBB’ with a stable outlook from S&P, which lowered the applicable margin on our existing $965 million of bank loans by 25 basis points in February 2021, as well as a 20 basis point decrease in the applicable margin on future Revolving Credit Facility borrowings. In September 2021, Moody’s upgraded our credit rating to ‘Baa2’ with a stable outlook, which aligned with S&P’s credit rating and at quarter end. We may deviate from these policies from timetherefore had no impact to time subject toour actual interest expense. However, a downgrade in our credit rating could also increase the approvalamount of the Independent Directors Committee. The interest rate swaps are considered cash flow hedges. Under these agreements, we receive monthly payments from the counterparties equal to the variable interest rates multiplied by the outstanding notional amounts. In turn, we pay the counterparties each month an amount equal to a fixed rate multiplied by the outstanding notional amounts. The intended net impact of these transactions is that we pay a fixed interest rate on our variable-rate borrowings.
We do not anticipate utilizing mortgage loans or notes payable as a strategic priority in our capital structure to fund growth. When utilized, mortgage loans and notes payable typically correspond to a single property or a group of related properties acquired from a single seller. The loans may be further secured by guarantees from us, although we attempt to limit the use of guarantees to the extent possible. We may assume debt when conducting a transaction or we may mortgage existing properties. The maturities on our mortgages and notes payable are staggered from 2021 to 2034. As of December 31, 2018, and 2017, the aggregate principal balance of outstanding mortgage loans and notes payable approximated $79.5 million and $68.5 million, respectively.
We believe that the cash generated by our operations and our ongoing private offering, our cash and cash equivalents at December 31, 2018, our current borrowing capacity under our unsecured credit facility,debt agreements.
General and our access to long-term debt capital, including through the debt private placement market, will be sufficient to fund our operations for the foreseeable futureAdministrative Expenses
Our general and
allow us to acquire the real estate to meet our strategic objectives.administrative expenses primarily consist of compensation and related costs, third party legal, accounting, and consulting expenses, travel and entertainment, and general office expenses.
Our leases with tenants of our properties are long-term in nature, with a current weighted average remaining lease term of
12.110.5 years as of December 31,
2018.2021. To mitigate the impact of inflation on our fixed revenue streams, we have implemented limited escalation clauses in our leases. As of December 31,
2018,2021, substantially all of our leases had contractual lease escalations, with an annual weighted average of 2.0%. A majority of our leases have fixed annual rent increases or periodic escalations over the term of the lease (
, a 10% increase every five years), and the remaining portion has annual lease escalations based on increases in the CPI. These lease escalations mitigate the risk of fixed revenue streams in the case of an inflationary economic environment, and provide increased return in otherwise stable market conditions. As a majority of our portfolio has fixed lease escalations, there is a risk that inflation could be greater than the contractual rent increases.Our focus on single-tenant, net leases also shelters us from fluctuations in the cost of services and maintenance as a result of inflation. For a portion of our portfolio, we have leases that are not fully
triple-net,
and, therefore, we bear certain responsibilities for the maintenance and structural component replacements (
roof, structure, or parking lot) that may be required in the future, although the tenants are still required to pay all operating expenses associated with the property (, real estate taxes, insurance, and maintenance). Inflation and increased costs may have an adverse impact to our tenants and their creditworthiness if the increase in costs are greater than their increase in revenue. Where we cannot implement atriple-net
lease, we attempt to limit our exposure to inflation through the use of warranties and other remedies that reduce the likelihood of a significant capital outlay.Tenant Bankruptcies
Off-Balance Sheet Arrangements
Adverse economic conditions, particularly those that affect the markets in which our properties are located, or downturns in our tenants’ industries could impair our tenants’ ability to meet their lease obligations to us and our ability to renew expiring leases orre-lease
space. In particular, the bankruptcy of one or more of our tenants could adversely affect our ability to collect rents from such tenants and maintain our portfolio’s occupancy. We
hadhave historically experienced only a limited number of tenant bankruptcies, which have not been material to our financial results. We review long-lived assets to be held and used for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If, and when, such events or changes
in circumstances are present, an impairment exists to the extent the carrying value of the long-lived asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the long-lived asset or asset group and its eventual disposition. Such cash flows include expected future operating income, as adjusted for trends and prospects, as well as the effects of demand, competition, and other factors. Significant judgment is made as to if and when impairment should be taken. If our strategy, or one or more of the assumptions described above, changes in the future, we may have to recognize an impairment. Indications of a tenant’s inability to continue as a going concern, changes in our view or strategy relative to a tenant’s business or industry, or changes in our long-term hold strategies, could each be indicative of an impairment triggering event. For the year ended December 31, 2021, we recognized $28.2 million of impairment, of which approximately $25.7 million related to the termination of a long-term master lease in exchange for a termination fee of $35 million. Simultaneously, we sold the underlying vacant properties to an unrelated third party for net proceeds of approximately $15.3 million. Due to the nature of the separate transactions, on a gross basis we recorded $33.8 million of revenue, $4.1 million of depreciation and amortization, and $25.7 million of impairment, for a net $4 million impact to net income.
Our historical results of operations for the year ended December 31, 2021, discussed below, include a full year of direct compensation expenses and incremental general and administrative expenses associated with being internally managed. Our historical results of operations for the year ended December 31, 2020, discussed below, include the payment of asset and property management fees that we no off-balance sheet arrangementslonger pay following the Internalization, and do not include the full extent of expected direct compensation expenses or incremental general and administrative expenses associated with being internally managed.
Discussion of our Results of Operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 was previously filed in our Annual Report on Form10-K
for the year ended December 31, 2020. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Results of Operations—Year Ended December
31, 2020 Compared to Year Ended year ended December
As of December 31, 2021, our real estate investment portfolio included 726 commercial real estate properties, with 725 properties located in 42 U.S. states and one property located in British Columbia, Canada, and leased to tenants in various industries. All but two of our properties were subject to a lease as of December 31, 2018, or2021.
Year Ended December 31,
2017.2021 Compared to Year Ended year ended December 31, 2020
| | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Contractual rental amounts billed for operating leases | | $ | 308,624 | | | $ | 281,998 | | | $ | 26,626 | | | | 9.4 | % |
Adjustment to recognize contractual operating lease billings on a straight-line basis | | | 19,847 | | | | 25,200 | | | | (5,353 | ) | | | (21.2 | )% |
Write-off of accrued rental income | | | (442 | ) | | | (4,235 | ) | | | 3,793 | | | | (89.6 | )% |
Variable rental amount earned | | | 768 | | | | 743 | | | | 25 | | | | 3.4 | % |
Earned income from direct financing leases | | | 2,909 | | | | 3,355 | | | | (446 | ) | | | (13.3 | )% |
Interest income from sales-type leases | | | 58 | | | | 5 | | | | 53 | | | | >100.0 | % |
Operating expenses billed to tenants | | | 17,462 | | | | 15,845 | | | | 1,617 | | | | 10.2 | % |
Other income from real estate transactions | | | 33,549 | | | | 799 | | | | 32,750 | | | | >100.0 | % |
Adjustment to revenue recognized for uncollectible rental amounts billed, net | | | 101 | | | | (2,073 | ) | | | 2,174 | | | | <(100.0 | )% |
| | | | | | | | | | | | | | | | | |
Total Lease revenues, net | | $ | 382,876 | | | $ | 321,637 | | | $ | 61,239 | | | | 19.0 | % |
| | | | | | | | | | | | | | | | | |
The increase in Lease revenues, net was primarily due to growth in our real estate portfolio through accretive property acquisitions during 2021, partially offset by the reductions of revenues associated with property dispositions. During year, we invested $654.7 million, excluding capitalized acquisition costs, in 116 properties at a weighted average initial cash capitalization rate of 6.3%. Lease revenues also increased due to lease termination fee income of $35.0 million (which we classified as other income from real estate transactions in the table above) during the year ended December 31, 2021, compared to $0.4 million in lease termination fee income during the year ended December 31, 2020. In September 2021, we executed the early termination of a long-term, master lease with an investment-grade office tenant in exchange for a termination fee of $35.0 million. Simultaneously, we sold the underlying vacant properties to an unrelated third party. Through the simultaneous transactions, we recorded $33.8 million of revenue, $4.1 million of amortization, and $25.7 million of impairment, for a net $4.0 million increase to net income. This resulted in a $33.8 million increase to generated funds from operations (“FFO”), but no impact to generated adjusted funds from operations (“AFFO”) or net debt to annualized adjusted EBITDAre. Refer to ournon-GAAP
reconciliations in thesection of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Depreciation and amortization | | $ | 132,096 | | | $ | 132,685 | | | $ | (589 | ) | | | (0.4 | )% |
Property and operating expense | | | 18,459 | | | | 17,478 | | | | 981 | | | | 5.6 | % |
General and administrative | | | 36,366 | | | | 27,988 | | | | 8,378 | | | | 29.9 | % |
Provision for impairment of investment in rental properties | | | 28,208 | | | | 19,077 | | | | 9,131 | | | | 47.9 | % |
| | | — | | | | 2,461 | | | | (2,461 | ) | | | (100.0 | )% |
| | | — | | | | 1,275 | | | | (1,275 | ) | | | (100.0 | )% |
| | | | | | | | | | | | | | | | | |
| | $ | 215,129 | | | $ | 200,964 | | | $ | 14,165 | | | | 7.0 | % |
| | | | | | | | | | | | | | | | | |
Depreciation and amortization
The decrease in depreciation and amortization was due to $11.1 million of accelerated amortization during the year ended December 31, 2020 as a result of theCOVID-19
pandemic and certain lease terminations compared to only $4.1 million of accelerated amortization during the year ended December 31, 2021, offset by additional depreciation and amortization recognized from growth in our real estate portfolio. General and administrative
Following the Internalization in February 2020, our asset and property management fees were replaced with compensation and related expenses, along with associated general and administrative expenses. The increase in general and administrative expenses was a direct result of the Internalization.
Provision for impairment of investment in rental properties
During the year ended December 31, 2021, we recognized $28.2 million of impairment on our investments in rental properties, primarily attributable to our simultaneous early lease termination transaction and sale of underlying properties as discussed in Lease revenues, net above, compared to $19.1 million of impairment during the year ended December 31, 2020. The following table presents the impairment charges for their respective periods:
| | | | | | | | | |
| | | | |
(in thousands, except number of properties) | | | | | | |
| | | 7 | | | | 7 | |
Carrying value prior to impairment charge | | $ | 48,604 | | | $ | 55,674 | |
| | | 20,396 | | | | 36,597 | |
| | | | | | | | | |
| | $ | 28,208 | | | $ | 19,077 | |
| | | | | | | | | |
The timing and amount of impairment fluctuates from period to period depending on the specific facts and circumstances.
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.
| | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | 17 | | | $ | 24 | | | $ | (7 | ) | | | (29.2 | )% |
| | | (64,146 | ) | | | (76,138 | ) | | | (11,992 | ) | | | (15.8 | )% |
Cost of debt extinguishment | | | (368 | ) | | | (417 | ) | | | (49 | ) | | | (11.8 | )% |
Gain on sale of real estate | | | 13,523 | | | | 14,985 | | | | (1,462 | ) | | | (9.8 | )% |
| | | (1,644 | ) | | | (939 | ) | | | 705 | | | | 75.1 | % |
| | | — | | | | (3,705 | ) | | | (3,705 | ) | | | (100.0 | )% |
Change in fair value of earnout liability | | | (5,539 | ) | | | 1,800 | | | | (7,339 | ) | | | <(100.0 | )% |
| | | (62 | ) | | | (7 | ) | | | 55 | | | | >100.0 | % |
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 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. In September 2021, Moody’s Investors Service (“Moody’s”) upgraded our credit rating to ‘Baa2’ with a stable outlook, which aligned with S&P’s credit rating and therefore had no impact to our actual interest expense. 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. Our Net Debt to Annualized Adjusted EBITDAre ratio, used as a relative leverage measure, decreased from 7.04x as of January 1, 2020, to 5.13x as of December 31, 2021.
Gain on sale of real estate
Our recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market. During the year ended December 31, 2021, we recognized gains of $13.5 million on the sale of 31 properties, compared to gains of $15.0 million on the sale of 24 properties during the year ended December 31, 2020.
During the year ended December 31, 2020, we incurred $3.7 million of third-party fees and consulting expenses associated with the Internalization. We did not incur these expenses during the year ended December 31, 2021.
Change in fair value of earnout liability
The fair value of the earnout liability was remeasured each reporting period, with changes recorded as Change in fair value of earnout liability in the Consolidated Statements of Income and Comprehensive Income. The change in the fair value of the earnout liability during the year ended December 31, 2021, reflects our achievement of all four milestones applicable to the earnout during the year ended December 31, 2021.
Net Income and Net earnings per diluted share
| | | | | | | | | | | | | | | | | |
| | | | | | | |
(in thousands, except per share data) | | | | | | | | | | | | |
| | $ | 109,528 | | | $ | 56,276 | | | $ | 53,252 | | | | 94.6 | % |
Net earnings per diluted share | | | 0.67 | | | | 0.44 | | | | 0.23 | | | | 52.3 | % |
The increase in net income is primarily due to revenue growth of $61.2 million, a $12.0 million decrease in interest expense, a $3.7 million decrease in asset and property management fees, and a $3.7 million decrease in Internalization expenses. These factors were partially offset by a $9.1 million increase in impairment of investment in rental properties, a $8.4 million increase in general and administrative expenses, a $7.3 million increase in the fair value of our earnout liability, and a $1.5 million decrease on gain on sale of real estate.
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.
Liquidity and Capital Resources
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 current investment grade credit ratings of ‘BBB’ from S&P and ‘Baa2’ from Moody’s. We manage our leverage profile using a ratio of Net Debt to Annualized Adjusted EBITDAre, anon-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 December 31, 2021, we had total debt outstanding and Net Debt of $1.7 billion, and a Net Debt to Annualized Adjusted EBITDAre ratio of 5.13x. Net Debt and Annualized Adjusted EBITDAre arenon-GAAP
financial measures, and Annualized Adjusted EBITDAre is calculated based upon EBITDA, EBITDAre, and Adjusted EBITDAre, each of which is also anon-GAAP
financial measure. Refer tobelow for further details concerning our calculation ofnon-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 net lease nature of our leases. We expect to meet our short-term liquidity requirements primarily from cash and cash equivalents balances and net cash provided by operating activities, supplemented by borrowings under our Revolving Credit Facility.
As detailed in the contractual obligations table below, we have approximately $124.2 million of expected obligations due throughout 2022, primarily consisting of the $60.0 million 2022 Unsecured Term Loan, $2.9 million of mortgage maturities, and $60.5 million of interest expense due, including the impact of our interest rate swaps. We expect to repay our $60.0 million 2022 Unsecured Term Loan with borrowings under our Revolving Credit Facility. 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 has historically been provided through unsecured term loans from commercial banks, revolving credit facilities, and private placement senior unsecured notes. In September 2021, we completed our inaugural public bond offering of $375 million aggregate principal amount of 2.600% senior unsecured notes due 2031 (the “2031 Senior Unsecured Public Notes”), and expect to use additional public bond offerings in the future as a form of growth capital.
The source and mix of our debt capital in the future will be impacted by market conditions as well as our continued focus on lengthening our debt maturity profile to better align with our portfolio’s long-term leases, staggering debt maturities to reduce the risk that a significant amount of debt will mature in any single year in the future, and managing our exposure to interest rate risk. With outstanding borrowings of $102.0 million at December 31, 2021, we have $798.0 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 assumenon-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. 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.
On June 28, 2021, we completed our first publicfollow-on
equity offering and issued 11,500,000 shares of common stock, including shares issued pursuant to the underwriters’ full exercise of their over-allotment option, at $23.00 per share. The net proceeds, after deducting underwriting discounts and commissions of $10.6 million and $0.4 million of other expenses, were $253.5 million. On August 23, 2021, we established ancommon equity offering program (“ATM Program”), through which we may, from time to time, publicly offer and sell shares of our common stock having an aggregate gross sales price of up to $400 million. The ATM Program provides for forward sale agreements, enabling us to set the price of shares upon pricing the offering while delaying the issuance of shares and the receipt of the net proceeds. During the year ended December 31, 2021, we issued 1,071,500 shares of common stock under our ATM Program, at a weighted average sale price of $26.26 per share. The net proceeds, after deducting $0.3 million for commissions and $0.5 million for other issuance expenses, were $27.3 million. At December 31, 2021, we could issue additional common stock with an aggregate sales price of up to $371.9 million under the ATM Program.
Our public offerings have been used to repay debt, fund acquisitions, and for other general corporate purposes.
As we continue to invest in accretive real estate properties, we expect to balance our debt and equity capitalization, while maintaining a Net Debt to Annualized Adjusted EBITDAre ratio below 6.0x on a sustained basis, through the anticipated use offollow-on
equity offerings and the ATM Program. Unsecured Indebtedness and Capital Markets Activities as of and for the Year Ended December 31, 2021
The following table sets forth our outstanding Revolving Credit Facility, Unsecured Term Loans and Senior Unsecured Notes at December 31, 2021.
| | | | | | | | | | | | |
(in thousands, except interest rates) | | | | | | | | | |
Unsecured revolving credit facility | | $ | 102,000 | | | | one-month LIBOR + 1.00% | | | | Sep. 2023 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | 60,000 | | | | one-month LIBOR + 1.00% | | | | Feb. 2022 | |
| | | 190,000 | | | | one-month LIBOR + 1.00% | | | | Jun. 2024 | |
| | | 400,000 | | | | one-month LIBOR + 1.00% | | | | Feb. 2026 | |
| | | | | | | | | | | | |
Total unsecured term loans | | | 650,000 | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
2027 Senior Unsecured Notes - Series A | | | 150,000 | | | | 4.84% | | | | Apr. 2027 | |
2028 Senior Unsecured Notes - Series B | | | 225,000 | | | | 5.09% | | | | Jul. 2028 | |
2030 Senior Unsecured Notes - Series C | | | 100,000 | | | | 5.19% | | | | Jul. 2030 | |
2031 Senior Unsecured Public Notes | | | 375,000 | | | | 2.60% | | | | Sep. 2031 | |
| | | | | | | | | | | | |
Total senior unsecured notes | | | 850,000 | | | | | | | | | |
| | | | | | | | | | | | |
| | $ | 1,602,000 | | | | | | | | | |
| | | | | | | | | | | | |
Revolving Credit Facility
The Revolving Credit Facility has a maximum availability of $900.0 million and includes $20.0 million available for issuance of letters of credit. The Revolving Credit Facility has an initial maturity date of September 2023 and provides for twosix-month
extensions, at our election, subject to certain conditions set forth in the agreement and payment of a 0.0625% fee on the revolving commitments. The Revolving Credit Facility contains an applicable facility fee ranging between 0.125% and 0.30% per annum, based on our credit rating. At December 31, 2021, the facility fee was 0.20% per annum based on our credit ratings of ‘BBB’ and ‘Baa2’ from S&P and Moody’s, respectively. Borrowings on the Revolving Credit Facility bear interest at variable rates based on LIBOR plus a margin based on our credit rating ranging between 0.825% and 1.55% per annum. At December 31, 2021, the applicable margin was 1.00%.
Subsequent toyear-end,
on January 28, 2022 we amended and restated the Revolving Credit Facility, upsizing the capacity to $1 billion, extending its maturity date to March 2026, and reducing the applicable margin to 0.85%. The 2022 Unsecured Term Loan has an initial maturity date of February 2022. Borrowings under the 2022 Unsecured Term Loan are subject to interest only payments at variable rates equal to LIBOR plus a margin based on our credit rating, ranging between 0.85% and 1.65% per annum. At December 31, 2021, the applicable margin was 1.00%.
The 2024 Unsecured Term Loan has an initial maturity date of June 2024. Borrowings under the 2024 Unsecured Term Loan are subject to interest at variable rates based on LIBOR plus a margin based on our credit rating ranging between 0.85% and 1.65% per annum. At December 31, 2021, the applicable margin was 1.00%.
On March 12, 2021, we amended the 2026 Unsecured Term Loan and made a $50.0 million 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 our credit rating ranging between 1.45% and 2.4% per annum. The amendment reduced the margin to a range between 0.85% and 1.65% based on our credit rating. At December 31, 2021, the applicable margin was 1.00%.
2027 Senior Unsecured Notes - Series A
The 2027 Senior Unsecured Notes - Series A are payable interest only semiannually during their term, bear interest at a fixed rate of 4.84% per annum, and mature in April 2027.
2028 Senior Unsecured Notes - Series B and 2030 Senior Unsecured Notes - Series C
The 2028 Senior Unsecured Notes - Series B and 2030 Senior Unsecured Notes - Series C are payable interest only semiannually during their term, and bear interest at fixed rates of 5.09% per annum and 5.19% per annum, respectively. Series B Notes mature in July 2028, and the Series C Notes mature in July 2030.
2031 Senior Unsecured Public Notes
On September 15, 2021, we completed our inaugural public bond offering of our 2031 Senior Unsecured Public Notes. We used the proceeds to repay the Revolving Credit Facility and a $265.0 million term loan in full that matured in 2020, to fund acquisitions, and for other general corporate purposes. Borrowings under the 2031 Senior Unsecured Public Notes are subject to interest only, semi-annual payments at a fixed rate of 2.60% per annum and mature in September 2031. The 2031 Senior Unsecured Public Notes were issued by our OP and are fully and unconditionally guaranteed by the Company. The assets, liabilities and results of operations of the OP are not materially different than the corresponding amounts in Company’s consolidated financial statements included herein.
We are subject to various covenants and financial reporting requirements pursuant to our debt facilities, which are summarized below. As of December 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.
| | |
| | |
| | ≤ 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 |
| | ≤ 0.60 to 1.00 |
Consolidated Income Available for Debt to Annual Debt Service Charge | | ≥ 1.50 to 1.00 |
Total Unencumbered Assets to Total Unsecured Debt | | ≥ 1.50 to 1.00 |
| | ≤ 0.40 to 1.00 |
The following table provides information with respect to our contractual commitments and obligations as of December 31,
20182021 (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 Loan Agreements(1) | | | Revolver(2) | | | Senior Notes | | | Mortgages and Notes Payable | | | Interest Expense(3) | | | Tenant Improvement Allowances(4) | | | Operating Leases | | | Total | |
2019 | | $ | — | | | $ | — | | | $ | — | | | $ | 3,433 | | | $ | 61,175 | | | $ | 2,125 | | | $ | 118 | | | $ | 66,851 | |
2020 | | | 300,000 | | | | — | | | | — | | | | 3,672 | | | | 50,959 | | | | — | | | | 120 | | | | 354,751 | |
2021 | | | — | | | | — | | | | — | | | | 18,584 | | | | 49,533 | | | | — | | | | 122 | | | | 68,239 | |
2022 | | | — | | | | 141,100 | | | | — | | | | 3,066 | | | | 42,978 | | | | — | | | | 124 | | | | 187,268 | |
2023 | | | 265,000 | | | | — | | | | — | | | | 7,456 | | | | 33,143 | | | | — | | | | 125 | | | | 305,724 | |
Thereafter | | | 190,000 | | | | — | | | | 475,000 | | | | 43,240 | | | | 115,575 | | | | — | | | | 2,540 | | | | 826,355 | |
Total | | $ | 755,000 | | | $ | 141,100 | | | $ | 475,000 | | | $ | 79,451 | | | $ | 353,363 | | | $ | 2,125 | | | $ | 3,149 | | | $ | 1,809,188 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Revolving Credit Facility (1) | | | | | | | | | | | | Tenant Improvement Allowances (3) | | | | | | | |
| | $ | 60,000 | | | $ | — | | | $ | — | | | $ | 2,906 | | | $ | 60,542 | | | $ | 57 | | | $ | 723 | | | $ | 124,228 | |
| | | — | | | | 102,000 | | | | — | | | | 7,582 | | | | 59,432 | | | | — | | | | 539 | | | | 169,553 | |
| | | 190,000 | | | | — | | | | — | | | | 9,760 | | | | 55,578 | | | | — | | | | 153 | | | | 255,491 | |
| | | — | | | | — | | | | — | | | | 20,195 | | | | 52,126 | | | | — | | | | 155 | | | | 72,476 | |
| | | 400,000 | | | | — | | | | — | | | | 16,843 | | | | 43,682 | | | | — | | | | 157 | | | | 460,682 | |
| | | — | | | | — | | | | 850,000 | | | | 39,874 | | | | 94,113 | | | | — | | | | 3,620 | | | | 987,607 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 650,000 | | | $ | 102,000 | | | $ | 850,000 | | | $ | 97,160 | | | $ | 365,473 | | | $ | 57 | | | $ | 5,347 | | | $ | 2,070,037 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Subsequent to year end,On January 28, 2022, we exercised our first of two options to extendamended and restated the Revolving Credit Facility, extending its maturity date of the 2015 Unsecured Term Loan, from February 6, 2019 to February 6, 2020. Accordingly, we have included principal repayment of this loan in 2020. As noted above, the 2015 Unsecured Term Loan was subsequently repaid in full in February 2019, using proceeds from the 2019 Unsecured Term Loan. We have not included any principal or interest payments associated with the 2019 Unsecured Term Loan in the table above as the borrowing was not a commitment as of December 31, 2018.
|
(2)
| We may extend the Revolver once, for a five-month period,six-monthextension options subject to compliance with all covenants andcertain conditions, including the payment of an extension fee equal to 0.0625% of the revolving commitments.
|
(3)
(2) | Interest expense is projected based on the outstanding borrowings and interest rates in effect as of December 31, 2018.2021. This amount includes the impact of interest rate swap agreements. Interest expense in this table associated with the 2015 Unsecured Term Loan Agreement includes amounts projected to be paid through the extended maturity date of February 6, 2020.
|
(4)
(3) | As of December 31, 2018, tenant improvement allowances totaled $2.1 million.We expect to pay tenant improvement allowances out of cash flows from operations or from additional borrowings.
|
At December 31,
2018,2021 and
2017,2020, investment in rental property of
$139.8$161.6 million and
$67.7$173.5 million, respectively, was pledged as collateral against our
mortgages and notes payable.mortgages.
Additionally, as of December 31, 2018, we are a party to three separate Tax Protection Agreements (the “Agreements”)tax protection agreements with the contributing members (the “Protected Members”) of three distinct UPREIT transactions conductedand we entered into the Founding Owners’ Tax Protection Agreement in November 2015, February 2016, and October 2017.connection with the Internalization. The Agreementstax protection agreements require us to pay monetary damagesindemnify 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 a Protected Membersuch beneficiaries to recognize a Protected Gain, as defined ingain that is protected under the Agreements andagreements, subject to certain exceptions. In such an event, we will pay monetary damages to the Protected Members in the amountBased on values as of December 31, 2021, taxable sales of the aggregate federal, state, and local income taxes incurred as a result of the income or gain allocated or recognized by the Protected Member as an outcome of the transaction, subject to certain caps and limitations contained in the Agreements. We are required to allocate to the Protected Members an amount of nonrecourse liabilities that is at least equal to the Minimum Liability Amount for each Protected Member, as defined 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 Operating Company level, and do not represent GAAP accounting. Therefore, there is no impact to the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data” within this Form 10-K. If the nonrecourse liabilities allocated do not meet the requirement, we will pay monetary damages to the Protected Members in the amount of the aggregate federal, state, and local income taxes incurred as a result of the income or gain allocated or recognized by the Protected Member as an outcome to the default. The maximum aggregate amount we may be liable forproperties would trigger liability under the Agreements isfour agreements of approximately $12.3$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 this commitmentthese commitments from the contractual commitments table above.
ResultsIn the normal course of Operations
Overview
As of December 31, 2018, our real estate investment portfolio had grown to a net book value of $2.68 billion, consisting of investments in 621 properties with locations in 42 states and leased to tenants in various industries. All of our real estate investment portfolio represents commercial real estate properties subject to long-term leases, all of our owned properties were subject to a lease as of December 31, 2018, and substantially all of our leasing activity related to our real estate acquisitions. During the year ended December 31, 2018, one tenant renewed a lease that had been set to expire in 2018. The lease renewal was immaterial to our portfolio of real estate and to our results of operations. During the years ended December 31, 2017 and 2016, none of our leases expired.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Revenues
| | Year Ended December 31, | | | Increase/(Decrease) | | |
(in thousands) | | 2018 | | | 2017 | | | $ | | | % | | |
Revenues: | | | | | | | | | | | | | | | | | |
Rental income from operating leases | | $ | 222,208 | | | $ | 170,493 | | | $ | 51,715 | | | | 30.3 | | % |
Earned income from direct financing leases | | | 3,941 | | | | 4,141 | | | | (200 | ) | | | (4.8 | ) | % |
Operating expenses reimbursed from tenants | | | 11,221 | | | | 6,721 | | | | 4,500 | | | | 67.0 | | % |
Other income from real estate transactions | | | 109 | | | | 208 | | | | (99 | ) | | | (47.6 | ) | % |
Total revenues | | $ | 237,479 | | | $ | 181,563 | | | $ | 55,916 | | | | 30.8 | | % |
Total revenues increased to $237.5 million for the year ended December 31, 2018, compared to $181.6 million for the year ended December 31, 2017, primarily due to the growth in our real estate portfolio. For the year ended December 31, 2018,business, we closed 26 real estate acquisitions and acquired $606.8 million in real estate, excluding acquisition costs, comprised of 113 new properties.
Our real estate investments in new properties were made throughout the year, with a significant portion occurring during the fourth quarters of both 2017 and 2018. Acquisitions made in 2017 provided approximately $38.8 million of incremental straight-line rental income in 2018. For new properties acquired during 2018, we recognized $17.4 million of the $47.4 million in annualized straight-line rental income associated with these properties, with the remainder expected to be recognized in 2019. The acquisitions occurring during the fourth quarter of 2018 did not have a material impact on reported revenues, due to the timing of the rental income from acquisitions. The increase in total revenues as a result of acquisitions made in 2018 and 2017 was partially offset by lost rental income due to real estate disposals.
Of the $606.8 million and $683.6 million in acquisitions during 2018 and 2017, approximately $139.9 million and $314.7 million, respectively, related to sale-leaseback transactions. The rental rates we receive on sale-leaseback transactions and lease assumptions on theenter into various types of properties we target vary from transactioncommitments to transaction based on many factors, such as the terms of the lease, each property’spurchase real estate fundamentals,properties. These commitments are generally subject to our customary due diligence process and, the market rents in the area. The initial cash capitalization rate on acquisitions made during 2018 was 6.9%.
Operating Expenses
| | Year Ended December 31, | | | Increase/(Decrease) | | |
(in thousands) | | 2018 | | | 2017 | | | $ | | | % | | |
Operating expenses: | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | $ | 83,994 | | | $ | 62,263 | | | $ | 21,731 | | | | 34.9 | | % |
Asset management fees | | | 18,173 | | | | 14,754 | | | | 3,419 | | | | 23.2 | | % |
Property management fees | | | 6,529 | | | | 4,988 | | | | 1,541 | | | | 30.9 | | % |
Property and operating expense | | | 11,157 | | | | 6,505 | | | | 4,652 | | | | 71.5 | | % |
General and administrative | | | 6,162 | | | | 4,939 | | | | 1,223 | | | | 24.8 | | % |
State and franchise tax | | | 857 | | | | 624 | | | | 233 | | | | 37.3 | | % |
Provision for impairment of investment in rental properties | | | 2,061 | | | | 2,608 | | | | (547 | ) | | | (21.0 | ) | % |
Total operating expenses | | $ | 128,933 | | | $ | 96,681 | | | $ | 32,252 | | | | 33.4 | | % |
Depreciation and amortization
Depreciation and amortization increased to $84.0 million for the year ended December 31, 2018, compared to $62.3 million for the year ended December 31, 2017, primarily asaccordingly, a result of the growth in our real estate portfolio, as discussed above. Our real estate investments were made throughout the period and were not all outstanding for the entire period; accordingly, only a portion of the increase in annualized depreciation is reflected in the full-year 2018 amounts.
Asset management fees
Asset management fees increased to $18.2 million for the year ended December 31, 2018, compared to $14.8 million for the year ended December 31, 2017. We pay the Asset Manager a quarterly fee equal to 0.25% of the aggregate value of our equity on a fully diluted basis, based on the Determined Share Value. The increase in asset management fees during 2018 is a result of an increase in the Determined Share Value, which was set by our Independent Directors Committee at $81.00 per share at December 31, 2017, and $86.00 per share at December 31, 2018. Additionally, the number of shares of our common stock and noncontrolling membership units of the Operating Company outstanding increased as the result of continued equity capital investments. As of December 31, 2018, there were 23.75 million shares of our common stock and non-controlling membership units outstanding, compared to 20.46 million as of December 31, 2017. The increase in equity capital was used to partially fund the continued growth in our real estate portfolio.
Property and operating expense
Property and operating expense increased to $11.2 million for the year ended December 31, 2018, compared to $6.5 million for the year ended December 31, 2017. The increase is mainly attributable to the number of properties we own for whichspecific conditions must be met before we are responsible for engaging a third-party managerobligated to manage ongoing property maintenance, along with insurance and real estate taxes associated with thosepurchase the properties. A majority of these expenses are paid by us and reimbursed by the tenants under the terms of the respective leases. There was a corresponding increase in the Operating expenses reimbursed from tenants caption included in total revenues, above.
Other income (expenses)
| | Year Ended December 31, | | | Increase/(Decrease) | | |
(in thousands) | | 2018 | | | 2017 | | | $ | | | % | | |
Other income (expenses) | | | | | | | | | | | | | | | | | |
Preferred distribution income | | $ | 440 | | | $ | 737 | | | $ | (297 | ) | | | (40.3 | ) | % |
Interest income | | | 179 | | | | 467 | | | | (288 | ) | | | (61.7 | ) | % |
Interest expense | | | (52,855 | ) | | | (34,751 | ) | | | 18,104 | | | | 52.1 | | % |
Cost of debt extinguishment | | | (101 | ) | | | (5,151 | ) | | | (5,050 | ) | | | (98.0 | ) | % |
Gain on sale of real estate | | | 10,496 | | | | 12,992 | | | | (2,496 | ) | | | (19.2 | ) | % |
Gain on sale of investment in related party | | | 8,500 | | | | — | | | | 8,500 | | | >100.0 | | % |
Other (losses) gains | | | (100 | ) | | | 379 | | | | (479 | ) | | >100.0 | | % |
Interest Expense
Interest expense increased to $52.9 million for the year ended December 31, 2018, compared to $34.8 million for the year ended December 31, 2017, due primarily to an increase in unsecured long-term borrowings. Total outstanding debt on our unsecured credit facilities and unsecured Senior Notes, excluding capitalized debt issuance costs, increased from $1,113.0 million at December 31, 2017, to $1,371.1 million at December 31, 2018, primarily reflecting the issuance of the Series B and Series C Notes in 2018.
Cost of debt extinguishment
The cost of debt extinguishment represents the difference between the price paid to extinguish debt compared to its carrying value, plus any unamortized debt issuance costs at the time of extinguishment. To the extent that the price paid to extinguish the debt is greater than the carrying value of debt, we would recognize a loss on extinguishment. The loss would be increased by the amount of previously capitalized debt issuance costs that remain unamortized at the time of extinguishment. To the extent that the price paid to extinguish the debt is less than the carrying value of debt, we would recognize a gain on extinguishment, netted by any unamortized debt issuance costs. These amounts fluctuate period-over-period based on the variability in the interest rate environment, changes in financial institutions’ credit standards, and our activity in capital markets to manage our leverage position.
Cost of debt extinguishment decreased by $5.1 million, to $0.1 million for the year ended December 31, 2018, compared to $5.2 million for the year ended December 31, 2017. The fluctuation is a direct result of costs and fees associated with our renegotiating our credit facility in 2017, whereas we did not have any similar costs or fees in 2018.
Gain on sale of investment in related party
For the year ended December 31, 2018, we sold our entire investment in 100 non-voting convertible preferred units of our Manager, a related party, to another related party of the Manager. The preferred units were sold for an aggregate sales price of $18.5 million and had a carrying value of $10.0 million at the time of sale. Prior to the sale, we had received preferred distribution income on the preferred units.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Revenues
| | Year Ended December 31, | | | Increase/(Decrease) | | |
(in thousands) | | 2017 | | | 2016 | | | $ | | | % | | |
Revenues: | | | | | | | | | | | | | | | | | |
Rental income from operating leases | | $ | 170,493 | | | $ | 133,943 | | | $ | 36,550 | | | | 27.3 | | % |
Earned income from direct financing leases | | | 4,141 | | | | 4,544 | | | | (403 | ) | | | (8.9 | ) | % |
Operating expenses reimbursed from tenants | | | 6,721 | | | | 4,173 | | | | 2,548 | | | | 61.1 | | % |
Other income from real estate transactions | | | 208 | | | | 209 | | | | (1 | ) | | | (0.5 | ) | % |
Total revenues | | $ | 181,563 | | | $ | 142,869 | | | $ | 38,694 | | | | 27.1 | | % |
Total revenues increased to $181.6 million for the year ended December 31, 2017, compared to $142.9 million for the year ended December 31, 2016, primarily due to the growth in our real estate portfolio. During the year ended December 31, 2017, we closed 29 real estate acquisitions and acquired $683.6 million in real estate, excluding acquisition costs, comprised of 124 new properties.
Our real estate investments in new properties were made throughout the period, with a significant portion during the fourth quarter, and were not all outstanding for the entire period. During 2017, we recognized $17.3 million of the $56.1 million in annualized straight-line rental income from new properties acquired in 2017, with the remaining increase expected to be recognized in 2018. The increase in revenues during 2017 is also a result of the acquisitions made throughout 2016, in particular towards the second half of the year, whereby we recognized the full annualized straight-line rental revenues in 2017. In 2017, we recognized all of the $40.9 million in annualized straight-line rental income from properties acquired in 2016, compared with the $16.9 million we recognized in 2016. The increase in total revenues as a result of acquisitions made in 2017 and 2016 was partially offset by lost rental income due to real estate disposals.
Of the $683.6 million and $518.8 million in acquisitions during 2017 and 2016, approximately $314.7 million and $295.8 million, respectively, related to sale-leaseback transactions. The rental rates we receive on sale-leaseback transactions and lease assumptions on the various types of properties we target across the United States vary from transaction to transaction based on many factors, such as the terms of the lease, each property’s real estate fundamentals, and the market rents in the area. The initial cash capitalization rate on acquisitions made during 2017 was 7.3%.
Operating Expenses
| | Year Ended December 31, | | | Increase/(Decrease) | | |
(in thousands) | | 2017 | | | 2016 | | | $ | | | % | | |
Operating expenses: | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | $ | 62,263 | | | $ | 46,321 | | | $ | 15,942 | | | | 34.4 | | % |
Asset management fees | | | 14,754 | | | | 10,955 | | | | 3,799 | | | | 34.7 | | % |
Property management fees | | | 4,988 | | | | 3,939 | | | | 1,049 | | | | 26.6 | | % |
Acquisition expenses | | | — | | | | 10,880 | | | | (10,880 | ) | | | (100.0 | ) | % |
Property and operating expense | | | 6,505 | | | | 3,900 | | | | 2,605 | | | | 66.8 | | % |
General and administrative | | | 4,939 | | | | 2,790 | | | | 2,149 | | | | 77.0 | | % |
State and franchise tax | | | 624 | | | | 446 | | | | 178 | | | | 39.9 | | % |
Provision for impairment of investment in rental properties | | | 2,608 | | | | — | | | | 2,608 | | | >100.0 | | % |
Total operating expenses | | $ | 96,681 | | | $ | 79,231 | | | $ | 17,450 | | | | 22.0 | | % |
Depreciation and amortization
Depreciation and amortization increased to $62.3 million for the year ended December 31, 2017, compared to $46.3 million for the year ended December 31, 2016, primarily as a result of the growth in our real estate portfolio, as discussed above. Our real estate investments were made throughout the year and were not all outstanding for the entire period; accordingly, only a portion of the increase in annualized depreciation is reflected in the full-year 2017 amounts. In addition, during the year ended December 31, 2017, we capitalized $12.3 million in acquisition expenses as the result of adopting FASB ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The capitalized acquisition expenses are capitalized as part of the cost basis of the underlying assets acquired and are depreciated over the respective useful lives. For acquisitions made in 2016, we expensed acquisition costs as incurred. We adopted ASU 2017-01 and the respective accounting for acquisition expenses as of January 1, 2017, on a prospective basis, and therefore this new accounting standard does not impact acquisition costs previously expensed in 2016.
Asset management fees
Asset management fees increased to $14.8 million for the year ended December 31, 2017, compared to $11.0 million for the year ended December 31, 2016. The increase in 2017 is a result of an increase in our outstanding equity on a fully diluted basis, combined with an increase in the Determined Share Value. During the year ended December 31, 2017, the Independent Directors Committee increased the Determined Share Value from $77.00 per share as of December 31, 2016, to $81.00 per share as of December 31, 2017. Additionally, the number of shares of our common stock and noncontrolling membership units of the Operating Company outstanding increased as the result of continued equity capital investments. As of December 31, 2017, there were 20.46 million shares of our common stock and noncontrolling membership units of the Operating Company outstanding, compared to 16.59 million as of December 31, 2016. The increase in equity capital was used to partially fund the continued growth in our real estate portfolio.
Acquisition Expenses
Acquisition expenses decreased to zero for the year ended December 31, 2017, compared to $10.9 million for the year ended December 31, 2016, reflecting the impact of our adopting the provisions of ASU 2017-01 prospectively as of January 1, 2017. As discussed above, subsequent to the adoption of the ASU, acquisition expenses are now capitalized as part of the cost basis of the underlying assets acquired; whereas previously they had been expensed. Under the terms of the Asset Management Agreement, we pay the Asset Manager an acquisition fee equal to 1% of the gross purchase price paid for each property we acquire (including properties contributed in exchange for membership units in the Operating Company).
As noted above, we capitalized $12.3 million in acquisition expenses for the year ended December 31, 2017. The $1.4 increase in acquisition expenses capitalized in 2017 compared to amounts expensed in 2016, relates to an increase in acquisition activity in the current year.
Property and operating expense
Property and operating expense increased to $6.5 million for the year ended December 31, 2017, compared to $3.9 million for the year ended December 31, 2016. The increase is attributable to the number of properties we own whereby we are responsible for engaging a third-party property manager to manage the respective ongoing property maintenance, along with real estate taxes associated with those properties. A majority of these expenses are paid by us and reimbursed by the tenant under the terms of the respective leases. There was a corresponding increase in the Operating expenses reimbursed from tenants revenue caption, included in total revenues above.
General and administrative
General and administrative expenses increased to $4.9 million for the year ended December 31, 2017, compared to $2.8 million for the year ended December 31, 2016. The increase is primarily related to increased fees for costs and services associated with becoming a public reporting entity in accordance with Section 12(g) of the Exchange Act during 2017.
Provision for impairment of investment in rental properties
For the year ended December 31, 2017, we recognized an asset impairment of $2.6 million on our investments in four rental properties whose carrying amounts we determined were not recoverable. In determining the fair value of the assets at the time of measurement, we utilized direct capitalization rates ranging from 7.25% to 12.00%, and a weighted average discount rate of 8.00%. We did not recognize any asset impairments in 2016.
Other income (expenses)
| | Year Ended December 31, | | | Increase/(Decrease) | | |
(in thousands) | | 2017 | | | 2016 | | | $ | | | % | | |
Other income (expenses) | | | | | | | | | | | | | | | | | |
Preferred distribution income | | $ | 737 | | | $ | 713 | | | $ | 24 | | | | 3.4 | | % |
Interest income | | | 467 | | | | 88 | | | | 379 | | | >100.0 | | % |
Interest expense | | | (34,751 | ) | | | (29,963 | ) | | | 4,788 | | | | 16.0 | | % |
Cost of debt extinguishment | | | (5,151 | ) | | | (133 | ) | | | 5,018 | | | >100.0 | | % |
Gain on sale of real estate | | | 12,992 | | | | 5,925 | | | | 7,067 | | | >100.0 | | % |
Other gains | | | 379 | | | | — | | | | 379 | | | >100.0 | | % |
Interest Expense
Interest expense increased to $34.8 million for the year ended December 31, 2017, compared to $30.0 million for the year ended December 31, 2016, due primarily to an increase in long-term borrowings used to partially fund the acquisition of properties for our growing real estate investment portfolio. The debt outstanding on our unsecured credit facilities, excluding capitalized debt issuance costs, increased from $762.0 million at December 31, 2016, to $1,113.0 million at December 31, 2017.
Cost of debt extinguishment
The increase in the cost of debt extinguishment for the year ended December 31, 2017 as compared to the year ended December 31, 2016, is a result of costs and fees associated with our renegotiating our credit facility in 2017, together with the corresponding extinguishment of a prior revolver and two term loans.
Gain on sale of real estate
For the year ended December 31, 2017, we recognized a $13.0 million gain on the sale of real estate, compared to a gain of $5.9 million for the year ended December 31, 2016. During 2017 and 2016, we sold 13 properties and nine properties, respectively. 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.
Net Income and Non-GAAP Measures (FFO and AFFO)
Our reported results and net earnings per diluted share are presented in accordance with GAAP. We also disclose FFO and AFFO, each of which are non-GAAP measures. We believe the presentation of FFO and AFFO are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs. FFO and AFFO should not be considered alternatives to net income as a performance measure or to cash flows from operations, as reported on our statement of cash flows, or as a liquidity measure, and should be considered in addition to, and not in lieu of, GAAP financial measures.
We compute FFO in accordance with the standards established by the Funds From Operations White Paper — 2018 Restatement approved 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 AFFO, we modify the Nareit computation of FFO to include other adjustments to GAAP net income related to certain non-cash revenues and expenses, including straight-line rents, cost of debt extinguishments, acquisition expenses, 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, extraordinary items, and other specified non-cash items. We believe that such items are not a result of normal operations and thus we believe 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. We further exclude transaction costs associated with acquiring real estate subject to existing leases, including the amortization of lease intangibles, as well as acquisition expenses paid to our Asset Manager that are based on a percentage of the gross acquisition purchase price. We exclude these costs from AFFO because they are upfront expenses that are recognized in conjunction with an acquisition, and therefore, are not indicative of ongoing operational results of the portfolio. We believe excluding acquisition expenses provides investors a view of the performance of our portfolio over time. In connection with our adoption of ASU 2017-01, effective January 1, 2017, and on a prospective basis, we capitalize all asset acquisition expenses as part of the cost basis of the tangible and intangible assets acquired. Therefore, effective January 1, 2017, we no longer adjust for acquisition expenses in our AFFO computation. We further exclude 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, 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 that we use to calculate FFO and AFFO. In the future, the SEC, Nareit or another regulatory body may decide to standardize the allowable adjustments across the REIT industry and in response to such standardization we may have to adjust our calculation and characterization of FFO and AFFO accordingly.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
The following table presents our GAAP net income and non-GAAP FFO and AFFO for the years ended December 31, 2018 and 2017, in total and on a per share basis. Our measures of FFO and AFFO are computed on the basis of amounts attributable to both us and noncontrolling interests. As the noncontrolling interests share in our net income on a one-for-one basis, the basic and diluted per-share amounts are the same.
| | Year ended December 31, | | | Increase/Decrease | | |
(in thousands, except per share data) | | 2018 | | | 2017 | | | $ | | | % | | |
Net income | | $ | 75,105 | | | $ | 59,555 | | | $ | 15,550 | | | | 26.1 | | % |
Net earnings per diluted share | | | 3.43 | | | | 3.21 | | | | 0.22 | | | | 6.9 | | % |
FFO | | | 150,664 | | | | 111,434 | | | | 39,230 | | | | 35.2 | | % |
FFO per diluted share | | | 6.88 | | | | 6.00 | | | | 0.88 | | | | 14.7 | | % |
AFFO | | | 124,065 | | | | 99,952 | | | | 24,113 | | | | 24.1 | | % |
AFFO per diluted share | | $ | 5.66 | | | $ | 5.38 | | | $ | 0.28 | | | | 5.2 | | % |
Diluted WASO(1) | | | 21,910 | | | | 18,567 | | | | 3,343 | | | | 18.0 | | % |
(1)
| Weighted average number of shares of our common stock and membership units in the Operating Company outstanding (“WASO”), computed in accordance with GAAP.
|
Net income
Net income increased to $75.1 million for the year ended December 31, 2018, compared to $59.6 million for the year ended December 31, 2017. Net earnings per diluted share increased to $3.43 for the year ended December 31, 2018, compared to $3.21 for the year ended December 31, 2017. The increase is mainly attributable to the net growth in the number of investments in real estate properties in our portfolio, as discussed in Results of Operations — Year Ended December 31, 2018 Compared to Year Ended December 31, 2017. This portfolio growth generated increased revenues which were partially offset by increased depreciation and amortization, asset management, and property management expenses. Additional contributing factors to net income growth were an $8.5 million gain on sale of an investment in a related party in 2018, for which there was no comparable transaction in 2017, and decreased impairment charges as compared to the prior-year period. In addition, the cost of debt extinguishment decreased year-over-year due to decreased activity. These factors were partially offset by increased interest expense.
The increased net income used in the numerator of the earnings per diluted share calculation was partially offset by increased diluted WASO used in the denominator. The increase in the diluted WASO reflected shares issued as part of our ongoing equity raises. We use proceeds from the sale of stock to partially fund acquisitions of real estate, which contributes to the increased revenues discussed above.
FFO
FFO increased to $150.7 million for the year ended December 31, 2018, compared to $111.4 million for the year ended December 31, 2017. FFO per diluted share increased to $6.88 for the year ended December 31, 2018, compared to $6.00 for the year ended December 31, 2017. The increase in FFO is primarily due to increased revenues, offset by increased asset management fees, and property and operating expenses, all of which reflect the net growth in the number of investments in real estate properties in our portfolio, as discussed in Results of Operations — Year Ended December 31, 2018 Compared to Year Ended December 31, 2017 above. Additional contributing factors to FFO growth were an $8.5 million gain on sale of an investment in a related party in 2018, for which there was no comparable transaction in 2017, and decreased expense associated with the extinguishment of debt as compared to the prior-year period. These factors were partially offset by increased interest expense. The increased FFO in the numerator of the FFO per share calculation was partially offset by an increase in the diluted WASO used in the denominator.
AFFO
AFFO increased to $124.1 million for the year ended December 31, 2018, compared to $100.0 million for the year ended December 31, 2017. AFFO per diluted share increased to $5.66 for the year ended December 31, 2018, compared to $5.38 for the year ended December 31, 2017. The increase in AFFO is primarily due to increased contractual cash revenues as a result of net growth in the number of investments in real estate properties in our portfolio, partially offset by increased asset management fees, property and operating expenses, and interest expense. See further discussion in Results of Operations — Year Ended December 31, 2018 Compared to Year Ended December 31, 2017, above. The increase in AFFO in the numerator of the AFFO per diluted share calculation was partially offset by an increase in the diluted WASO used in the denominator.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
The following table presents our GAAP net income and non-GAAP FFO and AFFO for the years ended December 31, 2017 and 2016, in total and on a per share basis. Our measures of FFO and AFFO are computed on the basis of amounts attributable to both us and noncontrolling interests. As the noncontrolling interests share in our net income on a one-for-one basis, the basic and diluted per-share amounts are the same.
| | Year ended December 31, | | | Increase/Decrease | | |
(in thousands, except per share data) | | 2017 | | | 2016 | | | $ | | | % | | |
Net income | | $ | 59,555 | | | $ | 40,268 | | | $ | 19,287 | | | | 47.9 | | % |
Net earnings per diluted share | | | 3.21 | | | | 2.76 | | | | 0.45 | | | | 16.3 | | % |
FFO | | | 111,434 | | | | 80,664 | | | | 30,770 | | | | 38.1 | | % |
FFO per diluted share | | | 6.00 | | | | 5.53 | | | | 0.47 | | | | 8.5 | | % |
AFFO | | | 99,952 | | | | 78,780 | | | | 21,172 | | | | 26.9 | | % |
AFFO per diluted share | | $ | 5.38 | | | $ | 5.40 | | | $ | (0.02 | ) | | | (0.4 | ) | % |
Diluted WASO(1) | | | 18,567 | | | | 14,597 | | | | 3,970 | | | | 27.2 | | % |
Net income
Net income increased to $59.6 million for the year ended December 31, 2017, compared to $40.3 million in 2016. Net earnings per diluted share increased to $3.21 in 2017, compared to $2.76 in 2016. The increase is mainly attributable to the net growth in the number of investments in real estate properties in our portfolio, as discussed in Results of Operations — Year Ended December 31, 2017 Compared to Year Ended December 31, 2016, above. This investment activity generated increased revenues which were partially offset by increased depreciation and amortization, asset management, and property management expenses. In addition, we recognized $13.0 in gains on sale of real estate in 2017, compared to $5.9 million in 2016. Net income also increased in 2017 as a result of adopting the provisions of ASU 2017-01 prospectively as of January 1, 2017, which had the effect of our capitalizing acquisition costs that had been expensed in prior years. During 2017, we capitalized $12.3 million in acquisition expenses.
Partially offsetting these factors were a $5.0 million increase in costs of debt extinguishment and a $4.8 million increase in interest expense, both of which reflect the costs and fees associated with the renegotiation of our long-term credit facilities and increased borrowing capacity, as well as the impact of a $2.6 million impairment charge taken during 2017 for which there was no comparable transaction in 2016.
The increased net income used in the numerator of the earnings per diluted share calculation was partially offset by increased diluted WASO used in the denominator. The increase in the diluted WASO reflected shares issued as part of our ongoing equity raises.
FFO
FFO increased to $111.4 million for the year ended December 31, 2017, compared to $80.7 million for the year ended December 31, 2016. FFO per diluted share increased to $6.00 in 2017, compared to $5.53 in 2016. The increase in FFO is primarily due to increased revenues, offset by increased asset management fees and property and operating expenses, all of which reflect the net growth in the number of investments in real estate properties in our portfolio, as discussed in Results of Operations — Year Ended December 31, 2017 Compared to Year Ended December 31, 2016, above. FFO also increased in 2017 as a result of adopting the provisions of ASU 2017-01 prospectively as of January 1, 2017, which had the effect of our capitalizing $12.3 million of acquisition costs that had been expensed in prior years. These factors were partially offset by increased costs of debt extinguishment and interest expense. The increased FFO in the numerator of the FFO per diluted share calculation was partially offset by increased diluted WASO used in the denominator.
AFFO
AFFO increased to $100.0 million for the year ended December 31, 2017, compared to $78.8 million for the year ended December 31, 2016. AFFO per diluted share decreased to $5.38 in 2017, compared to $5.40 in 2016. The increase in AFFO is primarily due to increased contractual cash revenues as a result of the net growth in the number of investments in real estate properties in our portfolio, combined with increased asset management fees and property and operating expenses, as discussed in Year Ended December 31, 2017 Compared to Year Ended December 31, 2016, above. These factors were partially offset by increased interest expense. The increased AFFO in the numerator of the AFFO per diluted share calculation was more than offset by the increase in the diluted WASO used in the denominator.
Reconciliation of Non-GAAP Measures
The following is a reconciliation of net income to FFO and AFFO for the years ended December 31, 2018, 2017, and 2016. Also presented are the diluted WASO and per diluted share amounts:
| | Year ended December 31, | |
(in thousands, except per share data) | | 2018 | | | 2017 | | | 2016 | |
Net income | | $ | 75,105 | | | $ | 59,555 | | | $ | 40,268 | |
Real property depreciation and amortization | | | 83,994 | | | | 62,263 | | | | 46,321 | |
Gain on sale of real estate | | | (10,496 | ) | | | (12,992 | ) | | | (5,925 | ) |
Provision for impairment on investment in rental properties | | | 2,061 | | | | 2,608 | | | | — | |
FFO | | $ | 150,664 | | | $ | 111,434 | | | $ | 80,664 | |
Capital improvements / reserves | | | (196 | ) | | | (196 | ) | | | (194 | ) |
Straight line rent adjustment | | | (19,492 | ) | | | (17,132 | ) | | | (13,847 | ) |
Cost of debt extinguishment | | | 101 | | | | 5,151 | | | | 133 | |
Gain on sale of investment in related party | | | (8,500 | ) | | | — | | | | — | |
Amortization of debt issuance costs | | | 1,918 | | | | 1,795 | | | | 1,817 | |
Amortization of net mortgage premiums | | | (142 | ) | | | 61 | | | | (191 | ) |
Gain on interest rate swaps and other non-cash interest expense | | | (84 | ) | | | (1,280 | ) | | | — | |
Amortization of lease intangibles | | | (304 | ) | | | 498 | | | | (482 | ) |
Other losses (gains) | | | 100 | | | | (379 | ) | | | — | |
Acquisition expenses | | | — | | | | — | | | | 10,880 | |
AFFO | | $ | 124,065 | | | $ | 99,952 | | | $ | 78,780 | |
Diluted WASO | | | 21,910 | | | | 18,567 | | | | 14,597 | |
Net earnings per share, basic and diluted | | $ | 3.43 | | | $ | 3.21 | | | $ | 2.76 | |
FFO per diluted share | | | 6.88 | | | | 6.00 | | | | 5.53 | |
AFFO per diluted share | | | 5.66 | | | | 5.38 | | | | 5.40 | |
Critical Accounting Policies
The preparation of our consolidated financial statements in conformance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses as well as other disclosures in the financial statements. On an ongoing basis, management evaluates its estimates and assumptions; however, actual results may differ from these estimates and assumptions, which in turn could have a material impact on our financial statements. A summary of our significant accounting policies and procedures are included in Note 2, “Summary of Significant Accounting Policies”, contained in Item 8. “Financial Statements and Supplementary Data” included in this Form 10-K. Management believes the following critical accounting policies, among others, affect its more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Investments in Rental Property
We record investments in rental property accounted for under operating leases at cost. We record investments in rental property accounted for under direct financing leases at their net investment (which at the inception of the lease generally represents the cost of the property).
We early adopted ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), on a prospective basis, effective January 1, 2017. The guidance changes the definition of a business to exclude acquisitions where substantially all of the fair value of the assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets, and therefore are accounted for as asset acquisitions instead of business combinations. All of the acquisitions closed subsequent to the adoption of this guidance, and therefore during the years ended December 31, 2018 and December 31, 2017, did not meet the definition of a business and accordingly were accounted for as asset acquisitions.
We allocate the purchase price of investments in rental property accounted for as an asset acquisition based on the relative fair value of the assets acquired and liabilities assumed. These generally include tangible assets, consisting of land and land improvements, buildings and other improvements, and equipment, and identifiable intangible assets and liabilities, including the value of in-place leases and acquired above-market and below-market leases. Acquisition costs incurred in connection with investments in real estate accounted for as asset acquisitions are capitalized and included with the allocated purchase price. The results of operations of acquired properties are included in the Consolidated Statements of Income and Comprehensive Income from the respective date of acquisition.
We allocate the purchase price of investments in rental property accounted for as a business combination based on the estimated fair value at the date of the acquisition of the assets acquired and liabilities assumed. These generally include tangible assets, consisting of land and land improvements, buildings and other improvements, and equipment, and identifiable intangible assets and liabilities, including the value of in-place leases and acquired above-market and below-market leases. Acquisition costs incurred in connection with investments in real estate accounted for as business combinations are expensed at the time of acquisition. The results of operations of acquired properties are included in the Consolidated Statements of Income and Comprehensive Income from the respective date of acquisition.
We use multiple sources to estimate fair value, including information obtained about each property as a result of our pre-acquisition due diligence and our marketing and leasing activities. Factors that impact our fair value determination include real estate market conditions, industry conditions that the tenant operates in, and characteristics of the real estate and/or real estate appraisals. Changes in any of these factors could impact the future purchase prices of our investments and the corresponding capitalization rates recognized. We do not believe the assumptions used to fair value the investments upon acquisition have a significant degree of estimation uncertainty.
We determine the fair value of tangible assets of an acquired property by valuing the property as if it were vacant. Management then allocates the as-if-vacant value to land and land improvements, buildings, and equipment based on comparable sales and other relevant information with respect to the property, as estimated by management. Specifically, the “if vacant” value of buildings and equipment is calculated using an income approach. Assumptions used in the income approach to value buildings include: capitalization and discount rates, lease-up time, market rents, make ready costs, land value, and land improvement value.
The estimated fair value of acquired in-place leases equals the costs we would have had to incur to lease the properties to the occupancy level of the properties at the date of acquisition. Such costs include the fair value of leasing commissions and other operating costs that would have been incurred to lease the properties, had they been vacant, to their acquired occupancy level. We amortize acquired in-place leases as of the date of acquisition over the remaining initial non-cancellable terms of the respective leases to amortization expense.
We record acquired above-market and below-market lease values based on the present value (using an interest rate that reflects the risks associated with the lease acquired) of the differences between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market value lease rates at the time of acquisition for the corresponding in-place leases. We amortize the capitalized above-market and below-market lease values as adjustments to rental revenue over the remaining term of the respective leases.
Should a tenant terminate its lease, we charge the unamortized portion of the in-place lease value to amortization expense and we charge the unamortized portion of above-market or below-market lease value to rental income.
Management estimates the fair value of assumed mortgages and notes payable based upon indications of then-current market pricing for similar types of debt with similar maturities. We record assumed mortgages and notes payable at their estimated fair value as of the assumption date, and the difference between the estimated fair value and the notes’ outstanding principal balance is amortized to interest expense over the remaining term of the debt.
Long-lived Asset Impairment
We review long-lived assets to be held and used for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If, and when, such events or changes in circumstances are present, an impairment exists to the extent the carrying value of the 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 factors such as 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 judgement is made as to if and when impairment should be taken. If our strategy, or one or more of the assumptions described above were to change in the future, an impairment may need to be recognized.
Inputs used in establishing fair value for impaired real estate assets generally fall within Level 3 of the fair value hierarchy, which are characterized as requiring significant judgment as little or no current market activity may be available for validation. The main indicator used to establish the classification of the inputs is current market conditions, as derived through our use of published commercial real estate market information. We determine the valuation of impaired assets using generally accepted valuation techniques including discounted cash flow analysis, income capitalization, analysis of recent comparable sales transactions, actual sales negotiations, and bona fide purchase offers received from third parties. We may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of real estate.
During the years ended December 31, 2018, 2017, and 2016, we recorded impairment charges of $2.1 million, $2.6 million, and zero, respectively, which resulted from non-payment of past due rental amounts, concerns over the respective tenants’ future viability, and changes to the overall investment strategy for certain real estate assets. In determining the fair value of the real estate assets at the time of measurement, we utilized capitalization rates ranging from 7.25% to 12.0% and a weighted average discount rate of 8.0%, which are Level 3 inputs. We believe the uncertainty in the future cash flows was reflected in the significant capitalization rate, and the estimates were based on the information available at the time of impairment. One of the properties for which an impairment charge was recorded in 2017, was subsequently sold in 2018. The assumptions we used in determining the amount of the impairment charge on this property were validated upon the subsequent sale, which was at a value consistent with our originally estimated impaired value. We classified the impairment charge within earnings from operations in the Consolidated Statements of Income and Comprehensive Income included in Item 8. “Financial Statements and Supplementary Data” in this Form 10-K.
Revenue Recognition
At the inception of a new lease arrangement, including new leases that arise from amendments, management assesses the terms and conditions to determine the proper lease classification. A lease arrangement is classified as an operating lease if none of the following criteria are met: (i) ownership transfers to the lessee prior to or shortly after the end of the lease term, (ii) lessee has a bargain purchase option during or at the end of the lease term, (iii) the lease term is greater than or equal to 75% of the underlying property’s economic life, or (iv) the present value of the future minimum lease payments (excluding executory costs) is greater than or equal to 90% of the fair value of the leased property. If one or more of these criteria are met, and the minimum lease payments are determined to be reasonably predictable and collectible, the lease arrangement is generally accounted for as a direct financing lease. Consistent with ASC 840, Leases, if the fair value of the land component is 25% or more of the total fair value of the leased property, the land is considered separately from the building for purposes of applying the lease term and minimum lease payments criterion in (iii) and (iv) above.
Revenue recognition methods for operating leases and direct financing leases are described below:
Rental property accounted for under operating leases – Revenue is recognized as rents are earned on a straight-line basis over the non-cancelable terms of the related leases. In most cases, revenue recognition under operating leases begins when the lessee takes possession of, or controls, the physical use of the leased asset. Generally, this occurs on the lease commencement date. For leases that have fixed and measurable rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded as accrued rental income.
Rental property accounted for under direct financing leases – Management utilizes the direct finance method of accounting to record direct finance lease income. For a lease accounted for as a direct finance lease, the net investment in the direct finance lease represents receivables for the sum of future minimum lease payments and the estimated residual value of the leased property, less the unamortized unearned income. Unearned income is deferred and amortized into income over the lease terms so as to produce a constant periodic rate of return on our net investment in the leases.
Derivative Instruments and Hedging
Management uses interest rate swap agreements to manage risks related to interest rate movements on our variable-rate debt. The interest rate swap agreements, designated and qualifying as cash flow hedges, are reported at fair value. We adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting and Hedging Activities, effective January 1, 2018 on a modified retrospective basis. ASU 2017-12 amended the designation and measurement guidance for qualifying hedging transactions and the presentation of hedge results in an entity’s financial statements.
Prior to the adoption of ASU 2017-12, the gain or loss on the effective portion of the hedge was initially included as a component of other comprehensive income or loss and was subsequently reclassified into earnings when interest payments on the related debt were incurred and as the swap net settlements occurred. If and when there was ineffectiveness realized on a swap agreement, the Company recognized the ineffectiveness as a component of interest expense in the period incurred.
ASU 2017-12 removed the concept of separately measuring and reporting hedge ineffectiveness and requires a company to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. In accordance with ASU 2017-12, the gain or loss on the qualifying hedges is initially included as a component of other comprehensive income or loss and is subsequently reclassified into earnings when interest payments (the forecasted transactions) on the related debt are incurred and as the swap net settlements occur.
When an existing cash flow hedge is terminated, we determine the accounting treatment for the accumulated gain or loss recognized in accumulated other comprehensive income, based on the probability of the hedged forecasted transaction occurring within the period the cash flow hedge was anticipated to affect earnings. If management determines that the hedged forecasted transaction is probable of occurring during the original period, the accumulated gain or loss is reclassified into earnings over the remaining life of the cash flow hedge using a straight-line method, which approximates an effective interest method. If management determines that the hedged forecasted transaction is not probable of occurring during the original period, the entire amount of accumulated gain or loss is reclassified into earnings in the period the cash flow hedge is terminated.
Management documents its risk management strategy and hedge effectiveness at the inception of and during the term of each hedge. Our interest rate risk management strategy is intended to stabilize cash flow requirements by maintaining interest rate swap agreements to convert certain variable-rate debt to a fixed rate.
Impact of Recent Accounting Pronouncements
For information on the impact of recent accounting pronouncements on our business, see the captions Recently Adopted Accounting Standards and Other Recently Issued Accounting Standards in Note 2, “Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in Item 8. “Financial Statements and Supplementary Data” of this Form 10-K.
Item 7A.
| Quantitative and Qualitative Disclosures About Market Risk
|
We are exposed to interest rate risk arising from changes in interest rates on the floating-rate indebtednessborrowings under our unsecured credit facilities and a certain mortgage. Borrowings pursuant to our unsecured credit facilities and floating-rate mortgage bear interest at floating rates based on LIBOR plus thean 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 a portion of our interest rate risk by entering into interest rate swap agreements. Our interest rate risk management strategy is intended to stabilize cash flow requirements by maintaining interest rate swap agreements to convert certain variable-rate debt to a fixed rate.swaps. As of December 31, 2018, and December 31, 2017,2021, we had 28 and 2924 interest rate swap agreementsswaps outstanding respectively, in an aggregate notional amount of $760.1 million and $795.2 million, respectively.$640.0 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
The following table summarizes the terms of our interest rate swap agreements as of
Cash and cash equivalents and restricted cash totaled $27.8 million, $110.7 million, and $20.3 million at December 31,
2018.(in thousands, except interest rates) | | | | | | | | | | | | | | | | |
Counterparty | | Maturity Date | | Fixed Rate | | | Variable Rate Index | | Notional Amount | | | Fair Value | |
Bank of America, N.A. | | November 2023 | | | 2.80 | % | | one-month LIBOR | | $ | 25,000 | | | $ | (411 | ) |
Bank of Montreal | | July 2024 | | | 1.16 | % | | one-month LIBOR | | | 40,000 | | | | 2,702 | |
Bank of Montreal | | January 2025 | | | 1.91 | % | | one-month LIBOR | | | 25,000 | | | | 769 | |
Bank of Montreal | | July 2025 | | | 2.32 | % | | one-month LIBOR | | | 25,000 | | | | 222 | |
Bank of Montreal | | January 2026 | | | 1.92 | % | | one-month LIBOR | | | 25,000 | | | | 915 | |
Bank of Montreal | | January 2026 | | | 2.05 | % | | one-month LIBOR | | | 40,000 | | | | 1,130 | |
Bank of Montreal | | December 2026 | | | 2.33 | % | | one-month LIBOR | | | 10,000 | | | | 132 | |
Bank of Montreal | | December 2027 | | | 2.37 | % | | one-month LIBOR | | | 25,000 | | | | 355 | |
Capital One, N.A. | | December 2021 | | | 1.05 | % | | one-month LIBOR | | | 15,000 | | | | 605 | |
Capital One, N.A. | | December 2024 | | | 1.58 | % | | one-month LIBOR | | | 15,000 | | | | 727 | |
Capital One, N.A. | | January 2026 | | | 2.08 | % | | one-month LIBOR | | | 35,000 | | | | 930 | |
Capital One, N.A. | | July 2026 | | | 1.32 | % | | one-month LIBOR | | | 35,000 | | | | 2,877 | |
Capital One, N.A. | | December 2027 | | | 2.37 | % | | one-month LIBOR | | | 25,000 | | | | 345 | |
Capital One, N.A. | | April 2026 | | | 2.68 | % | | one-month LIBOR | | | 15,000 | | | | (189 | ) |
M&T Bank | | August 2021 | | | 1.02 | % | | one-month LIBOR | | | 5,051 | | | | 177 | |
M&T Bank | | September 2022 | | | 2.83 | % | | one-month LIBOR | | | 25,000 | | | | (362 | ) |
M&T Bank | | November 2023 | | | 2.65 | % | | one-month LIBOR | | | 25,000 | | | | (254 | ) |
Regions Bank | | May 2020 | | | 2.12 | % | | one-month LIBOR | | | 50,000 | | | | 271 | |
Regions Bank | | December 2023 | | | 1.18 | % | | one-month LIBOR | | | 25,000 | | | | 1,484 | |
SunTrust Bank | | April 2024 | | | 1.99 | % | | one-month LIBOR | | | 25,000 | | | | 554 | |
SunTrust Bank | | April 2025 | | | 2.20 | % | | one-month LIBOR | | | 25,000 | | | | 382 | |
SunTrust Bank | | July 2025 | | | 1.99 | % | | one-month LIBOR | | | 25,000 | | | | 728 | |
SunTrust Bank | | December 2025 | | | 2.30 | % | | one-month LIBOR | | | 25,000 | | | | 299 | |
SunTrust Bank | | January 2026 | | | 1.93 | % | | one-month LIBOR | | | 25,000 | | | | 903 | |
Wells Fargo Bank, N.A. | | February 2021 | | | 2.39 | % | | one-month LIBOR | | | 35,000 | | | | 59 | |
Wells Fargo Bank, N.A. | | October 2024 | | | 2.72 | % | | one-month LIBOR | | | 15,000 | | | | (222 | ) |
Wells Fargo Bank, N.A. | | January 2028 | | | 2.37 | % | | one-month LIBOR | | | 75,000 | | | | 1,067 | |
Wells Fargo Bank, N.A. | | April 2027 | | | 2.72 | % | | one-month LIBOR | | | 25,000 | | | | (382 | ) |
| | | | | | | | | | $ | 760,051 | | | $ | 15,813 | |
With the exception of our interest rate swap transactions, we have not engaged in transactions in other derivative financial instruments or derivative commodity instruments.
As of December 31, 2018, our financial instruments were denominated in U.S. dollars,2021, 2020, and therefore were not exposed to significant market risk due to foreign currency exchange risk.
Item 8.
| Financial Statements and Supplementary Data
|
Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Broadstone Net Lease, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Broadstone Net Lease, Inc. and Subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of income and comprehensive income, stockholders’ equity, and2019, respectively. The table below shows information concerning cash flows for each of the three years ended December 31, 20182021, 2020, and 2019:
| | | | | | | | | | | | |
| | |
| |
| | | | | | | | | |
Net cash provided by operating activities | | $ | 244,937 | | | $ | 179,028 | | | $ | 147,358 | |
Net cash used in investing activities | | | (582,304 | ) | | | (60,236 | ) | | | (831,707 | ) |
Net cash provided by (used in) financing activities | | | 254,408 | | | | (28,375 | ) | | | 685,671 | |
| | | | | | | | | | | | |
(Decrease) increase in cash and cash equivalents and restricted cash | | $ | (82,959 | ) | | $ | 90,417 | | | $ | 1,322 | |
| | | | | | | | | | | | |
The increase in net cash provided by operating activities during the
related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years
in the period ended December 31,
2018,2021 and 2020, as compared to the comparable prior periods, was mainly due to growth in
conformity with accounting principles generally accepted in the United States of America.Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registeredreal estate portfolio and cost savings associated with the Public Company Accounting Oversight Board (United States) (PCAOB) and are requiredInternalization, in addition to be independent with respect$35 million lease termination fee we received during the year ended December 31, 2021. The increase in net cash provided by operating activities during the years ended December 31, 2020 as compared to the Companyyear ended December 31, 2019, was mainly due to growth in accordanceour real estate portfolio and cost savings associated with the U.S. federal securities lawsInternalization.
The increase in net cash used in investing activities during the year ended December 31, 2021 as compared to the year ended December 31, 2020, was mainly due to increased acquisition volume in 2021 offset by decrease in cash paid in connection with the Internalization. The change in net cash used in investing activities during the year ended December 31, 2020 as compared to the year ended December 31, 2019, was mainly due to decreased acquisition volume, offset by cash paid in connection with the Internalization and decreased proceeds from the applicable rulesdisposal of properties in 2020.
The increase in net cash provided by (used in) financing activities during the year ended December 31, 2021 as compared to the year ended December 31, 2020, mainly reflects an increase in net proceeds from equity and regulationsdebt offerings in 2021 to fund growth in our real estate portfolio. The change in net cash (used in) provided by financing activities during the year ended December 31, 2020 as compared to the year ended December 31, 2019, mainly reflects a net repayment of debt in 2020 with proceeds from our IPO, compared to net borrowings in 2019 that were partially offset by increased proceeds from the Securitiessale of common stock.
FFO and
Exchange Commission and the PCAOB.AFFO
We
conducted our auditscompute FFO in accordance with the standards
established by the Board of
Governors of Nareit, the
PCAOB. Those standards require thatworldwide 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 AFFO, we
planmodify the Nareit computation of FFO to include other adjustments to GAAP net income related to certainnon-cash
andnon-recurring
revenues and
performexpenses, including straight-line rents,write-off
of accrued rental income, the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As partchange in fair value of our
audits, we are required to obtain an understandingearnout liability, cost of
internal control over financial reporting but not for the purposedebt extinguishments, amortization of
expressing an opinionlease intangibles, amortization of debt issuance costs, amortization of net mortgage premiums, (gain) loss on
the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to errorinterest rate swaps and other
non-cash
interest expense, realized gains or
fraud,losses on foreign currency transactions, internalization expenses, stock-based compensation, severance, extraordinary items, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.other specifiednon-cash
items. We believe that
excluding such items assists management and investors in distinguishing whether changes in our
audits provideoperations 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 rental rates over time. Our leases do not include significant front-loading or back-loading of payments, or significant rent-free periods. Therefore, we find it useful to evaluate rent on a
reasonablecontractual 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 theCOVID-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 withCOVID-19,
and the corresponding payments, did not impact our
opinion./s/ Deloitte & Touche LLP
Rochester, New York
March 14, 2019
AFFO.
We
have servedfurther exclude the change in fair value of our earnout liability, lease terminations fees, 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
Company’s auditor since 2016.
Broadstone Net Lease, Inc.effect of real estate depreciation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share amounts)
| | December 31, | |
| | 2018 | | | 2017 | |
Assets | | | | | | | | |
Accounted for using the operating method, net of accumulated depreciation | | $ | 2,641,746 | | | $ | 2,186,141 | |
Accounted for using the direct financing method | | | 42,000 | | | | 41,617 | |
Investment in rental property, net | | | 2,683,746 | | | | 2,227,758 | |
Cash and cash equivalents | | | 18,612 | | | | 9,355 | |
Restricted cash | | | 377 | | | | 744 | |
Accrued rental income | | | 69,247 | | | | 52,018 | |
Tenant and other receivables, net | | | 1,026 | | | | 897 | |
Tenant and capital reserves | | | 1,136 | | | | 943 | |
Prepaid expenses and other assets | | | 2,803 | | | | 267 | |
Notes receivable | | | — | | | | 6,527 | |
Investment in related party | | | — | | | | 10,000 | |
Interest rate swap, assets | | | 17,633 | | | | 11,008 | |
Intangible lease assets, net | | | 286,258 | | | | 242,659 | |
Debt issuance costs – unsecured revolver, net | | | 2,261 | | | | 3,026 | |
Leasing fees, net | | | 13,698 | | | | 13,554 | |
Total assets | | $ | 3,096,797 | | | $ | 2,578,756 | |
Liabilities and equity | | | | | | | | |
Unsecured revolver | | $ | 141,100 | | | $ | 273,000 | |
Mortgages and notes payable, net | | | 78,952 | | | | 67,832 | |
Unsecured term notes, net | | | 1,225,773 | | | | 836,912 | |
Interest rate swap, liabilities | | | 1,820 | | | | 5,020 | |
Accounts payable and other liabilities | | | 22,269 | | | | 20,345 | |
Due to related parties | | | 114 | | | | 722 | |
Tenant improvement allowances | | | 2,125 | | | | 5,669 | |
Accrued interest payable | | | 9,777 | | | | 3,311 | |
Intangible lease liabilities, net | | | 85,947 | | | | 81,744 | |
Total liabilities | | | 1,567,877 | | | | 1,294,555 | |
Commitments and contingencies (See Note 18) | | | | | | | | |
Equity | | | | | | | | |
Broadstone Net Lease, Inc. stockholders' equity: | | | | | | | | |
Preferred stock, $0.001 par value; 20,000 shares authorized, no shares issued or outstanding | | | — | | | | — | |
Common stock, $0.001 par value; 80,000 shares authorized, 22,014 and 18,909 shares issued and outstanding at December 31, 2018 and 2017, respectively | | | 22 | | | | 19 | |
Additional paid-in capital | | | 1,557,421 | | | | 1,301,979 | |
Subscriptions receivable | | | — | | | | (15 | ) |
Cumulative distributions in excess of retained earnings | | | (155,150 | ) | | | (120,280 | ) |
Accumulated other comprehensive income | | | 14,806 | | | | 5,122 | |
Total Broadstone Net Lease, Inc. stockholders’ equity | | | 1,417,099 | | | | 1,186,825 | |
Non-controlling interests | | | 111,821 | | | | 97,376 | |
Total equity | | | 1,528,920 | | | | 1,284,201 | |
Total liabilities and equity | | $ | 3,096,797 | | | $ | 2,578,756 | |
The accompanying notesamortization and net gains on sales, which are an integral partbased on historical costs and implicitly assume that the value of these consolidated financial statements.
real estate diminishes predictably over time, rather than fluctuating based on existing market
Broadstone Net Lease, Inc. and SubsidiariesConsolidated StatementsTable of Income and Comprehensive Income
(in thousands, except per share amounts)
Contents | | For the years ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Revenues | | | | | | | | | | | | |
Rental income from operating leases | | $ | 222,208 | | | $ | 170,493 | | | $ | 133,943 | |
Earned income from direct financing leases | | | 3,941 | | | | 4,141 | | | | 4,544 | |
Operating expenses reimbursed from tenants | | | 11,221 | | | | 6,721 | | | | 4,173 | |
Other income from real estate transactions | | | 109 | | | | 208 | | | | 209 | |
Total revenues | | | 237,479 | | | | 181,563 | | | | 142,869 | |
Operating expenses | | | | | | | | | | | | |
Depreciation and amortization | | | 83,994 | | | | 62,263 | | | | 46,321 | |
Asset management fees | | | 18,173 | | | | 14,754 | | | | 10,955 | |
Property management fees | | | 6,529 | | | | 4,988 | | | | 3,939 | |
Acquisition expenses | | | — | | | | — | | | | 10,880 | |
Property and operating expense | | | 11,157 | | | | 6,505 | | | | 3,900 | |
General and administrative | | | 6,162 | | | | 4,939 | | | | 2,790 | |
State and franchise tax | | | 857 | | | | 624 | | | | 446 | |
Provision for impairment of investment in rental properties | | | 2,061 | | | | 2,608 | | | | — | |
Total operating expenses | | | 128,933 | | | | 96,681 | | | | 79,231 | |
Other income (expenses) | | | | | | | | | | | | |
Preferred distribution income | | | 440 | | | | 737 | | | | 713 | |
Interest income | | | 179 | | | | 467 | | | | 88 | |
Interest expense | | | (52,855 | ) | | | (34,751 | ) | | | (29,963 | ) |
Cost of debt extinguishment | | | (101 | ) | | | (5,151 | ) | | | (133 | ) |
Gain on sale of real estate | | | 10,496 | | | | 12,992 | | | | 5,925 | |
Gain on sale of investment in related party | | | 8,500 | | | | — | | | | — | |
Other (losses) gains | | | (100 | ) | | | 379 | | | | — | |
Net income | | | 75,105 | | | | 59,555 | | | | 40,268 | |
Net income attributable to non-controlling interests | | | (5,730 | ) | | | (4,756 | ) | | | (3,914 | ) |
Net income attributable to Broadstone Net Lease, Inc. | | $ | 69,375 | | | $ | 54,799 | | | $ | 36,354 | |
Weighted average number of common shares outstanding | | | | | | | | | | | | |
Basic | | | 20,242 | | | | 17,084 | | | | 13,178 | |
Diluted | | | 21,910 | | | | 18,567 | | | | 14,597 | |
Net Earnings per common share | | | | | | | | | | | | |
Basic and diluted | | $ | 3.43 | | | $ | 3.21 | | | $ | 2.76 | |
Comprehensive income | | | | | | | | | | | | |
Net income | | $ | 75,105 | | | $ | 59,555 | | | $ | 40,268 | |
Other comprehensive income | | | | | | | | | | | | |
Change in fair value of interest rate swaps | | | 10,584 | | | | 4,166 | | | | 13,771 | |
Realized gain on interest rate swaps | | | (84 | ) | | | (873 | ) | | | — | |
Comprehensive income | | | 85,605 | | | | 62,848 | | | | 54,039 | |
Comprehensive income attributable to non-controlling interests | | | (6,546 | ) | | | (5,019 | ) | | | (5,253 | ) |
Comprehensive income attributable to Broadstone Net Lease, Inc. | | $ | 79,059 | | | $ | 57,829 | | | $ | 48,786 | |
The accompanying notes are an integral part of these consolidated financial statements.
Broadstone Net Lease, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(in thousands, except per share amounts)
| | Common Stock | | | Additional Paid-in Capital | | | Subscriptions Receivable | | | Cumulative Distributions in Excess of Retained Earnings | | | Accumulated Other Comprehensive (Loss)/Income | | | Non- controlling Interests | | | Total | |
Balance, January 1, 2016 | | $ | 11 | | | $ | 738,909 | | | $ | (1,506 | ) | | $ | (56,911 | ) | | $ | (10,340 | ) | | $ | 77,782 | | | $ | 747,945 | |
Net income | | | — | | | | — | | | | — | | | | 36,354 | | | | — | | | | 3,914 | | | | 40,268 | |
Issuance of 3,784 shares of common stock | | | 4 | | | | 284,062 | | | | (8,284 | ) | | | — | | | | — | | | | — | | | | 275,782 | |
Other offering costs | | | — | | | | (1,310 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,310 | ) |
Issuance of 97 membership units | | | — | | | | — | | | | — | | | | — | | | | — | | | | 7,190 | | | | 7,190 | |
Distributions declared ($0.405 per share January and February 2016, $0.410 per share March through December 2016) | | | — | | | | — | | | | — | | | | (69,403 | ) | | | — | | | | (7,552 | ) | | | (76,955 | ) |
Change in fair value of interest rate swap agreements | | | — | | | | — | | | | — | | | | — | | | | 12,432 | | | | 1,339 | | | | 13,771 | |
Redemption of 109 shares of common stock | | | — | | | | (8,154 | ) | | | — | | | | — | | | | — | | | | — | | | | (8,154 | ) |
Adjustment of non-controlling interests | | | — | | | | (4,076 | ) | | | — | | | | — | | | | — | | | | 4,076 | | | | — | |
Balance, December 31, 2016 | | | 15 | | | | 1,009,431 | | | | (9,790 | ) | | | (89,960 | ) | | | 2,092 | | | | 86,749 | | | | 998,537 | |
Net income | | | — | | | | — | | | | — | | | | 54,799 | | | | — | | | | 4,756 | | | | 59,555 | |
Issuance of 3,833 shares of common stock | | | 4 | | | | 303,711 | | | | 9,775 | | | | — | | | | — | | | �� | — | | | | 313,490 | |
Other offering costs | | | — | | | | (1,380 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,380 | ) |
Issuance of 161 membership units | | | — | | | | — | | | | — | | | | — | | | | — | | | | 12,913 | | | | 12,913 | |
Distributions declared ($0.410 per share January 2017, $0.415 per share February through December 2017) | | | — | | | | — | | | | — | | | | (85,119 | ) | | | — | | | | (7,649 | ) | | | (92,768 | ) |
Change in fair value of interest rate swap agreements | | | — | | | | — | | | | — | | | | — | | | | 3,834 | | | | 332 | | | | 4,166 | |
Realized loss on interest rate swap agreements | | | — | | | | — | | | | — | | | | — | | | | (804 | ) | | | (69 | ) | | | (873 | ) |
Conversion of 37 membership units to 37 shares of common stock | | | — | | | | 2,986 | | | | — | | | | — | | | | — | | | | (2,986 | ) | | | — | |
Redemption of 119 shares of common stock | | | — | | | | (9,439 | ) | | | — | | | | — | | | | — | | | | — | | | | (9,439 | ) |
Adjustment of non-controlling interests | | | — | | | | (3,330 | ) | | | — | | | | — | | | | — | | | | 3,330 | | | | — | |
Balance, December 31, 2017 | | | 19 | | | | 1,301,979 | | | | (15 | ) | | | (120,280 | ) | | | 5,122 | | | | 97,376 | | | | 1,284,201 | |
Net income | | | — | | | | — | | | | — | | | | 69,375 | | | | — | | | | 5,730 | | | | 75,105 | |
Issuance of 3,233 shares of common stock | | | 3 | | | | 268,478 | | | | 15 | | | | — | | | | — | | | | — | | | | 268,496 | |
Other offering costs | | | — | | | | (1,158 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,158 | ) |
Issuance of 194 membership units | | | — | | | | — | | | | — | | | | — | | | | — | | | | 15,797 | | | | 15,797 | |
Distributions declared ($0.415 per share January 2018, $0.430 per share February through December 2018) | | | — | | | | — | | | | — | | | | (104,245 | ) | | | — | | | | (8,724 | ) | | | (112,969 | ) |
Change in fair value of interest rate swap agreements | | | — | | | | — | | | | — | | | | — | | | | 9,762 | | | | 822 | | | | 10,584 | |
Realized gain on interest rate swap agreements | | | — | | | | — | | | | — | | | | — | | | | (78 | ) | | | (6 | ) | | | (84 | ) |
Conversion of eight membership units to eight shares of common stock | | | — | | | | 684 | | | | — | | | | — | | | | — | | | | (684 | ) | | | — | |
Redemption of 127 shares of common stock | | | — | | | | (10,304 | ) | | | — | | | | — | | | | — | | | | — | | | | (10,304 | ) |
Cancellation of nine shares of common stock | | | — | | | | (748 | ) | | | — | | | | — | | | | — | | | | — | | | | (748 | ) |
Adjustment of non-controlling interests | | | — | | | | (1,510 | ) | | | — | | | | — | | | | — | | | | 1,510 | | | | — | |
Balance, December 31, 2018 | | $ | 22 | | | $ | 1,557,421 | | | $ | — | | | $ | (155,150 | ) | | $ | 14,806 | | | $ | 111,821 | | | $ | 1,528,920 | |
The accompanying notes are an integral part of these consolidated financial statements.
Broadstone Net Lease, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
| | For the years ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Operating activities | | | | | | | | | | | | |
Net income | | $ | 75,105 | | | $ | 59,555 | | | $ | 40,268 | |
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization including intangibles associated with investment in rental property | | | 83,690 | | | | 62,759 | | | | 45,839 | |
Provision for impairment of investment in rental properties | | | 2,061 | | | | 2,608 | | | | — | |
Amortization of debt issuance costs charged to interest expense | | | 1,776 | | | | 1,893 | | | | 1,626 | |
Straight-line rent and financing lease adjustments | | | (19,492 | ) | | | (17,132 | ) | | | (13,847 | ) |
Cost of debt extinguishment | | | 101 | | | | 5,151 | | | | 81 | |
Gain on sale of real estate | | | (10,496 | ) | | | (12,992 | ) | | | (5,925 | ) |
Settlement of interest rate swap | | | 760 | | | | (1,965 | ) | | | — | |
Gain on sale of investment in related party | | | (8,500 | ) | | | — | | | | — | |
Leasing fees paid | | | (1,399 | ) | | | (3,339 | ) | | | (2,932 | ) |
Other non-cash items | | | 528 | | | | (1,258 | ) | | | 405 | |
Changes in assets and liabilities: | | | | | | | | | | | | |
Tenant and other receivables | | | (876 | ) | | | (542 | ) | | | 214 | |
Prepaid expenses and other assets | | | (936 | ) | | | (8 | ) | | | 212 | |
Accounts payable and other liabilities | | | (777 | ) | | | 1,501 | | | | 1,060 | |
Accrued interest payable | | | 6,466 | | | | 1,709 | | | | 188 | |
Net cash provided by operating activities | | | 128,011 | | | | 97,940 | | | | 67,189 | |
Investing activities | | | | | | | | | | | | |
Acquisition of rental property accounted for using the operating method, net of mortgages assumed of $20,845, $5,205 and $0 in 2018, 2017 and 2016, respectively | | | (575,764 | ) | | | (657,286 | ) | | | (500,061 | ) |
Related party acquisition of rental property accounted for using the operating method, net of mortgage assumed of $0, $6,721 and $0 in 2018, 2017 and 2016, respectively | | | — | | | | (7,531 | ) | | | — | |
Acquisition of rental property accounted for using the direct financing method | | | (430 | ) | | | (3,546 | ) | | | (544 | ) |
Capital expenditures and improvements | | | (4,960 | ) | | | (6,606 | ) | | | (1,938 | ) |
Issuance of notes receivable | | | — | | | | — | | | | (2,827 | ) |
Proceeds from sale of investment in related party | | | 18,500 | | | | — | | | | — | |
Proceeds from disposition of rental property, net | | | 53,988 | | | | 63,310 | | | | 34,890 | |
Increase in tenant and capital reserves | | | (193 | ) | | | (176 | ) | | | (93 | ) |
Change in deposits on investments in rental property | | | (1,600 | ) | | | — | | | | — | |
Net cash used in investing activities | | | (510,459 | ) | | | (611,835 | ) | | | (470,573 | ) |
Financing activities | | | | | | | | | | | | |
Proceeds from issuance of common stock, net | | | 215,902 | | | | 272,827 | | | | 246,453 | |
Redemptions of common stock | | | (10,204 | ) | | | (9,439 | ) | | | (8,154 | ) |
Borrowings on mortgages, notes payable and unsecured term notes, net of mortgages assumed of $20,845, $11,926 and $0 in 2018, 2017 and 2016, respectively | | | 415,000 | | | | 515,000 | | | | 114,000 | |
Principal payments on mortgages, notes payable and unsecured term notes | | | (34,722 | ) | | | (386,080 | ) | | | (11,387 | ) |
Borrowings on unsecured revolver | | | 343,600 | | | | 494,000 | | | | 308,500 | |
Repayments on unsecured revolver | | | (475,500 | ) | | | (323,000 | ) | | | (206,500 | ) |
Cash distributions paid to stockholders | | | (51,845 | ) | | | (44,540 | ) | | | (35,731 | ) |
Cash distributions paid to non-controlling interests | | | (8,638 | ) | | | (7,574 | ) | | | (6,967 | ) |
Debt issuance and extinguishment costs paid | | | (2,255 | ) | | | (10,303 | ) | | | (864 | ) |
Net cash provided by financing activities | | | 391,338 | | | | 500,891 | | | | 399,350 | |
Net increase (decrease) in cash and cash equivalents and restricted cash | | | 8,890 | | | | (13,004 | ) | | | (4,034 | ) |
Cash and cash equivalents and restricted cash at beginning of period | | | 10,099 | | | | 23,103 | | | | 27,137 | |
Cash and cash equivalents and restricted cash at end of period | | $ | 18,989 | | | $ | 10,099 | | | $ | 23,103 | |
Reconciliation of cash and cash equivalents and restricted cash | | | | | | | | | | | | |
Cash and cash equivalents at beginning of period | | $ | 9,355 | | | $ | 21,635 | | | $ | 27,050 | |
Restricted cash at beginning of period | | | 744 | | | | 1,468 | | | | 87 | |
Cash and cash equivalents and restricted cash at beginning of period | | $ | 10,099 | | | $ | 23,103 | | | $ | 27,137 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 18,612 | | | $ | 9,355 | | | $ | 21,635 | |
Restricted cash at end of period | | | 377 | | | | 744 | | | | 1,468 | |
Cash and cash equivalents and restricted cash at end of period | | $ | 18,989 | | | $ | 10,099 | | | $ | 23,103 | |
The accompanying notes are an integral part of these consolidated financial statements.
Broadstone Net Lease, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (in thousands)
December 31, 2018, 2017, and 2016
1. Business Description
Broadstone Net Lease, Inc. (the “Corporation”)conditions. We believe that AFFO is a Maryland corporation formed on October 18, 2007, that electeduseful 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 taxed as a real estate investment trust (“REIT”) commencingcomparable to similarly titled measures employed by other REITs, and comparisons of our FFO and AFFO with the taxable year ended December 31, 2008. The Corporation focusessame or similar measures disclosed by other REITs may not be meaningful.Neither the SEC nor any other regulatory body has passed judgment on
investing in income-producing, net leased commercial properties. The Corporation leases properties to retail, healthcare, industrial, office, and other commercial businesses under long-term lease agreements. At December 31, 2018, the
Corporation owned a diversified portfolio of 621 individual net leased commercial properties located in 42 states throughout the continental United States.Broadstone Net Lease, LLC (the “Operating Company”), is the entity through which the Corporation conducts its business and owns (either directly or through subsidiaries) allacceptability of the Corporation’s properties. The Corporation isadjustments to FFO that we use to calculate AFFO. In the sole managing memberfuture, 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 the Operating Company. The remaining interests in the Operating Company, which are referred to as non-controlling interests, are held by members who acquired their interest by contributing property to the Operating Company in exchange for membership units of the Operating Company. As the Corporation conducts substantially all of its operations through the Operating Company, it is structured as what is referred to as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”). AFFO accordingly.
The following table summarizesreconciles net income (which is the economic ownershipmost comparable GAAP measure) to FFO and AFFO:
| | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
(in thousands, except per share data) | | | | | | | | | |
| | $ | 109,528 | | | $ | 56,276 | | | $ | 85,114 | |
Real property depreciation and amortization | | | 131,999 | | | | 132,613 | | | | 108,818 | |
Gain on sale of real estate | | | (13,523 | ) | | | (14,985 | ) | | | (29,914 | ) |
Provision for impairment on investment in rental properties | | | 28,208 | | | | 19,077 | | | | 3,452 | |
| | | | | | | | | | | | |
| | $ | 256,212 | | | $ | 192,981 | | | $ | 167,470 | |
| | | | | | | | | | | | |
Straight-line rent adjustment | | | (20,304 | ) | | | (24,066 | ) | | | (21,986 | ) |
Write-off of accrued rental income | | | 1,938 | | | | 4,235 | | | | 43 | |
| | | (35,000 | ) | | | — | | | | — | |
Adjustment to provision for credit losses | | | (38 | ) | | | (148 | ) | | | — | |
Cost of debt extinguishment | | | 368 | | | | 417 | | | | 1,176 | |
Amortization of debt issuance costs | | | 3,854 | | | | 3,445 | | | | 2,685 | |
Amortization of net mortgage premiums | | | (132 | ) | | | (142 | ) | | | (143 | ) |
Loss (gain) on interest rate swaps and other non-cash interest expense | | | 698 | | | | (166 | ) | | | (205 | ) |
Amortization of lease intangibles | | | (3,208 | ) | | | (1,118 | ) | | | (3,410 | ) |
| | | 4,669 | | | | 1,989 | | | | — | |
| | | 1,304 | | | | 94 | | | | — | |
Change in fair value of earnout liability | | | 5,539 | | | | (1,800 | ) | | | — | |
| | | — | | | | 3,705 | | | | 3,658 | |
Capital improvements/reserves | | | — | | | | 1,662 | | | | (97 | ) |
| | | 62 | | | | 7 | | | | 6 | |
| | | | | | | | | | | | |
| | $ | 215,962 | | | $ | 181,095 | | | $ | 149,197 | |
| | | | | | | | | | | | |
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 certainnon-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
Operating Company at December 31, 2018, 2017, and 2016: | | December 31, | |
Percentage of shares owned by | | 2018 | | | 2017 | | | 2016 | |
Corporation | | | 92.7 | % | | | 92.4 | % | | | 91.4 | % |
Non-controlling interests | | | 7.3 | % | | | 7.6 | % | | | 8.6 | % |
| | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
The Corporation operates undersame quarter in which the direction of its board of directors (the “Board of Directors”), which is responsibleproperties are acquired. Additionally, EBITDAre for the managementquarter 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 controldispositions 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 Company’s (as defined below) affairs. The Corporation is externally managedquarter, (ii) to exclude certain GAAP income and its Boardexpense amounts that are either
non-cash,
such as cost of
Directors has retaineddebt extinguishments or the
Corporation’s sponsor, Broadstone Real Estate, LLC (the “Manager”)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
Broadstone Asset Management, LLC (the “Asset Manager”)which we do not anticipate occurring in the future, and (iii) to
manageeliminate the
Corporation’s day-to-day affairs, to implement the Corporation’s investment strategyimpact of lease termination fees and
to provide certain property management services for the Corporation’s properties, subject to the Board of Director’s direction, oversight, and approval. The Asset Manager is a wholly owned subsidiary of the Manager and all of the Corporation’s officers are employees of the Manager. Accordingly, both the Manager and the Asset Manager are related parties of the Company. Refer to Note 3 for further discussion over related parties and related party transactions.2. Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts and operations of the Corporation, the Operating Company, and its consolidated subsidiaries, all of which are wholly owned by the Operating Company (collectively, the “Company”). All intercompany balances and transactions have been eliminated in consolidation.
To the extent the Corporation has a variable interest in entitiesother items that are not evaluateda 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 the variable interest entity (“VIE”) model, the Corporation evaluates its interests using the voting interest entity model. The Corporation holds a 92.7% interest in the Operating Company at December 31, 2018GAAP, and is the sole managing memberour Adjusted EBITDAre and Annualized Adjusted EBITDAre may not be comparable to similarly titled measures of the Operating Company, which gives the Corporation exclusiveother companies. You should not consider our Adjusted EBITDAre and complete responsibility for the day-to-day management, authorityAnnualized Adjusted EBITDAre as alternatives to make decisions, and control of the Operating Company. Based on consolidation guidance, the Corporation has concluded that the Operating Company is a VIE as the members in the Operating Company do not possess kick-out rightsnet income or substantive participating rights. Accordingly, the Corporation consolidates its interest in the Operating Company. However, as the Corporation holds the majority voting interest in the Operating Company, it qualifies for the exemptioncash flows from providing certain disclosure requirements associated with investments in VIEs.
The portion of the Operating Company not owned by the Corporation is presented as non-controlling interests as of and during the periods presented.
Basis of Accounting
The Consolidated Financial Statements have been preparedoperating activities determined in accordance with generally accepted accounting principlesGAAP.
The following table reconciles net income (which is the most comparable GAAP measure) to EBITDA, EBITDAre, and Adjusted EBITDAre. Information is also presented with respect to Annualized EBITDAre and Annualized Adjusted EBITDAre:
| | | | | | | | | | | | |
| | | For the Three Months Ended December 31, | |
| | | | | | | | | |
| | $ | 32,226 | | | $ | 17,619 | | | $ | 27,712 | |
Depreciation and amortization | | | 33,476 | | | | 30,182 | | | | 30,829 | |
| | | 16,997 | | | | 17,123 | | | | 21,509 | |
| | | 457 | | | | (141 | ) | | | 1,262 | |
| | | | | | | | | | | | |
| | $ | 83,156 | | | $ | 64,783 | | | $ | 81,312 | |
Provision for impairment of investment in rental properties | | | 207 | | | | 1,678 | | | | — | |
Gain on sale of real estate | | | (3,732 | ) | | | (5,260 | ) | | | (13,142 | ) |
| | | | | | | | | | | | |
| | $ | 79,631 | | | $ | 61,201 | | | $ | 68,170 | |
Adjustment for current quarter acquisition activity (1) | | | 2,002 | | | | 1,703 | | | | 346 | |
Adjustment for current quarter disposition activity (2) | | | (180 | ) | | | (318 | ) | | | (1,015 | ) |
Adjustment to exclude non-recurring expenses (income) (3) | | | — | | | | 182 | | | | 2,463 | |
Adjustment to exclude change in fair value of earnout liability | | | — | | | | 6,706 | | | | — | |
Adjustment to exclude write-off of accrued rental income | | | — | | | | 242 | | | | — | |
| | | | | | | | | | | | |
| | $ | 81,453 | | | $ | 69,716 | | | $ | 69,964 | |
| | | | | | | | | | | | |
| | $ | 318,526 | | | $ | 244,805 | | | $ | 272,680 | |
| | | | | | | | | | | | |
Annualized Adjusted EBITDAre | | $ | 325,812 | | | $ | 278,867 | | | $ | 279,856 | |
| | | | | | | | | | | | |
| (1) | 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. |
| (2) | 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. |
| (3) | Amounts represent expense directly associated with the Internalization. |
Net Debt, Net Debt to Annualized EBITDAre and Net Debt to Annualized Adjusted EBITDAre
We define Net Debt as gross debt (total reported debt plus debt issuance costs) less cash and cash equivalents and restricted cash. We believe that the presentation of Net Debt to Annualized EBITDAre and Net Debt to Annualized Adjusted EBITDAre is useful to investors and analysts because these ratios provide information about gross debt less cash and cash equivalents, which could be used to repay debt, compared to our performance as measured using EBITDAre, and is used in
communications with lenders and rating agencies regarding our credit rating. The following table reconciles total debt (which is the
United States (“GAAP”).Usemost comparable GAAP measure) to Net Debt, and presents the ratio of Net Debt to Annualized EBITDAre and Net Debt to Annualized Adjusted EBITDAre, respectively:
| | | | | | | | |
| | | | |
| | | | | | |
| | | | | | | | |
Unsecured revolving credit facility | | $ | 102,000 | | | $ | — | |
Unsecured term loans, net | | | 646,671 | | | | 961,330 | |
Senior unsecured notes, net | | | 843,801 | | | | 472,466 | |
| | | 96,846 | | | | 107,382 | |
| | | 9,842 | | | | 6,489 | |
| | | | | | | | |
| | | 1,699,160 | | | | 1,547,667 | |
Cash and cash equivalents | | | (21,669 | ) | | | (100,486 | ) |
| | | (6,100 | ) | | | (10,242 | ) |
| | | | | | | | |
| | $ | 1,671,391 | | | $ | 1,436,939 | |
| | | | | | | | |
Net Debt to Annualized EBITDAre | | | 5.25x | | | | 5.87x | |
| | | | | | | | |
Net Debt to Annualized Adjusted EBITDAre | | | 5.13x | | | | 5.15x | |
| | | | | | | | |
Critical Accounting Policies and Estimates
The preparation of
Consolidated Financial Statementsour consolidated financial statements in
conformityconformance with GAAP requires management to make
certain estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses as well as other disclosures in the financial statements. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities at the
datedates of the
Consolidated Financial Statementsfinancial statements and the reported amounts of
revenuesrevenue and expenses during the reporting periods.
SignificantOn an ongoing basis, management evaluates its estimates
include, but are not limited to, the allocation of purchase price between investment in rental property and
intangible assets acquired and liabilities assumed, the value of long-lived assets, the provision for impairment, the depreciable lives of rental property, the amortizable lives of intangible assets and liabilities, the allowance for doubtful accounts, the fair value of assumed debt and notes payable, the fair value of the Company’s interest rate swap agreements, and the determination of any uncertain tax positions. Accordingly,assumptions; however, actual results may differ from
those estimates.these estimates and assumptions, which in turn could have a material impact on our financial statements. A summary of our significant accounting policies and procedures are included in Note 2, “Summary of Significant Accounting Policies”, contained in Item 8. “Financial Statements and Supplementary Data” included in this Annual Report on Form
10-K.
Management believes the following critical accounting policies, among others, affect its more significant estimates and assumptions used in the preparation of our consolidated financial statements.Investment in Rental Property
Rental property accounted for under operating leases is recorded at cost. Rental property accounted for under direct financing leases
isand sales-type are recorded at its net investment, which generally represents the cost of the property at the inception of the lease.
The Company early adopted Financial
We account for acquisitions of real estate as asset acquisitions in accordance with Accounting Standards
BoardCodification (“
FASB”ASC”)
Accounting Standards Update (“ASU”) 2017-01, 805,Business Combinations, (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), on a prospective basis, effective January 1, 2017. The guidance changes the definition of a business to exclude acquisitions where
assets, and therefore are accounted for as asset acquisitions insteadassets.
We allocate the purchase price of investments in rental property accounted for as
an asset
acquisitionacquisitions based on the relative fair value of the assets acquired and liabilities assumed. These generally include tangible assets, consisting of land and land improvements, buildings and other improvements, and equipment, and identifiable intangible assets and liabilities, including the value of
in-place
leases and acquired above-market and below-market leases.
Acquisition costs incurred in connection with investments in real estate accounted for as asset acquisitions are capitalized and included with the allocated purchase price. The results of operations of acquired properties are included in the Consolidated Statements of Income and Comprehensive Income from the respective date of acquisition.The Company allocates the purchase price of investments in rental
We use multiple sources to estimate fair value, including information obtained about each property
accounted for as a
business combination based on the estimatedresult of ourpre-acquisition
due diligence and our marketing and leasing activities. Factors that impact our fair value
at the date of the acquisition of the assets acquired and liabilities assumed. These generallydetermination include
tangible assets, consisting of land and land improvements, buildings and other improvements, and equipment, and identifiable intangible assets and liabilities, including the value of in-place leases and acquired above-market and below-market leases. Acquisition costs incurred in connection with investments in real estate accounted for as business combinations are expensed at the time of acquisition. The results of operations of acquired properties are included in the Consolidated Statements of Income and Comprehensive Income from the respective date of acquisition.Estimated fair value determinations are based on management’s judgment, which considers various factors including real estate market conditions, industry conditions that the tenant operates in, and characteristics of the real estate and/or real estate appraisals.
Changes in any of these factors could impact the future purchase prices of our investments and the corresponding capitalization rates recognized.
The estimated fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant. Thevalue is then allocated to land and land improvements, buildings, and equipment based on comparable sales and other relevant information with respect to the property, as estimated by management. Specifically, the “if vacant” value of buildings and equipment is calculated using an income approach. Assumptions used in the income approach to value the buildings include: capitalization and discount rates,lease-up
time, market rents, make ready costs, land value, and land improvement value.
The estimated fair value of acquired
in-place
leases are the costs
that the Companywe would have had to incur to lease the properties to the occupancy level of the properties at the date of acquisition. Such costs include the fair value of leasing commissions and other operating costs that would have been incurred to lease the properties, had they been vacant, to their acquired occupancy level. Acquired
in-place
leases as of the date of acquisition are amortized over the remaining
non-cancellable
lease terms of the respective leases to amortization expense.
Acquired above-market and below-market lease values are recorded based on the present value (using an interest rate that reflects the risks associated with the lease acquired) of the differences between the contractual amounts to be paid pursuant to the
in-place
leases and management’s estimate of fair market value lease rates at the time of acquisition for the corresponding
in-place
leases. The capitalized above-market and below-market lease values are amortized as adjustments to rental income over the remaining term of the respective leases.
Should a tenant terminate its lease, the unamortized portion of the in-place lease value is charged to amortization expense and the unamortized portion of above-market or below-market lease value is charged to rental income.
Management estimates the fair value of assumed mortgages
and notes payable based upon indications of then-current market pricing for similar types of debt with similar maturities. Assumed mortgages
and notes payable are initially recorded at their estimated fair value as of the assumption date, and the difference between such estimated fair value and the notes’ outstanding principal balance is amortized to interest expense over the remaining term of the debt.
Expenditures for significant betterments and improvements are capitalized. Maintenance and repairs are charged to expense when incurred. Construction and improvement costs incurred in connection with the development of new properties or the redevelopment of existing properties are capitalized. Real estate taxes, interest costs, and leasing and development costs incurred during construction periods are capitalized. Capitalization is based on qualified expenditures and interest rates. Capitalized real estate taxes, interest costs, and leasing and development costs are amortized over lives which are consistent with the related assets. There were no capitalized interest or real estate taxes during the years ended December 31, 2018, 2017, and 2016.
Long-lived Asset Impairment
The Company reviews
We review long-lived assets to be held and used for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If, and when, such events or changes in circumstances are present, an impairment exists to the extent the carrying value of the
long-lived asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the
long-lived asset or asset group and its eventual disposition. Such cash flows include expected future operating income, as adjusted for trends and prospects, as well as the effects of demand, competition, and other factors. An impairment loss is measured as the amount by which the carrying amount of the
long-lived asset or asset group exceeds the fair
value of the asset or asset group. A significantvalue. Significant judgment is made
as to
determine if and when impairment should be taken.
Management’s assessment of impairment as of December 31, 2021 was based on the most current information available to management. Certain of our properties may have fair values less than their carrying amounts. However, based on management’s plans with respect to each of those properties, we believe that their carrying amounts are recoverable and therefore, no impairment charges were recognized other than those described below. If
the operating conditions mentioned above deteriorate or if our
strategy, or one or more of the assumptions described above were to changeexpected holding period for assets changes, subsequent tests for impairments could result in additional impairment charges in the
future, an impairment may need to be recognized.future.
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 determinesWe determine the valuation of impaired assets using generally accepted valuation techniques including discounted cash flow analysis, income capitalization, analysis of recent comparable sales transactions, actual sales negotiations, and bona fide purchase offers received from third parties. ManagementWe may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of itsour real estate.
For the years ended December 31, 2018, 2017, and 2016, the Company recordedThe following table summarizes our impairment charges of $2,061, $2,608, and $0, respectively, which resultedresulting primarily from non-payment of rental amounts, concerns over the respective tenant’s future viability, and changes in our long-term hold strategy with respect to the overall investment strategy for certain real estate assets. The amountindividual properties:
| | | | | | | | | | | | |
| | | | |
(in thousands, except number of properties) | | | | | | | | | |
| | | 7 | | | | 7 | | | | 4 | |
Carrying value prior to impairment charge | | $ | 48,604 | | | $ | 55,674 | | | $ | 15,901 | |
| | | 20,396 | | | | 36,597 | | | | 12,449 | |
| | | | | | | | | | | | |
| | $ | 28,208 | | | $ | 19,077 | | | $ | 3,452 | |
| | | | | | | | | | | | |
Goodwill represents the excess of the impairment charge was based on management’s consideration of the factors detailed above. In determiningamount paid over the fair value of the impairedidentifiable tangible and intangible assets acquired and liabilities assumed in a business combination and it assigned to one or more reporting units. We evaluate goodwill for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable, or at September 30, 2018,least annually. Our annual testing date is November 30.
The goodwill impairment evaluation is completed using either a qualitative or quantitative approach. Under a qualitative approach, the
timeimpairment review for goodwill consists of
measurement,an assessment of whether it ismore-likely-than-not
that the
Company utilized capitalization rates ranging from 7.50%reporting unit’s fair value is less than its carrying value, including goodwill. If a qualitative approach indicates it is morelikely-than-not
that the estimated carrying value of a reporting unit (including goodwill) exceeds its fair value, or if we choose to
10.00%, andbypass the qualitative approach, we perform the quantitative approach described below. When we perform a
weighted average discount ratequantitative test of
8.00%. In determininggoodwill for impairment, we compare the carrying value of a reporting unit with its fair value. If the fair value of the
reporting unit exceeds its carrying amount, we do not consider goodwill to be impaired
assets at September 30, 2017,and no further analysis would be required. If the
timefair value is determined to be less than its carrying value, the amount of
measurement,goodwill impairment equals the
Company utilized capitalization rates ranging from 7.25% to 12.00%, and a weighted average discount rate of 8.00%.The Company has reducedamount by which the reporting unit’s carrying values of the impaired real estate assets to their estimated fair values at the measurement dates as detailed below:
| | September 30, 2018 | | | September 30, 2017 | |
(in thousands) | | Carrying Amount | | | Allocation of Impairment | | | Net Carrying Amount | | | Carrying Amount | | | Allocation of Impairment | | | Net Carrying Amount | |
Investments in rental property accounted for using the operating method, net of accumulated depreciation | | $ | 12,834 | | | $ | (1,702 | ) | | $ | 11,132 | | | $ | 16,159 | | | $ | (2,401 | ) | | $ | 13,758 | |
Intangible lease assets, net | | | 2,305 | | | | (384 | ) | | | 1,921 | | | | 1,263 | | | | (204 | ) | | | 1,059 | |
Leasing fees, net | | | 131 | | | | (19 | ) | | | 112 | | | | 123 | | | | (16 | ) | | | 107 | |
Intangible lease liabilities, net | | | (989 | ) | | | 44 | | | | (945 | ) | | | (101 | ) | | | 13 | | | | (88 | ) |
| | $ | 14,281 | | | $ | (2,061 | ) | | $ | 12,220 | | | $ | 17,444 | | | $ | (2,608 | ) | | $ | 14,836 | |
Investments in Rental Property Held for Sale
The Company classifies investments in rental property as held for sale when all of the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of investment properties, (iii) an active program to locate a buyer and conduct other actions required to complete the sale has been initiated, (iv) the sale of the property is probable in occurrence and is expected to qualify as a completed sale, (v) the property is actively marketed for sale at a sale price that is reasonable in relation tovalue exceeds its fair value, and (vi) actions requirednot to completeexceed the sale indicatecarrying amount of goodwill.
Management determined that
it is unlikely that any significant changes will be made or thatwe have one reporting unit, consistent with our segment reporting analysis, which includes the
plan to sell will be withdrawn.For properties classified as held for sale, the Company suspends depreciationacquisition, leasing, and amortization of the related assets, including the acquired in-place lease and above- or below-market lease intangibles, as well as straight-line revenue recognition of the associated lease, and records the investment in rental property at the lower of cost or net realizable value. The assets and liabilities associated with the properties classified as held for sale are presented separately on the Consolidated Balance Sheets for the most recent reporting period. At December 31, 2018 and 2017, the Company did not have any properties that met the held for sale criteria, and therefore, were not classified as held for sale.
Sales of Real Estate
As described further in Recently Adopted Accounting Standards elsewhere in Note 2, the Company adopted ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets, effective January 1, 2018 on a prospective basis. Under ASU 2017-05, the Company’s sales of real estate are generally considered to be sales to non-customers, requiring the Company to identify each distinct non-financial asset promised to the buyer. The Company determines whether the buyer obtains control of the non-financial assets, achieved through the transfer of the risks and rewards of ownership of net leased properties (i.e., the non-financial assets. If controlconsolidated entity). When necessary to perform the quantitative test for goodwill impairment, our estimate of fair value is transferred to the buyer, the Company derecognizes the asset.
If the Company determines that it did not transfer control of the non-financial assets to the buyer, the Company analyzes the contract for separate performance obligations and allocatesdetermined using a portion of the sales price to each performance obligation. As performance obligations are satisfied, the Company recognizes the respective income in the Consolidated Statements of Income and Comprehensive Income.
Prior to the adoption of ASU 2017-05, the Company recognized real estate sales when all of the following criteria were met: (i) a sale was consummated, (ii) the buyer had demonstrated an adequate commitment to pay for the property, (iii) the Company’s receivable was not subject to future subordination, and (iv) the Company had transferred the risks and rewards of ownership to the buyer and did not have continuing involvement. Unless all conditions were met, recognition of all or a portion of the profit was deferred.
The Company presents discontinued operations if disposals of properties represent a strategic shift in operations. Those strategic shifts would need to have a major effect on the Company’s operations and financial results in order to meet the definition. For the years ended December 31, 2018, 2017, and 2016, the Company did not have property dispositions that qualifiedmarket approach, leveraging assumptions such as discontinued operations.
Depreciation
Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which are as follows:
Land improvements
| | 15 years
|
Buildings and other improvements
| | 15 to 39 years
|
Equipment
| | 7 years
|
Rental Expense
Rental expense associated with land that the Company leases under non-cancellable operating leases, is recorded on a straight-line basis over the term of each lease, for leases that have fixed and measurable rent escalations. The difference between rental expense incurred on a straight-line basis and cash rental payments due under provisions of the lease is recorded as a deferred liability and is included as a component of Accounts payable and other liabilities in the accompanying Consolidated Balance Sheets.
Investment in Related Party
Investment in related party relates to a non-voting, preferred unit investment in the Manager. Income on the Company’s investment is recognized based on the stated preferred rate of return. Such amounts are included as Preferred distribution income in the Consolidated Statements of Income and Comprehensive Income.
Cash Equivalents
Cash equivalents consist of highly liquid investments with an original maturity at date of acquisition of three months or less, including money market funds. The Company estimates that the fair value of cash equivalents approximatesour equity, and consideration of a control premium, if necessary, which includes an analysis of similar market transactions. While we believe the carryingassumptions used to estimate the fair value due toof our reporting unit are reasonable, changes in these assumptions may have a material impact on our financial results. Based on the relatively short maturityresults of these instruments.
Restricted Cash
Restricted cash includes escrow fundsour annual goodwill impairment test on November 30, 2021, our inaugural goodwill impairment test date, we concluded that goodwill was not impaired.
We account for leases in accordance with ASC 842, Leases. We commence revenue recognition on our leases based on a number of factors, including the Company maintains pursuant toinitial determination that the termscontract is or contains a lease.
Generally, all of our property related contracts are or contain leases, and
lease agreements, and undistributed proceeds fromtherefore revenue is recognized when the
salelessee takes possession of
properties under Section 1031or controls the physical use of the
Internal Revenue Code.Revenue Recognition
leased assets. In most instances this occurs on the lease commencement date. At the time of lease assumption or at the inception of a new lease, arrangement, including new leases that arise from amendments, the Company assesseswe assess the terms and conditions of the lease to determine the proper lease classification.
A lease arrangement is classified as an operating lease if none of the following criteria are met: (i) ownership transfers to the lessee prior to or shortly afterat the end of the lease term, (ii) the lessee has a bargain purchase option during or at the end of the lease term,that is reasonably expected to be exercised, (iii) the lease term is greater than or equal to 75%for a major part of the underlying property’s estimated usefuleconomic life orof the leased property, (iv) the present value of the future minimum lease payments (excluding executory costs)and any residual value guaranteed by the lessee that is greater thannot already reflected in the lease payments equals or equal to 90%exceeds substantially all of the fair value of the leased property.property, and (v) the leased property is of such a specialized nature that it is expected to have no future alternative use to the Company at the end of the lease term. If one or more of these criteria are met, and the minimum lease payments are determined to be reasonably predictable and collectible, the lease arrangement iswill generally accounted forbe classified as a sales-type lease, unless the lease contains a residual value guarantee from a third party other than the lessee, in which case it would be classified as a direct financing lease. Consistent with FASBlease under certain circumstances.
Accounting Standards Codification (“ASC”) 840, Leases, ifWe account for the fairright to use land as a separate lease component, unless the accounting effect of doing so would be insignificant. Determination of significance requires management judgment. In determining whether the accounting effect of separately reporting the land component from other components for its real estate leases is significant, we assess: (i) whether separating the land component impacts the classification of any lease component, (ii) the value of the land component is 25% or morein the context of the total fair value ofoverall contract, and (iii) whether the leased property,right to use the land is considered separatelycoterminous with the rights to use the other assets.
Lease Termination Fee Income
The Company recognizes lease termination fee income as other income from
the building for purposesreal estate transactions, a component of
applying the lease term and minimum lease payments criterion in (iii) and (iv) above.Revenue recognition methods for operating leases and direct financing leases are described below:
Rental property accounted for under operating leases – Revenue is recognized as rents are earned on a straight-line basis over the non-cancelable termsLease revenues, net, when all conditions of the related leases. In most cases, revenue recognition under operating leases begins when the lessee takes possession of, or controls, the physical use of the leased asset. Generally, this occurs on the lease commencement date. For leases thattermination agreement have fixedbeen met, and measurable rent escalations, the difference between such rental income earned and the cash rent due under the provisionscollection of the lease termination fee is recorded as Accruedprobable. If the tenant immediately vacates the property upon satisfying the conditions of the termination agreement, the Company recognizes the lease termination fee income net of accrued rental income on the Consolidated Balance Sheets.
Rental property accounted for under direct financing leases – The Company utilizes the direct finance method of accounting to record direct financing lease income. For a lease accounted for as a direct financing lease, the net investment in the direct financing lease represents receivables for the sum of future minimum lease payments and the estimated residual value of the leased property, less the unamortized unearned income. Unearned income is deferred and amortized into income overassociated with the lease terms soimmediately, as to produce a constant periodic rate of return on the Company’s net investment in the leases.
Adoption of ASU 2014-09, described further in Recently Adopted Accounting Standards elsewhere in Note 2, did not have an impact on the nature, amount or timing of revenue recognized for operating leases and direct financing leases as revenueother income from these sources is derived from lease contracts and therefore falls outside the scope of this guidance.
Rent Received in Advance
Rent received in advance represents tenant payments received prior to the contractual due date and are included in Accounts payable and other liabilities on the Consolidated Balance Sheets. Rents received in advance at December 31, 2018 and 2017 are as follows:
| | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Rents received in advance | | $ | 7,832 | | | $ | 8,585 | |
Allowance for Doubtful Accounts
Management periodically reviews the sufficiency of the allowance for doubtful accounts, taking into consideration its historical losses and existing economic conditions, and adjusts the allowance as it considers necessary. Uncollected tenant receivables are written off against the allowance when all possible means of collection have been exhausted.
The following table summarizes the changes in the allowance for doubtful accounts for the years ended December 31, 2018, 2017, and 2016:
| | For the years ended December 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Balance as of January 1 | | $ | 742 | | | $ | 323 | | | $ | 262 | |
Provision for doubtful accounts | | | 1,521 | | | | 419 | | | | 67 | |
Write-offs | | | (177 | ) | | | — | | | | (6 | ) |
Balance as of December 31 | | $ | 2,086 | | | $ | 742 | | | $ | 323 | |
Notes Receivable
Balances in notes receivable represent interest-only loans to third parties secured by the real estate assets of the obligors. The Manager performs property management functions for each of the loan holders. Management evaluates the creditworthiness of each borrower prior to entering into the loan agreements. Further, management periodically reviews the notes receivable for collectability based on historical experience, continued review of the
obligor’s creditworthiness, and other relevant factors. Interest income on notes receivable is recognized as it is earned in accordance with the applicable loan agreement and is included astransactions, a component of Other income (expenses)Lease revenues, net, in the Consolidated StatementsStatement of Income and Comprehensive Income.
Tenant
Derivative Instruments and
Capital ReservesThe terms of one of the Company’s operating leases requires the establishment of tenant and capital reserves. Under the tenant reserve requirement, amounts are deposited into an escrow account, to be used to fund certain costs to maintain the rental property. Under the capital reserve lease requirement, the tenant is required to pay additional amounts to fund capital improvements, replacements, and repairs made to the property. The Company has no obligation to fund capital improvements beyond these reserve balances.
The balances of the tenant and capital reserves at December 31, 2018 and 2017 are as follows:
Hedging | | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Tenant reserve | | $ | 774 | | | $ | 627 | |
Capital reserve | | | 362 | | | | 316 | |
| | $ | 1,136 | | | $ | 943 | |
Debt Issuance Costs
Debt issuance costs – Unsecured revolver – Debt issuance costs incurred in connection with the Company’s unsecured revolver have been deferred and are being amortized over the term of the loan commitment using the straight-line method, which approximates the effective interest method. In accordance with ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Arrangements, the Company has recorded debt issuance costs associated with the unsecured revolver as an asset on the Consolidated Balance Sheets.
Debt issuance costs – Mortgages and notes payable – Debt issuance costs incurred in connection with the Company’s mortgages and notes payable have been deferred and are being amortized over the term of the respective loan term using the straight-line method, which approximates the effective interest method, and are recorded in Mortgages and notes payable, net on the Consolidated Balance Sheets.
Debt issuance costs – Unsecured term notes and senior notes – Debt issuance costs incurred in connection with the Company’s unsecured term notes and senior notes have been deferred and are being amortized over the term of the respective loan term using the straight-line method, which approximates the effective interest method, and are recorded in Unsecured term notes, net on the Consolidated Balance Sheets.
In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, the Company presents debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of the liability, consistent with debt discounts, in the Consolidated Balance Sheets.
The following table summarizes debt issuance costs on the Consolidated Balance Sheets at December 31, 2018 and 2017:
| | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Unsecured Revolver: | | | | | | | | |
Debt issuance costs | | $ | 3,431 | | | $ | 3,431 | |
Less accumulated amortization | | | (1,170 | ) | | | (405 | ) |
| | $ | 2,261 | | | $ | 3,026 | |
Mortgages and notes payable: | | | | | | | | |
Debt issuance costs | | $ | 834 | | | $ | 1,040 | |
Less accumulated amortization | | | (335 | ) | | | (402 | ) |
| | $ | 499 | | | $ | 638 | |
Unsecured term notes and senior notes: | | | | | | | | |
Debt issuance costs | | $ | 6,997 | | | $ | 4,788 | |
Less accumulated amortization | | | (2,770 | ) | | | (1,700 | ) |
| | $ | 4,227 | | | $ | 3,088 | |
Leasing Fees
Leasing fees represent costs incurred to lease properties to tenants and are being amortized using the straight-line method over the term of the lease to which they relate, which range from 9 to 29 years.
Derivative Instruments
The CompanyManagement uses interest rate swap agreements to manage risks related to interest rate movements. The interest rate swap agreements, designated and qualifying as cash flow hedges, are reported at fair value. As discussed in Recently Adopted Financial Standards elsewhere in Note 2, the Company early adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting and Hedging Activities, effective January 1, 2018 on a modified retrospective basis. ASU 2017-12 amended the designation and measurement guidance for qualifying hedging transactions and the presentation of hedge results in an entity’s financial statements.
Prior to the adoption of ASU 2017-12, the gain or loss on the effective portion of the hedge was initially included as a component of other comprehensive income or loss and was subsequently reclassified into earnings when interest payments on the related debt were incurred and as the swap net settlements occurred. If and when there was ineffectiveness realized on a swap agreement, the Company recognized the ineffectiveness as a component of interest expense in the period incurred.
ASU 2017-12 removed the concept of separately measuring and reporting hedge ineffectiveness and requires a company to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. In accordance with ASU 2017-12, the gain or loss on the qualifying hedges is initially included as a component of other comprehensive income or loss and is subsequently reclassified into earnings when interest payments (the forecasted transactions) on the related debt are incurred and as the swap net settlements occur.
When an existing cash flow hedge is terminated, the Company determines the accounting treatment for the accumulated gain or loss recognized in Accumulated other comprehensive income based on the probability of the hedged forecasted transaction occurring within the period the cash flow hedge was anticipated to affect earnings. If the Company determines that the hedged forecasted transaction is probable of occurring during the original period, the accumulated gain or loss is reclassified into earnings over the remaining life of the cash flow hedge using a straight-line method, which approximates an effective interest method. If the Company determines that the hedged forecasted transaction is not probable of occurring during the original period, the entire amount of accumulated gain or loss is reclassified into earnings in the period the cash flow hedge is terminated.
The CompanyManagement documents its risk management strategy and hedge effectiveness at the inception of, and during the term of, each hedge. The Company’sOur interest rate risk management strategy is intended to stabilize cash flow requirements by maintaining interest rate swap agreements to convert certain variable-rate debt to a fixed rate.
Property LossThe interest rate swap agreements, designated and
Insurance RecoveriesProperty losses, whether full or partial, are accounted for using a combination of impairment, insurance, and revenue recognition guidance prescribed by GAAP. Upon incurring a loss event, the Company evaluates for asset impairment under ASC 350, Intangibles – Goodwill and Other, and ASC 360, Property, Plant, and Equipment. Under the terms of the Company’s lease agreements with tenants, a majority of which are triple-net whereby the tenants are responsible for insurance, taxes, and maintenance, among other property costs, the tenants are responsible for repairs and maintenance to the properties. The terms of the leases also require the tenants to continue making their monthly rental payments despite the property loss. To the extent that the assets are recoverable, determined utilizing undiscounted cash flows expected to result from the use of the asset or asset group and its eventual disposition, the Company accounts for a full or partial property lossqualifying as an acceleration of depreciation and evaluates whether all or a portion of the property loss can be offset by the recognition of insurance recoveries.
Under the terms of the lease agreements with tenants, in the case of full or partial loss to a property, the tenant has an obligation to restore/rebuild the premises as nearly as possible to its value, condition and character immediately prior to such event. To mitigate the risk of loss, the Company requires tenants to maintain general liability insurance policies on the replacement value of the properties. Based on these considerations, the Company follows the guidance in ASC 605-40, Classification of Insurance Recoveries, for the conversion of nonmonetary assets (i.e., the properties) to monetary assets (i.e., insurance recoveries or tenant recoveries). Under ASC 605-40, once probable of receipt, the Company recognizes an insurance/tenant recovery receivable in Tenant and other receivables, net, in the Consolidated Balance Sheets, with a corresponding offset to the accelerated depreciation recognized in the Consolidated Statements of Income and Comprehensive Income. If the insurance/tenant recovery is less than the amount of accelerated depreciation recognized, the Company will recognize a net loss in the Consolidated Statements of Income and Comprehensive Income. If the insurance/tenant recovery is greater than the amount of accelerated depreciation recognized, the Company will only recognize a recovery up to the amount of the accelerated depreciation, and will account for the excess as a gain contingency in accordance with ASC 450-30, Gain Contingencies. Gain contingencies are recognized when earned and realized, which typically will occur at the time of final settlement or when non-refundable cash advances are received.
Non-controlling Interests
Non-controlling interests represents the membership interests held in the Operating Company of 7.3%, 7.6%, and 8.6% at December 31, 2018, 2017, and 2016, respectively, by third parties which are accounted for as a separate component of equity.
The Company periodically adjusts the carrying value of non-controlling interests to reflect their share of the book value of the Operating Company. Such adjustments are recorded to Additional paid-in capital as a reallocation of Non-controlling interests in the Consolidated Statements of Stockholders’ Equity.
Subscriptions Receivable
The subscriptions receivable is related to shares issued to the Corporation’s stockholders for which the proceeds have not yet been received solely due to the fact of timing of transfers from the escrow agent holding the funds. The receivables have been fully collected during the following month after the balance sheet date of the Consolidated Financial Statements. In accordance with the Securities and Exchange Commission (“SEC”) Rule 5-02.30 of Regulation S-X, the Company records its subscriptions receivable as a deduction from Stockholder’s equity in the accompanying Consolidated Balance Sheets.
Segment Reporting
The Company currently operates in a single reportable segment, which includes the acquisition, leasing, and ownership of net leased properties. The Company’s chief operating decision maker assesses, measures, and reviews the operating and financial results at the consolidated level for the entire portfolio, and therefore, each property or property type is not considered an individual operating segment. The Company does not evaluate the results of operations based on geography, size, or property type.
Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.
The standard describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices that are available in active markets for identical assets or liabilities. The types of financial instruments included in Level 1 are marketable, available-for-sale equity securities that are traded in an active exchange market.
Level 2 – Pricing inputs other than quoted prices in active markets, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Instruments included in this category are derivative contracts whose value is determined using a pricing model with inputs (such as yield curves and credit spreads) that are observable in the market or can be derived principally from or corroborated by observable market data.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 includes assets and liabilities whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The balances of financial instruments measuredhedges, are reported at fair value on a recurring basis at December 31, 2018 and 2017 are as follows (see Note 11):
| | December 31, 2018 | |
(in thousands) | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
Interest rate swap, assets | | $ | 17,633 | | | $ | — | | | $ | 17,633 | | | $ | — | |
Interest rate swap, liabilities | | | (1,820 | ) | | | — | | | | (1,820 | ) | | | — | |
| | $ | 15,813 | | | $ | — | | | $ | 15,813 | | | $ | — | |
| | December 31, 2017 | |
| | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
Interest rate swap, assets | | $ | 11,008 | | | $ | — | | | $ | 11,008 | | | $ | — | |
Interest rate swap, liabilities | | | (5,020 | ) | | | — | | | | (5,020 | ) | | | — | |
| | $ | 5,988 | | | $ | — | | | $ | 5,988 | | | $ | — | |
value. Interest rate swaps are derivative instruments that have no quoted readily available Level 1 inputs, and therefore are measured at fair value using inputs that are directly observable in active markets and are classified within Level 2 of the valuation hierarchy, using an income approach. Specifically, the fair value of the interest rate swaps is determined using a discounted cash flow analysis on the expected future cash flows of each instrument. This analysis utilizes observable market data including yield curves and implied volatilities to determine the market’s expectation of the future cash flows of the variable component. The fixed and variable components of the interest rate swaps are then discounted using calculated discount factors developed based on the overnight indexed swap (“OIS”) curve and are aggregated to arrive at a single valuation for the period. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its interest rate swaps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate swaps utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its
counterparties. At December 31,
20182021 and
2017,2020, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As a result, the Company has determined that its interest rate swap valuations in their entirety are appropriately classified within Level 2 of the fair value hierarchy.
When an existing cash flow hedge is terminated, we determine the accounting treatment for the accumulated gain or loss recognized in Accumulated other comprehensive loss, based on the probability of the hedged forecasted transaction occurring within the period the cash flow hedge was anticipated to affect earnings. If management determines that the hedged forecasted transaction is probable of occurring during the original period, the accumulated gain or loss is reclassified into earnings over the remaining life of the cash flow hedge using a straight-line method. If management determines that the hedged forecasted transaction is not probable of occurring during the original period, the entire amount of accumulated gain or loss is reclassified into earnings at such time.
Impact of Recent Accounting Pronouncements
For information on the impact of recent accounting pronouncements on our business, see the captionsRecently Adopted Accounting Standards
Other Recently Issued Accounting Standards
10-K.
| 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 Consolidated Financial Statements contained elsewhere in this Annual Report on Form10-K.
Our fixed-rate debt includes our Senior Unsecured Notes, mortgages, and variable-rate debt converted to a fixed rate with the use of interest rate swaps. Our fixed-rate debt and outstanding interest rate swaps had carrying values and fair values of approximately $1.6 billion and $1.7 billion, respectively, as of December 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 $95.5 million as of December 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 $759.5 million as of December 31, 2021, of which $640.0 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 in interest would have a corresponding $1.2 million increase in interest expense annually, while a 1% decrease in interest would have a corresponding $1.1 million decrease in interest expense annually due to certain interest rate floors on our variable-rate debt.
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 December 31, 2021, our financial instruments were not exposed to significant market risk due to foreign currency exchange risk.
| Financial Statements and Supplementary Data |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Broadstone Net Lease, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Broadstone Net Lease, Inc. and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, stockholders’ equity and mezzanine equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established inInternal Control — Integrated Framework (2013)
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Investment in rental property — Refer to Notes 2 and 5 to the financial statements
Critical Audit Matter Description
During the year ended December 31, 2021, the Company acquired $659.2 million of real estate, excluding capitalized acquisition costs. The Company accounts for acquisitions of real estate as asset acquisitions. For acquired properties accounted for using the operating method, the Company allocates the purchase price to the tangible and intangible assets acquired and liabilities assumed of based on their relative fair value. Acquisition costs are capitalized and included with the allocated purchase price. The Company uses multiple sources to estimate fair value. Factors that impact estimates of fair value include real estate market conditions, industry conditions that the tenant operates in, and characteristics of the real estate and/or real estate appraisals.
We identified the allocation of purchase price as a critical audit matter because of management’s significant estimates utilized to estimate the relative fair value of tangible and intangible assets acquired and liabilities assumed. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the allocation of purchase price for investments in rental property accounted for using the operating method included the following, among others:
We obtained an understanding and tested the design and operating effectiveness over the Company’s controls to allocate the purchase price of investments in real estate, including controls over management’s evaluation of inputs and assumptions used in the valuation estimates.
For each acquisition, we obtained and evaluated the third-party purchase price allocation report, along with relevant supporting documentation, such as the executed purchase and sale agreement.
For each real estate acquisition, we compared the purchase price allocated to identifiable tangible and intangible assets and liabilities as to the Company’s historical allocation percentages for similar types of properties, identifying outliers for further investigation.
With the assistance of our fair value specialists, on a sample basis, we evaluated the reasonableness of the valuation methodology and significant assumptions used in the third-party purchase price allocation report, including comparing the key inputs used in the purchase price allocation to external market sources.
Evaluation of long-lived asset impairment —Refer to Note 2 to the consolidated financial statements
Critical Audit Matter Description
The Company’s evaluation of long-lived assets to be held and used for possible impairment involves an initial assessment to determine whether events or changes in circumstances indicate that their carrying amounts may not be recoverable. If, and when, such events or changes in circumstances area present, an impairment exists to the extent the carrying value of the long-lived asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the long-lived asset and its eventual disposition. An impairment loss is measured as the amount by which the carrying amount of the long-lived asset or asset group exceeds its estimated fair value.
We identified the evaluation of long-lived asset impairment as a critical audit matter because of the significant estimates and assumptions management utilizes to identify whether events or changes in circumstances have occurred indicating that the carrying value of the long-lived asset may not be recoverable, and, when applicable, the significant estimates and assumptions utilized to evaluate the long-lived asset for recoverability, including probabilities of outcomes, estimates of the hold or sell strategy, projected rental rates, and estimated disposition proceeds. Auditing these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.
83
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the significant estimates and assumptions utilized by management to identify whether events or changes in circumstances have occurred indicating that the carrying value of the long-lived asset may not be recoverable and, when applicable, the significant estimates and assumptions utilized to evaluate the long-lived asset for recoverability included the following, among others:
We obtained an understanding and tested the design and operating effectiveness of the Company’s controls to monitor long-lived assets for events or changes in circumstances that indicate that their carrying amounts may not be recoverable, and, when applicable, the Company’s controls over the undiscounted cash flow recoverability estimates, including the estimated hold or sell strategy, projected rental rates, and estimated disposition proceeds.
We evaluated the completeness and reasonableness of the Company’s criteria to identify long-lived assets with indicators of impairment, including assessing the methodologies applied and testing the completeness and accuracy of the underlying data utilized.
We compared the Company’s undiscounted cash flow recoverability estimates and assumptions, including estimated hold or sell strategy, projected rental rates and estimated disposition proceeds to historical results and external market sources to evaluate the reasonableness. In addition, we performed procedures to evaluate the completeness and accuracy of the data utilized in management’s recoverability estimates.
February 23, 2022
We have served as the Company’s auditor since 2016.
84
Broadstone Net Lease, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share amounts)
| | | | | | | | |
| | | | |
| | | | | | | |
| | | | | | | | |
| Accounted for using the operating method: | | | | | | | | |
| Land | | $ | 655,374 | | | $ | 555,748 | |
| Land improvements | | | 295,329 | | | | 279,360 | |
| Buildings and improvements | | | 3,242,618 | | | | 2,857,510 | |
| Equipment | | | 11,870 | | | | 11,870 | |
| | | | | | | | | |
| Total accounted for using the operating method | | | 4,205,191 | | | | 3,704,488 | |
| Less accumulated depreciation | | | (430,141 | ) | | | (349,977 | ) |
| | | | | | | | | |
| Accounted for using the operating method, net | | | 3,775,050 | | | | 3,354,511 | |
| Accounted for using the direct financing method | | | 28,782 | | | | 29,066 | |
| Accounted for using the sales-type method | | | 571 | | | | 567 | |
| | | | | | | | | |
| Investment in rental property, net | | | 3,804,403 | | | | 3,384,144 | |
| Cash and cash equivalents | | | 21,669 | | | | 100,486 | |
| Accrued rental income | | | 116,874 | | | | 102,117 | |
| Tenant and other receivables, net | | | 1,310 | | | | 1,604 | |
| Prepaid expenses and other assets | | | 17,275 | | | | 22,277 | |
| Goodwill | | | 339,769 | | | | 339,769 | |
| Intangible lease assets, net | | | 303,642 | | | | 290,913 | |
| Debt issuance costs—unsecured revolving credit facility, net | | | 4,065 | | | | 6,435 | |
| Leasing fees, net | | | 9,641 | | | | 10,738 | |
| | | | | | | | | |
| | $ | 4,618,648 | | | $ | 4,258,483 | |
| | | | | | | | | |
| | | | | | | | |
| Unsecured revolving credit facility | | $ | 102,000 | | | $ | 0 — | |
| Mortgages, net | | | 96,846 | | | | 107,382 | |
| Unsecured term loans, net | | | 646,671 | | | | 961,330 | |
| Senior unsecured notes, net | | | 843,801 | | | | 472,466 | |
| Interest rate swap, liabilities | | | 27,171 | | | | 72,103 | |
| Earnout liability | | | — | | | | 7,509 | |
| Accounts payable and other liabilities | | | 38,038 | | | | 35,684 | |
| Dividends payable | | | 45,914 | | | | 39,252 | |
| Accrued interest payable | | | 6,473 | | | | 4,023 | |
| Intangible lease liabilities, net | | | 70,596 | | | | 79,653 | |
| | | | | | | | | |
| | | 1,877,510 | | | | 1,779,402 | |
| | | | | | | | | |
Commitments and contingencies (See Note 19) | | | 0 | | | | 0 | |
| | | |
| | | | | | | | |
| Broadstone Net Lease, Inc. stockholders’ equity: | | | | | | | | |
| Preferred stock, $0.001 par value; 20,000 shares authorized,0 shares issued or outstanding | | | 0— | | | | 0— | |
| Common stock, $0.00025 par value; 500,000 shares authorized, 162,383 shares issued and outstanding at December 31, 2021; 440,000 shares authorized, 108,609 shares issued and outstanding at December 31, 2020 | | | 41 | | | | 27 | |
| Class A common stock, $0.00025 par value; 0 shares authorized, issued or outstanding at December 31, 2021; 60,000 shares authorized, 37,000 shares issued and outstanding at December 31, 2020 | | | 0— | | | | 9 | |
| Additional paid-in capital | | | 2,924,168 | | | | 2,624,997 | |
| Cumulative distributions in excess of retained earnings | | | (318,476 | ) | | | (259,673 | ) |
| Accumulated other comprehensive loss | | | (28,441 | ) | | | (66,255 | ) |
| | | | | | | | | |
| Total Broadstone Net Lease, Inc. stockholders’ equity | | | 2,577,292 | | | | 2,299,105 | |
| | | 163,846 | | | | 179,976 | |
| | | | | | | | | |
| | | 2,741,138 | | | | 2,479,081 | |
| | | | | | | | | |
Total liabilities and equity | | $ | 4,618,648 | | | $ | 4,258,483 | |
| | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
85
Broadstone Net Lease, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share amounts)
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | | | | | | | | |
| | | | | | | | | | | | |
| Lease revenues, net | | $ | 382,876 | | | $ | 321,637 | | | $ | 298,815 | |
| | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | |
| Depreciation and amortization | | | 132,096 | | | | 132,685 | | | | 108,818 | |
| Property and operating expense | | | 18,459 | | | | 17,478 | | | | 15,990 | |
| General and administrative | | | 36,366 | | | | 27,988 | | | | 5,456 | |
| Provision for impairment of investment in rental properties | | | 28,208 | | | | 19,077 | | | | 3,452 | |
| Asset management fees | | | 0— | | | | 2,461 | | | | 21,863 | |
| Property management fees | | | 0— | | | | 1,275 | | | | 8,256 | |
| | | | | | | | | | | | | |
| | | 215,129 | | | | 200,964 | | | | 163,835 | |
| | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | |
| Interest income | | | 17 | | | | 24 | | | | 9 | |
| Interest expense | | | (64,146 | ) | | | (76,138 | ) | | | (72,534 | ) |
| Cost of debt extinguishment | | | (368 | ) | | | (417 | ) | | | (1,176 | ) |
| Gain on sale of real estate | | | 13,523 | | | | 14,985 | | | | 29,914 | |
| Income taxes | | | (1,644 | ) | | | (939 | ) | | | (2,415 | ) |
| Internalization expenses | | | 0— | | | | (3,705 | ) | | | (3,658 | ) |
| Change in fair value of earnout liability | | | (5,539 | ) | | | 1,800 | | | | 0— | |
| Other expenses | | | (62 | ) | | | (7 | ) | | | (6 | ) |
| | | | | | | | | | | | | |
| | | 109,528 | | | | 56,276 | | | | 85,114 | |
Net income attributable to non-controlling interests | | | (7,102 | ) | | | (5,095 | ) | | | (5,720 | ) |
| | | | | | | | | | | | | |
Net income attributable to Broadstone Net Lease, Inc. | | $ | 102,426 | | | $ | 51,181 | | | $ | 79,394 | |
| | | | | | | | | | | | | |
| | | | |
Weighted average number of common shares outstanding | | | | | | | | | | | | |
| Basic | | | 153,057 | | | | 117,150 | | | | 95,917 | |
| | | | | | | | | | | | | |
| Diluted | | | 163,970 | | | | 128,799 | | | | 102,865 | |
| | | | | | | | | | | | | |
| | | | |
Net earnings per share attributable to common stockholders | | | | | | | | | | | | |
| Basic and diluted | | $ | 0.67 | | | $ | 0.44 | | | $ | 0.83 | |
| | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | |
| Net income | | $ | 109,528 | | | $ | 56,276 | | | $ | 85,114 | |
| Other comprehensive income | | | | | | | | | | | | |
| Change in fair value of interest rate swaps | | | 39,353 | | | | (50,544 | ) | | | (37,372 | ) |
| Realized loss (gain) on interest rate swaps | | | 698 | | | | (166 | ) | | | (205 | ) |
| | | | | | | | | | | | | |
| Comprehensive income | | | 149,579 | | | | 5,566 | | | | 47,537 | |
Comprehensive income attributable to non-controlling interests | | | (9,831 | ) | | | (554 | ) | | | (3,036 | ) |
| | | | | | | | | | | | | |
| Comprehensive income attributable to Broadstone Net Lease, Inc. | | $ | 139,748 | | | $ | 5,012 | | | $ | 44,501 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
86
Broadstone Net Lease, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Additional Paid-in Capital | | | Cumulative
Distributions
in Excess
of Retained
Earnings | | | Accumulated
Other
Comprehensive
Income (Loss) | | | | | | | |
| Balance, January 1, 2021 | | $ | 27 | | | $ | 9 | | | $ | 2,624,997 | | | $ | (259,673 | ) | | $ | (66,255 | ) | | $ | 179,976 | | | $ | 2,479,081 | |
| Net income | | | — | | | | — | | | | — | | | | 102,426 | | | | — | | | | 7,102 | | | | 109,528 | |
| Issuance of 13,910 shares of common stock | | | 4 | | | | — | | | | 293,728 | | | | — | | | | — | | | | — | | | | 293,732 | |
| Issuance of 1,859 OP Units | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Offering costs, discounts, and commissions | | | — | | | | — | | | | (12,290 | ) | | | — | | | | — | | | | — | | | | (12,290 | ) |
| Stock-based compensation | | | — | | | | — | | | | 4,701 | | | | — | | | | — | | | | — | | | | 4,701 | |
| Retirement of 64 shares of common stock | | | — | | | | — | | | | (1,215 | ) | | | — | | | | — | | | | — | | | | (1,215 | ) |
| Forfeiture of seven shares of common stock | | | — | | | | — | | | | (33 | ) | | | — | | | | — | | | | — | | | | (33 | ) |
| Conversion of 37,000 Class A common stock to 37,000 shares of common stock | | | 9 | | | | (9 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
| Conversion of 886 OP Units to 886 shares of common stock | | | — | | | | — | | | | 14,206 | | | | — | | | | — | | | | (14,206 | ) | | | — | |
| Conversion of 2,049 OP Units to 2,049 shares of common stock with a related party | | | 1 | | | | — | | | | 32,761 | | | | — | | | | — | | | | (32,762 | ) | | | — | |
| Distributions declared ($1.025 per share and OP Unit) | | | — | | | | — | | | | — | | | | (161,229 | ) | | | — | | | | (11,188 | ) | | | (172,417 | ) |
| Change in fair value of interest rate swap agreements | | | — | | | | — | | | | — | | | | — | | | | 36,664 | | | | 2,689 | | | | 39,353 | |
| Realized loss on interest rate swap agreements | | | — | | | | — | | | | — | | | | — | | | | 658 | | | | 40 | | | | 698 | |
Adjustment to non-controlling interests | | | — | | | | — | | | | (32,687 | ) | | | — | | | | 492 | | | | 32,195 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2021 | | $ | 41 | | | $ | — | | | $ | 2,924,168 | | | $ | (318,476 | ) | | $ | (28,441 | ) | | $ | 163,846 | | | $ | 2,741,138 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
87
Broadstone Net Lease, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity and Mezzanine Equity
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Additional Paid-in Capital | | | Cumulative
Distributions
in Excess
of Retained
Earnings | | | Accumulated
Other
Comprehensive
Income (Loss) | | | | | | | | | | | | Mezzanine
Equity
Common
Stock | | | Mezzanine
Equity
Non-
controlling
Interests | | | | |
| Balance, January 1, 2019 | | $ | 22 | | | $ | — | | | $ | 1,557,421 | | | $ | (155,150 | ) | | $ | 14,806 | | | $ | 111,821 | | | $ | 1,528,920 | | | | | | | $ | — | | | $ | — | | | $ | — | |
| Net income | | | — | | | | — | | | | — | | | | 79,394 | | | | — | | | | 5,720 | | | | 85,114 | | | | | | | | — | | | | — | | | | — | |
Issuance of 18,560 shares of common
stock | | | 5 | | | | — | | | | 395,086 | | | | — | | | | — | | | | — | | | | 395,091 | | | | | | | | — | | | | — | | | | — | |
| Other offering costs | | | — | | | | — | | | | (1,649 | ) | | | — | | | | — | | | | — | | | | (1,649 | ) | | | | | | | — | | | | — | | | | — | |
Distributions declared ($1.318 per share
and OP Unit) | | | — | | | | — | | | | — | | | | (127,014 | ) | | | — | | | | (9,266 | ) | | | (136,280 | ) | | | | | | | — | | | | — | | | | — | |
Change in fair value of interest rate swap
agreements | | | — | | | | — | | | | — | | | | — | | | | (34,701 | ) | | | (2,671 | ) | | | (37,372 | ) | | | | | | | — | | | | — | | | | — | |
| Realized gain on interest rate swap agreements | | | — | | | | — | | | | — | | | | — | | | | (191 | ) | | | (14 | ) | | | (205 | ) | | | | | | | — | | | | — | | | | — | |
| Redemption of 1,668 shares of common stock | | | (1 | ) | | | — | | | | (32,005 | ) | | | (2,593 | ) | | | — | | | | — | | | | (34,599 | ) | | | | | | | — | | | | — | | | | — | |
| Redemption of 941 shares of common stock with a related party | | | — | | | | — | | | | (17,102 | ) | | | (2,898 | ) | | | — | | | | — | | | | (20,000 | ) | | | | | | | — | | | | — | | | | — | |
Adjustment of non-controlling interests | | | — | | | | — | | | | (5,816 | ) | | | — | | | | — | | | | 5,816 | | | | — | | | | | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2019 | | | 26 | | | | — | | | | 1,895,935 | | | | (208,261 | ) | | | (20,086 | ) | | | 111,406 | | | | 1,779,020 | | | | | | | | — | | | | — | | | | — | |
| Cumulative effect of accounting change | | | — | | | | — | | | | — | | | | (323 | ) | | | — | | | | — | | | | (323 | ) | | | | | | | — | | | | — | | | | — | |
| Net income | | | — | | | | — | | | | — | | | | 51,181 | | | | 0 | | | | 3,647 | | | | 54,828 | | | | | | | | — | | | | 1,448 | | | | 1,448 | |
| Issuance of 659 shares of common stock and 3,124 shares of mezzanine equity common stock | | | — | | | | — | | | | 6,795 | | | | — | | | | — | | | | — | | | | 6,795 | | | | | | | | 66,376 | | | | — | | | | 66,376 | |
| Stock-based compensation | | | — | | | | — | | | | 1,989 | | | | — | | | | — | | | | — | | | | 1,989 | | | | | | | | — | | | | — | | | | — | |
| Issuance of 37,000 shares of Class A common stock | | | — | | | | 9 | | | | 628,991 | | | | — | | | | — | | | | — | | | | 629,000 | | | | | | | | — | | | | — | | | | — | |
Issuance of 5,278 mezzanine equity non-controlling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | 112,159 | | | | 112,159 | |
| Offering costs, discounts, and commissions | | | — | | | | — | | | | (40,750 | ) | | | — | | | | — | | | | — | | | | (40,750 | ) | | | | | | | — | | | | — | | | | — | |
| Adjustments to carrying value of mezzanine equity non- controlling interests | | | — | | | | — | | | | (2,513 | ) | | | — | | | | — | | | | — | | | | (2,513 | ) | | | | | | | — | | | | 2,513 | | | | 2,513 | |
| Reclassification of portion of earnout liability | | | — | | | | — | | | | 11,380 | | | | — | | | | — | | | | 19,430 | | | | 30,810 | | | | | | | | — | | | | — | | | | — | |
| Repurchase of two fractional shares of common stock | | | — | | | | — | | | | (35 | ) | | | — | | | | — | | | | — | | | | (35 | ) | | | | | | | — | | | | — | | | | — | |
| Repurchase of five OP Units | | | — | | | | — | | | | — | | | | — | | | | — | | | | (91 | ) | | | (91 | ) | | | | | | | — | | | | — | | | | — | |
Conversion of 822 OP Units to 822 shares
of common stock with a related party | | | — | | | | — | | | | 15,631 | | | | — | | | | — | | | | (15,631 | ) | | | — | | | | | | | | — | | | | — | | | | — | |
| Distributions declared ($0.825 per share and OP Unit) | | | — | | | | — | | | | — | | | | (102,270 | ) | | | — | | | | (7,423 | ) | | | (109,693 | ) | | | | | | | — | | | | (1,742 | ) | | | (1,742 | ) |
| Change in fair value of interest rate swap agreements | | | — | | | | — | | | | — | | | | — | | | | (46,018 | ) | | | (2,850 | ) | | | (48,868 | ) | | | | | | | — | | | | (1,676 | ) | | | (1,676 | ) |
| Realized gain on interest rate swap agreements | | | — | | | | — | | | | — | | | | — | | | | (151 | ) | | | (11 | ) | | | (162 | ) | | | | | | | — | | | | (4 | ) | | | (4 | ) |
| Reclassification of 3,124 shares of mezzanine equity common stock to 3,124 shares of common stock | | | 1 | | | | — | | | | 66,375 | | | | — | | | | — | | | | — | | | | 66,376 | | | | | | | | (66,376 | ) | | | — | | | | (66,376 | ) |
Reclassification of 5,278 mezzanine equity non-controlling interests to 5,278 non-controlling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,698 | | | | 112,698 | | | | | | | | — | | | | (112,698 | ) | | | (112,698 | ) |
Adjustment to non-controlling interests | | | — | | | | — | | | | 41,199 | | | | — | | | | — | | | | (41,199 | ) | | | — | | | | | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2020 | | $ | 27 | | | $ | 9 | | | $ | 2,624,997 | | | $ | (259,673 | ) | | $ | (66,255 | ) | | $ | 179,976 | | | $ | 2,479,081 | | | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
88
Broadstone Net Lease, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | | | | | | | | |
| | | | | | | | | | | | |
| Net income | | $ | 109,528 | | | $ | 56,276 | | �� | $ | 85,114 | |
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation and amortization including intangibles associated with investment in rental property | | | 128,888 | | | | 131,568 | | | | 105,408 | |
| Provision for impairment of investment in rental properties | | | 28,208 | | | | 19,077 | | | | 3,452 | |
| Amortization of debt issuance costs and original issuance discounts charged to interest expense | | | 3,721 | | | | 3,303 | | | | 2,542 | |
| Stock-based compensation expense | | | 4,669 | | | | 1,989 | | | | — | |
| Straight-line rent, direct financing and sales-type lease adjustments | | | (18,362 | ) | | | (19,817 | ) | | | (21,943 | ) |
| Cost of debt extinguishment | | | 368 | | | | 417 | | | | 1,176 | |
| Gain on sale of real estate | | | (13,523 | ) | | | (14,985 | ) | | | (29,914 | ) |
| Change in fair value of earnout liability | | | 5,539 | | | | (1,800 | ) | | | — | |
| Cash paid for earnout liability | | | (6,440 | ) | | | — | | | | — | |
| Settlement of interest rate swaps | | | (5,580 | ) | | | — | | | | — | |
| Leasing fees paid | | | (319 | ) | | | — | | | | (1,002 | ) |
| Adjustment to provision for credit losses | | | (38 | ) | | | (148 | ) | | | — | |
| | | 1,811 | | | | 605 | | | | 466 | |
| Changes in assets and liabilities, net of acquisition: | | | | | | | | | | | | |
| Tenant and other receivables | | | 776 | | | | (670 | ) | | | 92 | |
| Prepaid expenses and other assets | | | 350 | | | | (3,868 | ) | | | (136 | ) |
| Accounts payable and other liabilities | | | 2,891 | | | | 6,652 | | | | 8,286 | |
| Accrued interest payable | | | 2,450 | | | | 429 | | | | (6,183 | ) |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 244,937 | | | | 179,028 | | | | 147,358 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Acquisition of rental property accounted for using the operating method, net of mortgages assumed of $0, $0 and $49,782 in 2021, 2020 and 2019, respectively | | | (665,030 | ) | | | (94,808 | ) | | | (997,015 | ) |
| Acquisition of rental property accounted for using the sales-type method | | | — | | | | (574 | ) | | | — | |
| Cash paid for Internalization | | | — | | | | (30,861 | ) | | | — | |
| Capital expenditures and improvements | | | (1,598 | ) | | | (10,806 | ) | | | (5,051 | ) |
| Proceeds from disposition of rental property, net | | | 83,812 | | | | 77,513 | | | | 168,759 | |
| Change in deposits on investments in rental property | | | 512 | | | | (700 | ) | | | 1,600 | |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (582,304 | ) | | | (60,236 | ) | | | (831,707 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Proceeds from issuance of common stock and Class A common stock, net of $12,270, $40,674 and $0 of offering costs, discounts, and commissions in 2021, 2020 and 2019, respectively | | | 280,356 | | | | 588,457 | | | | 329,750 | |
| Redemptions of common stock | | | — | | | | — | | | | (34,599 | ) |
| Redemptions of common stock with a related party | | | — | | | | — | | | | (20,000 | ) |
| Repurchase of fractional shares of common stock and OP Units | | | — | | | | (126 | ) | | | — | |
| Borrowings on mortgages, senior unsecured notes and unsecured term loans, net of mortgages assumed of $0, $0 and $49,782 in 2021, 2020 and 2019, respectively | | | 381,810 | | | | 60,000 | | | | 750,000 | |
| Principal payments on mortgages and unsecured term loans | | | (332,874 | ) | | | (394,666 | ) | | | (316,940 | ) |
| Borrowings on unsecured revolving credit facility | | | 356,600 | | | | 192,000 | | | | 434,100 | |
| Repayments on unsecured revolving credit facility | | | (254,600 | ) | | | (389,300 | ) | | | (377,900 | ) |
| Cash distributions paid to stockholders | | | (154,459 | ) | | | (71,532 | ) | | | (61,961 | ) |
Cash distributions paid to non-controlling interests | | | (11,302 | ) | | | (7,079 | ) | | | (9,248 | ) |
| Cash paid for earnout liability | | | (6,608 | ) | | | — | | | | — | |
| Debt issuance and extinguishment costs paid | | | (4,515 | ) | | | (6,129 | ) | | | (7,531 | ) |
| | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 254,408 | | | | (28,375 | ) | | | 685,671 | |
| | | | | | | | | | | | | |
| Net (decrease) increase in cash and cash equivalents and restricted cash | | | (82,959 | ) | | | 90,417 | | | | 1,322 | |
| Cash and cash equivalents and restricted cash at beginning of period | | | 110,728 | | | | 20,311 | | | | 18,989 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents and restricted cash at end of period | | $ | 27,769 | | | $ | 110,728 | | | $ | 20,311 | |
| | | | | | | | | | | | | |
Reconciliation of cash and cash equivalents and restricted cash | | | | | | | | | | | | |
| Cash and cash equivalents at beginning of period | | $ | 100,486 | | | $ | 12,455 | | | $ | 18,612 | |
| Restricted cash at beginning of period | | | 10,242 | | | | 7,856 | | | | 377 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents and restricted cash at beginning of period | | $ | 110,728 | | | $ | 20,311 | | | $ | 18,989 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents at end of period | | $ | 21,669 | | | $ | 100,486 | | | $ | 12,455 | |
| Restricted cash at end of period | | | 6,100 | | | | 10,242 | | | | 7,856 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents and restricted cash at end of period | | $ | 27,769 | | | $ | 110,728 | | | $ | 20,311 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
89
Broadstone Net Lease, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2021, 2020, and 2019
Broadstone Net Lease, Inc. (the “Corporation”) is a Maryland corporation formed onOctober 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, retail, and office commercial properties under long-term lease agreements. At December 31, 2021, the Corporation owned a diversified portfolio of726
individual commercial properties with725
properties located in42
U.S. states and1
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 asnon-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 either agreement and therefore0
fees were paid under them as a result of the Internalization. On September 18, 2020, the Corporation effected astock split on its then outstanding26,943,587
shares of common stock (“Common Stock”) that previously had a $0.001
par value. Concurrent with the stock split, the OP effected astock split of its outstanding OP Units.NaN
fractional shares or OP Units were issued as a result of the stock split. All historic share and per share amounts in these 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 of37,000,000
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 FormS-11
(FileNo. 333-240381),
as amended, under the Securities Act of 1933. Shares of Class A Common Stock were listed on the New York 90
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 14.
The following table summarizes the outstanding equity and economic ownership interest of the Corporation and the OP:
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ownership interest | | | 162,383 | | | | 10,323 | | | | 172,706 | | | | 145,609 | | | | 11,399 | | | | 157,008 | | | | 104,006 | | | | 6,948 | | | | 110,954 | |
| Percent Ownership of OP | | | 94.0 | % | | | 6.0 | % | | | 100.0 | % | | | 92.7 | % | | | 7.3 | % | | | 100.0 | % | | | 93.7 | % | | | 6.3 | % | | | 100.0 | % |
Refer to Note 16 for further discussion regarding the calculation of weighted average shares outstanding.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts and operations of the Company. All intercompany balances and transactions have been eliminated in consolidation.
To the extent the Corporation has a variable interest in entities that are not evaluated under the variable interest entity (“VIE”) model, the Corporation evaluates its interests using the voting interest entity model. The Corporation has complete responsibility for themanagement 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 possesskick-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 asnon-controlling
interests as of and during the periods presented. The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include, but are not limited to, the allocation of purchase price between tangible and intangible assets acquired and liabilities assumed, the 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.
91
Investment in Rental Property
Rental property accounted for under operating leases is recorded at cost. Rental property accounted for under direct financing leases and sales-type leases are recorded at its net investment, which generally represents the cost of the property at the inception of the lease.
The Company accounts for its acquisitions of real estate as asset acquisitions in accordance with Accounting Standards Codification (“ASC”) 805,, as substantially all of the fair value of the assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets. The Company allocates the purchase price of investments in rental property accounted for as asset acquisitions based on the relative fair value of the assets acquired and liabilities assumed. These generally include tangible assets, consisting of land and land improvements, buildings and other improvements, and equipment, and identifiable intangible assets and liabilities, including the value ofin-place
leases and acquired above-market and below-market leases. Acquisition costs incurred in connection with investments in real estate accounted for as asset acquisitions are capitalized and included with the allocated purchase price. The results of operations of acquired properties are included in the Consolidated Statements of Income and Comprehensive Income from the respective date of acquisition. Estimated fair value determinations are based on management’s judgment, which considers various factors including real estate market conditions, industry conditions that the tenant operates in, and characteristics of the real estate and/or real estate appraisals.
The estimated fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant. Thevalue is then allocated to land and land improvements, buildings, and equipment based on comparable sales and other relevant information with respect to the property as estimated by management. Specifically, the “if vacant” value of buildings and equipment is calculated using an income approach. Assumptions used in the income approach to value the buildings include: capitalization and discount rates,lease-up
time, market rents, make ready costs, land value, and land improvement value. The estimated fair value of acquiredin-place
leases are the costs that the Company would have had to incur to lease the properties to the occupancy level of the properties at the date of acquisition. Such costs include the fair value of leasing commissions and other operating costs that would have been incurred to lease the properties, had they been vacant, to their acquired occupancy level. Acquiredin-place
leases as of the date of acquisition are amortized over the remainingnon-cancellable
lease terms of the respective leases to amortization expense. Acquired above-market and below-market lease values are recorded based on the present value (using an interest rate that reflects the risks associated with the lease acquired) of the differences between the contractual amounts to be paid pursuant to thein-place
leases and management’s estimate of fair market value lease rates at the time of acquisition for the correspondingin-place
leases. The capitalized above-market and below-market lease values are amortized as adjustments to lease revenue over the remaining term of the respective leases. Should a tenant terminate its lease, the unamortized portion of thein-place
lease value is charged to amortization expense and the unamortized portion of above-market or below-market lease value is charged to lease revenue. Management estimates the fair value of assumed mortgages payable based upon indications of then-current market pricing for similar types of debt with similar maturities. Assumed mortgages are initially recorded at their estimated fair value as of the assumption date, and the difference between such estimated fair value and the notes’ outstanding principal balance is amortized to interest expense over the remaining term of the debt.
Expenditures for significant betterments and improvements are capitalized. Maintenance and repairs are charged to expense when incurred. Construction and improvement costs incurred in connection with the development of
92
new properties or the redevelopment of existing properties are capitalized. Real estate taxes, interest costs, and leasing and development costs incurred during construction periods are capitalized. Capitalization is based on qualified expenditures and interest rates. Capitalized real estate taxes, interest costs, and leasing and development costs are amortized over lives which are consistent with the related assets. There were no capitalized interest or real estate taxes during the years ended December 31, 2021, 2020, and 2019.
Long-lived Asset Impairment
The Company reviews long-lived assets to be held and used for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If, and when, such events or changes in circumstances are present, an impairment exists to the extent the carrying value of the long-lived asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the long-lived asset or asset group and its eventual disposition. Such cash flows include expected future operating income, as adjusted for trends and prospects, as well as the effects of demand, competition, and other factors. An impairment loss is measured as the amount by which the carrying amount of the long-lived asset or asset group exceeds its fair value. Significant judgment is made to determine if and when impairment should be taken. The Company’s assessment of impairment as of December 31, 2021, 2020, and 2019, was based on the most current information available to the Company. Certain of the Company’s properties may have fair values less than their carrying amounts. However, based on the Company’s plans with respect to each of those properties, the Company believes that their carrying amounts are recoverable and therefore, no impairment charges were recognized other than those described below. If the operating conditions mentioned above deteriorate or if the Company’s expected holding period for assets changes, subsequent tests for impairments could result in additional impairment charges in the future.
Inputs used in establishing fair value for real estate assets generally fall within Level 3 of the fair value hierarchy, which are characterized as requiring significant judgment as little or no current market activity may be available for validation. The main indicator used to establish the classification of the inputs is current market conditions, as derived through the use of published commercial real estate market information. The Company determines the valuation of impaired assets using generally accepted valuation techniques including discounted cash flow analysis, income capitalization, analysis of recent comparable sales transactions, actual sales negotiations, and bona fide purchase offers received from third parties. Management may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of its real estate.
The following table summarizes the Company’s impairment charges, resulting primarily from changes in the Company’s long-term hold strategy with respect to the individual properties:
| | | For the Year Ended
December 31, | |
(in thousands, except number of properties) | | | | | | | | | |
| Number of properties | | | 7 | | | | 7 | | | | 4 | |
| Impairment charge | | $ | 28,208 | | | $ | 19,077 | | | $ | 3,452 | |
During the year ended December 31, 2021, an office tenant of the Company executed an early lease termination at two properties in exchange for a fee of $35.0 million, and simultaneously sold the underlying properties to an unrelated third party for aggregate gross proceeds of $16.0 million. As the sale of the underlying properties was to an unrelated third party, the Company accounted for the lease termination income and sale of properties as separate transactions in accordance with GAAP.
The Company recognized the termination fee income, net of $1.5 millionwrite-off
of accrued rental income associated with the lease as other income from real estate transactions, a component of Lease revenues, net, in the Consolidated Statements of Income and Comprehensive Income. Refer to theLease Termination Fee Income
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result of the early lease termination, the Company accelerated the amortization of the remaining lease intangibles, recognizing $0.3 million in Lease revenues, net and $4.0 million in Depreciation and amortization in the Consolidated Statements of Income and Comprehensive Income.
The Company sold the underlying vacant properties for an aggregate sales price of $16.0 million, and incurred sales expenses of $0.7 million. The properties’ carrying value, net of the fully amortized lease intangibles, was $41.1 million, resulting in a $25.7 million loss on sale of the properties. As the lease termination income was recognized separate from the sale of the underlying properties, the $35.0 million cash receipt was not able to be factored into the properties’ future undiscounted cash flows, and the properties were immediately deemed impaired. As such, the Company recognized the loss as an impairment charge in the Consolidated Statements of Income and Comprehensive Income.
The following summarizes the impact of the above transactions, together with the corresponding financial statement line item:
| | | | | |
| | | |
| Lease revenues, net | | | | |
| Lease termination fee | | $ | 35,000 | |
Write-off of accrued rental income | | | (1,496 | ) |
| Accelerated amortization of above-market and below-market lease intangibles | | | 289 | |
| | | | | |
| | | | 33,793 | |
| Depreciation and amortization | | | | |
Accelerated amortization of in-place lease intangible | | | (4,046 | ) |
| Provision for impairment of investment in rental properties | | | | |
| Loss on sale | | | (25,746 | ) |
| | | | | |
| Total impact to net income | | $ | 4,001 | |
| | | | | |
The remaining impairments recognized during the year ended December 31, 2021 were immaterial. During the year ended December 31, 2020, impairment indicators primarily included changes in the Company’s long-term hold strategy with respect to the individual properties, which was due in part to unfavorable market trends resulting from theCOVID-19
pandemic in geographic areas where the Company had vacant properties marketed forre-lease
or sale. Impairments recognized during the year ended December 31, 2019 were immaterial. Lease Termination Fee Income
The Company recognizes lease termination fee income as other income from real estate transactions, a component of Lease revenues, net, when all conditions of the termination agreement have been met, and collection of the lease termination fee is probable. If the tenant immediately vacates the property upon satisfying the conditions of the termination agreement, the Company recognizes the lease termination fee income net of accrued rental income associated with the lease immediately, as other income from real estate transactions, a component of Lease revenues, net, in the Consolidated Statement of Income and Comprehensive Income.
Investments in Rental Property Held for Sale
The Company classifies investments in rental property as held for sale when all of the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of investment properties, (iii) an active program to locate a buyer and conduct other actions required to complete the sale has been initiated, (iv) the sale of the property is probable in occurrence and is expected to qualify as a completed sale, (v) the property is actively marketed for sale at a sale price that is reasonable in relation to its fair value, and (vi) actions
94
required to complete the sale indicate that it is unlikely that any significant changes will be made or that the plan to sell will be withdrawn.
For properties classified as held for sale, the Company suspends depreciation and amortization of the related assets, including the acquiredin-place
lease and above- or below-market lease intangibles, as well as straight-line revenue recognition of the associated lease, and records the investment in rental property at the lower of cost or net realizable value. The assets and liabilities associated with the properties classified as held for sale are presented separately on the Consolidated Balance Sheets for the most recent reporting period. At December 31, 2021 and 2020, the Company did not have any properties that met the held for sale criteria. Under ASU2017-05,
Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets
non-customers,
requiring the Company to identify each distinctnon-financial
asset promised to the buyer. The Company determines whether the buyer obtains control of thenon-financial
assets, achieved through the transfer of the risks and rewards of ownership of thenon-financial
assets. If control is transferred to the buyer, the Company derecognizes the asset. If the Company determines that it did not transfer control of thenon-financial
assets to the buyer, the Company analyzes the contract for separate performance obligations and allocates a portion of the sales price to each performance obligation. As performance obligations are satisfied, the Company recognizes the respective income in the Consolidated Statements of Income and Comprehensive Income. The Company presents discontinued operations if disposals of properties represent a strategic shift in operations. Those strategic shifts would need to have a major effect on the Company’s operations and financial results in order to meet the definition. For the years ended December 31, 2021, 2020, and 2019, the Company did not have property dispositions that qualified as discontinued operations.
Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which are as follows:
| | | | |
| Land improvements | | | 15 years | |
| Buildings and improvements | | | 15 to 39 years | |
| Equipment | | | 7 years | |
Leasing fees represent costs incurred to lease properties to tenants and are capitalized as they are incremental costs of a lease that would not have been incurred if the lease had not been obtained. Leasing fees are amortized using the straight-line method over the term of the lease to which they relate, which range from 4 to 25 years.
Cash equivalents consist of highly liquid investments with an original maturity at date of acquisition of three months or less, including money market funds. The Company estimates that the fair value of cash equivalents approximates the carrying value due to the relatively short maturity of these instruments.
Restricted cash includes escrow funds the Company maintains pursuant to the terms of certain mortgages, lease agreements, and undistributed proceeds from the sale of properties under Section 1031 of the Internal Revenue
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Code of 1986, as amended (the “Code”), and is reported within Prepaid expenses and other assets on the Consolidated Balance Sheets.
Restricted cash consisted of the following:
| | | | | | | | | |
| | | | |
| | | | | | |
| Escrow funds and other | | $ | 6,100 | | | $ | 7,852 | |
| Undistributed 1031 proceeds | | | 0 | | | | 2,390 | |
| | | | | | | | | |
| | | $ | 6,100 | | | $ | 10,242 | |
| | | | | | | | | |
The Company accounts for leases in accordance with ASC 842,. The Company commences revenue recognition on its leases based on a number of factors, including the initial determination that the contract is or contains a lease. Generally, all of the Company’s property related contracts are or contain leases, and therefore revenue is recognized when the lessee takes possession of or controls the physical use of the leased assets. In most instances this occurs on the lease commencement date. At the time of lease assumption or at the inception of a new lease, including new leases that arise from amendments, the Company assesses the terms and conditions of the lease to determine the proper lease classification. Certain of the Company’s leases require tenants to pay rent based upon a percentage of the property’s net sales (“percentage rent”) or contain rent escalators indexed to future changes in the Consumer Price Index (“CPI”). Lease income associated with such provisions, absent the existence of a floor, are considered variable lease income and are not included in the initial measurement of the lease receivable, or in the calculation of straight-line rent revenue. Such amounts are recognized as income when the amounts are determinable.
A lease is classified as an operating lease if none of the following criteria are met: (i) ownership transfers to the lessee at the end of the lease term, (ii) the lessee has a purchase option that is reasonably expected to be exercised, (iii) the lease term is for a major part of the economic life of the leased property, (iv) the present value of the future lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the leased property, and (v) the leased property is of such a specialized nature that it is expected to have no future alternative use to the Company at the end of the lease term. Prospectively, upon adoption of ASC 842 on January 1, 2019, if one or more of these criteria are met, the lease will generally be classified as a sales-type lease, unless the lease contains a residual value guarantee from a third party other than the lessee, in which case it would be classified as a direct financing lease under certain circumstances. Prior to the adoption of ASC 842, a lease that was not an operating lease would be accounted for as a direct financing lease.
The Company accounts for the right to use land as a separate lease component, unless the accounting effect of doing so would be insignificant. Determination of significance requires management judgment. In determining whether the accounting effect of separately reporting the land component from other components for its real estate leases is significant, the Company assesses: (i) whether separating the land component impacts the classification of any lease component, (ii) the value of the land component in the context of the overall contract, and (iii) whether the right to use the land is coterminous with the rights to use the other assets.
Revenue recognition methods for operating leases, direct financing leases, and sales-type leases are described below:
Rental property accounted for under operating leases
non-cancelable
terms of the related leases. For leases that have fixed and measurable rent escalations and collectability of the lease payments is probable, the difference between such96
rental income earned and the cash rent due under the provisions of the lease is recorded as Accrued rental income on the Consolidated Balance Sheets. If the Company determines that collectability of the lease payments is not probable, the Company records an adjustment to Lease revenues, net to reduce cumulative income recognized since lease commencement to the amount of cash collected from the lessee. Future revenue recognition is limited to amounts paid by the lessee.
Rental property accounted for under direct financing leases
Rental property accounted for under sales-type leases
Certain of the Company’s lease contracts contain nonlease components (, charges for management fees, common area maintenance, and reimbursement of third-party maintenance expenses) in addition to lease components (, monthly rental charges). Services related to nonlease components are provided over the same period of time as, and billed in the same manner as, monthly rental charges. The Company elected to apply the practical expedient available under ASC 842, for all classes of assets, not to separate the lease components from the nonlease components when accounting for operating leases. Since the lease component is the predominant component under each of these leases, combined revenues from both the lease and nonlease components are reported as Lease revenues, net in the accompanying Consolidated Statements of Income and Comprehensive Income. In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) that focused on the application of lease accounting guidance to lease concessions provided as a result of theCOVID-19
pandemic. Under ASC 842, economic relief that was agreed to or negotiated outside of the original lease agreement is typically considered a lease modification, in which case both the lessee and lessor would be required to apply the respective modification frameworks. However, if the lessee was entitled to the economic relief because of either contractual or legal rights, the relief would be accounted for outside of the modification framework. Although the original lease modification guidance in ASC 842 remains appropriate to address routine lease modifications, the Lease Modification Q&A established a different framework to account for certain lease concessions granted in response to theCOVID-19
pandemic, if certain criteria have been met. The Lease Modification Q&A allows the Company to make an accounting policy election to account forCOVID-19
related lease concessions as either a lease modification or a negative variable adjustment to rental revenue. Such election is required to be applied consistently to leases with similar characteristics and similar circumstances. In accordance with elections made pursuant to the Lease Modification Q&A, straight-line revenue recognized in the financial statements was not impacted for partial rent deferrals that were expected to be repaid within a short period of time, and where there was not a substantial change to the total consideration in the original lease agreement. Deferred rents due under these agreements was recorded as Tenant and other receivables, net in the Consolidated Balance Sheets. 97
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 Consolidated Balance Sheets. Rent received in advance consisted of the following:
| | | |
| | | | |
| Rent received in advance | | $15,162 | | $13,651 |
Goodwill represents the excess of the amount paid over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and it assigned to one or more reporting units. The Company evaluates goodwill for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable, or at least annually. The Company’s annual testing date is November 30.
The goodwill impairment evaluation is completed using either a qualitative or quantitative approach. Under a qualitative approach, the impairment review for goodwill consists of an assessment of whether it ismore-likely-than-not
that the reporting unit’s fair value is less than its carrying value, including goodwill. If a qualitative approach indicates it is morelikely-than-not
that the estimated carrying value of a reporting unit (including goodwill) exceeds its fair value, or if we choose to bypass the qualitative approach, we perform the quantitative approach described below. When the Company performs a quantitative test of goodwill for impairment, it compares the carrying value of its reporting unit with its fair value. If the fair value of the reporting unit exceeds its carrying amount, the Company does not consider goodwill to be impaired and no further analysis would be required. If the fair value is determined to be less than its carrying value, the amount of goodwill impairment equals the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
The Company determined that it has 1 reporting unit, consistent with its segment reporting analysis, which includes the acquisition, leasing, and ownership of net leased properties (i.e., the consolidated entity). When necessary to perform the quantitative test for goodwill impairment, the Company’s estimate of fair value is determined using a market approach, leveraging assumptions such as the fair value of our equity, and consideration of a control premium, if necessary, which includes an analysis of similar market transactions. While the Company believes the assumptions used to estimate the fair value of its reporting unit are reasonable, changes in these assumptions may have a material impact on the Company’s financial results. Based on the results of its annual goodwill impairment test on November 30, 2021 and 2020, the Company concluded that goodwill was not impaired.
Provision for Uncollectible Rent
In accordance with ASC 842,, provisions for uncollectible rent are recorded as an offset to Lease revenues, net on the accompanying Consolidated Statements of Income and Comprehensive Income. The following table summarizes the changes in the provision for uncollectible rent:
| | | | | | | | | | | | | |
| | |
| |
| | | | | | | | | |
| Beginning balance | | $ | 201 | | | $ | 0 | | | $ | 2,086 | |
| Provision for uncollectible rent, net | | | (101 | ) | | | 2,073 | | | | 441 | |
| Write-offs | | | 0 | | | | (1,872 | ) | | | (2,527 | ) |
| | | | | | | | | | | | | |
| Ending balance | | $ | 100 | | | $ | 201 | | | $ | 0 | |
| | | | | | | | | | | | | |
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Tenant and Capital Reserves
The terms of certain of the Company’s operating leases require the establishment of tenant and capital reserves. Under the tenant reserve requirements, tenant-funded amounts are deposited into an escrow account, to be used to fund certain costs to maintain the rental properties. Under the capital reserve lease requirements, the tenants are required to pay additional amounts into an escrow account to fund capital improvements, replacements, and repairs made to the properties. The Company has 0 obligation to fund capital improvements beyond these reserve balances.
The balances of the tenant and capital reserves are included in Accounts payable and other liabilities on the Consolidated Balance Sheets and are as follows:
| | | | | | | | | |
| | | | |
| | | | | | |
| Tenant reserve | | $ | 1,217 | | | $ | 1,070 | |
| Capital reserve | | | 1,020 | | | | 1,001 | |
| | | | | | | | | |
| | | $ | 2,237 | | | $ | 2,071 | |
| | | | | | | | | |
The corresponding cash balances are recorded in Prepaid expenses and other assets on the Consolidated Balance Sheets.
In accordance with ASC 835,debt issuance costs related to mortgages, unsecured term loans and senior unsecured notes are reported as a direct deduction from the carrying amount of the related liability, consistent with debt discounts, in the Consolidated Balance Sheets. Debt issuance costs associated with the unsecured revolving credit facility are reported as an asset on the Consolidated Balance Sheets. Debt issuance costs incurred in connection with the Company’s unsecured revolving credit facility, mortgages, unsecured term loans and senior unsecured notes have been deferred and are being amortized over the term of the respective loan commitment using the straight-line method, which approximates the effective interest method.
In connection with equity offerings, the Company incurs and capitalizes certain direct, incremental legal, professional, accounting and other third-party costs. Such costs are offset against the gross proceeds of each equity offering, and recorded as a component of Additionalpaid-in
capital on the Consolidated Balance Sheets upon the consummation of the offering. See Note 14 for further discussion of net proceeds associated with equity offerings. The Company’s earnout liability was payable in four tranches, in a combination of cash, common shares, and OP Units, in the same proportion as the initial consideration paid in the Internalization (see Note 4). The common shares and OP Units payable under the arrangement were originally subject to a redemption rights agreement, whereby holders of the common shares and OP Units had the right to require the Company to repurchase any or all of the common shares or OP Units if an IPO had not occurred on or before December 31, 2020 (see discussion of the redemption rights agreement in Note 4). The common shares and OP Units were deemed to be freestanding financial instruments that, at inception, embodied an obligation to repurchase the Company’s common shares and OP Units, and therefore were initially classified as liabilities together with the cash portion of the earnout, and recorded in Earnout liability on the Consolidated Balance Sheets as part of the purchase price allocation. The fair value of the earnout liability was remeasured each reporting period, with changes recorded as Change in fair value of earnout liability in the Consolidated Statements of Income and Comprehensive Income.
99
Upon completion of the IPO in September 2020, the redemption rights with respect to the common shares and OP Units terminated, and the $18.4 million fair value of the 725,988 shares of common stock and 1,239,506 OP Units associated with the third and fourth earnout tranches as of the date of the IPO, was reclassified to equity as a component of Additionalpaid-in
capital andNon-controlling
interests on the Consolidated Balance Sheets. At December 31, 2020, the $12.4 million fair value of 362,989 shares of common stock and 619,751 OP Units associated with the first and second earnout tranches was reclassified to equity as a component of Additionalpaid-in
capital andNon-controlling
interests on the Consolidated Balance Sheets, as the achievement of 2020 adjusted funds from operations (“AFFO”) targets were not met and were no longer applicable. The Company achieved all four milestones applicable to the earnout thereby triggering the payout of all earnout tranches during the year ended December 31, 2021, and therefore no remaining earnout liability was recorded at December 31, 2021. The Company issued common shares and OP Units as base consideration for the Internalization, each of which were subject to a redemption rights agreement, where the common shares (“mezzanine equity common stock”) and OP Units (“mezzanine equitynon-controlling
interests”) were economically equivalent to the permanent equity classified common shares and OP Units. The Company presented the mezzanine equity common stock and mezzanine equitynon-controlling
interests as mezzanine equity in the Consolidated Balance Sheets as they were redeemable outside the Company’s control. The Company subsequently recorded mezzanine equity common stock at redemption value each reporting period, with changes in carrying value recorded as a component of Additionalpaid-in
capital on the Consolidated Balance Sheets. The Company subsequently recorded mezzanine equitynon-controlling
interests at the greater of (i) carrying amount, increased or decreased for thenon-controlling
interests’ share of net income or loss, dividends and comprehensive income or loss or (ii) redemption value. Changes in carrying value of mezzanine equitynon-controlling
interests were recorded as a component of Additionalpaid-in
capital on the Consolidated Balance Sheets. The rights under the redemption rights agreement terminated effective with the IPO and the applicable common shares and OP Units were reclassified to permanent equity in 2020 (see discussion of redemption rights agreement in Note 4).
The Company uses interest rate swap agreements to manage risks related to interest rate movements. The interest rate swap agreements, designated and qualifying as cash flow hedges, are reported at fair value. ASU2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting and Hedging Activities,
2017-12,
the gain or loss on the qualifying hedges is initially included as a component of other comprehensive income or loss and is subsequently reclassified into earnings when interest payments (the forecasted transactions) on the related debt are incurred and as the swap net settlements occur. When an existing cash flow hedge is terminated, the Company determines the accounting treatment for the accumulated gain or loss recognized in Accumulated other comprehensive loss based on the probability of the hedged forecasted transaction occurring within the period the cash flow hedge was anticipated to affect earnings. If the Company determines that the hedged forecasted transaction is probable of occurring during the original period, the accumulated gain or loss is reclassified into earnings over the remaining life of the cash flow hedge
100
using a straight-line method. If the Company determines that the hedged forecasted transaction is not probable of occurring during the original period, the entire amount of accumulated gain or loss is reclassified into earnings at such time.
The Company documents its risk management strategy and hedge effectiveness at the inception of, and during the term of, each hedge. The Company’s interest rate risk management strategy is intended to stabilize cash flow requirements by maintaining interest rate swap agreements to convert certain variable-rate debt to a fixed rate.
Property Loss and Insurance Recoveries
Property losses, whether full or partial, are accounted for using a combination of impairment, insurance, and revenue recognition guidance prescribed by GAAP. Upon incurring a loss event, the Company evaluates for asset impairment under ASC 350,Intangibles—Goodwill and Other,
Property, Plant, and Equipment.
Under the terms of the lease agreements with tenants, in the case of full or partial loss to a property, the tenant has an obligation to restore/rebuild the premises as nearly as possible to its value, condition and character immediately prior to such event. To mitigate the risk of loss, the Company requires tenants to maintain general liability insurance policies on the replacement value of the properties. Based on these considerations, the Company follows the guidance in ASC610-30,
Other Income —Gains and Losses on Involuntary Conversions,
610-30,
once probable of receipt, the Company recognizes an insurance/tenant recovery receivable in Tenant and other receivables, net, in the Consolidated Balance Sheets, with a corresponding offset to the accelerated depreciation recognized in the Consolidated Statements of Income and Comprehensive Income. If the insurance/tenant recovery is less than the amount of accelerated depreciation recognized, the Company will recognize a net loss in the Consolidated Statements of Income and Comprehensive Income. If the insurance/tenant recovery is greater than the amount of accelerated depreciation recognized, the Company will only recognize a recovery up to the amount of the accelerated depreciation, and will account for the excess as a gain contingency in accordance with ASC450-30,
Gain contingencies are recognized when earned and realized, which typically will occur at the time of final settlement or whennon-refundable
cash advances are received. Non-controlling
interests represents the membership interests held in the OP of 6.0%, 7.3%, and 6.3% at December 31, 2021, 2020, and 2019, respectively, by third parties which are accounted for as a separate component of equity.The Company adjusts the carrying value ofnon-controlling
interests to reflect their share of the book value of the OP. Such adjustments are recorded to Additionalpaid-in
capital as a reallocation ofNon-controlling
interests in the Consolidated Statements of Stockholders’ Equity and Mezzanine Equity. 101
The Company currently operates in a single reportable segment, which includes the acquisition, leasing, and ownership of net leased properties. The Company’s chief operating decision maker assesses, measures, and reviews the operating and financial results at the consolidated level for the entire portfolio, and therefore, each property or property type is not considered an individual operating segment. The Company does not evaluate the results of operations based on geography, size, or property type.
ASC 820,Fair Value Measurements and Disclosures,
The standard describes three levels of inputs that may be used to measure fair value:
—Quoted prices that are available in active markets for identical assets or liabilities. The types of financial instruments included in Level 1 are marketable,equity securities that are traded in an active exchange market. —Pricing inputs other than quoted prices in active markets, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Instruments included in this category are derivative contracts whose value is determined using a pricing model with inputs (such as yield curves and credit spreads) that are observable in the market or can be derived principally from or corroborated by observable market data. —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 includes assets and liabilities whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. The Company has estimated that the carrying amount reported on the Consolidated Balance Sheets for Cash and cash equivalents,
Restricted cash,Prepaid expenses and other assets, Tenant and other receivables, net,
Notes receivable,Accrued interest payable, and Accounts payable and other liabilities,
and Dividends payable approximates their fair values due to their short-term nature.
Recurring Fair Value Measurements
Interest Rate Swap Assets and Liabilities—
Interest rate swaps are derivative instruments that have no quoted readily available Level 1 inputs, and therefore are measured at fair value using inputs that are directly observable in active markets and are classified within Level 2 of the valuation hierarchy, using an income approach. Specifically, the fair value of the interest rate swaps is determined using a discounted cash flow analysis on the expected future cash flows of each instrument. This analysis utilizes observable market data including yield curves and implied volatilities to determine the market’s expectation of the future cash flows of the variable component. The fixed and variable components of the interest rate swaps are then discounted using calculated discount factors developed based on the overnight indexed swap (“OIS”) curve and are aggregated to arrive at a single valuation for the period. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has
102
determined that the majority of the inputs used to value its interest rate swaps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate swaps utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. At December 31, 2021 and 2020, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As a result, the Company has determined that its interest rate swap valuations in their entirety are appropriately classified within Level 2 of the fair value hierarchy.
—In connection with the Internalization, the Company recognized an earnout liability that was due and payable to the former owners of BRE if certain milestones were 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) the40-day
dollar volume-weighted average price of a share of the Company’s common stock (“VWAP per REIT Share”), following the completion of an IPO of the Company’s common stock, or (b) the Company’s AFFO per share, prior to the completion of an IPO. The Company utilized third-party valuation experts to assist in estimating the fair value of the earnout liability, and developed estimates by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis. These estimates required 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 could have resulted 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 were 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 Company achieved all four VWAP milestones applicable to the earnout thereby triggering the payout of all earnout tranches during the year ended December 31, 2021, and therefore no remaining earnout liability was recorded at December 31, 2021.
The table below provides a summary of the significant unobservable inputs used to estimate the fair value of the earnout liability as of December 31, 2020:
Significant Unobservable Inputs | | Weighted Average
Assumption Used | | | | |
| Peer stock price volatility | | | 40.0 | % | | | 25.92% - 55.90% | |
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, which was the date of the Internalization:
| | | | |
Significant Unobservable Inputs | | Weighted Average
Assumption Used | | |
| 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%. |
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The following table presents a reconciliation of the change in the earnout liability:
| | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | | | | |
| Beginning balance | | $ | 7,509 | | | $ | 0 | |
| Allocation of Internalization purchase price at February 7, 2020 | | | 0 | | | | 40,119 | |
| Change in fair value subsequent to Internalization | | | 5,539 | | | | (1,800 | ) |
Reclassification as a component of additional paid-in capital and non-controlling interests | | | 0 | | | | (30,810 | ) |
| Payout of tranches earned | | | (13,048 | ) | | | 0 | |
| | | | | | | | | |
| Ending balance | | $ | 0 | | | $ | 7,509 | |
| | | | | | | | | |
The balances of financial instruments measured at fair value on a recurring basis are as follows (see Note 11):
| | | | |
| | | | | | | | | | | | |
| Interest rate swap, liabilities | | $ | (27,171 | ) | | $ | 0 | | | $ | (27,171 | ) | | $ | — | |
| | |
| | | | |
| | | | | | | | | | | | | |
| Interest rate swap, liabilities | | $ | (72,103 | ) | | $ | — | | | $ | (72,103 | ) | | $ | — | |
| Earnout liability | | | (7,509 | ) | | | — | | | | — | | | | (7,509 | ) |
—The fair value of the Company’s debt was estimated using Level
1, Level 2, and Level 3 inputs based on
recent secondary market trades of the Company’s 2031 Senior Unsecured Public Notes (defined below), 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.
treasuryTreasury 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 Consolidated Balance Sheets and the Company’s estimate of the fair value of the
Mortgagesunsecured revolving credit facility, mortgages, unsecured term loans, and
senior unsecured notes
payable, net, Unsecured term notes, net, and Unsecured revolver at December 31, 2018 and 2017: | | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Carrying amount | | $ | 1,450,551 | | | $ | 1,181,470 | |
Fair value | | | 1,439,264 | | | | 1,177,197 | |
As disclosed underwhich reflects the Long-lived Asset Impairment section elsewhere in Note 2, thefair value of interest rate swaps:
| | | | |
| | | | | | |
| Carrying amount | | $ | 1,699,160 | | | $ | 1,547,667 | |
| Fair value | | | 1,785,701 | | | | 1,679,188 | |
Non-recurring
Fair Value MeasurementsThe Company’s
non-recurring
fair value measurements at December 31,
20182021 and
2017,2020, consisted of the fair value of impaired real estate assets that were determined using Level 3 inputs.
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The Company has made an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, of 1986, (as amended, the “Code”), commencing with its taxable year ended December 31, 2008. The Company believes it is organized and operates in such a manner as to qualify for treatment as a REIT, and intends to operate in the foreseeable future in such a manner so that it will remain qualified as a REIT for U.S. federal income tax purposes. Accordingly, the Company is not subject to U.S. federal corporate income tax to the extent its dividends paid equals ordeduction exceeds its adjusted taxable income, as defined in the Code. Accordingly, no provision has been made for U.S. federal income taxes in the accompanying Consolidated Financial Statements. The Company has a wholly-owned subsidiary that elected to be treated as a taxable REIT subsidiary (“TRS”) and is subject to U.S. federal, state and local income taxes at regular corporate tax rates when due.
The Company is subject to state and local income or franchise taxes and foreign taxes in certain statesjurisdictions in which some of its properties are located and records these within Income taxes as state and franchise tax expense in the accompanying Consolidated Statements of Income and Comprehensive Income when due.
The Company is required to file income tax returns with federal,
state, and
various stateCanadian taxing authorities. At December 31,
2018,2021, the Company’s
U.S. federal and state income tax returns remain subject to examination by the respective taxing authorities for the
20152018 through
20172020 tax years.
The Company recognizes and measures uncertain tax positions using a
two-step
approach. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is
more-likely-than-not
that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. In making this assessment, the Company must assume that the taxing authority will examine the income tax position and have full knowledge of all relevant information. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may or may not accurately forecast actual outcomes.
The Company has determined that it has no uncertain tax positions at December 31,
20182021 and
2017,2020, or for the years ended December 31,
2018, 2017,2021, 2020, and
2016,2019, which include the tax status of the Company.
Interest and penalties related to income taxes are charged to tax expense during the year in which they are incurred.
Taxes Collected From Tenants and Remitted to Governmental Authorities
A majority of the Company’s properties are leased on a
triple-netnet basis, which provides that the tenants are responsible for the payment of
all property operating expenses, including, but not limited to, property taxes, maintenance, insurance, repairs, and capital costs, during the lease term. The Company records such expenses on a net basis.
The following table summarizes the approximate property tax payments made directly to the taxing authorities by the Company’s tenants, pursuant to their lease obligations, for the years ended December 31, 2018, 2017, and 2016:
| | For the years ended December 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Property taxes paid by tenants directly to taxing authority | | $ | 23,800 | | | $ | 19,700 | | | $ | 16,200 | |
In other situations, the Company may collect property taxes from its tenants and remit those taxes to governmental authorities. Taxes collected from tenants and remitted to governmental authorities are presented on a gross basis, where revenue isamounts billed to tenants are included in Operating expenses reimbursed from tenantsLease revenues, net and the corresponding expense is included in Property and operating expense in the accompanying Consolidated Statements of Income and Comprehensive Income.
The following table summarizes taxes collected from tenants
Assets and
remitted to governmental authorities for the years ended December 31, 2018, 2017, and 2016:Lease Liabilities | | For the years ended December 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Property taxes collected from tenants | | $ | 5,572 | | | $ | 2,877 | | | $ | 2,004 | |
Property taxes remitted on behalf of tenants | | | 5,547 | | | | 2,899 | | | | 1,933 | |
Recently Adopted Accounting Standards
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 amends the designation and measurement guidance for qualifying hedging transactions and the presentation of hedge results in an entity’s financial statements. The new guidance removes the concept of separately measuring and reporting hedge ineffectiveness and requires a company to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. Disclosure requirements have been modified to include a tabular disclosure related to the effect of hedging instruments on the income statement and eliminate the requirement to disclose the ineffective portion of the change in fair value of such instruments. The new guidance is effective January 1, 2019, with early adoption permitted, and provides companies with a modified retrospective transition method for each cash flow and net investment hedge relationship existing on the date of adoption. This adoption method requires a company to recognize the cumulative effect of initially applying the ASU as an adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the update. The Company early adopted the guidance effective January 1, 2018. The Company did not recognize a cumulative effect adjustment upon adoption as the Company had not recognized ineffectiveness on any of the hedging instruments existing as of the date of adoption.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows – Restricted Cash. ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or cash equivalents. Therefore, amounts generally described as restricted cash and equivalents should be included with cash and cash equivalents when reconciling the beginning and end of period total amounts on the statement of cash flows. Previously, there had been no specific guidance to address how to classify or present these changes. ASU 2016-18 is effective, on a retrospective basis, for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU 2016-18 as of January 1, 2018. In line with the retrospective adoption of this standard, the Company removed the change in restricted cash of $724 and $(1,381) from Cash flows used in investing activities for the years ended December 31, 2017 and 2016, respectively . See Reclassifications elsewhere in Note 2.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides classification guidance for eight specific topics, including but not limited to, debt extinguishment costs, contingent consideration payments made after a business combination, and distributions received from equity method investees. ASU 2016-15 became effective, on a retrospective basis, for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU 2016-15 as of January 1, 2018. The classification of debt extinguishment costs in the Consolidated Statements of Cash Flows addressed by ASU 2016-15 is applicable to the Company. However, adoption of this guidance did not have an impact on the Company’s Consolidated Statements of Cash Flows, as the Company historically classified these cash flows as required by the guidance.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09, including all updates, is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing,lessee under
non-cancelable
operating leases associated with its corporate headquarters and
uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASU 2014-09 as of January 1, 2018, on a modified retrospective basis. The adoption had no effect on the Company’s Consolidated Financial Statements as the Company’s revenues are lease related, which are not subject to provisions of ASU 2014-09.In February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets. This new guidance was required to be adopted concurrently with the amendments in ASU 2014-09. The new pronouncement adds guidance for partial sales of nonfinancial assets, including real estate. In adopting ASU 2017-05, companies may use either a full retrospective or a modified retrospective approach. The Company previously recognized revenue on sales of real estate at the time the asset was transferred (i.e., at the time of closing). Upon adoption of ASU 2014-09, as discussed above, and therefore ASU 2017-05, the Company now evaluates any separate contract or performance obligation to determine proper timing of revenue recognition,other office spaces as well as sales price allocation when a performance obligation is identified. Adoptionwith leases of this pronouncement had no effect on the Company’s Consolidated Financial Statements during the year ended December 31, 2018 or in any periods.
land (“ground leases”). The Company recordsright-of-use
Other Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for
lease
accounting, Leases (Topic 840). ASU 2016-02, and related ASUs subsequently issued, are effective January 1, 2019,liabilities associated with
early adoption permitted.these leases. The
guidance requires lessees to recognize a right-of-use asset and a corresponding lease liability
initially measured atis equal to the
net present value of
lease the future105
payments
for both operating and financing leases. Under the new pronouncement, lessor accounting is largely unchanged from existing GAAP, however disclosures willto be
expanded. The new standard provides a number of practical expedients, one of which, ‘the Package of Three’, allows an entity to not reassess (i) whether any expired or existing contracts are, or contain, leases, (ii)made under the lease,
classification for any expired or existing leases, and (iii)discounted using estimates based on observable market factors. Theasset is generally equal to the lease liability plus initial direct costs
for existingassociated with the leases.
In July 2018,The Company includes in the
FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements which provides an optional transition method where an entity can initially applyrecognition of the
guidance at the adoption dateasset and
recognize a cumulative-effect adjustment to the opening balance of retained earnings. An entity’s reporting for the comparativelease liability those renewal periods
presented will continuethat 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
accordance with current GAAP (ASC 840), including the
required disclosures.initial measurement of theasset or lease liability. The
new guidance also allows lessors to makeCompany has made an accounting policy election,
by class of underlyingapplicable to all asset
types, not to
not separate
non-leaselease from nonlease components
fromwhen allocating contract consideration related to operating leases.assets and lease liabilities associated with operating leases were included in the
accompanying Consolidated Balance Sheets as follows: | | | | | | | | | | |
| | | | | | |
| | Financial Statement Presentation | | | | | | |
| | Prepaid expenses and other assets | | $ | 3,099 | | | $ | 3,075 | |
Lease liabilities | | Accounts payable and other liabilities | | | 2,570 | | | | 2,659 | |
Rental expense associated
lease component and to account for those components as a single component if certain conditions are met. The guidance requires all income from leases to be presented as a single line item, rather than the current presentation where rental income fromwith operating leases is
shown separately from reimbursements from tenantsrecorded on
a straight-line basis over the term of each lease, for leases that have fixed and measurable rent escalations. The difference between rental expense incurred on a straight-line basis and the cash rental payments due under the provisions of the lease is recorded as part of theasset in the accompanying December 31, 2021 and 2020 Consolidated Balance Sheets. Amounts associated with percentage rent provisions based on the achievement of sales targets are recognized as variable rental expense when achievement of the sales targets are considered probable. Rental expense is included in Property and operating expense on the accompanying Consolidated Statements of Income and Comprehensive Income. 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
the Consolidated Statements of Income and Comprehensive
Income. In addition, bad debtIncome 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
is required to be presentedassociated with the forfeited shares. Dividends declared on RSAs issued under the Equity Incentive Plan are recorded as
an adjustment to revenue, rather than the current presentation within Operating expensesCumulative distributions in excess of retained earnings on the Consolidated
StatementsBalance Sheets. Accumulated dividends related to forfeited RSAs are reversed through compensation expense in the period the forfeiture occurs. Dividends accrued on the PRSUs are recorded as Cumulative distributions in excess of
Incomeretained earnings on the Consolidated Balance Sheets. Accumulated dividends accrued related to forfeited PRSUs are reversed in the period the forfeiture occurs. Earnings per common share has been computed pursuant to the guidance in ASC Topic 260,which requires the classification of the Company’s unvested shares of restricted common stock, which contain rights to receivenon-forfeitable
dividends, as participating securities requiring thetwo-class
method of computing earnings per share. Thetwo-class
method is an earnings allocation formula that determines earnings per share for each class of common stock and
Comprehensive Income.participating securities according to dividends declared (or
106
accumulated) and participation rights in undistributed earnings. In accordance with thetwo-class
method, the Company’s calculation of earnings per share excludes the income attributable to the unvested shares of restricted common stock from the numerator of the calculation and the weighted average number of such unvested shares from the denominator. See Note 16. 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
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. ASU2021-01
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 ASU2021-01
related to contract modifications and hedging relationships prospectively. Other Recently Issued Accounting Standards
In August 2020, the FASB issued ASU2020-06,
Debt – Debt with Conversion and Other Options (Subtopic470-20)
and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity 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 ASU2020-06
also simplify the guidance in ASC Subtopic815-40,
Derivatives and Hedging: Contracts in Entity’s Own Equity
is
primarily a lessorexpected to decrease the number of freestanding instruments and
thereforeembedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of theif-converted
method for all convertible instruments. The amendments in ASU2020-06
are effective for the Company beginning January 1, 2022. The Company uses thetwo-class
method of computing basic and diluted earnings per share. Based on the nature of the Company’s potentially dilutive instruments, the treasury stock method is not used in computing dilutive earnings per share. Accordingly, the adoption of ASU
2016-02 2020-06
will not have a material impact on the
Consolidated Financial Statements. Company. The Company
has completed its inventoryreclassified $961.3 million of
leasesUnsecured term notes, net at December 31, 2020 to Unsecured term loans, net at December 31, 2021 and
has identified changes needed$472.5 million of Unsecured term notes, net at December 31, 2020 to
its processes and systems impacted by the new standard and will adopt the guidance using the transition method provided in ASU 2018-11 on January 1, 2019. The Company does not anticipate a material cumulative-effect adjustment to the opening balance of retained earnings. The Company will elect the practical expedient to not separate non-lease components and, based on the assessment of the current leases in the portfolio, the components will be combined and accounted for in accordance with ASC 842. The Company will elect the Package of Three practical expedient and expects to present revenue related to leases as a single line item,Senior unsecured notes, net
of bad debt expense,at December 31, 2021 on the Consolidated
Statements of Income and Comprehensive Income beginning January 1, 2019. Upon adoption, the Company expects to recognize a right-of-use asset and corresponding lease liability of approximately $1,700 and $1,300, respectively, for operating leases where it is the lessee (see Note 18). The right-of-use asset will be presented net of the existing straight-line rent liability of $7 and the ground lease intangible asset of $432.In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses which changes how entities measure credit losses for most financial assets. Financial assets that are measured at amortized cost will be required to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. The guidance requires an entity to utilize broader information in estimating the expected credit loss, including forecasted information. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses which clarified that operating lease receivables recorded by lessors are explicitly excluded from the scope of this guidance. ASU 2016-13 is effective January 1, 2020, with early adoption permitted beginning on January 1, 2019, under a modified retrospective application. The Company continues to evaluate the impact this new standard will have on its Consolidated Financial Statements, but does not expect such impact to be material based upon the composition of its current lease portfolio.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments under ASU 2018-13 remove, add, and modify certain disclosure requirements on fair value measurements in ASC 820. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact the new standard will have on its Consolidated Financial Statements and expects to adopt the new disclosures on a prospective basis on January 1, 2020.
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. Currently under Topic 815, the eligible benchmark interest rates in the United States are the interest rates on direct Treasury obligations of the U.S. government (UST), the LIBOR swap rate, the OIS Rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate, which was introduced in ASU 2017-12. The amendments in ASU 2018-16 permit the use of the OIS rate based on SOFR as a benchmark interest rate for hedge accounting purposes under Topic 815. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years for public business entities that have already adopted the amendments in ASU 2017-12 (see Recently Adopted Accounting Standards elsewhere in Note 2). The Company will adopt the guidance effective January 1, 2019 on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. The Company does not anticipate the adoption of this guidance to have an impact on the Consolidated Financial Statements.
Reclassifications
As described below, certain prior period amounts have been reclassifiedBalance Sheets, to conform with the current period’speriod presentation.
In connection The reclassifications are changes from one acceptable presentation to another acceptable presentation.
The Company disaggregated $39.3 million of Accounts payable and other liabilities to a separate financial statement line item Dividends payable on the Consolidated Balance Sheets at December 31, 2020, to conform with the adoptioncurrent period presentation. The reclassification is a change from one acceptable presentation to another acceptable presentation.
The components of ASU 2016-18, Statementinvestment in rental property accounted for using the operating method were previously combined and reported as assets accounted for using the operating method, net of Cash Flows – Restricted Cash, discussed in Recently Adopted Accounting Standards elsewhere in Note 2, certain reclassifications have been made to prior-period balances to conform to current presentation inaccumulated depreciation on the Consolidated Statements of Cash Flows. Under ASU 2016-18, changes in restricted cash which were previously shown in Cash flows used in investing activities in the Consolidated Statements of Cash Flows are now reflected as partBalance Sheets with separate footnote disclosure of the totaldisaggregated balances. The components of investment in rental property accounted for using the operating method were disaggregated to
107
conform with the current period presentation, which is a change
in cash, cash equivalents and restricted cash in the Consolidated Statements of Cash Flows.from one acceptable presentation to another acceptable presentation, as follows:
| | | | |
| | | |
| | | |
| | | | |
| Accounted for using the operating method, net of accumulated depreciation | | $ | 3,354,511 | |
| | | | |
| | | |
| | | |
| | | | |
| Accounted for using the operating method: | | | | |
| Land | | $ | 555,748 | |
| Land improvements | | | 279,360 | |
| Buildings and improvements | | | 2,857,510 | |
| Equipment | | | 11,870 | |
| | | | | |
| Total accounted for using the operating method | | | 3,704,488 | |
| Less accumulated depreciation | | | (349,977 | ) |
| | | | | |
| Accounted for using the operating method, net | | $ | 3,354,511 | |
| | | | | |
3. Related-Party Transactions
Prior to the Internalization on February 7, 2020, BRE, a related party in which certain directors of the Corporation had either a direct or indirect ownership interest, and the Asset Manager were considered to be related parties.
Property Management Agreement
The Corporation and the
Operating Company are a partyOP were parties to a property management agreement (as amended, the “Property Management Agreement”) with
the Manager, a related party in which certain directors of the Corporation have either a direct or indirect ownership interest.BRE. Under the terms of the Property Management Agreement,
the Manager managesBRE managed and
coordinatescoordinated certain aspects of the leasing of the Corporation’s rental property.
Effective January 1, 2018, the Property Management Agreement was amended to, among other things, extend the recurring term of the agreement from one year to three years, clarify termination provisions, include a Termination Event concept and a Key Person Event concept, each as defined in the Property Management Agreement, and remove fee provisions relating to short-term financing or guarantees provided by the Manager to the Operating Company.
In exchange for services provided under the Property Management Agreement,
the Manager receivesBRE received certain fees and other
compensation
as follows:
| (i) | 3% of gross rentals collected each month from the rental property for property management services (other than one property, which has a separate agreementcalled for 5% of gross rentals)rentals under the Property Management Agreement); and |
| (ii) | Re-leasing fees for existing rental property equal to one month’s rent for a new lease with an existing tenant and two months’months’ rent for a new lease with a new tenant. |
In addition, prior to January 1, 2018, the Manager was able to provide, but was not obligated to provide, short-term financing to, or guarantees for, the Operating Company. In exchange for these services, the Manager was entitled to receive an interest rate of up to the prime rate plus 1.00% in exchange for any advances to the Operating Company, and 0.05% for guaranteeing recourse carve-outs on financing arrangements. No such advances or guarantees were made during the years ended December 31, 2017 and 2016.
The Property Management Agreement will automatically renew on January 1, 2019 for three years ending December 31, 2021, subject to earlier termination pursuant to the termsUpon completion of the Property Management Agreement. The Property Management Agreement provides for termination (i) immediately by the Corporation’s Independent Directors Committee (“IDC”) for Cause, as defined inInternalization, the Property Management Agreement (ii) by the IDC, upon 30 days’ written noticewas terminated and, prospectively, property management fees were 0 longer payable to the Manager, in connection withBRE. The Internalization was not considered a change in control of the Manager, as defined in“Termination Event” under the Property Management Agreement, (iii) bytherefore 0 fees were payable to BRE as a result of the IDC, by providingInternalization. See Note 4 for further discussion regarding the Manager with written notice of termination not less than one year prior toInternalization, including the last calendar day of any renewal term, (iv) by the Manager upon written notice to the Company not less than one year prior to the last calendar day of any renewal period, (v) automatically in the event of a Termination Event, and (vi) by the IDC upon a Key Person Event.
If the Corporation terminates the agreement prior to any renewal term or in any manner described above, other than termination by the Corporation for Cause, the Corporation will be subject to a termination fee equal to three times the Management Fees, as defined in the Property Management Agreement, to which the Manager was entitled during the 12-month period immediately preceding the date of such termination. Although not terminable at December 31, 2018, if the Property Management Agreement had been terminated at December 31, 2018, subject to the conditions noted above, the termination fee would have been $19,588.
associated payments related thereto.
Asset Management Agreement
The Corporation and the Operating Company are partyOP were parties to an asset management agreement (as amended, the “Asset Management Agreement”) with the Asset Manager, a single member limited liability company withof which BRE
108
was the
Manager as the singlesole member, and therefore a related party in which certain directors of the Corporation
havehad an indirect ownership interest. Under the terms of the Asset Management Agreement, the Asset Manager
iswas responsible for, among other things, the Corporation’s acquisition, initial leasing, and disposition strategies, financing activities, and providing support to the Corporation’s
IDCIndependent Directors Committee (“IDC”) for its valuation functions and other duties. The Asset Manager also
nominatesnominated two individuals to serve on the Board of Directors of the Corporation.
Effective January 1, 2018, the Asset Management Agreement was amended to, among other things, extend the recurring term of the agreement from one year to three years, provide for additional disposition fee provisions, and include a Disposition Event concept and Key Person Event concept, each as defined in the amended Asset Management Agreement. The Asset Management Agreement defines a Disposition Event in the same manner as a Termination Event is defined in the Property Management Agreement discussed above.
Under the terms of the Asset Management Agreement, the Asset Manager iswas compensated as follows:
| (i) | a quarterly asset management fee equal to 0.25% of the aggregate value of common stock, based on the per share value as determined by the IDC each quarter, on a fully diluted basis as if all interests in the Operating CompanyOP had been converted into shares of the Corporation’s common stock; |
| (ii) | 0.5% of the proceeds from future equity closings as reimbursement for offering, marketing, and brokerage expenses; |
| (iii) | 1% of the gross purchase price paid for each rental property acquired (other than acquisitions described in (iv) below), including any property contributed in exchange for membership interests in the Operating Company; OP; |
| (iv) | 2% of the gross purchase price paid for each rental property acquired in the event that the acquisition of a rental property requiresrequired a new lease (as opposed to the assumption of an existing lease), such as a sale-leaseback transaction; and |
| (v) | 1% of the gross sale price received for each rental property disposition. disposition; and |
For the year ended December 31, 2018, the following was included in the Asset Management Agreement, in addition to the fees noted above:
| (vi) | 1% of the Aggregate Consideration, as defined in the Asset Management Agreement, received in connection with a Disposition Event. disposition event, as defined in the Asset Management Agreement. |
The Asset Management Agreement will automatically renew on January 1, 2019, for three years ending December 31, 2021, subject to earlier termination pursuant to the termsUpon completion of the Asset Management Agreement. The Asset Management Agreement provides for termination (i) immediately by the IDC for Cause, as defined inInternalization, the Asset Management Agreement (ii) bywas terminated and, prospectively, asset management fees were 0 longer payable to the IDC, upon 30 days’ written noticeAsset Manager. The Internalization was not considered a “Termination Event” under the Asset Management Agreement, therefore 0 fees were payable to the Asset Manager in connection withas a change in controlresult of the Asset Manager, as defined inInternalization. See Note 4 for further discussion regarding the Asset Management Agreement, (iii) byInternalization, including the IDC, by providing the Asset Manager with written notice of termination not less than one year prior to the last calendar of any renewal term, (iv) by the Asset Manager upon written notice to the Company not less than one year prior to the last calendar day of any renewal period, (v) automatically in the event of a Disposition Event, and (vi) by the IDC upon a Key Person Event
If the Corporation terminates the agreement prior to any renewal term or in any manner described above, other than termination by the Corporation for Cause, the Corporation will be required to pay to the Asset Manager a termination fee equal to three times the Asset Management Fee to which the Asset Manager was entitled during the 12-month period immediately preceding the date of such termination. Although not terminable at December 31, 2018, if the Asset Management Agreement had been terminated at December 31, 2018 subject to the conditions noted above, the termination fee would have been $54,520.
associated payments related thereto.
Total fees incurred under the Property Management Agreement and Asset Management Agreement
for the years ended December 31, 2018, 2017, and 2016, arewere as follows:
(in thousands) | | Financial Statement | | For the years ended December 31, | |
Type of Fee | | Presentation | | 2018 | | | 2017 | | | 2016 | |
Asset management fee | | Asset management fees | | $ | 18,173 | | | $ | 14,754 | | | $ | 10,955 | |
Property management fee | | Property management fees | | | 6,529 | | | | 4,988 | | | | 3,939 | |
Total management fee expense | | | | | 24,702 | | | | 19,742 | | | | 14,894 | |
| | | | | | | | | | | | | | |
Marketing fee (offering costs) | | Additional paid-in capital | | | 1,158 | | | | 1,380 | | | | 1,310 | |
Acquisition fee | | Capitalized as a component of assets acquired in 2018 and 2017 (See Note 4) and included as acquisition expenses in 2016 | | | 5,907 | | | | 6,580 | | | | 5,203 | |
Leasing fee | | Leasing fees, net | | | 1,399 | | | | 3,339 | | | | 2,932 | |
Disposition fee | | Gain on sale of real estate | | | 573 | | | | 605 | | | | 133 | |
Total management fees | | | | $ | 33,739 | | | $ | 31,646 | | | $ | 24,472 | |
Included in | | | | | | | | | | | | | | |
| | | | For the Year Ended December 31, | |
| | Financial Statement Presentation | | | | | | | | | |
| Asset management fee | | Asset management fees | | | $0 | | | | $2,461 | | | | $21,863 | |
| Property management fee | | Property management fees | | | 0 | | | | 1,275 | | | | 8,256 | |
| | | | | | | | | | | | | | | |
| Total management fee expense | | | | | 0 | | | | 3,736 | | | | 30,119 | |
| Marketing fee (offering costs) | | Additional paid-in capital | | | 0 | | | | — | | | | 1,649 | |
| Acquisition fee | | Capitalized as a component of assets acquired | | | 0 | | | | — | | | | 10,319 | |
Leasing fee and re-leasing fees | | Leasing fees, net | | | 0 | | | | — | | | | 843 | |
| Disposition fee | | Gain on sale of real estate | | | 0 | | | | 109 | | | | 1,765 | |
| | | | | | | | | | | | | | | |
| Total management fees | | | | | $0 | | | | $3,845 | | | | $44,695 | |
| | | | | | | | | | | | | | | |
| (a) | Fees were payable under the Property Management Agreement and Asset Management Agreement from January 1, 2020 through February 6, 2020. The Internalization was effective February 7, 2020. |
There were 0 unpaid management fees
are $114 and $722 of unpaid fees recorded in Due to related parties on the Consolidated Balance Sheets at December 31,
20182021 and
2017, respectively.2020. All fees related to the Property Management Agreement and the Asset Management Agreement
arewere paid for in cash within the Company’s normal payment cycle for vendors.
Investment in Related Party
On June 30, 2015,
109
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). As of December 31, 2021, the Company achieved all four VWAP milestones applicable to the earnout. As a result, the Company issued
1391,088,977 shares
of common stock, 1,859,257 OP Units and made cash payments of $13.0 million to these related parties (see Note 4). The earnout consideration at December 31, 2020, consisted of $7.5 million recorded as Earnout liability, $11.4 million recorded as a component of Additionalpaid-in
capital, and $19.4 million recorded as a component ofNon-controlling
interests on the Consolidated Balance Sheets (see Note 2). Redemption of Shares from Related Party
In accordance with a valuethe definitive Merger Agreement entered into as part of $10,000 toInternalization, during December 2019, the Manager in exchange for 100 non-voting convertible preferred unitsCompany redeemed 941,196 shares of the Manager, which represented a 6.4%its common stock from BRE, representing BRE’s entire ownership interest in the ManagerCompany. The shares were redeemed at $21.25 per share, the time of the transaction on a fully-diluted basis. The Company had the right to convert the preferred units to non-voting common units of the Manager between January 1, 2018 and December 31, 2019. Subsequent to the conversion period, the Manager had the option to redeem the convertible preferred units at their originalthen current determined share value of $10,000, plus any accrued and unpaid preferred return. On July 31, 2018, the Company sold its investment to an existing owner of the Manager. The preferred units were sold for an aggregate sales price of $18,500 and had a carrying value of $10,000 at the time of sale. The transaction was approvedestablished by the Board of Directors and IDC. At December 31, 2017, the carrying amount(“Determined Share Value”), for total consideration of the investment was $10,000. The preferred units provided a stated preferred return at inception$20.0 million.
Conversion of 7.0% with 0.25% increases every June 30th. Preferred distributions relatedOP Units to the investment in the Manager forCommon Stock
During the years ended December 31,
2018, 2017,2021 and
2016 amounted2020, innon-cash
transactions (see Note 18), the Company converted 2,049,439 and 822,745 OP Units, respectively, held by an affiliated third party to
$440, $737,2,049,439 and
$713,822,745 shares of common stock, respectively, at a total conversion value of $32.8 million and $15.6 million, respectively.
See further discussion in Note 12 and 14. 4. Internalization
Legal Services
On February 7, 2020, the Company completed the Internalization and the Company’s management team and corporate staff, who were previously employed by BRE, became employees of an indirect subsidiary of the OP. The Company
retainspaid base consideration of $209.5 million at closing and additional earnout consideration of up to $75.0 million, as described below. In addition, the
legal servicesCompany assumed $90.5 million of
Vaisey Nicholson & Nearpass, PLLC (“VNN”), formerly a related party. One former minority partnerdebt in addition to other assets acquired and liabilities assumed, as detailed in theAllocation of VNN is an immediate family member to a memberPurchase Price
of the
managementInternalization has been reflected in the Company’s operating results beginning on February 7, 2020. The consideration paid at closing of the Internalization is summarized in the following table:
| | | | | |
| | | |
| Issuance of 3,124 shares of common stock | | $ | 66,376 | |
| Issuance of 5,278 OP Units | | | 112,159 | |
| Cash | | | 30,981 | |
| | | | | |
| Base consideration | | | 209,516 | |
| Initial estimate of fair value of earnout liability | | | 40,119 | |
| | | | | |
| Total consideration | | $ | 249,635 | |
| | | | | |
In accordance with the Internalization, the Company
was required to pay additional earnout consideration of up to $75.0 million payable in 4 tranches of $10.0 million, $15.0 million, $25.0 million, and
an indirect minority owner$25.0 million if certain milestones related to the40-day
VWAP per REIT Share were achieved. The consideration consisted of a combination of cash, shares of the
Manager. Beginning January 2017,Company’s common stock, and OP Units, based on the
family membersame proportions paid in the base consideration. 110
As of December 31, 2021, the Company achieved all four VWAP milestones, thereby triggering the payout of all earnout tranches. Below is a summary of the shares of common stock and OP Units issued, and cash paid for each earnout tranche:
(in thousands, except per share amounts) | | | | | | | |
| | | | | | | | | | | |
| 1 | | 145 | | 248 | | $1,926 (a) | | $ 22.50 | | | June 16, 2021 | |
| 2 | | 218 | | 371 | | 2,888 (a) | | 23.75 | | | July 14, 2021 | |
| 3 | | 363 | | 620 | | 4,117 | | 24.375 | | | September 21, 2021 | |
| 4 | | 363 | | 620 | | 4,117 | | 25.00 | | | September 21, 2021 | |
| (a) | Cash payments include amounts earned for dividends. |
Redemption Rights Agreement
If an IPO did not occur on or before the satisfaction of certain milestones related to the40-day
VWAP per REIT Share, then each holder of common shares or OP Units issued in connection with the Internalization had the right to require the Company to repurchase any or all of such holder’s shares or OP Units. Such rights terminated effective with the IPO. Upon occurrence of the IPO in September 2020, the common stock andnon-controlling
interests issued as base consideration in connection with the Internalization and originally classified as mezzanine equity, were reclassified as a component of Common stock, Additionalpaid-in
capital, andNon-controlling
interests on the Consolidated Balance Sheets. Allocation of Purchase Price
The Internalization was no longer an owner or partneraccounted for as a business combination and accordingly, the Company allocated the purchase price utilizing the acquisition method to record assets acquired and liabilities assumed at their estimated fair values. The allocation of VNNthe purchase price has been finalized and therefore, prospectively, VNN is no longer deemedbased on the actual valuations of the tangible and intangible assets and liabilities that existed as of the date of completion of the acquisition, including the valuation of the earnout liability.
The following table summarizes the Company’s allocation of the purchase price associated with the Internalization:
| | | | |
| | | |
| Prepaid expenses and other assets | | $ | 1,336 | |
| | | 1,898 | |
| Goodwill | | | 339,769 | |
| Accounts payable and other liabilities | | | (986 | ) |
| Operating lease liabilities | | | (1,898 | ) |
| Debt | | | (90,484 | ) |
| | | | | |
| | | $ | 249,635 | |
| | | | | |
In connection with the Internalization, the Company recorded goodwill of $339.8 million as a result of the consideration exceeding the fair value of the net liabilities acquired. Goodwill represents the synergies and costs savings expected from the acquired management functions and the Company’s ability to generate additional portfolio growth on a lower cost structure than when it was externally managed. The goodwill is not deductible for tax purposes.
111
In connection with the Internalization, the Company assumed $90.5 million of debt which was subsequently repaid through a combination of revolving credit facility borrowings and entering into a new $60.0 million term loan agreement (see Note 9).
The Company incurred $3.7 million innon-recurring
costs associated with the Internalization during each of the years ended December 31, 2020 and 2019, which were classified as Internalization expenses in the Consolidated Statements of Income and Comprehensive Income. The effect of the Internalization has been reflected in the Company’s operating results beginning on February 7, 2020. NaN incremental revenues were recorded as a result of the Internalization. Subsequent to the Internalization, during the year ended December 31, 2020, the Company incurred $20.5 million in expenses as a result of being internalized. Such amounts include general and administrative expenses associated with the Company’s performance of functions previously performed by BRE and the Asset Manager (primarily employee related party. Legal services obtained from VNN are mainly for acquisition and disposition of real estate and related matters,costs), as well as general counsel regarding property management and financing. interest expense associated with the borrowings related to the Internalization. These expenses do not include the Internalization expenses discussed above, or amounts recorded to reflect changes in the fair value of the earnout liability.
Condensed Pro Forma Financial Information (Unaudited)
The
Company utilizes the services of other outside legal counsel as well. These fees are paid for in cash withinfollowing pro forma information summarizes selected financial information from the Company’s
normal payment cycle for vendor payments. The following table detailscombined results of operations, as if the
typeInternalization had occurred on January 1, 2019. These results contain certain adjustments totaling $4.5 million and $14.5 million of
legal fees incurred from VNN as a related partyincome for the year ended December 31,
2016:(in thousands) | | Financial Statement | | December 31, | |
Type of Fee | | Presentation | | 2016 | |
Legal services – general | | General and administrative | | $ | 324 | |
Organization costs | | General and administrative | | | 22 | |
| | | | | 346 | |
Finance related costs | | Debt issuance costs(a) | | | 122 | |
Acquisition related fees | | Acquisition expenses | | | 2,520 | |
Legal services - tenant related | | Property and operating expenses | | | 40 | |
Property disposition related fees | | Gain on sale of real estate | | | 47 | |
Total related party legal expenses | | | | $ | 3,075 | |
The condensed pro forma financial information is as follows:
(a)
| Amounts are recorded within Debt issuance costs – unsecured revolver, net, Mortgages and notes payable, net, and Unsecured term notes, net, on the accompanying Consolidated Balance Sheets.
| | | | | | | |
|
| | | For the Year Ended December 31, | |
| | | | | | |
| Revenues | | $ | 321,637 | | | $ | 298,815 | |
| Net income | | | 60,783 | | | | 99,636 | |
112
5. Acquisitions
of Rental Property
The Company closed on the following acquisitions during the year ended December 31,
2018:2021:
| | | | | | | | | | | | | |
(in thousands, except number of properties) | | | | | | | | | |
| | | | | | | | | |
| 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 | |
| June 4, 2021 | | | Retail | | | | 2 | | | | 19,420 | |
| June 9, 2021 | | | Industrial | | | | 1 | | | | 8,500 | |
| June 9, 2021 | | | Industrial | | | | 11 | | | | 106,578 | |
| June 25, 2021 | | | Retail | | | | 8 | | | | 12,131 | |
| June 28, 2021 | | | Healthcare | | | | 4 | | | | 15,300 | |
| June 30, 2021 | | | Retail | | | | 1 | | | | 1,279 | |
| June 30, 2021 | | | Healthcare | | | | 7 | | | | 30,750 | |
| July 2, 2021 | | | Industrial | | | | (b | ) | | | 4,500 | |
| July 21, 2021 | | | Retail | | | | 1 | | | | 5,565 | |
| July 29, 2021 | | | Retail | | | | 3 | | | | 4,586 | |
| July 29, 2021 | | | Industrial | | | | 1 | | | | 13,041 | |
| July 30, 2021 | | | Industrial | | | | 2 | | | | 11,011 | |
| August 23, 2021 | | | Healthcare | | | | 1 | | | | 60,000 | |
| September 8, 2021 | | | Retail | | | | 2 | | | | 8,901 | |
| September 17, 2021 | | | Retail | | | | 1 | | | | 1,722 | |
| September 24, 2021 | | | Retail | | | | 1 | | | | 2,456 | |
| September 24, 2021 | | | Industrial | | | | 2 | | | | 48,699 | |
| September 29, 2021 | | | Industrial | | | | 1 | | | | 10,600 | |
| September 30, 2021 | | | Industrial | | | | 3 | | | | 59,343 | |
| October 1, 2021 | | | Healthcare | | | | 1 | | | | 3,306 | |
| October 22, 2021 | | | Industrial | | | | 1 | | | | 5,386 | |
| October 27, 2021 | | | Retail | | | | 3 | | | | 4,278 | |
| December 10, 2021 | | | Retail | | | | 16 | | | | 33,500 | |
| December 15, 2021 | | | Industrial | | | | 1 | | | | 16,000 | |
| December 15, 2021 | | | Healthcare | | | | 1 | | | | 6,000 | |
| December 16, 2021 | | | Restaurant/Office | | | | 6 | | | | 28,546 | |
| December 17, 2021 | | | Retail | | | | 3 | | | | 4,260 | |
| December 17, 2021 | | | Industrial | | | | 1 | | | | 16,000 | |
| December 22, 2021 | | | Industrial | | | | 2 | | | | 22,651 | |
| December 22, 2021 | | | Healthcare | | | | 1 | | | | 7,600 | |
| | | | | | | | | | | | | |
| | | | | | | | 116 | | | $ | 659,231 | (c) |
| | | | | | | | | | | | | |
| | | | | | | | Real Estate | | |
(in thousands, except number of properties) | | | | Number of | | | Acquisition | | |
Date | | Property Type | | Properties | | | Price | | |
March 27, 2018 | | Industrial | | | 1 | | | $ | 22,000 | | |
March 30, 2018 | | Industrial/Retail | | | 26 | | | | 78,530 | | |
April 30, 2018 | | Other | | | 1 | | | | 16,170 | | (a) |
June 6, 2018 | | Industrial | | | 1 | | | | 8,500 | | |
June 14, 2018 | | Industrial | | | 1 | | | | 39,700 | | |
June 14, 2018 | | Retail | | | 6 | | | | 14,479 | | |
June 21, 2018 | | Retail | | | 1 | | | | 20,231 | | |
June 21, 2018 | | Industrial | | | 1 | | | | 38,340 | | (b) |
June 29, 2018 | | Industrial | | | 1 | | | | 10,400 | | |
June 29, 2018 | | Retail | | | 2 | | | | 6,433 | | (c) |
July 12, 2018 | | Industrial | | | 1 | | | | 11,212 | | |
July 17, 2018 | | Retail | | | 5 | | | | 14,845 | | |
July 17, 2018 | | Office | | | 1 | | | | 34,670 | | |
August 6, 2018 | | Industrial | | | 2 | | | | 4,802 | | |
August 10, 2018 | | Retail | | | 20 | | | | 44,977 | | |
October 11, 2018 | | Healthcare | | | 4 | | | | 17,448 | | |
October 26, 2019 | | Industrial | | | 1 | | | | 8,816 | | |
October 31, 2018 | | Retail | | | 1 | | | | 2,016 | | |
November 30, 2018 | | Retail | | | 3 | | | | 5,357 | | |
December 4, 2018 | | Retail | | | 2 | | | | 6,036 | | |
December 6, 2018 | | Healthcare | | | 6 | | | | 46,100 | | |
December 12, 2018 | | Healthcare | | | 1 | | | | 20,312 | | |
December 20, 2018 | | Industrial | | | 1 | | | | 18,250 | | |
December 20, 2018 | | Healthcare | | | 18 | | | | 93,129 | | |
December 28, 2018 | | Industrial | | | 1 | | | | 10,035 | | |
December 28, 2018 | | Healthcare | | | 5 | | | | 14,037 | | |
| | | | | 113 | | | $ | 606,825 | | (d) |
(a) | In conjunction with thisAcquisition of additional land adjacent to an existing property.
|
| (b) | Acquisition of land related to an existing property. |
| (c) | Acquisition price does not include capitalized acquisition costs of $5.8 million. |
113
The Company closed on the following acquisitions during the year ended December 31, 2020:
| | | | | | | | | | | | | |
(in thousands, except number of properties) | | | | | | | | | |
| | | | | | | | | |
| November 13, 2020 | | | Healthcare | | | | 1 | | | $ | 4,950 | |
| December 7, 2020 | | | Industrial | | | | 8 | | | | 28,000 | |
| December 23, 2020 | | | Industrial | | | | 1 | | | | 36,473 | (d) |
| December 28, 2020 | | | Retail | | | | 1 | | | | 5,150 | |
| December 29, 2020 | | | Restaurant | | | | 7 | | | | 13,189 | |
| December 30, 2020 | | | Industrial | | | | 1 | | | | 8,050 | |
| | | | | | | | | | | | | |
| | | | | | | | 19 | | | $ | 95,812 | (e) |
| | | | | | | | | | | | | |
| (d) | Acquisition price excludes $4.5 million deposited in an escrow for the Company settled a note receivable withfuture purchase of the sellerrelated land. The land purchase closed on July 2, 2021, and is included in the amount2021 acquisitions. |
| (e) | Acquisition price does not include capitalized acquisition costs of $3,700, in exchange for a reduction in the cash paid for the transaction (see Note 8).$1.3 million. |
The Company closed on the following acquisitions during the year ended December 31, 2019:
| | | | | | | | | | | |
(in thousands, except number of properties) | | | | | | | | |
| | | | | | | | |
| January 31, 2019 | | Healthcare | | | 1 | | | $ | 4,747 | |
| March 12, 2019 | | Industrial | | | 1 | | | | 10,217 | |
| March 15, 2019 | | Retail | | | 10 | | | | 13,185 | |
| March 19, 2019 | | Retail | | | 14 | | | | 19,128 | |
| March 26, 2019 | | Industrial | | | 1 | | | | 25,801 | |
| April 30, 2019 | | Industrial | | | 1 | | | | 76,000 | (f) |
| May 21, 2019 | | Retail | | | 2 | | | | 6,500 | |
| May 31, 2019 | | Retail | | | 1 | | | | 3,192 | |
| June 7, 2019 | | Office | | | 1 | | | | 30,589 | |
| June 26, 2019 | | Industrial | | | 2 | | | | 11,180 | |
| July 15, 2019 | | Restaurant | | | 1 | | | | 3,214 | |
| July 15, 2019 | | Industrial | | | 1 | | | | 11,330 | |
| July 31, 2019 | | Healthcare | | | 5 | | | | 27,277 | |
| August 27, 2019 | | Industrial | | | 1 | | | | 4,404 | |
| August 29, 2019 | | Industrial/Office | | | 23 | | | | 735,740 | |
| September 17, 2019 | | Industrial | | | 1 | | | | 11,185 | |
| October 31, 2019 | | Retail/Healthcare | | | 3 | | | | 12,922 | |
| November 7, 2019 | | Restaurant | �� | | 1 | | | | 3,142 | |
| November 20, 2019 | | Retail | | | 1 | | | | 7,385 | |
| November 22, 2019 | | Industrial | | | 1 | | | | 6,500 | |
| November 27, 2019 | | Retail | | | 2 | | | | 8,243 | |
| | | | | | | | | | | |
| | | | | | 74 | | | $ | 1,031,881 | (g) |
| | | | | | | | | | | |
(b)
(f) |
In conjunction with this acquisition, the Company assumed a mortgage with a principal balance of $20,845$49.8 million with an interest rate at 4.36%of 4.92% and a maturity date of August 2025February 2028 (see Note 10). |
(c)
(g) | In conjunction with this acquisition, the Company settled a note receivable with the seller in the amount of $2,827, in exchange for a reduction in the cash paid for the transaction (see Note 8).
|
(d)
| Acquisition price does not include capitalized acquisition costs of $12,643. $17.6 million. |
114
The Company closed on the following acquisitions during the year ended December 31, 2017:
| | | | | | | | Real Estate | | |
(in thousands, except number of properties) | | | | Number of | | | Acquisition | | |
Date | | Property Type | | Properties | | | Price | | |
January 18, 2017 | | Retail | | | 1 | | | $ | 2,520 | | |
March 1, 2017 | | Retail | | | 9 | | | | 87,196 | | |
April 28, 2017 | | Retail | | | 25 | | | | 48,898 | | |
June 2, 2017 | | Healthcare | | | 2 | | | | 13,300 | | |
June 15, 2017 | | Retail | | | 2 | | | | 2,700 | | |
June 30, 2017 | | Industrial | | | 2 | | | | 12,250 | | |
June 30, 2017 | | Healthcare | | | 7 | | | | 25,989 | | |
July 7, 2017 | | Office | | | 1 | | | | 32,210 | | |
August 4, 2017 | | Healthcare | | | 3 | | | | 11,732 | | |
August 31, 2017 | | Healthcare | | | 3 | | | | 16,700 | | |
August 31, 2017 | | Industrial | | | 2 | | | | 6,148 | | |
September 13, 2017 | | Retail | | | 5 | | | | 4,994 | | |
September 29, 2017 | | Industrial/Retail | | | 7 | | | | 30,012 | | |
September 29, 2017 | | Industrial | | | 1 | | | | 57,372 | | |
October 13, 2017 | | Healthcare | | | 1 | | | | 10,000 | | (e) |
November 1, 2017 | | Other | | | 4 | | | | 15,693 | | (f) (g) |
December 7, 2017 | | Office | | | 2 | | | | 19,295 | | |
December 7, 2017 | | Healthcare | | | 1 | | | | 5,095 | | |
December 7, 2017 | | Healthcare | | | 1 | | | | 2,678 | | |
December 8, 2017 | | Industrial/Office | | | 3 | | | | 74,200 | | |
December 14, 2017 | | Office | | | 1 | | | | 24,500 | | |
December 18, 2017 | | Other | | | 1 | | | | 22,585 | | |
December 22, 2017 | | Industrial | | | 2 | | | | 19,000 | | |
December 22, 2017 | | Industrial | | | 1 | | | | 21,037 | | |
December 27, 2017 | | Retail | | | 1 | | | | 1,446 | | |
December 28, 2017 | | Industrial | | | 1 | | | | 28,450 | | |
December 29, 2017 | | Retail | | | 9 | | | | 28,224 | | |
December 29, 2017 | | Retail | | | 20 | | | | 39,552 | | |
December 29, 2017 | | Healthcare | | | 6 | | | | 19,868 | | |
| | | | | 124 | | | $ | 683,644 | | (h) |
(e)
| In conjunction with this acquisition, the Company assumed a mortgage with a principal balance of $5,205 with a variable interest rate at one-month LIBOR plus 3.0% and a maturity date of August 2021 (see Note 10). The Company also assumed an interest rate swap with a fixed rate of 1.02% and a maturity date of August 2021 (see Note 11).
|
(f)
| The acquisition was conducted with a related party and approved by the IDC. The fees required under the Asset Management Agreement (see Note 3) were waived by the Asset Manager.
|
(g)
| In conjunction with this acquisition, the Company assumed a mortgage with a principal balance of $6,721 with an interest rate of 3.65% and a maturity date of October 2026 (see Note 10).
|
(h)
| Acquisition price does not include acquisition costs of $12,349.
|
The Company closed on the following acquisitions during the year ended December 31, 2016:
| | | | | | | | Real Estate | |
(in thousands, except number of properties) | | | | Number of | | | Acquisition | |
Date | | Property Type | | Properties | | | Price | |
January 25, 2016 | | Retail | | | 3 | | | $ | 13,376 | |
February 1, 2016 | | Retail | | | 1 | | | | 27,000 | |
March 24, 2016 | | Industrial | | | 1 | | | | 15,650 | |
April 7, 2016 | | Healthcare | | | 2 | | | | 17,115 | |
April 25, 2016 | | Office | | | 2 | | | | 54,600 | |
May 9, 2016 | | Retail | | | 5 | | | | 42,390 | |
May 12, 2016 | | Office | | | 1 | | | | 4,500 | |
May 20, 2016 | | Retail | | | 19 | | | | 36,843 | |
May 25, 2016 | | Healthcare | | (i) | | | | 5,624 | |
June 30, 2016 | | Retail | | | 7 | | | | 28,477 | |
July 15, 2016 | | Healthcare | | | 2 | | | | 26,700 | |
August 12, 2016 | | Other | | | 3 | | | | 12,399 | |
September 14, 2016 | | Office | | | 1 | | | | 14,000 | |
September 29, 2016 | | Retail | | | 24 | | | | 82,338 | |
October 3, 2016 | | Retail | | | 6 | | | | 6,872 | |
November 10, 2016 | | Office | | | 1 | | | | 10,550 | |
November 21, 2016 | | Retail | | | 2 | | | | 7,597 | |
November 29, 2016 | | Office | | | 4 | | | | 15,177 | |
December 19, 2016 | | Industrial | | | 1 | | | | 23,050 | |
December 23, 2016 | | Office | | | 1 | | | | 43,517 | |
December 30, 2016 | | Office | | | 1 | | | | 15,550 | |
December 30, 2016 | | Industrial | | | 1 | | | | 15,487 | |
| | | | | 88 | | | $ | 518,812 | |
(i)
| Acquisition of capital expansion on existing property.
|
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 acquisitions completed during the years ended December 31, 2018, 2017, and 2016:
real estate acquisitions:
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | | | | | | | |
| Land | | $ | 114,296 | | | $ | 17,403 | | | $ | 161,182 | |
| Land improvements | | | 29,298 | | | | 5,356 | | | | 47,391 | |
| Buildings and improvements | | | 469,113 | | | | 64,116 | | | | 772,998 | |
Acquired in-place leases (h) | | | 51,956 | | | | 8,346 | | | | 80,952 | |
Acquired above-market leases (i) | | | 211 | | | | 1,717 | | | | 2,800 | |
Acquired below-market leases (j) | | | 0 | | | | (428 | ) | | | (15,811 | ) |
| | | 663 | | | | — | | | | — | |
| Lease liability | | | (481 | ) | | | — | | | | — | |
| Sales-type investments | | | 0 | | | | 574 | | | | 0 | |
| Mortgage payable | | | 0 | | | | 0 | | | | (49,782 | ) |
| | | | | | | | | | | | | |
| | | $ | 665,056 | | | $ | 97,084 | | | $ | 999,730 | |
| | | | | | | | | | | | | |
| | December 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Land | | $ | 72,559 | | | $ | 67,945 | | | $ | 70,938 | |
Land improvements | | | 32,498 | | | | 54,804 | | | | 38,526 | |
Buildings and other improvements | | | 454,391 | | | | 508,541 | | | | 358,058 | |
Equipment | | | 2,892 | | | | 7,671 | | | | — | |
Acquired in-place leases (j) | | | 62,631 | | | | 77,073 | | | | 52,867 | |
Acquired above-market leases (k) | | | 5,538 | | | | 14,905 | | | | 19,420 | |
Acquired below-market leases (l) | | | (11,471 | ) | | | (38,493 | ) | | | (21,541 | ) |
Direct financing investments | | | 430 | | | | 3,546 | | | | 544 | |
Mortgages payable, net | | | (20,845 | ) | | | (11,926 | ) | | | — | |
Non-real estate liabilities | | | (56 | ) | | | (2,777 | ) | | | (8,649 | ) |
| | $ | 598,567 | | | $ | 681,289 | | | $ | 510,163 | |
(j)
(h) |
The weighted average amortization period for acquired in-place leases is 1316 years, 15 years, and 1713 years for acquisitions completed during the years ended December 31, 2018, 2017,2021, 2020, and 2016,2019, respectively. |
(k)
(i) | The weighted average amortization period for acquired above-market leases is 1610 years, 17 years,1 year, and 1718 years for acquisitions completed during the years ended December 31, 2018, 2017,2021, 2020, and 2016,2019, respectively. |
(l)
(j) |
The weighted average amortization period for acquired below-market leases is 13 years, 19 years, and 1710 years for acquisitions completed during each of the years ended December 31, 2018, 2017,2020, and 2016, respectively.2019. There were no below-market leases acquired during the year ended December 31, 2021. |
The above acquisitions were funded using a combination of available cash on hand,
revolving credit facility borrowings, and proceeds from
the Company’s unsecured revolving line of credit and unsecured term
notes.loans, equity issuances, and the 2031 Senior Unsecured Public Notes (see Note 9). All
of thereal estate acquisitions closed during the years ended December 31,
20182021, 2020, and
2017,2019, qualified as asset acquisitions and, as such, acquisition costs
were capitalized in accordance with ASU 2017-01. In conjunction with the acquisitions closed during the year ended December 31, 2016, expenses of $10,880 were incurred and included in Acquisition expenses in the accompanying Consolidated Statements of Income and Comprehensive Income.The Company recorded the following revenues and net income, excluding the impact of one-time acquisition expenses, in the Consolidated Statements of Income and Comprehensive Income related to properties acquired and accounted for as business combinations from the date of acquisition through December 31, 2016:
(in thousands) | | December 31, 2016 | |
Revenues | | $ | 17,088 | |
Net income | | | 9,462 | |
Condensed Pro Forma Financial Information (Unaudited)
The results of operations, excluding the impact of one-time acquisition costs of $10,880 for the year ended December 31, 2016, of the acquisitions accounted for as business combinations, for which financial information was available, are included in the following unaudited pro forma financial information as if these acquisitions had been completed as of the beginning of the comparable prior annual period prior to the acquisition date. The following unaudited pro forma financial information is presented as if the 2016 acquisitions were completed at January 1, 2015. Pro forma financial information is not presented for the 2018 and 2017 acquisitions based on their qualification as asset acquisitions in accordance with ASU 2017-01. These pro forma results are for comparative purposes only and are not necessarily indicative of what the Company’s actual results of operations would have been had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.
capitalized.
The unaudited condensed pro forma financial information is as follows for the year ended December 31, 2016:
(in thousands) | | December 31, 2016 | |
Revenues | | $ | 174,727 | |
Net income | | | 69,504 | |
Subsequent to December 31,
2018,2021, the Company closed on the following acquisitions (see Note
19)20):
(in thousands, except number of properties) | | | | | | | | | | |
Date | | Property Type | | Number of Properties | | | Acquisition Price | |
January 31, 2019 | | Healthcare | | | 1 | | | $ | 4,747 | |
March 12, 2019 | | Industrial | | | 1 | | | | 10,217 | |
| | | | 2 | | | $ | 14,964 | |
The Company has not completed the allocation of the acquisition date fair values for the properties acquired subsequent to December 31, 2018; however, it expects the acquisitions to qualify as asset acquisitions and that the purchase price of these properties will primarily be allocated to land, land improvements, building, and acquired lease intangibles.
5.
| | | | | | | | | | | | |
(in thousands, except number of properties) | | | | | | | | | |
| | | | | | | | | |
| | | Retail | | | | 2 | | | $ | 2,573 | |
| | | Industrial | | | | 1 | | | | 21,733 | |
| | | Retail | | | | 1 | | | | 1,341 | |
| | | | | | | | | | | | | |
| | | | | | | | 4 | | | $ | 25,647 | |
| | | | | | | | | | | | |
The Company closed on the following sales of real estate, none of which qualified as discontinued
operations, during the years ended December 31, 2018, 2017, and 2016: | | For the years ended December 31, | | |
(in thousands, except number of properties) | | 2018 | | | 2017 | | | 2016 | | |
Number of properties disposed | | | 20 | | | | 13 | | | | 9 | | |
Aggregate sale price | | $ | 57,402 | | | $ | 66,532 | | | $ | 39,500 | | (a) |
Aggregate carrying value | | | (43,492 | ) | | | (50,339 | ) | | | (32,665 | ) | |
Additional sales expenses | | | (3,414 | ) | | | (3,201 | ) | | | (910 | ) | |
Gain on sale of real estate | | $ | 10,496 | | | $ | 12,992 | | | $ | 5,925 | | |
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
(in thousands, except number of properties) | | | | | | | | | |
| Number of properties disposed | | | 31 | | | | 24 | | | | 49 | |
| Aggregate sale price | | $ | 87,730 | | | $ | 81,039 | | | $ | 176,486 | |
| Aggregate carrying value | | | (70,289 | ) | | | (62,528 | ) | | | (138,845 | ) |
| Additional sales expenses | | | (3,918 | ) | | | (3,526 | ) | | | (7,727 | ) |
| | | | | | | | | | | | | |
| Gain on sale of real estate | | $ | 13,523 | | | $ | 14,985 | | | $ | 29,914 | |
| | | | | | | | | | | | | |
(a)
| The Company provided seller financing of $3,700 in connection with one of the 2016 sales (see Note 8).
|
6.
7. Investment in Rental Property and Lease Arrangements
The Company generally leases its investment rental property to established
tenants.tenants in the industrial, healthcare, restaurant, retail, and office property types. At December 31,
2018,2021, the Company had
605726 real estate properties,
of which were leased under leases that have been classified as
operating leases and 16 ,
10that have been classified as direct financing leases.leases,
1that has been classified as a sales-type lease, and two that were vacant. Of the 16
10leases classified as direct
financing leases four ,
3include land portions which are accounted for as operating leasesleases. The sales-type lease includes a land portion which is accounted for as an operating lease (see
within Note
2)
. Substantially all leases have initial terms of
10
to
20
years and provide for minimum rentals as defined in ASC 840, Leases. In addition, theyears. The Company’s leases generally provide for limited increases in rent as a result of fixed increases, increases in the Consumer Price Index,CPI, or increases in the tenant’s sales volume. Generally, the tenant istenants 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 – Property—Accounted for Using the Operating Method
Rental property subject to non-cancelable operating leases with tenants are as follows at December 31, 2018 and 2017:
| | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Land | | $ | 411,043 | | | $ | 348,940 | |
Land improvements | | | 239,701 | | | | 211,674 | |
Buildings and building improvements | | | 2,185,024 | | | | 1,754,796 | |
Tenant improvements | | | 1,475 | | | | 11,425 | |
Equipment | | | 11,492 | | | | 7,689 | |
| | | 2,848,735 | | | | 2,334,524 | |
Less accumulated depreciation | | | (206,989 | ) | | | (148,383 | ) |
| | $ | 2,641,746 | | | $ | 2,186,141 | |
Depreciation expense on investment in rental property was as
follows for the years ended December 31, 2018, 2017, and 2016:follows: | | For the years ended December 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Depreciation | | $ | 66,055 | | | $ | 50,360 | | | $ | 37,976 | |
| | | For the Year Ended December 31, | |
| | | | | | | | | |
| Depreciation | | $ | 99,143 | | | $ | 93,679 | | | $ | 83,797 | |
Estimated
minimum future rental receipts requiredlease payments to be received under
non-cancelable
operating leases with tenants at December 31,
20182021 are as follows:
(in thousands) | | | | |
2019 | | $ | 231,725 | |
2020 | | | 235,426 | |
2021 | | | 238,223 | |
2022 | | | 240,083 | |
2023 | | | 241,498 | |
Thereafter | | | 2,007,118 | |
| | $ | 3,194,073 | |
| | | | |
| | | |
| 2022 | | $ | 334,163 | |
| 2023 | | | 338,889 | |
| 2024 | | | 335,624 | |
| 2025 | | | 328,914 | |
| 2026 | | | 319,124 | |
| Thereafter | | | 2,281,067 | |
| | | | | |
| | | $ | 3,937,781 | |
| | | | | |
Since lease renewal periods are exercisable at the option of the tenant, the above amounts only include future
minimum lease payments due during the initial lease terms.
In addition, suchSuch amounts exclude any potential variable rent increases that are based on
changes in the
Consumer Price IndexCPI or future
contingentvariable rents which may be received under the leases based on a percentage of the tenant’s gross sales.
Additionally, certain of our leases provide tenants with the option to terminate their leases in exchange for termination penalties, or that are contingent upon the occurrence of a future event. Future lease payments within the table above have not been adjusted for these termination rights.
Investment in Rental
Property – Accounted for Using the Property—Direct Financing
MethodLeases
The Company’s net investment in direct financing leases
is as follows at December 31, 2018 and 2017:was comprised of the following:
| | | | | | | | | |
| | | | |
| | | | | | |
| Undiscounted estimated lease payments to be received | | $ | 42,602 | | | $ | 45,782 | |
| Estimated unguaranteed residual values | | | 15,203 | | | | 15,203 | |
| Unearned revenue | | | (28,893 | ) | | | (31,753 | ) |
| Reserve for credit losses | | | (130 | ) | | | (166 | ) |
| | | | | | | | | |
| Net investment in direct financing leases | | $ | 28,782 | | | $ | 29,066 | |
| | | | | | | | | |
| | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Minimum lease payments to be received | | $ | 76,829 | | | $ | 77,889 | |
Estimated unguaranteed residual values | | | 20,358 | | | | 19,758 | |
Less unearned revenue | | | (55,187 | ) | | | (56,030 | ) |
Net investment in direct financing leases | | $ | 42,000 | | | $ | 41,617 | |
116
Undiscounted estimated lease payments to be received under
non-cancelable
direct financing leases with tenants at December 31,
20182021 are as follows:
(in thousands) | | | | |
2019 | | $ | 4,076 | |
2020 | | | 4,194 | |
2021 | | | 4,283 | |
2022 | | | 4,369 | |
2023 | | | 4,456 | |
Thereafter | | | 55,451 | |
| | $ | 76,829 | |
| | | | |
| | | |
| 2022 | | $ | 3,241 | |
| 2023 | | | 3,304 | |
| 2024 | | | 3,361 | |
| 2025 | | | 3,475 | |
| 2026 | | | 3,547 | |
| Thereafter | | | 25,674 | |
| | | | | |
| | | $ | 42,602 | |
| | | | | |
The above rental receipts do not include future
minimum lease payments for renewal periods, potential variable
Consumer Price IndexCPI rent increases, or
contingent rentalvariable percentage rent payments that may become due in future periods.
7.
The following table summarizes amounts reported as Lease revenues, net on the Consolidated Statements of Income and Comprehensive Income:
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | | | | | | | |
| Contractual rental amounts billed for operating leases | | $ | 308,624 | | | $ | 281,998 | | | $ | 257,695 | |
| Adjustment to recognize contractual operating lease billings on a straight-line basis | | | 19,847 | | | | 25,200 | | | | 22,109 | |
Write-off of accrued rental income | | | (442 | ) | | | (4,235 | ) | | | — | |
| Variable rental amounts earned | | | 768 | | | | 743 | | | | 152 | |
| Earned income from direct financing leases | | | 2,909 | | | | 3,355 | | | | 4,018 | |
| Interest income from sales-type leases | | | 58 | | | | 5 | | | | — | |
| Operating expenses billed to tenants | | | 17,462 | | | | 15,845 | | | | 14,614 | |
Other income from real estate transactions (a) | | | 33,549 | | | | 799 | | | | 668 | |
| Adjustment to revenue recognized for uncollectible rental amounts billed, net | | | 101 | | | | (2,073 | ) | | | (441 | ) |
| | | | | | | | | | | | | |
| Total Lease revenues, net | | $ | 382,876 | | | $ | 321,637 | | | $ | 298,815 | |
| | | | | | | | | | | | | |
| (a) | The December 31, 2021 amount includes thewrite-off of $1.5 million of accrued rental income associated with a lease termination transaction. Refer to the Company’s policy footnote onLong-lived Asset Impairment |
117
8. Intangible Assets and Liabilities
The following is a summary of intangible assets and liabilities and related accumulated
amortization at December 31, 2018 and 2017:amortization:
| | | | | | | | | |
| | | | |
| | | | | | |
| Lease intangibles: | | | | | | | | |
| Acquired above-market leases | | $ | 47,147 | | | $ | 54,616 | |
| Less accumulated amortization | | | (16,807 | ) | | | (18,928 | ) |
| | | | | | | | | |
| Acquired above-market leases, net | | | 30,340 | | | | 35,688 | |
| | | | | | | | | |
| | | 380,766 | | | | 340,958 | |
| Less accumulated amortization | | | (107,464 | ) | | | (85,733 | ) |
| | | | | | | | | |
Acquired in-place leases, net | | | 273,302 | | | | 255,225 | |
| | | | | | | | | |
| Total Intangible lease assets, net | | $ | 303,642 | | | $ | 290,913 | |
| | | | | | | | | |
| Acquired below-market leases | | $ | 105,310 | | | $ | 107,788 | |
| Less accumulated amortization | | | (34,714 | ) | | | (28,135 | ) |
| | | | | | | | | |
| Intangible lease liabilities, net | | $ | 70,596 | | | $ | 79,653 | |
| | | | | | | | | |
| Leasing fees | | $ | 14,786 | | | $ | 15,462 | |
| Less accumulated amortization | | | (5,145 | ) | | | (4,724 | ) |
| | | | | | | | | |
| Leasing fees, net | | $ | 9,641 | | | $ | 10,738 | |
| | | | | | | | | |
| | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Lease intangibles: | | | | | | | | |
Acquired above-market leases | | $ | 64,164 | | | $ | 59,502 | |
Less accumulated amortization | | | (14,740 | ) | | | (9,183 | ) |
Acquired above-market leases, net | | | 49,424 | | | | 50,319 | |
Acquired in-place leases | | | 277,659 | | | | 216,858 | |
Less accumulated amortization | | | (40,825 | ) | | | (24,518 | ) |
Acquired in-place leases, net | | | 236,834 | | | | 192,340 | |
Total intangible lease assets, net | | $ | 286,258 | | | $ | 242,659 | |
Acquired below-market leases | | $ | 101,602 | | | $ | 91,667 | |
Less accumulated amortization | | | (15,655 | ) | | | (9,923 | ) |
Intangible lease liabilities, net | | $ | 85,947 | | | $ | 81,744 | |
Leasing fees | | $ | 17,274 | | | $ | 16,286 | |
Less accumulated amortization | | | (3,576 | ) | | | (2,732 | ) |
Leasing fees, net | | $ | 13,698 | | | $ | 13,554 | |
Amortization forof intangible lease assets and liabilities forwas as follows:
| | | | | | | | | | | | | | | |
| | | | For the Year Ended December 31, | |
| | Financial Statement Presentation | | | | | | | | | |
Acquired in-place leases and leasing fees | | Depreciation and amortization | | $ | 32,857 | | | $ | 38,934 | | | $ | 25,021 | |
| Above-market and below-market leases | | Lease revenues, net | | | 3,264 | | | | 1,127 | | | | 3,419 | |
For the years ended December 31,
2018, 2017,2021 and
2016 is as follows:(in thousands) | | | | For the years ended December 31, | |
Intangible | | Financial Statement Presentation | | 2018 | | | 2017 | | | 2016 | |
Acquired in-place leases and leasing fees | | Depreciation and amortization | | $ | 17,939 | | | $ | 11,903 | | | $ | 8,345 | |
Above-market and below-market leases | | Increase (decrease) to rental income from operating leases | | | 304 | | | | (496 | ) | | | 482 | |
Estimated future amortization of
all intangible assets and liabilities at December 31,
20182021 is as follows:
(in thousands) | | | | |
2019 | | $ | 19,123 | |
2020 | | | 18,844 | |
2021 | | | 18,432 | |
2022 | | | 17,818 | |
2023 | | | 17,438 | |
Thereafter | | | 122,354 | |
| | $ | 214,009 | |
8. Notes Receivable
During 2016, the Company, as the lender, entered into two loan agreements in the amount of $3,700 and $2,827. The agreements called for interest-only payments at 7.00% and 6.35% per annum through maturity in February and November 2019, respectively. Each of the loans was collateralized by the real estate assets held by the obligors and represented first mortgage liens on net leased commercial properties in Florida and Michigan, respectively. There were no prior liens on the properties at the time the notes were issued. As each of the loans were considered to be fully collectible, the carrying amount of the loans were equal to the face amount as of December 31, 2017. In connection with real estate transactions conducted during the year ended 2018, the Company settled the notes in full, in exchange for a reduction to the cash paid for the associated real estate assets (see Note 4). Interest income earned on the notes receivable amounted to $174, $445, and $77 for the years ended December 31, 2018, 2017, and 2016, respectively.
| | | | |
| | | |
| 2022 | | $ | 25,289 | |
| 2023 | | | 24,982 | |
| 2024 | | | 24,222 | |
| 2025 | | | 22,925 | |
| 2026 | | | 21,576 | |
| Thereafter | | | 123,693 | |
| | | | | |
| | | $ | 242,687 | |
| | | | | |
9. Unsecured Credit Agreements
2015 Unsecured Term Loan Agreement
On June 23, 2017, the Company amended and restated the term loan agreement by and among the Company, the Operating Company, as the borrower, SunTrust Bank, as Administrative Agent, and the lenders party thereto (as amended and restated, the “2015 Unsecured Term Loan Agreement”). The 2015 Unsecured Term Loan Agreement amended certain terms, conditions, covenants, and other provisions to align them with those included in the 2017
Unsecured Revolving Credit and Term Loan Agreement described below, in addition to allowing a one-time, non-pro-rata $50,000 paydown on the loan (the “2015 Agreements
Unsecured Term Loan”). Revolving Credit Facility
On September 27, 2018,4, 2020, the Company madeentered into an agreement (the “Revolving Credit Agreement”) for a $25,000 pro-rata paydown$900.0 million unsecured revolving credit facility (the “Revolving Credit Facility”), with JPMorgan Chase Bank,
118
N.A., as Administrative Agent. The Company closed the Revolving Credit Agreement on
September 21, 2020, at which time the
2015 Unsecured Term Loan.Revolving Credit Facility replaced the Company’s then existing $600.0 million senior unsecured revolving credit facility (described below). The
2015 Unsecured Term LoanRevolving Credit Agreement includes an accordion feature to increase the aggregate facility size from $900.0 million to $2.0 billion, subject to the willingness of existing or new lenders to fund such increase and other customary conditions. The Company has
an initial maturity date of February 2019 and provides for two one-year extension options, at the
electionoption to extend the term of the
Company,Revolving Credit Agreement twice for six months per extension, subject to
compliance with all covenants and thecertain conditions, including payment of
a 0.10% fee.an extension fee equal to 0.0625% of the revolving commitments. Borrowings under the
2015 Unsecured Term Loan bearRevolving Credit Agreement are subject to interest
only payments at variable rates
based on the one-monthequal to LIBOR plus a margin based on the
Operating Company’s
investment gradecredit rating, ranging from 0.825% to 1.55% per annum. In addition, the Revolving Credit Facility is subject to a facility fee based on the Company’s credit rating, ranging between
0.90%0.125% and
1.75%. Based on the Operating Company’s current credit rating of Baa3, the applicable margin under the 2015 Unsecured Term Loan is 1.40%.2017 0.30% per annum.
Unsecured Revolving Credit and Term Loan Agreement
On June 23, 2017, the Corporation and the Operating Company entered into an $800,000$800.0 million unsecured revolving credit and term loan agreement (“2017 Unsecured Revolving Credit and Term Loan Agreement”) with Manufacturers & Traders Trust Company (“M&T Bank”), as Administrative Agent, four participating banks as Joint Lead Arrangers and Joint Bookrunners, four participating banks as Co-Syndication Agents, and four participating banks, as Co-Documentation Agents.a group of lenders. The 2017 Unsecured Revolving Credit and Term Loan Agreement consisted of a $400,000$400.0 million senior unsecured revolving credit facility, (“Revolver”), a $250,000$250.0 million senior unsecured delayed draw term loan (“5.5-Year2023 Unsecured Term Loan”), and a $150,000$150.0 million senior unsecured delayed draw term loan (“7-Year2024 Unsecured Term Loan”). The 2017 Unsecured Revolving Credit and Term Loan Agreement provides an accordion feature for up to a total of $1,000,000$1.0 billion of borrowing capacity. The Revolver includessenior unsecured revolving credit facility included a $35,000$35.0 million sublimit for swingline loans and $20,000$20.0 million available for issuance of letters of credit.
On November 20, 2017, pursuant to the terms of a Consent and Agreement Regarding Commitment Increases and Additional Term Loans (the “Commitment Increase”) among the Company, the Operating Company, as the borrower, M&T Bank, as Administrative Agent, and the original parties to the 2017 Unsecured Revolving Credit and Term Loan Agreement, plus U.S. Bank National Association and Raymond James, N.A. as new lenders added pursuant to the Commitment Increase, the Operating CompanyOP obtained an additional $80,000$80.0 million in credit commitments from theexisting and certain new lenders, raising the total available borrowings under the 2017 Unsecured Revolving Credit and Term Loan Agreement to $880,000.$880.0 million. Except as amended by the Commitment Increase, all terms and conditions of the 2017 Unsecured Revolving Credit and Term Loan Agreement remainremained the same as those in effect prior to the Commitment Increase. As amended by the Commitment Increase, the 2017 Unsecured Revolving Credit and Term Loan Agreement consistsconsisted of the $425,000 Revolver,$425.0 million senior unsecured revolving credit facility, the $265,000 5.5-Year$265.0 million 2023 million Unsecured Term Loan, and the $190,000 7-Year$190.0 million 2024 Unsecured Term Loan.
The Revolver has an initial maturity date of January 2022
On February 28, 2019, the Company amended the Unsecured Revolving Credit and provides for one five-month extension, atTerm Loan Agreement to increase the electionamount available under the senior unsecured revolving credit facility from $425.0 million to $600.0 million. This increased the total available borrowings under the Unsecured Revolving Credit and Term Loan Agreement to $1.1 billion. All other terms and conditions of the Unsecured Revolving Credit and Term Loan Agreement remained the same as those in effect prior to this amendment.
On September 4, 2020, the senior unsecured revolving credit facility under the Unsecured Revolving Credit and Term Loan Agreement was replaced by the $900.0 million Revolving Credit Facility described above.
Unsecured Term Loan Agreements
On February 7, 2020, the Company entered into a $60.0 million term loan agreement (the “2022 Unsecured Term Loan”) with JP Morgan Chase, N.A. as administrative agent. The 2022 Unsecured Term Loan was fully funded at closing and used to repay a portion of the debt assumed by the Company as part of the Internalization. Borrowings under the 2022 Unsecured Term Loan are subject to certain conditions set forth in the agreement and payment of a 0.0625% fee on the revolving commitments. Borrowings on the Revolver bear interest only payments at variable rates based onequal to LIBOR plus a margin based onupon the Operating Company’s investment grade credit rating ranging between 0.825% and 1.55% per annum. The Revolver contains an applicable facility fee based on the Operating Company’s credit rating, ranging between 0.13%0.85% and 0.30%1.65% per annum.
119
2023 and 2024 Unsecured Term Loans
The 5.5-Yearterms of the 2023 Unsecured Term Loan provided for up to three delayed draws from inception through June 2018 at the request of the Company. All borrowings on the 5.5-Yearand 2024 Unsecured Term Loan were funded as of December 31, 2017.are pursuant to the Unsecured Revolving Credit and Term Loan Agreement described above. Borrowings under the 5.5-Year2024 Unsecured Term Loan bear interest at variable rates based on LIBOR plus a margin based on the Operating Company’sOP’s credit rating ranging between 0.90%0.85% and 1.75%1.65% per annum through the maturity date of January 2023. The 7-Year Term Loan provided for up to three delayed draws from inception through June 2018 at the request of the Company. The Company requested a draw for the remaining available borrowings under the 7-Year term loan in June 2018. annum.
Borrowings under the 7-Year2023 Unsecured Term Loan bearbore interest at variable rates based on LIBOR plus a margin based on the Operating Company’sOP’s credit rating ranging between 1.50%0.90% and 2.45% through1.75% per annum. The borrowings under the 2023 Unsecured Term Loan were repaid in full with proceeds from the 2031 Senior Unsecured Public Notes in September 2021 described below.
On February 27, 2019, the Company entered into a $450.0 million seven-year unsecured term loan agreement (the “2026 Unsecured Term Loan”) with Capital One, National Association as administrative agent. The 2026 Unsecured Term Loan provides an accordion feature for up to a total of $550.0 million borrowing capacity. The 2026 Unsecured Term Loan has an initial maturity date of June 2024. BasedFebruary 27, 2026. Borrowings under the 2026 Unsecured Term Loan were subject to interest only payments at variable rates equal to LIBOR plus a margin between 1.45% and 2.40% per annum based on the Operating Company’s currentOP’s credit rating of Baa3,through March 12, 2021. On March 12, 2021, the applicable margin underCompany amended the Revolver, 5.5-Year2026 Unsecured Term Loan and 7-Yearmade a $50.0 million paydown on the loan. The amendment reduced the margin on variable interest rate borrowings to a range between 0.85% and 1.65% per annum based on the OP’s credit rating. All other terms and conditions of the 2026 Unsecured Term Loan are 1.20%, 1.35%, and 1.90%, respectively, andremained materially the applicable facility fee is 0.25% per annum. same as those in effect prior to this amendment.
The 5.5-Year2026 Unsecured Term Loan and 7-Year Term Loan are bothis subject to a fee of 0.25% per annum on the amount of the commitments,commitment, reduced by the amount of term loans outstanding under the applicable loan. The Company is subject to various financial and nonfinancial covenants under the 2017outstanding.
Senior Unsecured
Revolving Credit and Term Loan Agreement.Notes
2027 Senior
NotesIn January 2017, the Company commenced a private offering of unsecured, fixed-rate, interest-only senior promissory notes (the “Series A Notes”). On March 16, 2017, the Company entered into a Note and Guaranty Agreement with each of the purchasers of the Unsecured Notes—Series A Notes.
On April 18, 2017, the Company closed the offering and issued the $150.0 million of unsecured, fixed-rate, interest-only guaranteed senior promissory notes (the “2027 Senior Unsecured Notes—Series A Notes for an aggregate principal amount of $150,000. The Series A Notes were issued by the Operating Company and guaranteed by the Corporation.A”). The Series A Notes were issued at par, bear interest at a rate of 4.84% per annum (priced at 240 basis points above the 10-year U.S. Treasury yield at the time of pricing),.
2028 Senior Unsecured Notes—Series B and
have a 10-year maturity, maturing on April 18, 2027.2030 Senior Unsecured Notes—Series C
On July 2, 2018, the Company entered into a Note and Guaranty Agreement (the “NGA Agreement”) with each of the purchasers of unsecured, fixed-rate, interest-only, guaranteed senior promissory notes. Under the NGA Agreement, the Operating CompanyOP issued and sold senior promissory notes in two series, Series B Guaranteed Senior Notes (the “Series B Notes”“2028 Senior Unsecured Notes—Series B”) and Series C Guaranteed Senior Notes (the “Series C Notes”“2030 Unsecured Notes—Series C”), for an aggregate principal amount of $325,000.$325.0 million. The 2028 Senior Unsecured Notes—Series B Notes provide for an aggregate principal amount of $225,000$225.0 million with a fixed-rate of 5.09% through the maturity date of July 2, 2028.. The 2030 Senior Unsecured Notes—Series C Notes provide for an aggregate principal amount of $100,000$100.0 million with a fixed-rate of 5.19%.
2031 Senior Unsecured Public Notes
On September 15, 2021, the Company completed a public offering of $375.0 million in aggregate principal amount of 2.60% senior unsecured notes due 2031 (“2031 Senior Unsecured Public Notes”), issued at 99.816% of the principal amount. The 2031 Senior Unsecured Public Notes require semi-annual interest payments through the maturity date of July 2, 2030. On July 2, 2018, the Operating Company issued $100,000 of the Series B Notes and $50,000 of the Series C Notes.September 15, 2031, unless earlier redeemed. The remaining $125,000 principal of the Series B Notes and $50,000 principal of the Series C2031 Senior Unsecured Public Notes were funded on September 13, 2018.issued by the OP and are fully and unconditionally guaranteed by the Company. The proceeds of both issuances were used to pay offrepay in full borrowings on the Revolver, alongRevolving Credit Facility and the 2023 Unsecured Term Loan, and to fund acquisitions.
120
Covenants on Unsecured Credit Agreements
The Company is subject to various financial and operational covenants and financial reporting requirements pursuant to its unsecured credit agreements. These covenants require the Company to maintain certain financial ratios, including leverage, fixed charge coverage, debt service coverage, aggregate debt ratio, consolidated income available for debt to annual debt service charge, total unencumbered assets to total unsecured debt, and secured debt ratio, among others. As of December 31, 2021, and for all periods presented the Company believes it was in compliance with
$25,000all 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
outstanding principal onobligations. Further, in the
2015 Unsecured Term Loan.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 impacton
the Company.
The following table summarizes the Company’s unsecured credit agreements:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
(in thousands, except interest rates) | | | | | | | |
| | | | |
| Unsecured revolving credit facility | | $ | 102,000 | | | $ | — | | | | one-month LIBOR
+ 1.00%(c) |
| | | Sep. 2023 | |
| | | | | | | | | | | | | | | | | |
| Unsecured term loans: | | | | | | | | | | | | | | | | |
| 2022 Unsecured Term Loan | | | 60,000 | | | | 60,000 | | | | one-month LIBOR
+ 1.00%(d) |
| | | Feb. 2022 | |
| 2023 Unsecured Term Loan | | | — | | | | 265,000 | | | | one-month LIBOR
+ 1.10%(e) |
| | | Jan. 2023 | (f) |
| 2024 Unsecured Term Loan | | | 190,000 | | | | 190,000 | | | | one-month LIBOR
+ 1.00%(d) |
| | | Jun. 2024 | |
| 2026 Unsecured Term Loan | | | 400,000 | | | | 450,000 | | | | one-month LIBOR
+ 1.00%(g) |
| | | Feb. 2026 | |
| | | | | | | | | | | | | | | | | |
| Total unsecured term loans | | | 650,000 | | | | 965,000 | | | | | | | | | |
| Unamortized debt issuance costs, net | | | (3,329 | ) | | | (3,670 | ) | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total unsecured term loans, net | | | 646,671 | | | | 961,330 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Senior unsecured notes: | | | | | | | | | | | | | | | | |
| 2027 Senior Unsecured Notes - Series A | | | 150,000 | | | | 150,000 | | | | 4.84% | | | | Apr. 2027 | |
| 2028 Senior Unsecured Notes - Series B | | | 225,000 | | | | 225,000 | | | | 5.09% | | | | Jul. 2028 | |
| 2030 Senior Unsecured Notes - Series C | | | 100,000 | | | | 100,000 | | | | 5.19% | | | | Jul. 2030 | |
| 2031 Senior Unsecured Public Notes | | | 375,000 | | | | — | | | | 2.60% | | | | Sep. 2031 | |
| | | | | | | | | | | | | | | | | |
| Total senior unsecured notes | | | 850,000 | | | | 475,000 | | | | | | | | | |
| Unamortized debt issuance costs and original issuance discount, net | | | (6,199 | ) | | | (2,534 | ) | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total senior unsecured notes, net | | | 843,801 | | | | 472,466 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total unsecured debt, net | | $ | 1,592,472 | | | $ | 1,433,796 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Outstanding Balance | | | | | | | |
| | December 31, | | | | | | | |
(in thousands, except interest rates) | | 2018 | | | 2017 | | | Interest Rate(d) | | | Maturity Date |
2015 Unsecured Term Loan (a) | | $ | 300,000 | | | $ | 325,000 | | | one-month LIBOR + 1.40% | | | Feb. 2019 (f) |
2017 Unsecured Revolving Credit and Term Loan Agreement(a) | | | | | | | | | | | | | | |
Revolver(b) | | | 141,100 | | | | 273,000 | | | (e) | | | Jan. 2022 |
5.5-Year term loan | | | 265,000 | | | | 265,000 | | | one- month LIBOR + 1.35% | | | Jan. 2023 |
7-Year term loan | | | 190,000 | | | | 100,000 | | | one- month LIBOR + 1.90% | | | Jun. 2024 |
| | | 596,100 | | | | 638,000 | | | | | | | |
Senior Notes(a) | | | | | | | | | | | | | | |
Series A | | | 150,000 | | | | 150,000 | | | 4.84% | | | Apr. 2027 |
Series B | | | 225,000 | | | | — | | | 5.09% | | | Jul. 2028 |
Series C | | | 100,000 | | | | — | | | 5.19% | | | Jul. 2030 |
| | | 475,000 | | | | 150,000 | | | | | | | |
Total | | | 1,371,100 | | | | 1,113,000 | | | | | | | |
Debt issuance costs, net(c) | | | (4,227 | ) | | | (3,088 | ) | | | | | | |
| | $ | 1,366,873 | | | $ | 1,109,912 | | | | | | | |
(a) | The Company believes it was in compliance with all financial covenants for all periods presented.
|
(b)
| At December 31, 2018,2021 and 2020, one-month LIBOR was 0.10% and 0.14%, respectively. |
| (b) | In January 2021, the Company had an outstanding balancereceived a cre dit rating of $15,000‘BBB’ from S&P, changing the applicable margin on the swingline loan feature of the Revolver, due within five business days. On January 2, 2019, the balance became a part of the Revolver and matures January 2022.variable rate unsecured debt effective February 1, 2021. In September 2021, Moody’s upgraded our credit rating to ‘Baa2’. |
(c) | Amounts presented include debt issuance costs, net, related to the unsecured term notes and senior notes only.
|
(d)
| At December 31, 2018 and 2017, the one-month LIBOR2020, interest rate was 2.35% and 1.37%, respectively. one-month LIBOR plus 1.20%. |
| (d) | At December 31, 2017, the three-month LIBOR2020, interest rate was 1.49%one-month LIBOR plus 1.25%. |
(e) |
At December 31, 2018, the swingline loan balance of $15,000 bore2020, interest at 5.45% and the remaining Revolver balance of $126,100 bore interest at rate wasone-month LIBOR plus 1.20%1.35%. |
| The 2023 Unsecured Term Loan was paid in full with proceeds from the 2031 Senior Unsecured Public Notes in September 2021. |
| At December 31, 2017, $223,000 of the Revolver balance bore2020, interest at rate wasone-month LIBOR plus 1.20%, while the remaining balance of $50,000 bore interest at three-month LIBOR plus 1.20%1.85%. |
(f)
| Subsequent to year end, the first one-year extension was exercised, extending the maturity date to February 2020.
|
31,
2018 and 2017,2021, the weighted average interest rate on all outstanding borrowings was
4.23% and 3.03%2.62%,
respectively.Debt issuance costs are amortized as a componentexclusive of interest expense in the accompanying Consolidated Statements of Income and Comprehensive Income. The following table summarizes debt issuance cost amortization for the years ended December 31, 2018, 2017, and 2016:
rate swap agreements. | | For the years ended December 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Debt issuance costs amortization | | $ | 1,918 | | | $ | 1,794 | | | $ | 1,817 | |
For the year ended December 31, 2018,2021, the Company paid $2,209incurred $5.0 million in debt issuance costs and original issuance discount associated with the 2031 Senior Unsecured Public Notes and the amended 2026 Unsecured Term Loan. For the year ended December 31, 2020, the Company incurred $5.9 million in debt issuance costs associated with the Series B Notes and Series C Notes.
Revolving Credit Facility. For the year ended December 31, 2017,2019, the Company paid $8,711incurred $6.5 million in debt issuance costs associated with the Series A Notes, the 2017 Unsecured Revolving Credit and Term Loan Agreement, and the 20152020 Unsecured Term Loan, Agreement. the 2026 Unsecured Term Loan and its prior unsecured revolving credit agreement.
For each separate debt instrument, on a lender by lender basis, in accordance with ASC
470-50,
Debt Modifications and Extinguishment
, the Company performed an assessment of whether the transaction was deemed to be new debt, a modification of existing debt, or an extinguishment of existing debt. Debt issuance costs are either deferred and amortized over the term of the associated debt or expensed as incurred.
Based on this assessment, $5,810the assessments, $5.0 million, $5.9 million and $6.5 million of the debt issuance costs and original issuance discounts incurred during the years ended December 31, 2021, 2020, and 2019, respectively, were deemed to be related to new debt, and the issuancemodification of newexisting debt, and therefore have been deferred and are being amortized over the term of the associated debt. The remaining $2,901 of debt issuance costs were associated with lenders whose commitments under
Additionally, during the new agreements have been determined to be an extinguishment and such debt issuance costs were expensed as a component of the Cost of debt extinguishment in the accompanying Consolidated Statements of Income and Comprehensive Income for the yearyears ended December 31, 2017. Additionally, $6542021, 2020, and 2019, $0.3 million, $0.4 million and $0.3 million, respectively, of unamortized debt issuance costs were expensed, and included in Cost of debt extinguishment in the accompanying Consolidated Statements of Income and Comprehensive Income.
Debt issuance costs and original issuance discounts are amortized as a component of Interest expense in the accompanying Consolidated Statements of Income for the year ended December 31, 2017.and Comprehensive Income. The following table summarizes debt issuance cost and original issuance discount amortization:
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | | | | | | | |
| Debt issuance costs and original issuance discount amortization | | $ | 3,854 | | | $ | 3,445 | | | $ | 2,685 | |
122
10. Mortgages
and Notes PayableThe Company’s mortgages
and notes payable consist of the
following at December 31, 2018 and 2017:following:
| | | | | | | | | | | | | | | | | | | | | |
(in thousands, except interest rates) | |
| | |
| | |
| | | | | |
| | | | | | | | |
| Wilmington Trust National Association | | | | | | | Feb-28 | | | 4.92% | | $ | 46,760 | | | $ | 47,945 | | | (a) (b) (c) (j) |
| Wilmington Trust National Association | | | | | | | Aug-25 | | | 4.36% | | | 19,557 | | | | 19,947 | | | (a) (b) (c) (i) |
| PNC Bank | | | | | | | Nov-26 | | | 3.62% | | | 17,094 | | | | 17,498 | | | (b) (c) |
| T2 Durham I, LLC | | | Jul-21 | | | | Jul-24 | | | Greater of Prime +
1.25% or 5.00% | | | 7,500 | | | | 0 | | | (b) (k) |
| Aegon | | | Apr-12 | | | | Oct-23 | | | 6.38% | | | 6,249 | | | | 7,039 | | | (b) (f) |
| Sun Life | | | Mar-12 | | | | Oct-21 | | | 5.13% | | | 0 | | | | 10,469 | | | (b) (e) |
| M&T Bank | | | Oct-17 | | | | Aug-21 | | | one-month
LIBOR+3% | | | 0 | | | | 4,769 | | | (b) (d) (g)
(h) |
| | | | | | | | | | | | | | | | | | | | | |
| Total mortgages | | | | | | | | | | | | | 97,160 | | | | 107,667 | | | |
| Debt issuance costs, net | | | | | | | | | | | | | (314 | ) | | | (285 | ) | | |
| | | | | | | | | | | | | | | | | | | | | |
| Mortgages, net | | | | | | | | | | | | $ | 96,846 | | | $ | 107,382 | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Origination | | Maturity | | | | | | | | | | | | | | |
(in thousands, except interest rates) | | Date | | Date | | Interest | | | December 31, | | | |
| Lender | | (Month/Year) | | (Month/Year) | | Rate | | | 2018 | | | 2017 | | | |
(1) | Wilmington Trust National Association | | Jun-18 | | Aug-25 | | 4.36% | | | $ | 20,674 | | | $ | — | | | (a) (b) (c) (m) |
(2) | PNC Bank | | Oct-16 | | Nov-26 | | 3.62% | | | | 18,260 | | | | 18,622 | | | (b) (c) |
(3) | Sun Life | | Mar-12 | | Oct-21 | | 5.13% | | | | 11,288 | | | | 11,670 | | | (b) (g) |
(4) | Aegon | | Apr-12 | | Oct-23 | | 6.38% | | | | 8,496 | | | | 9,168 | | | (b) (h) |
(5) | Symetra Financial | | Nov-17 | | Oct-26 | | 3.65% | | | | 6,467 | | | | 6,685 | | | (a) (b) (k) (l) |
(6) | M&T Bank | | Oct-17 | | Aug-21 | | one - month LIBOR+3% | | | | 5,051 | | | | 5,183 | | | (b) (d) (i) (j) |
(7) | Legg Mason Mortgage Capital Corporation | | Aug-10 | | Aug-22 | | 7.06% | | | | 4,692 | | | | 5,670 | | | (b) (e) |
(8) | Standard Insurance Co. | | Apr-09 | | May-34 | | 6.88% | | | | 1,751 | | | | 1,813 | | | (b) (c) (f) |
(9) | Columbian Mutual Life Insurance Company | | Aug-10 | | Sep-25 | | 7.00% | | | | 1,459 | | | | 1,500 | | | (b) (c) (d) |
(10) | Note holders | | Dec-08 | | Dec-23 | | 6.25% | | | | 750 | | | | 750 | | | (d) |
(11) | Standard Insurance Co. | | Jul-10 | | Aug-30 | | 6.75% | | | | 563 | | | | 581 | | | (b) (c) (d) (f) |
(12) | Siemens Financial Services, Inc. | | Sep-10 | | Sep-20 | | 5.47% | | | | — | | | | 5,820 | | | (a) (b) |
(13) | Symetra Financial | | Mar-11 | | Apr-31 | | 6.34% | | | | — | | | | 1,008 | | | (a) (b) |
| | | | | | | | | | | | 79,451 | | | | 68,470 | | | |
| Debt issuance costs, net | | | | | | | | | | | (499 | ) | | | (638 | ) | | |
| | | | | | | | | | | $ | 78,952 | | | $ | 67,832 | | | |
(a) | Non-recourse debt includes the indemnification/guaranty of the Corporation and/or Operating CompanyOP 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 Operating Company. OP. |
(d) | Debt secured by guaranty of the Corporation. |
(e) | Debt is guaranteed by a third party.
|
(f)
| The interest rate represents the initial interest rate on the respective notes. The interest rate will be adjusted at Standard Insurance’s discretion (based on prevailing rates) at certain times throughout the term of the note, ranging from 119 to 239 months, and the monthly installments will be adjusted accordingly. At the time Standard Insurance may adjust the interest rate for notes payable, the Company has the right to prepay the note without penalty. Subsequent to December 31, 2018, the Company prepaid one of these mortgages with no prepayment penalty (see Note 19).
|
(g)
| 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. |
(h)
(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. |
(i)
(g) | The Company entered into an interest rate swap agreement in connection with the mortgage, note, as further described in Note 11. |
(j)
(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. |
(k)
(i) | Mortgage was assumed in November 2017 as part of the acquisition of the related property. The debt was recorded at fair value at the time of the assumption.
|
(l)
| The interest rate will be adjusted to the holder’s quoted five-year commercial mortgage rate for similar size and quality.
|
(m)
| 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. |
| (k) | Mortgage is subject to interest at a daily floating annual rate equal to the Prime Rate plus 1.25%, but no less than 5.00% per annum. At December 31, 2021, the interest rate was 5.00% |
At December 31,
2018,2021, investment in rental property of
$139,765 is$161.6 million was pledged as collateral against the Company’s
mortgages and notes payable.The following table summarizes the mortgages extinguished by the Company during the years ended December 31, 2018, 2017, and 2016:
| | For the years ended December 31, | |
(in thousands, except number) | | 2018 | | | 2017 | | | 2016 | |
Number of mortgages | | | 2 | | | | 7 | | | | 4 | |
Outstanding balance of mortgages | | $ | 6,666 | | | $ | 48,108 | | | $ | 8,199 | |
123
The following table summarizes the costTable of mortgage extinguishment for the years ended December 31, 2018, 2017, and 2016:Contents | | For the years ended December 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Cost of mortgage extinguishment | | $ | 101 | | | $ | 1,596 | | | $ | 133 | |
Estimated future principal payments to be made under the above mortgage and
note payable agreements, and the Company’s unsecured credit agreements (see Note 9) at December 31,
20182021, are as follows:
(in thousands) | | | | |
2019 | | $ | 3,433 | |
2020 | | | 303,672 | |
2021 | | | 18,584 | |
2022 | | | 144,166 | |
2023 | | | 272,456 | |
Thereafter | | | 708,240 | |
| | $ | 1,450,551 | |
| | | | |
| | | |
| 2022 | | $ | 62,906 | |
| 2023 | | | 109,582 | |
| 2024 | | | 199,760 | |
| 2025 | | | 20,195 | |
| 2026 | | | 416,843 | |
| Thereafter | | | 889,874 | |
| | | | | |
| | | $ | 1,699,160 | |
| | | | | |
Certain of the Company’s
mortgage and note payable agreementsmortgages 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.
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.
In connection with the issuance of the 2031 Senior Unsecured Public Notes in September 2021 and repayment of outstanding borrowings of variable rate debt indexed to theone-month
LIBOR rate (see Note 9), the Company terminated interest rate swap agreements with an aggregate termination value of $5.6 million. The Company determined that it is not probable the hedge forecasted transactions will not occur during the original periods, and therefore, the $5.6 million of accumulated losses held in Other comprehensive income will be reclassified to interest expense on a straight-line basis over the original lives of the terminated swaps. For the year ended December 31, 2021, amounts reclassified out of Other comprehensive income to Interest expense were $0.1 million.
124
The following is a summary of the Company’s outstanding interest rate swap
agreements at December 31, 2018 and 2017:agreements:| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except interest rates) | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Wells Fargo Bank, N.A. | | February 2021 | | | 2.39 | % | | $ | — | | | $ | — | | | $ | 35,000 | | | $ | (70 | ) |
| M&T Bank | | August 2021 | | | 1.02 | % | | | — | | | | — | | | | 4,768 | | | | (25 | ) (a) |
| Capital One, National Association | | December 2021 | | | 1.05 | % | | | — | | | | — | (b) | | | 15,000 | | | | (141 | ) |
| M&T Bank | | September 2022 | | | 2.83 | % | | | — | | | | — | (b) | | | 25,000 | | | | (1,139 | ) |
| Bank of America, N.A. | | November 2023 | | | 2.80 | % | | | — | | | | — | (b) | | | 25,000 | | | | (1,848 | ) |
| M&T Bank | | November 2023 | | | 2.65 | % | | | — | | | | — | (b) | | | 25,000 | | | | (1,785 | ) |
| Regions Bank | | December 2023 | | | 1.18 | % | | | — | | | | — | (b) | | | 25,000 | | | | (763 | ) |
| Truist Financial Corporation | | April 2024 | | | 1.99 | % | | | — | | | | — | (b) | | | 25,000 | | | | (1,487 | ) |
| Bank of Montreal | | July 2024 | | | 1.16 | % | | | — | | | | — | (b) | | | 40,000 | | | | (1,380 | ) |
| Wells Fargo Bank, N.A. | | October 2024 | | | 2.72 | % | | | 15,000 | | | | (702 | ) | | | 15,000 | | | | (1,422 | ) |
| Capital One, National Association | | December 2024 | | | 1.58 | % | | | 15,000 | | | | (241 | ) | | | 15,000 | | | | (799 | ) |
| Bank of Montreal | | January 2025 | | | 1.91 | % | | | 25,000 | | | | (649 | ) | | | 25,000 | | | | (1,725 | ) |
| Truist Financial Corporation | | April 2025 | | | 2.20 | % | | | 25,000 | | | | (905 | ) | | | 25,000 | | | | (2,084 | ) |
| Bank of Montreal | | July 2025 | | | 2.32 | % | | | 25,000 | | | | (1,049 | ) | | | 25,000 | | | | (2,351 | ) |
| Truist Financial Corporation | | July 2025 | | | 1.99 | % | | | 25,000 | | | | (767 | ) | | | 25,000 | | | | (1,941 | ) |
| Truist Financial Corporation | | December 2025 | | | 2.30 | % | | | 25,000 | | | | (1,125 | ) | | | 25,000 | | | | (2,481 | ) |
| Bank of Montreal | | January 2026 | | | 1.92 | % | | | 25,000 | | | | (760 | ) | | | 25,000 | | | | (2,039 | ) |
| Bank of Montreal | | January 2026 | | | 2.05 | % | | | 40,000 | | | | (1,415 | ) | | | 40,000 | | | | (3,523 | ) |
| Capital One, National Association | | January 2026 | | | 2.08 | % | | | 35,000 | | | | (1,274 | ) | | | 35,000 | | | | (3,078 | ) |
| Truist Financial Corporation | | January 2026 | | | 1.93 | % | | | 25,000 | | | | (768 | ) | | | 25,000 | | | | (2,019 | ) |
| Capital One, National Association | | April 2026 | | | 2.68 | % | | | 15,000 | | | | (941 | ) | | | 15,000 | | | | (1,843 | ) |
| Capital One, National Association | | July 2026 | | | 1.32 | % | | | 35,000 | | | | (205 | ) | | | 35,000 | | | | (1,806 | ) |
| Bank of Montreal | | December 2026 | | | 2.33 | % | | | 10,000 | | | | (538 | ) | | | 10,000 | | | | (1,156 | ) |
| Bank of Montreal | | December 2026 | | | 1.99 | % | | | 25,000 | | | | (936 | ) | | | 25,000 | | | | (2,372 | ) |
| Wells Fargo Bank, N.A. | | April 2027 | | | 2.72 | % | | | 25,000 | | | | (1,887 | ) | | | 25,000 | | | | (3,555 | ) |
| Bank of Montreal | | December 2027 | | | 2.37 | % | | | 25,000 | | | | (1,570 | ) | | | 25,000 | | | | (3,234 | ) |
| Capital One, National Association | | December 2027 | | | 2.37 | % | | | 25,000 | | | | (1,575 | ) | | | 25,000 | | | | (3,199 | ) |
| Wells Fargo Bank, N.A. | | January 2028 | | | 2.37 | % | | | 75,000 | | | | (4,741 | ) | | | 75,000 | | | | (9,650 | ) |
| Bank of Montreal | | May 2029 | | | 2.09 | % | | | 25,000 | | | | (1,316 | ) | | | 25,000 | | | | (2,994 | ) |
| Regions Bank | | May 2029 | | | 2.11 | % | | | 25,000 | | | | (1,356 | ) | | | 25,000 | | | | (3,004 | ) |
| Regions Bank | | June 2029 | | | 2.03 | % | | | 25,000 | | | | (1,222 | ) | | | 25,000 | | | | (2,843 | ) |
| U.S. Bank National Association | | June 2029 | | | 2.03 | % | | | 25,000 | | | | (1,220 | ) | | | 25,000 | | | | (2,902 | ) |
| U.S. Bank National Association | | August 2029 | | | 1.35 | % | | | 25,000 | | | | (9 | ) | | | 25,000 | | | | (1,445 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | $ | 640,000 | | | $ | (27,171 | ) | | $ | 859,768 | | | $ | (72,103 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Fair Value | | |
(in thousands, except interest rates) | | | | | | | | | | | | December 31, | | |
Counterparty | | Maturity Date | | Fixed Rate | | | Variable Rate Index | | Notional Amount | | | 2018 | | | 2017 | | |
Bank of America, N.A. | | November 2023 | | 2.80% | | | one-month LIBOR | | $ | 25,000 | | | $ | (411 | ) | | $ | (863 | ) | |
Bank of Montreal | | July 2024 | | 1.16% | | | one-month LIBOR | | | 40,000 | | | | 2,702 | | | | 2,503 | | |
Bank of Montreal | | January 2025 | | 1.91% | | | one-month LIBOR | | | 25,000 | | | | 769 | | | | 464 | | |
Bank of Montreal | | July 2025 | | 2.32% | | | one-month LIBOR | | | 25,000 | | | | 222 | | | | (194 | ) | |
Bank of Montreal | | January 2026 | | 1.92% | | | one-month LIBOR | | | 25,000 | | | | 915 | | | | 561 | | |
Bank of Montreal | | January 2026 | | 2.05% | | | one-month LIBOR | | | 40,000 | | | | 1,130 | | | | 520 | | |
Bank of Montreal | | December 2026 | | 2.33% | | | one-month LIBOR | | | 10,000 | | | | 132 | | | | (63 | ) | |
Bank of Montreal | | December 2027 | | 2.37% | | | one-month LIBOR | | | 25,000 | | | | 355 | | | | (192 | ) | |
Capital One, N.A. | | December 2021 | | 1.05% | | | one-month LIBOR | | | 15,000 | | | | 605 | | | | 607 | | |
Capital One, N.A. | | December 2024 | | 1.58% | | | one-month LIBOR | | | 15,000 | | | | 727 | | | | 603 | | |
Capital One, N.A. | | January 2026 | | 2.08% | | | one-month LIBOR | | | 35,000 | | | | 930 | | | | 399 | | |
Capital One, N.A. | | July 2026 | | 1.32% | | | one-month LIBOR | | | 35,000 | | | | 2,877 | | | | 2,565 | | |
Capital One, N.A. | | December 2027 | | 2.37% | | | one-month LIBOR | | | 25,000 | | | | 345 | | | | (189 | ) | |
Capital One, N.A. | | April 2026 | | 2.68% | | | one-month LIBOR | | | 15,000 | | | | (189 | ) | | | — | | |
M&T Bank | | August 2021 | | 1.02% | | | one-month LIBOR | | | 5,051 | | | | 177 | | | | 182 | | (b), (c) |
M&T Bank | | September 2022 | | 2.83% | | | one-month LIBOR | | | 25,000 | | | | (362 | ) | | | (810 | ) | |
M&T Bank | | November 2023 | | 2.65% | | | one-month LIBOR | | | 25,000 | | | | (254 | ) | | | (686 | ) | |
Regions Bank | | March 2018 | | 1.77% | | | one-month LIBOR | | | — | | | | — | | | | (9 | ) | (a) |
Regions Bank | | March 2019 | | 1.91% | | | three-month LIBOR | | | — | | | | — | | | | 2 | | (a) |
Regions Bank | | May 2020 | | 2.12% | | | one-month LIBOR | | | 50,000 | | | | 271 | | | | (153 | ) | |
Regions Bank | | March 2022 | | 2.43% | | | three-month LIBOR | | | — | | | | — | | | | (254 | ) | (a) |
Regions Bank | | December 2023 | | 1.18% | | | one-month LIBOR | | | 25,000 | | | | 1,484 | | | | 1,402 | | |
SunTrust Bank | | April 2024 | | 1.99% | | | one-month LIBOR | | | 25,000 | | | | 554 | | | | 261 | | |
SunTrust Bank | | April 2025 | | 2.20% | | | one-month LIBOR | | | 25,000 | | | | 382 | | | | — | | |
SunTrust Bank | | July 2025 | | 1.99% | | | one-month LIBOR | | | 25,000 | | | | 728 | | | | 386 | | |
SunTrust Bank | | December 2025 | | 2.30% | | | one-month LIBOR | | | 25,000 | | | | 299 | | | | (138 | ) | |
SunTrust Bank | | January 2026 | | 1.93% | | | one-month LIBOR | | | 25,000 | | | | 903 | | | | 553 | | |
Wells Fargo Bank, N.A. | | February 2021 | | 2.39% | | | one-month LIBOR | | | 35,000 | | | | 59 | | | | (369 | ) | |
Wells Fargo Bank, N.A. | | October 2024 | | 2.72% | | | one-month LIBOR | | | 15,000 | | | | (222 | ) | | | (510 | ) | |
Wells Fargo Bank, N.A. | | January 2028 | | 2.37% | | | one-month LIBOR | | | 75,000 | | | | 1,067 | | | | (590 | ) | |
Wells Fargo Bank, N.A. | | April 2027 | | 2.72% | | | one-month LIBOR | | | 25,000 | | | | (382 | ) | | | — | | |
| | | | | | | | | | | | | | $ | 15,813 | | | $ | 5,988 | | |
(a) | Notional amount at December 31, 2017 was $25,000.
|
(b)
| Notional amount at December 31, 2017 was $5,183.
|
(c)
| Interest rate swap was assumed in October 2017 as part of an UPREIT transaction. transaction. |
| (b) | Interest rate swap was terminated in September 2021. |
At December 31, 2021, the weighted average fixed rate on all outstanding interest rate swaps was 2.11%.
125
The total amounts recognized, and the location in the accompanying Consolidated Statements of Income and Comprehensive Income, from converting from variable rates to fixed rates under these agreements
arewere as
follows for the years ended December 31, 2018, 2017, and 2016:follows: | | | | | | | | | | | | Total Interest Expense | |
| | Amount of Gain | | | | | | | | | Presented in the | |
| | Recognized in | | | | | | | | | Consolidated Statements of | |
| | Accumulated Other | | | Reclassification from Accumulated | | | Income and | |
(in thousands) | | Comprehensive | | | Other Comprehensive Income | | | Comprehensive | |
For the years ended December 31, | | Income | | | Location | | Amount of Loss | | | Income | |
2018 | | $ | 10,584 | | | Interest expense | | $ | 910 | | | $ | 52,855 | |
2017 | | | 4,166 | | | Interest expense | | | 5,099 | | | | 34,751 | |
2016 | | | 13,771 | | | Interest expense | | | 9,322 | | | | 29,963 | |
| | | | | | | | | | | | | | | | | |
| | |
| | | Reclassification from Accumulated
| | |
| |
| | | | |
| |
| | | |
| 2021 | | $ | 39,353 | | | | Interest expense | | | $ | (16,136 | ) | | $ | 64,146 | |
| 2020 | | | (50,544 | ) | | | Interest expense | | | | (12,656 | ) | | | 76,138 | |
| 2019 | | | (37,372 | ) | | | Interest expense | | | | 1,492 | | | | 72,534 | |
Amounts related to the interest rate swaps expected to be reclassified out of Accumulated other comprehensive
incomeloss to Interest expense during
2019the next twelve months are estimated to be a
gainloss of
$3,446.$13.1 million. The Company is exposed to credit risk in the event of
non-performance
by the counterparties of the swaps. The Company minimizes
thisthe risk exposure by limiting counterparties to major banks who meet established credit and capital guidelines.
12.Non-Controlling
The fair value of the interest rate swaps at December 31, 2018 and 2017 are based on a valuation of the discounted future payments as provided by the counterparties, as disclosed in Note 2.
12. Non-Controlling Interests
Under the Company’s UPREIT structure, entities and individuals can contribute their properties in exchange for
membership interests in the Operating Company. Properties contributed as part ofOP Units. There were 0 UPREIT transactions
were valued at $15,797, $10,498, and $7,190 during the years ended December 31,
2018, 2017,2021, 2020, and
2016, respectively, which represents the estimated fair value of the properties contributed, less any assumed debt.2019. The cumulative amount of UPREIT properties contributed, less assumed debt, amounted to
$128,746, $112,949, and $102,451 during the years ended$128.7 million as of December 31,
2018, 2017,2021 and
2016, respectively.2020. In exchange for the properties contributed
1,737, 1,551, and
1,427 as part of the Internalization, 6,058,080 and 4,265,126non-controlling membership units
OP Units were issued and outstanding,
respectively, as of December 31, 2021, representing a
7.3%, 7.6%, and 8.6%6.0% interest in the
Operating CompanyOP at December 31,
2018, 2017,2021. In exchange for the properties contributed and
2016, respectively.as part of the Internalization, 6,943,130 and 4,455,308
non-controlling
OP Units were issued and outstanding, respectively, as of December 31, 2020, representing a 7.3% interest in the OP at December 31, 2020. In exchange for the properties contributed, 6,948,185non-controlling
OP Units were issued and outstanding as of December 31, 2019, representing a 6.3% interest in the OP at December 31, 2019.The
Operating Company’s membership unitsOP Units are economically equivalent to the Corporation’s common stock and, subject to certain restrictions, are convertible into the Company’s common stock at the option of the respective unit holders on a
basis. The
membership unitsOP Units are
not redeemable for cash
at the option of the holder, however, the Company may issue shares in
any circumstance andlieu of cash. Therefore the OP Units are
therefore considered to be permanent equity. Exchanges of
membership units of the Operating CompanyOP Units held by
non-controlling
interest holders are recorded by reducing
non-controlling
interest on a historical cost basis with a corresponding increase in common stock and additional
paid-in
capital.
The following table summarizes membership unitsOP Units exchanged for shares of common stock forstock:
| | | For the Year Ended December 31, | |
| | | | | | | | | |
| OP Units exchanged for shares of common stock | | | 2,935 | | | | 822 | | | | 0 | |
| Value of units exchanged | | $ | 46,968 | | | $ | 15,631 | | | $ | 0 | |
As of December 31, 2021, the
yearsCompany achieved all four VWAP milestones applicable to the earnout. As a result, the Company issued 1,859,257 OP Units during the year ended December 31,
2018, 2017, and 2016:2021 (see Note 4). | | For the years ended December 31, | |
(in thousands) | | 2018 | | | 2017 | | | 2016 | |
Membership units exchanged | | | 8 | | | | 37 | | | | — | |
Shares of common stock received | | | 8 | | | | 37 | | | | — | |
Value of shares/units exchanged | | $ | 684 | | | $ | 2,986 | | | $ | — | |
Holders of the membership units in the Operating CompanyOP Units do not have voting rights at the Corporation level.
126
13. Credit Risk Concentrations
The Company maintained bank balances that, at times, exceeded the federally insured limit during the years ended December 31,
2018, 2017,2021, 2020, and
2016.2019. 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
Prior to the Internalization on February 7, 2020, the Company’s rental property
iswas managed by
the ManagerBRE and the Asset Manager as described in Note 3. Management fees paid to
BRE and the
Manager and Asset Manager
represent 19%, 20%represented 2%, and
25%18% of total operating expenses for the years ended December 31,
2018, 2017,2020 and
2016,2019, respectively.
The 2018 and 2017These amounts do not include acquisition
costsfees paid to the Asset Manager
as theythat were capitalized
in accordance with ASU 2017-01 (see
Notes 2 andNote 3).
The Company has mortgages and notes payable with four institutions that comprise 26%, 23%, 14%, and 11% of total mortgages and notes payable atThere were no management fees paid to BRE or the Asset Manager during the year ended December 31,
2018. The Company had mortgages and notes payable with four institutions that comprise 27%, 17%, 13%, and 11% of total mortgages and notes payable at December 31, 2017. The Company had mortgages and notes payable with four institutions that comprised 20%, 18%, 12%, and 11% of total mortgages and notes payable at December 31, 2016.2021. For the years ended December 31,
2018, 2017,2021, 2020, and
2016,2019, the Company had
no0 individual tenants or common franchises that accounted for more than
10%10
% of total
revenues.revenues, excluding lease termination fees.
On September 21, 2020, the Corporation completed its IPO and issued 37,000,000 shares of Class A Common Stock inclusive of the underwriters’ partial exercise of their over-allotment option on October 20, 2020.
Aside from the conversion discussed below, the terms of the Class A Common Stock were identical to the terms of the Common Stock. Each share of Class A Common Stock automatically converted into one share of Common Stock on March 20, 2021, and effective March 22, 2021, all shares of Common Stock were listed and freely tradeable on the NYSE under the ticker “BNL.” The Common Stock and Class A Common Stock are collectively referred to as the Corporation’s Articles of Incorporation (the “Charter”),“common stock.”
On June 28, 2021, the Corporation
is authorized to issue an aggregate of 100,000completed its first publicfollow-on
equity offering and issued 11,500,000 shares of
capital stock, consistingCommon Stock, inclusive of
80,000 shares designated as the underwriters’ full exercise of their over-allotment option, at $23.00 per share. The net proceeds, after deducting underwriting discounts and commissions of $10.6 million and $0.4 million of other expenses, were $253.5 million. The Company used the net proceeds to repay the remaining $160.6 million principal due under the Company’s revolving credit facility. The remaining net proceeds were used for general business purposes, including acquisitions. On August 23, 2021, the Company established ancommon
stock with a par value of $0.001 per share, and 20,000 shares designated as preferred stock with a par value of $0.001 per share (unrounded). The Board of Directors, without any action by the Corporation’s stockholders,equity offering program (“ATM Program”), through which it may,
amend the Charter from time to time,
publicly offer and sell shares of common stock having an aggregate gross sales price of up to
increase or decrease$400.0 million. The ATM Program provides for forward sale agreements, enabling the
aggregate numberCompany to set the price of shares
of capital stock orupon pricing the
numberoffering, while delaying the issuance of shares
and the receipt of
capitalthe net proceeds. During the year ended December 31, 2021, the Company issued 1,071,500 shares of common stock
at a weighted average sale price of
any class or series that$26.26 per share under the
Corporation has authorityATM Program. The net proceeds, after deducting $0.3 million for commission and $0.5 million for other issuance expenses, were $27.3 million. At December 31, 2021, the Company could issue additional common stock with an aggregate sales price of up to
issue.$371.9 million under the ATM Program.
As of December 31, 2021, the Company achieved all four VWAP milestones applicable to the earnout. As a result, the Company issued 1,088,977 shares of common stock during the year ended2021
127
The shares of the Corporation’s common stock entitle the holders to one vote per share on all matters upon which stockholders are entitled to vote, to receive dividends and other distributions as authorized by the Board of Directors in accordance with the Maryland General Corporation Law, and to all rights of a stockholder pursuant to the Maryland General Corporation Law. The common stock has no preferences or preemptive conversion or exchange rights.
Pursuant to the limited liability company agreement between the Corporation and the
Operating Company,OP, each outstanding
membership unit of the Operating CompanyOP Unit is convertible into one share of the Corporation’s common stock, subject to the terms and conditions set forth in the
Operating Company’sOP’s operating agreement.
The Charter also provides the Board of Directors with the authority to issue one or more classes or series of preferred stock, and prior to the issuance of such shares of preferred stock, the Board of Directors shall have the power from time to time to classify or reclassify, in one or more series, any unissued shares and designate the preferences, rights and privileges of such shares of preferred stock. At December 31,
20182021 and
2017, no2020, 0 shares of the Corporation’s preferred stock were issued and outstanding.
The Board of Directors approved a share redemption program (“Share Redemption Program”) under which the Corporation
maycould repurchase shares of its outstanding common stock after December 31, 2009. The Board of Directors approved and adopted an amended and restated Share Redemption Program effective as of June 28, 2017.
Under the Share Redemption Program, stockholders
maycould request that the Corporation redeem shares after one year from the original investment date, subject to certain exceptions as set forth in the Share Redemption Program. Under the Share Redemption Program, the Corporation
iswas not obligated to repurchase shares and, notwithstanding any other term of the Share Redemption Program, the Board of Directors or IDC
maycould reject any share redemption request made by any stockholder at any time. Shares held for more than 12 months, but less than five years,
will bewere redeemed at a purchase price equal to 95% of the current
share value established from time to time by the IDC (the “DeterminedDetermined Share
Value”),Value, and shares held for five years or more
will bewere redeemed at a purchase price equal to 100% of the current Determined Share Value, subject to certain exemptions as set forth in the Share Redemption Program.
Total shares redeemed pursuant to the Share Redemption Program in any quarter maycould not exceed 1% of the total number of shares outstanding at the beginning of the calendar year plus 50% of the total number of any additional shares issued during the prior calendar quarter under the DRIP (as defined below), provided that the total number of shares redeemed during any calendar year maycould not exceed 5% of the number of shares outstanding as of the first day of such calendar year. The Board of Directors or the IDC maycould amend, suspend, or terminate the Share Redemption Program at any time upon 30 days’ notice to the Corporation’s stockholders. On January 10, 2020, the Corporation announced that it would be terminating the Share Redemption Program, effective February 10, 2020.
The following table summarizes redemptions under the Company’s Share Redemption Program forProgram:
| | | | | | | | |
| | | For the Year Ended December 31, | |
(in thousands, except number of redemptions) | | | | | | |
| Number of redemptions requested | | | 0 | | | | 96 | |
| Number of shares | | | 0 | | | | 2,610 | |
| Aggregate redemption price | | $ | 0 | | | $ | 54,599 | |
128
The 2019 redemption amounts include the
years ended December 31, 2018, 2017, and 2016:redemption of shares from BRE, as discussed in Note 3. | | For the years ended December 31, | |
(in thousands, except number of redemptions) | | 2018 | | | 2017 | | | 2016 | |
Number of redemptions requested | | | 50 | | | | 32 | | | | 27 | |
Number of shares | | | 127 | | | | 119 | | | | 109 | |
Aggregate redemption price | | $ | 10,304 | | | $ | 9,439 | | | $ | 8,154 | |
Distribution Reinvestment Plan
The Corporation
hashad adopted
the DRIP,a Distribution Reinvestment Plan (“DRIP”), pursuant to which the Corporation’s stockholders and holders of
membership units in the Operating CompanyOP Units (other than the Corporation),
maycould elect to have cash distributions reinvested in additional shares of the Corporation’s common stock.
Cash distributions will be reinvested in additional shares of common stock pursuant to theThe DRIP
at a per share price equal to 98% of the Determined Share Value as of the applicable distribution date. The Corporation may amend the DRIP at any time upon written notice to each participant at leastwas terminated effective February 10,
days prior to the effective date of the amendment. The Corporation may terminate the DRIP upon written notice to each participant at least 30 days prior to the effective date of the termination.2020. At December 31,
2018, 2017,2020 and
2016,2019 a total of
2,233, 1,592,12,300,812 and
1,076,12,019,170 shares of common stock, respectively,
have beenwere issued under the DRIP.
15. Stock-Based Compensation
The Company awarded 199,430 and 340,976 shares of RSAs, during the years ended December 31, 2021 and 2020, respectively, to certain officers and employees under the Equity Incentive Plan. The holder of RSAs is generally entitled at all times on and after the date of issuance of the restricted common shares to exercise the rights of a stockholder of the Company, including the right to vote the shares and the right to receive dividends on the shares. The RSAs vest over a one, three, or four year period from the date of the grant and are subject to the employee’s continued service through the applicable vesting dates and in accordance with the terms of the individual award agreements. The weighted average value of awards granted during the year ended December 31, 2021 was $18.66, which was based on the market price per share of the Company’s common stock on the grant date. The weighted average value per share of awards granted during the year ended December 31, 2020 was $20.50, which was based on the 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 the date based upon, among other factors, the implied market price for each asset based upon a review of market capitalization rates. There were no RSAs during the year ended December 31, 2019.
The following table presents information about the Company’s RSAs:
| | | | | | | | | |
| | | For the year ended December 31, | |
| | | | | | |
| Compensation cost | | $ | 3,926 | | | $ | 1,989 | |
| Dividends declared on unvested RSAs | | | 394 | | | | 131 | |
| Grant date fair value of shares vested during the period | | | 3,296 | | | | 0 | |
| | | | | | | | | |
(in thousands, except recognition period) | | | | | | |
| Unamortized value of RSAs | | $ | 4,715 | | | $ | 5,001 | |
| Weighted average amortization period (in years) | | | 2.4 | | | | 2.8 | |
129
The following table presents information about the Company’s restricted stock activity:
| | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, | |
| | | | | | | |
(in thousands, except per share amounts) | | | | | Weighted
Average Grant
Date Fair Value
per Share | | | | | | Weighted
Average Grant
Date Fair Value
per Share | |
| Unvested at beginning of period | | | 341 | | | $ | 20.50 | | | | 0 | | | $ | 0 | |
| Granted | | | 202 | | | | 18.70 | | | | 341 | | | | 20.50 | |
| Vested | | | (164 | ) | | | 20.15 | | | | 0 | | | | 0 | |
| Forfeited | | | (7 | ) | | | 19.40 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | |
| Unvested at end of period | | | 372 | | | | 19.62 | | | | 341 | | | | 20.50 | |
| | | | | | | | | | | | | | | | | |
Performance-based Restricted Stock Units
On March 1, 2021, the Company granted 132,189 target PRSUs under the Equity Incentive Plan to the officers of the Company. The awards arenon-vested
restricted stock units where the vesting percentages and the ultimate number of units vesting will be measured 50% based on the relative total shareholder return (“rTSR”) of the Company’s common stock as compared to the rTSR of peer companies, as identified in the grant agreements, over a three-year period, and 50% based on the rTSR of the Company’s common stock as compared to the rTSR of the MSCI US REIT Index over a three year measurement period. Vesting percentages range from 0% to 200%, with a target of 100%. rTSR means the percentage appreciation in the fair market value of one share over the three year measurement period beginning on the date of grant, assuming the reinvestment of dividends on theex-dividend
date. The target number of units is based on achieving a rTSR equal to the 55th
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:
| | | | |
| | | | |
(in thousands, except recognition period) | | | |
| Compensation cost | | $ | 743 | |
| | | | |
| | | | |
| Unamortized value of PRSUs | | $ | 1,931 | |
| Weighted average amortization period (in years) | | | 2.2 | |
The were 0 PRSUs at December 31, 2020 and 2019.
The following table presents information about the Company’s PRSU activity:
| | | | | | | | | |
| | | | |
| | | | |
(in thousands, except per share amounts) | |
| | | Weighted Average
Grant Date Fair
Value per Share | |
| Unvested at beginning of period | | | 0 | | | $ | 0 | |
| Granted | | | 132 | | | | 24.40 | |
| Vested | | | 0 | | | | 0 | |
| Forfeited | | | (22 | ) | | | 24.40 | |
| | | | | | | | | |
| Unvested at end of period | | | 110 | | | | 24.40 | |
| | | | | | | | | |
130
The following table summarizes the components used in the calculation of basic and diluted earnings per share (“EPS”)
for the years ended December 31, 2018, 2017, and 2016::
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
(in thousands, except per share amounts) | | | | | | | | | |
| Basic earnings: | | | | | | | | | | | | |
| Net earnings attributable to Broadstone Net Lease, Inc. common shareholders | | $ | 102,426 | | | $ | 51,181 | | | $ | 79,394 | |
| Less: earnings allocated to unvested restricted shares | | | (394 | ) | | | (131 | ) | | | 0 | |
| | | | | | | | | | | | | |
| Net earnings used to compute basic earnings per common share | | $ | 102,032 | | | $ | 51,050 | | | $ | 79,394 | |
| | | | | | | | | | | | | |
| Diluted earnings: | | | | | | | | | | | | |
| Net earnings used to compute basic earnings per share | | $ | 102,032 | | | $ | 51,050 | | | $ | 79,394 | |
Net earnings attributable to non-controlling interests | | | 7,102 | | | | 5,095 | | | | 5,720 | |
| | | | | | | | | | | | | |
| Net earnings used to compute diluted earnings per common share | | $ | 109,134 | | | $ | 56,145 | | | $ | 85,114 | |
| | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | | 153,425 | | | | 117,289 | | | | 95,917 | |
Less: weighted average unvested restricted shares (a) | | | (368 | ) | | | (139 | ) | | | 0 | |
| | | | | | | | | | | | | |
| Weighted average number of common shares outstanding used in basic earnings per common share | | | 153,057 | | | | 117,150 | | | | 95,917 | |
Effects of restricted stock units (b) | | | 172 | | | | 0 | | | | 0 | |
Effects of convertible membership units (c) | | | 10,741 | | | | 11,649 | | | | 6,948 | |
| | | | | | | | | | | | | |
| Weighted average number of common shares outstanding used in diluted earnings per common share | | | 163,970 | | | | 128,799 | | | | 102,865 | |
| | | | | | | | | | | | | |
| Basic earnings per share | | $ | 0.67 | | | $ | 0.44 | | | $ | 0.83 | |
| | | | | | | | | | | | | |
| Diluted earnings per share | | $ | 0.67 | | | $ | 0.44 | | | $ | 0.83 | |
| | | | | | | | | | | | | |
| | For the years ended December 31, | |
(in thousands, except per share) | | 2018 | | | 2017 | | | 2016 | |
Basic earnings: | | | | | | | | | | | | |
Net earnings attributable to Broadstone Net Lease, Inc | | $ | 69,375 | | | $ | 54,799 | | | $ | 36,354 | |
Diluted earnings: | | | | | | | | | | | | |
Net earnings attributable to Broadstone Net Lease, Inc | | $ | 69,375 | | | $ | 54,799 | | | $ | 36,354 | |
Net earnings attributable to non-controlling interests | | | 5,730 | | | | 4,756 | | | | 3,914 | |
| | $ | 75,105 | | | $ | 59,555 | | | $ | 40,268 | |
Basic and diluted weighted average shares outstanding: | | | | | | | | | | | | |
Weighted average number of common shares outstanding used in basic earnings per share | | | 20,242 | | | | 17,084 | | | | 13,178 | |
Effects of convertible membership units | | | 1,668 | | | | 1,483 | | | | 1,419 | |
Weighted average number of common shares outstanding used in diluted earnings per share | | | 21,910 | | | | 18,567 | | | | 14,597 | |
Basic and diluted net earnings per common share | | $ | 3.43 | | | $ | 3.21 | | | $ | 2.76 | |
| (a) | Represents the weighted average effects of 372,150 and 340,963 unvested restricted shares of common stock as of December 31, 2021 and 2020, respectively, 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 shares of common stock to be issued as though the end of the period were the end of the performance period (see Note 15). |
| (c) | Represents the weighted average effects of 10,323,206, 11,398,438, and 6,948,185 OP Units outstanding at December 31, 2021, 2020, and 2019, respectively. OP Units are included in the diluted earnings per share calculation. However, because such OP Units would also require that the share of the net income attributable to such OP units also be added back to net income, there is no effect to EPS. |
In the table above, outstanding membership units are included in the diluted earnings per share calculation. However, because such membership units would also require that the share of the Operating Company income attributable to such membership units also be added back to net income, there is no effect on EPS.
16.
For federal income tax purposes, distributions to stockholders are characterized as ordinary dividends, capital gain distributions, or return of capital distributions. Return of capital distributions will reduce stockholders’ basis in their
131
shares, but not below zero. The portion of the distribution that exceeds the adjusted basis of the stock withwill be treated as gain from the sale or exchange of property. The following table shows the character of the distributions the Company paid on a percentage basisbasis:
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
Character of Distributions | | | | | | | | | |
| Ordinary dividends | | | 61 | % | | | 89 | % | | | 43 | % |
| Capital gain distributions | | | 0 | % | | | 7 | % | | | 8 | % |
| Return of capital distributions | | | 39 | % | | | 4 | % | | | 49 | % |
| | | | | | | | | | | | | |
| | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | |
18. Supplemental Cash Flow Disclosures
Cash paid for interest was $57.3 million, $72.6 million, and $76.4 million for the years ended December 31,
2018, 2017,2021, 2020, and
2016: | | For the years ended December 31, | |
Character of Distributions | | 2018 | | | 2017 | | | 2016 | |
Ordinary dividends | | | 55 | % | | | 51 | % | | | 58 | % |
Capital gain distributions | | | 8 | % | | | — | % | | | — | % |
Return of capital distributions | | | 37 | % | | | 49 | % | | | 42 | % |
| | | 100 | % | | | 100 | % | | | 100 | % |
17. Supplemental Cash Flow Disclosures
2019, respectively. Cash paid for interestincome taxes was $44,697, $32,429,$0.6 million, $1.5 million, and $28,147$2.1 million for the years ended December 31, 2018, 2017,2021, 2020, and 2016,2019, respectively. Cash paid for state income and franchise tax was $947, $655, and $310 for the years ended December 31, 2018, 2017, and 2016, respectively.
The following are
non-cash
transactions and have been excluded from the accompanying Consolidated Statements of Cash Flows:
During the years ended December 31, 2018, 2017, and 2016, the Company issued 622, 499, and 391 shares, respectively, of common stock with a value of approximately $50,826, $38,848, and $27,615, respectively, under the terms of the DRIP (see Note 14).
During the years ended December 31, 2018, 2017, and 2016, the Company issued 194, 161, and 97 membership units of the Operating Company, respectively, in exchange for property contributed in UPREIT transactions valued at $15,797, $12,913, and $7,190, respectively (see Note 12).
During the year ended December 31, 2018,2021, the Corporation cancelled nine thousandCompany converted 2,934,489 OP Units valued at $47.0 million to 2,934,489 shares of common stock with a value of $748 that were pledged as collateral by a tenant. The cancellation of the shares was used to settle $748 in outstanding receivables associated with the tenant.
stock. During the year ended December 31, 2016,2020, the Company issued a note receivable for $3,700 in connection with the saleconverted 822,745 OP Units valued at $15.6 million to 822,745 shares of real estate (seecommon stock. (See Note 8)12).
At December 31, 2018, 2017,2021, 2020, and 2016,2019, dividend amounts declared and accrued but not yet paid amounted to $10,111, $8,449,$45.9 million, $39.3 million, and $6,643,$12.2 million, respectively.
At December 31, 2021, 2020, and 2019, the Company adjusted the carrying value ofNon-controlling
interests to reflect their share of the book value of the OP by $32.2 million, $(41.2) million, and $5.8 million, respectively, with the reallocation recorded as an offset to Additionalpaid-in
capital (see Note 2). During the years ended December 31, 2020, and 2019, the Corporation issued 275,271, and 3,012,052 shares, respectively, of common stock with a value of approximately $5.7 million, and $63.0 million, respectively, under the terms of the DRIP (see Note 14).
During the year ended December 31, 2020, the Company issued shares of Common Stock and OP Units, with a total value of approximately $178.5 million, and earnout consideration with a fair value of $40.1 million as consideration for the Internalization and assumed $90.5 million of debt (see Note 4).
During the year ended December 31, 2020, the Company adjusted the carrying value of mezzanine equitynon-controlling
interests by $2.5 million, with an offset to Additionalpaid-in
capital, in accordance with our accounting policy (see Note 2). During the year ended December 31, 2020, the Company reclassified $112.7 million of mezzanine equitynon-controlling
interests toNon-controlling
interests as a result of the IPO triggering permanent equity classification (see Note 2 and 4). During the year ended December 31, 2020, the Company reclassified $66.4 million of mezzanine equity common stock, with an offset of $66.4 million to Additionalpaid-in
capital as a result of the IPO triggering permanent equity classification (see Note 2 and 4). During the year ended December 31, 2020, the Company reclassified $30.8 million of the carrying value of the earnout liability, with an offset of $19.4 million as a component ofNon-controlling
interests and $11.4 million as a component of Additionalpaid-in
capital (see Note 2). 132
During the year ended December 31, 2020, the Company executed lease modifications that resulted in the lease classification changing from direct financing lease to operating lease for 5 properties. At the modification date, the net investment in the original lease, and therefore the carrying value of the assets recognized, amounted to $10.8 million.
Upon adoption of ASC 326 on January 1, 2020, the Company recorded a transition adjustment to record a provision for credit losses associated with its net investment in direct financing leases of $0.3 million, with an equal amount recorded as a reduction in retained earnings. The provision for credit losses is included as a component of Accounted for using the direct financing method on the Consolidated Balance Sheets.
Upon adoption of ASC 842 on January 1, 2019, the Company recordedassets of $1.7 million and lease liabilities of $1.3 million associated with ground leases where it is the lessee. In connection with real estate transactions conducted during the year ended December 31, 2018,2020, the Company settled notes receivableaccepted credits for rent in the amountadvance of $6,527$1.7 million in exchange for a reduction to the cash paid forto acquire the associated real estate assets (see Notes 4 and 8).
assets. In connection with real estate transactions conducted during the yearsyear ended December 31, 2017 and 2016,2019, the Company acceptedassumed tenant improvement allowances and credits for rent in advance of $2,777 and $1,730, and $8,649 and $2,367, respectively,$2.5 million in exchange for a reduction to the cash paid forto acquire the associated real estate assets.
18.19. Commitments and Contingencies
From time to time, the Company is a party to various litigation matters incidental to the conduct of the Company’s business. While the resolution of such matters cannot be predicted with certainty, based on currently available information, the Company does not believe that the final outcome of any of these matters will have a material effect on its consolidated financial position, results of operations, or liquidity.
Property and Acquisition Related
In connection with ownership and operation of real estate, the Company may potentially be liable for cost and damages related to environmental matters. The Company is not aware of any
non-compliance,
liability, claim, or other environmental condition that would have a material effect on its consolidated financial position, results of operations, or liquidity.
As part
The Company has a commitment to fund a building expansion expected to be completed in 2022, totaling $17.4 million as of
acquisitions closed during 2017 and 2016, the Company assumed six separate lease agreements that provided for a total of $2,777 and $10,464, respectively, in tenant improvement allowances.Balances associated with tenant improvement allowances at December 31, 2018 and 2017 were as follows:
| | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Tenant improvement allowances | | $ | 2,125 | | | $ | 5,669 | |
Payments made2021, in exchange for work completed under tenant improvement allowances for the years ended December 31, 2018 and 2017 were as follows:
an increase in rent contractually scheduled to commence in August 2022. | | For the years ended December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Payments for tenant improvement allowances | | $ | 4,026 | | | $ | 6,598 | |
The Company is a party to three separate Tax Protection Agreements (Agreements)tax protection agreements with the contributing members (Protected Members) of three distinct UPREIT transactions conductedand to the Founding Owners’ Tax Protection Agreement in October 2017, February 2016, and November 2015.connection with the Internalization. The Agreementstax protection agreements require the Company to pay monetary damagesindemnify 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 a Protected Membersuch beneficiaries to recognize a Protected Gain, as defined ingain that is protected under the Agreements andagreements, subject to certain exceptions. In such an event, the Company will pay monetary damages to the Protected Members in the amount of the aggregate federal, state, and local income taxes incurred as a result of the income or gain allocated or recognized by the Protected Member as an outcome of the transaction, subject to certain caps and limitations contained in the Agreements. The Company is required to allocate to the Protected Members, an amount of nonrecourse liabilities to each beneficiary that is at least equal to the Minimum Liability Amount for each Protected Member,minimum liability amount, as contained in the Agreements.agreements. The minimum liability amount and the associated allocation of nonrecourse liabilities are calculated in accordance with applicable tax regulations, are completed at the Operating CompanyOP level, and do not represent GAAP accounting. Therefore, there is no impact to the Consolidated Financial Statements. If the nonrecourse liabilities allocated do not meet the requirement, the Company will pay monetary damages to the Protected Members in the amountBased on values as of December 31, 2021, taxable sales of the aggregate federal, state, and local income taxes incurred as a result of the income or gain allocated or recognized by the Protected Member as an outcome to the default. The maximum aggregate amount the Company may be liable forapplicable properties would trigger liability under the Agreements isagreements of approximately $12,300.$22.3 million. Based on information available, the Company does not believe that the events resulting in damages as detailed above have occurred.
occurred or are likely to occur in the foreseeable future.
133
In the normal course of business, the Company enters into various types of commitments to purchase real estate properties. These commitments are generally subject to the Company’s customary due diligence process and, accordingly, a number of specific conditions must be met before the Company is obligated to purchase the properties.
Obligations Under Operating Leases
In connection with 2018 acquisitions,
Subsequent to the Internalization, the Company leases
land at certain propertiesoffice space for its corporate headquarters and other locations under
non-cancellable
operating leases with
initial lease termsexpiration dates ranging from
20252022 to
2066.2023. These leases contain provisions for fixed monthly
payments, subject to rent
escalations. None of the leases are subject to any sublease agreement. The Company also leases land at certain properties undernon-cancellable
operating leases (“ground leases”) with initial lease terms ranging from 2034 to 2069. 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”). ForNone of the year ended December 31, 2018, rent expenseleases are subject to any sublease agreement.
The following table summarizes the total lease costs associated with theseoperating leases:
| | | | | | | | | | | | | | | |
| | | | | For the Year Ended December 31, | |
| | Financial Statement Presentation | | | | | | | | | |
| Operating lease costs | | | | | | | | | | | | | | |
| Office leases | | General and administrative | | $ | 623 | | | $ | 517 | | | $ | 0 | |
| Ground leases | | Property and operating expense | | | 149 | | | | 133 | | | | 139 | |
| Variable lease costs | | | | | | | | | | | | | | |
| Ground leases | | Property and operating expense | | | 62 | | | | 61 | | | | 46 | |
| | | | | | | | | | | | | | | |
| Total lease costs | | | | $ | 834 | | | $ | 711 | | | $ | 185 | |
| | | | | | | | | | | | | | | |
The following table summarizes payments associated with obligations under operating leases,
included in Property andreported as Net cash provided by operating
expenseactivities on the
accompanying Consolidated Statements of
Income and Comprehensive Income, amounted to $82, including $23 of percentage rent expense.MinimumCash Flows:
| | | For the Year Ended December 31, | |
| | | | | | | | | |
| Operating lease payments | | $ | 804 | | | $ | 666 | | | $ | 158 | |
Estimated future
rentallease payments
duerequired under
non-cancelable
operating leases at December 31,
2018 are2021, and a reconciliation to the lease liabilities, is as follows:
(in thousands) | | | | |
2019 | | $ | 118 | |
2020 | | | 120 | |
2021 | | | 122 | |
2022 | | | 124 | |
2023 | | | 125 | |
Thereafter | | | 2,540 | |
| | $ | 3,149 | |
| | | | |
| | | |
| 2022 | | $ | 723 | |
| 2023 | | | 539 | |
| 2024 | | | 153 | |
| 2025 | | | 155 | |
| 2026 | | | 157 | |
| Thereafter | | | 3,620 | |
| | | | | |
| Total undiscounted cash flows | | | 5,347 | |
| Less imputed interest | | | (2,777 | ) |
| | | | | |
| Lease liabilities | | $ | 2,570 | |
| | | | | |
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
or changesthat may become due in
the Consumer Price Index.19.future periods.
134
20. Subsequent Events
Through February 28, 2019, the most recent monthly equity closing,
On January 14, 2022, the Company
has raised $49,800 for a total of 584 shares through monthly equity closings, including dividend reinvestments. Through February 15, 2019, the most recent distribution date, the Company has paid
$20,338 in distributions
including dividend reinvestments.totaling $45.8 million.
On February
8, 2019,17, 2022, the Board of Directors declared
monthly distributionsa quarterly distribution of
$0.44$0.265 per share
ofon the Company’s common stock and
membership unitsOP Units for the first quarter of
record through April 29, 2019. The distributions are2022, which will be payable on
the 15th of the following monthor before April 15, 2022 to stockholders and unit holders of record
on the last dayas of
the month. In addition, the Company’s IDC determined the share value for the Company’s common stock is $85 per share for subscription agreements received from February 1, 2019 through April 30, 2019.March 31, 2022.
Subsequent to December 31,
2018,2021, the Company continued to expand its operations through the acquisition of additional rental property and associated intangible assets and liabilities.
Through March 14, 2019, theThe Company acquired approximately
$14,964$25.6
million of rental property and associated intangible assets and liabilities (see Note 4)5). Through
On January 28, 2022, the
Company amended and restated the Revolving Credit Agreement to increase the available borrowings to $1.0 billion and extend the maturity date to March
14, 201931, 2026. In addition to United States Dollars, borrowings under the
Company sold four properties withRevolving Credit Agreement can be made in Pound Sterling, Euros or Canadian Dollars up to an
aggregate carrying value of $9,213 for total proceeds of $11,291. The Company incurred additional expenses related to the sales of approximately $629, resulting in a gain on sale of real estate of approximately $1,449.Subsequent to December 31, 2018, the Operating Company paid off borrowings on the Revolver in the aggregate amount of $40,000 and transferred the $15,000 outstanding swingline loan at December 31, 2018 to the Revolver. On January 18, 2019, the Company prepaid a mortgage in full in the amount of $1,745.
On January 10, 2019, the Company exercised its first of two options available under the terms of the 2015 Unsecured Term Loan Agreement (see Note 9), extending the maturity date of the loan through February 6, 2020, in exchange for the payment of a 0.10% fee.
On February 27, 2019, the Company entered into a $450,000 seven-year unsecured term loan agreement (the “2019 Unsecured Term Loan”) with Capital One, N.A. as administrative agent. The 2019 Unsecured Term Loan provides an accordion feature for up to a total of $550,000 borrowing capacity. The 2019 Unsecured Term Loan has an initial maturity date of February 27, 2026.$500.0 million. Borrowings under the 2019 Unsecured Term Loanagreement are subject to interest only payments at variable rates equal to LIBORthe applicable reference rate plus a margin based on the Operating Company’s investment grade credit rating, ranging between 1.45%0.725% and 2.40%1.400%. The applicable margin is 0.850% per annum. Based onIn addition, the Operating Company’s current credit rating of Baa3, the applicable margin under the 2019 Unsecured Term Loan is 1.85%. The 2019 Unsecured Term LoanRevolving Credit Facility is subject to a facility fee of 0.25% per annum on the amount of the commitment, reduced byrevolving commitments, based on the amount of term loans outstanding. At
Company’s credit rating. The applicable facility fee is 0.200% per annum.
closing, $300,000 of the commitment was funded and usedSubsequent to repay the 2015 Unsecured Term Loan (see Note 9) in full. The remaining $150,000 commitment can be drawn in up to three requests through August 27, 2019.
On February 28, 2019, the Company amended the 2017 Unsecured Revolving Credit and Term Loan Agreement (see Note 9) to increase the amount available under the Revolver from $425,000 to $600,000. This increased the total available borrowings under the 2017 Unsecured Revolving Credit and Term Loan Agreement to $1,055,000. All other terms and conditions of the 2017 Unsecured Revolving Credit and Term Loan Agreement remain the same as those in effect prior to this amendment.
In connection with the 2019 Unsecured Term Loan and the amended 2017 Unsecured Revolving Credit and Term Loan Agreement,December 31, 2021, the Company paid approximately $5,100 in debt issuance costs.down $17.0 million, and borrowed $37.0 million on the Revolving Credit Facility, the proceeds of which were used to fund acquisitions and for other general corporate purposes.
Through February 22, 2022, the Company issued 1,051,000 shares of common stock at a weighted average sale price of $24.10 per share under the ATM Program. The Company is currently performing an analysisnet proceeds, after deducting $0.4 million of thesecommissions and other offering costs, in accordance with ASU 470-50, Debt Modifications and Extinguishment, to determine the amountwere $25.0 million.
135
| | For the quarter ended | |
(in thousands, except per share) | | March 31, 2018 | | | June 30, 2018 | | | September 30, 2018 | | | December 31, 2018 | |
Total revenues | | $ | 55,589 | | | $ | 57,032 | | | $ | 61,764 | | | $ | 63,094 | |
Net income | | $ | 18,995 | | | $ | 18,386 | | | $ | 23,064 | | | $ | 14,660 | |
Net income attributable to non-controlling interests | | | (1,422 | ) | | | (1,412 | ) | | | (1,797 | ) | | | (1,099 | ) |
Net income attributable to Broadstone Net Lease, Inc. | | $ | 17,573 | | | $ | 16,974 | | | $ | 21,267 | | | $ | 13,561 | |
Net earnings per common share basic and diluted | | $ | 0.92 | | | $ | 0.86 | | | $ | 1.03 | | | $ | 0.63 | |
Weighted average number of common shares outstanding | | | | | | | | | | | | | | | | |
Basic | | | 19,167 | | | | 19,829 | | | | 20,554 | | | | 21,416 | |
Diluted | | | 20,719 | | | | 21,478 | | | | 22,291 | | | | 23,154 | |
| | For the quarter ended | |
(in thousands, except per share) | | March 31, 2017 | | | June 30, 2017 | | | September 30, 2017 | | | December 31, 2017 | |
Total revenues | | $ | 42,185 | | | $ | 43,671 | | | $ | 46,235 | | | $ | 49,472 | |
Net income | | $ | 13,747 | | | $ | 15,992 | | | $ | 12,990 | | | $ | 16,826 | |
Net income attributable to non-controlling interests | | | (1,153 | ) | | | (1,265 | ) | | | (1,042 | ) | | | (1,296 | ) |
Net income attributable to Broadstone Net Lease, Inc. | | $ | 12,594 | | | $ | 14,727 | | | $ | 11,948 | | | $ | 15,530 | |
Net earnings per common share basic and diluted | | $ | 0.81 | | | $ | 0.89 | | | $ | 0.68 | | | $ | 0.84 | |
Weighted average number of common shares outstanding | | | | | | | | | | | | | | | | |
Basic | | | 15,582 | | | | 16,623 | | | | 17,617 | | | | 18,515 | |
Diluted | | | 17,009 | | | | 18,051 | | | | 19,147 | | | | 20,096 | |
Broadstone Net Lease, Inc. and Subsidiaries
Schedule III – Real Estate Assets and Accumulated Depreciation
As of December 31,
20182021
(in thousands)
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Retail Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Augusta | | GA | | $ | — | | | $ | 270 | | | $ | 1,108 | | | $ | — | | | $ | — | | | $ | 270 | | | $ | 1,108 | | | $ | 1,378 | | | $ | 374 | | | 1992 | | 2007 | | 15-39 |
Pensacola | | FL | | | — | | | | 207 | | | | 1,595 | | | | — | | | | — | | | | 207 | | | | 1,595 | | | | 1,802 | | | | 534 | | | 1998 | | 2007 | | 15-39 |
Jacksonville | | FL | | | — | | | | 223 | | | | 1,262 | | | | — | | | | — | | | | 223 | | | | 1,262 | | | | 1,485 | | | | 495 | | | 1987 | | 2007 | | 15-39 |
Emporia | | VA | | | — | | | | 325 | | | | 1,841 | | | | — | | | | — | | | | 325 | | | | 1,841 | | | | 2,166 | | | | 643 | | | 1993 | | 2007 | | 15-39 |
Sarasota | | FL | | | — | | | | 553 | | | | 3,131 | | | | — | | | | — | | | | 553 | | | | 3,131 | | | | 3,684 | | | | 953 | | | 1994 | | 2008 | | 15-39 |
Jacksonville | | FL | | | 1,459 | | | | 673 | | | | 2,691 | | | | — | | | | — | | | | 673 | | | | 2,691 | | | | 3,364 | | | | 767 | | | 1998 | | 2009 | | 15-39 |
Katy | | TX | | | — | | | | 500 | | | | 648 | | | | — | | | | — | | | | 500 | | | | 648 | | | | 1,148 | | | | 201 | | | 1997 | | 2009 | | 15-39 |
La Porte | | TX | | | — | | | | 250 | | | | 1,151 | | | | — | | | | — | | | | 250 | | | | 1,151 | | | | 1,401 | | | | 342 | | | 1996 | | 2009 | | 15-39 |
Rowlett | | TX | | | — | | | | 350 | | | | 776 | | | | — | | | | — | | | | 350 | | | | 776 | | | | 1,126 | | | | 247 | | | 1995 | | 2009 | | 15-39 |
Norman | | OK | | | — | | | | 280 | | | | 1,049 | | | | — | | | | — | | | | 280 | | | | 1,049 | | | | 1,329 | | | | 287 | | | 1991 | | 2009 | | 15-39 |
Oklahoma City | | OK | | | — | | | | 540 | | | | 517 | | | | — | | | | — | | | | 540 | | | | 517 | | | | 1,057 | | | | 185 | | | 2001 | | 2009 | | 15-39 |
Ashland City | | TN | | | — | | | | 59 | | | | 973 | | | | — | | | | — | | | | 59 | | | | 973 | | | | 1,032 | | | | 61 | | | 1992 | | 2016 | | 15-39 |
Cadiz | | KY | | | — | | | | 77 | | | | 1,048 | | | | — | | | | — | | | | 77 | | | | 1,048 | | | | 1,125 | | | | 68 | | | 1992 | | 2016 | | 15-39 |
Centerville | | TN | | | — | | | | 68 | | | | 965 | | | | — | | | | — | | | | 68 | | | | 965 | | | | 1,033 | | | | 65 | | | 2006 | | 2016 | | 15-39 |
Kingston Springs | | TN | | | — | | | | 92 | | | | 978 | | | | — | | | | — | | | | 92 | | | | 978 | | | | 1,070 | | | | 68 | | | 1998 | | 2016 | | 15-39 |
Mount Juliet | | TN | | | — | | | | 76 | | | | 995 | | | | — | | | | — | | | | 76 | | | | 995 | | | | 1,071 | | | | 66 | | | 1994 | | 2016 | | 15-39 |
White House | | TN | | | — | | | | 105 | | | | 927 | | | | — | | | | — | | | | 105 | | | | 927 | | | | 1,032 | | | | 66 | | | 2003 | | 2016 | | 15-39 |
Stillwater | | OK | | | — | | | | 811 | | | | 1,622 | | | | — | | | | — | | | | 811 | | | | 1,622 | | | | 2,433 | | | | 440 | | | 2008 | | 2010 | | 15-39 |
Mountain Home | | AR | | | — | | | | 338 | | | | 1,016 | | | | — | | | | — | | | | 338 | | | | 1,016 | | | | 1,354 | | | | 269 | | | 1988 | | 2010 | | 15-39 |
Batesville | | AR | | | — | | | | 214 | | | | 1,055 | | | | — | | | | — | | | | 214 | | | | 1,055 | | | | 1,269 | | | | 292 | | | 1988 | | 2010 | | 15-39 |
Paragould | | AR | | | — | | | | 187 | | | | 1,444 | | | | — | | | | — | | | | 187 | | | | 1,444 | | | | 1,631 | | | | 349 | | | 1990 | | 2010 | | 15-39 |
Forrest City | | AR | | | — | | | | 84 | | | | 941 | | | | — | | | | — | | | | 84 | | | | 941 | | | | 1,025 | | | | 261 | | | 1989 | | 2010 | | 15-39 |
Dyersburg | | TN | | | — | | | | 276 | | | | 1,250 | | | | — | | | | — | | | | 276 | | | | 1,250 | | | | 1,526 | | | | 315 | | | 1989 | | 2010 | | 15-39 |
Martin | | TN | | | — | | | | 152 | | | | 858 | | | | — | | | | — | | | | 152 | | | | 858 | | | | 1,010 | | | | 241 | | | 1999 | | 2010 | | 15-39 |
Union City | | TN | | | — | | | | 72 | | | | 806 | | | | — | | | | — | | | | 72 | | | | 806 | | | | 878 | | | | 217 | | | 1988 | | 2010 | | 15-39 |
Highland Heights | | KY | | | — | | | | 850 | | | | 1,984 | | | | — | | | | — | | | | 850 | | | | 1,984 | | | | 2,834 | | | | 469 | | | 1985 | | 2010 | | 15-39 |
Somerset | | NJ | | | — | | | | 912 | | | | 2,735 | | | | — | | | | — | | | | 912 | | | | 2,735 | | | | 3,647 | | | | 637 | | | 1992 | | 2011 | | 15-39 |
Inver Grove Heights | | MN | | | — | | | | 592 | | | | 1,777 | | | | — | | | | — | | | | 592 | | | | 1,777 | | | | 2,369 | | | | 436 | | | 1997 | | 2011 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Mankato | | MN | | | — | | | | 712 | | | | 2,136 | | | | — | | | | — | | | | 712 | | | | 2,136 | | | | 2,848 | | | | 498 | | | 1994 | | 2011 | | 15-39 |
Saint Paul | | MN | | | — | | | | 606 | | | | 1,817 | | | | — | | | | — | | | | 606 | | | | 1,817 | | | | 2,423 | | | | 448 | | | 1994 | | 2011 | | 15-39 |
Jackson | | TN | | | — | | | | 204 | | | | 1,154 | | | | — | | | | — | | | | 204 | | | | 1,154 | | | | 1,358 | | | | 253 | | | 1999 | | 2011 | | 15-39 |
Henderson | | TN | | | — | | | | 141 | | | | 800 | | | | — | | | | — | | | | 141 | | | | 800 | | | | 941 | | | | 167 | | | 1986 | | 2012 | | 15-39 |
Lexington | | TN | | | — | | | | 150 | | | | 848 | | | | — | | | | — | | | | 150 | | | | 848 | | | | 998 | | | | 179 | | | 1995 | | 2012 | | 15-39 |
Humboldt | | TN | | | — | | | | 118 | | | | 669 | | | | — | | | | — | | | | 118 | | | | 669 | | | | 787 | | | | 157 | | | 1993 | | 2012 | | 15-39 |
Cocoa Beach | | FL | | | — | | | | 283 | | | | 848 | | | | — | | | | — | | | | 283 | | | | 848 | | | | 1,131 | | | | 174 | | | 1992 | | 2012 | | 15-39 |
Lake Mary | | FL | | | — | | | | 422 | | | | 1,265 | | | | — | | | | — | | | | 422 | | | | 1,265 | | | | 1,687 | | | | 243 | | | 1989 | | 2012 | | 15-39 |
New Smyrna Beach | | FL | | | — | | | | 382 | | | | 1,146 | | | | — | | | | — | | | | 382 | | | | 1,146 | | | | 1,528 | | | | 273 | | | 2008 | | 2012 | | 15-39 |
Orlando | | FL | | | — | | | | 351 | | | | 1,052 | | | | — | | | | — | | | | 351 | | | | 1,052 | | | | 1,403 | | | | 213 | | | 1990 | | 2012 | | 15-39 |
Orlando | | FL | | | — | | | | 219 | | | | 656 | | | | — | | | | — | | | | 219 | | | | 656 | | | | 875 | | | | 153 | | | 1996 | | 2012 | | 15-39 |
Savannah | | GA | | | — | | | | 390 | | | | 1,170 | | | | — | | | | — | | | | 390 | | | | 1,170 | | | | 1,560 | | | | 241 | | | 2009 | | 2012 | | 15-39 |
Savannah | | GA | | | — | | | | 376 | | | | 1,129 | | | | — | | | | — | | | | 376 | | | | 1,129 | | | | 1,505 | | | | 226 | | | 2009 | | 2012 | | 15-39 |
Oakwood | | GA | | | — | | | | 400 | | | | 1,199 | | | | — | | | | — | | | | 400 | | | | 1,199 | | | | 1,599 | | | | 244 | | | 2008 | | 2012 | | 15-39 |
Hinesville | | GA | | | — | | | | 402 | | | | 1,207 | | | | — | | | | — | | | | 402 | | | | 1,207 | | | | 1,609 | | | | 262 | | | 2008 | | 2012 | | 15-39 |
Princeton | | WV | | | — | | | | 269 | | | | 1,524 | | | | — | | | | — | | | | 269 | | | | 1,524 | | | | 1,793 | | | | 285 | | | 1976 | | 2012 | | 15-39 |
Princeton | | WV | | | — | | | | 301 | | | | 1,703 | | | | — | | | | — | | | | 301 | | | | 1,703 | | | | 2,004 | | | | 317 | | | 1991 | | 2012 | | 15-39 |
Marietta | | OH | | | — | | | | 246 | | | | 1,395 | | | | — | | | | — | | | | 246 | | | | 1,395 | | | | 1,641 | | | | 253 | | | 2007 | | 2012 | | 15-39 |
Pomeroy | | OH | | | — | | | | 208 | | | | 1,178 | | | | — | | | | — | | | | 208 | | | | 1,178 | | | | 1,386 | | | | 232 | | | 1997 | | 2012 | | 15-39 |
Elkins | | WV | | | — | | | | 452 | | | | 1,355 | | | | — | | | | — | | | | 452 | | | | 1,355 | | | | 1,807 | | | | 252 | | | 1980 | | 2012 | | 15-39 |
State College | | PA | | | — | | | | 365 | | | | 1,461 | | | | — | | | | — | | | | 365 | | | | 1,461 | | | | 1,826 | | | | 262 | | | 1976 | | 2012 | | 15-39 |
Summerville | | WV | | | — | | | | 109 | | | | 2,366 | | | | — | | | | — | | | | 109 | | | | 2,366 | | | | 2,475 | | | | 125 | | | 1993 | | 2017 | | 15-39 |
Oxford | | AL | | | — | | | | 240 | | | | 958 | | | | — | | | | — | | | | 240 | | | | 958 | | | | 1,198 | | | | 186 | | | 1999 | | 2012 | | 15-39 |
Oxford | | AL | | | — | | | | 320 | | | | 158 | | | | — | | | | 1,100 | | | | 320 | | | | 1,258 | | | | 1,578 | | | | 96 | | | 2009 | | 2012 | | 15-39 |
Pell City | | AL | | | — | | | | 237 | | | | 1,340 | | | | — | | | | — | | | | 237 | | | | 1,340 | | | | 1,577 | | | | 238 | | | 2002 | | 2012 | | 15-39 |
Tuscaloosa | | AL | | | — | | | | 449 | | | | 1,796 | | | | — | | | | — | | | | 449 | | | | 1,796 | | | | 2,245 | | | | 321 | | | 2010 | | 2012 | | 15-39 |
Jacksonville | | AL | | | — | | | | 190 | | | | 1,077 | | | | — | | | | — | | | | 190 | | | | 1,077 | | | | 1,267 | | | | 202 | | | 2000 | | 2012 | | 15-39 |
Tuscaloosa | | AL | | | — | | | | 422 | | | | 1,686 | | | | — | | | | — | | | | 422 | | | | 1,686 | | | | 2,108 | | | | 314 | | | 2001 | | 2012 | | 15-39 |
Tampa | | FL | | | — | | | | 208 | | | | 1,179 | | | | — | | | | — | | | | 208 | | | | 1,179 | | | | 1,387 | | | | 208 | | | 1980 | | 2012 | | 15-39 |
Tampa | | FL | | | — | | | | 288 | | | | 1,634 | | | | — | | | | — | | | | 288 | | | | 1,634 | | | | 1,922 | | | | 298 | | | 1987 | | 2012 | | 15-39 |
Richmond | | VA | | | — | | | | 202 | | | | 1,147 | | | | — | | | | — | | | | 202 | | | | 1,147 | | | | 1,349 | | | | 212 | | | 1984 | | 2012 | | 15-39 |
Exton | | PA | | | — | | | | 470 | | | | 1,882 | | | | — | | | | — | | | | 470 | | | | 1,882 | | | | 2,352 | | | | 357 | | | 1982 | | 2012 | | 15-39 |
Richmond | | VA | | | — | | | | 133 | | | | 755 | | | | — | | | | — | | | | 133 | | | | 755 | | | | 888 | | | | 154 | | | 1981 | | 2012 | | 15-39 |
Paoli | | PA | | | — | | | | 360 | | | | 1,440 | | | | — | | | | — | | | | 360 | | | | 1,440 | | | | 1,800 | | | | 256 | | | 1982 | | 2012 | | 15-39 |
Seffner | | FL | | | — | | | | 127 | | | | 1,910 | | | | — | | | | — | | | | 127 | | | | 1,910 | | | | 2,037 | | | | 285 | | | 1992 | | 2013 | | 15-39 |
Bradenton | | FL | | | — | | | | 277 | | | | 1,621 | | | | — | | | | — | | | | 277 | | | | 1,621 | | | | 1,898 | | | | 249 | | | 1996 | | 2013 | | 15-39 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Costs to
Company(A) | | | Costs Capitalized
Subsequent to
Acquisition | | | Gross Amount at Which Carried at
Close of Period | | | | | | | | | | | | | |
| | | | | | | | Buildings and
Improvements | | | | | | | | | | | | Buildings and
Improvements | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | — | | | $ | 111,511 | | | $ | 487,861 | | | $ | — | | | $ | 9,087 | | | $ | 111,511 | | | $ | 496,948 | | | $ | 608,459 | | | $ | 59,597 | | | | 1932-2021 | | | | 2011-2021 | | | | | |
| | | 7,500 | | | | 95,356 | | | | 565,182 | | | | 4,511 | | | | 1,834 | | | | 99,867 | | | | 567,016 | | | | 666,883 | | | | 50,798 | | | | 1929-2021 | | | | 2012-2021 | | | | | |
| | | 6,249 | | | | 24,668 | | | | 264,695 | | | | — | | | | 2,700 | | | | 24,668 | | | | 267,395 | | | | 292,063 | | | | 27,827 | | | | 1907-2020 | | | | 2012-2021 | | | | | |
| | | 46,760 | | | | 57,118 | | | | 155,150 | | | | — | | | | 4 | | | | 57,118 | | | | 155,154 | | | | 212,272 | | | | 18,130 | | | | 1982-2018 | | | | 2013-2019 | | | | | |
| | | 19,557 | | | | 11,638 | | | | 154,542 | | | | — | | | | 68 | | | | 11,638 | | | | 154,610 | | | | 166,248 | | | | 17,375 | | | | 1933-2017 | | | | 2017-2018 | | | | | |
| | | — | | | | 51,531 | | | | 40,327 | | | | — | | | | 3,680 | | | | 51,531 | | | | 44,007 | | | | 95,538 | | | | 4,156 | | | | 1960-2020 | | | | 2013-2021 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | — | | | | 31,837 | | | | 273,566 | | | | 557 | | | | 10,182 | | | | 32,394 | | | | 283,748 | | | | 316,142 | | | | 47,300 | | | | 1970-2018 | | | | 2010-2021 | | | | | |
| | | — | | | | 21,160 | | | | 137,863 | | | | (145 | ) | | | 508 | | | | 21,015 | | | | 138,371 | | | | 159,386 | | | | 9,900 | | | | 1982-2020 | | | | 2009-2021 | | | | | |
| | | — | | | | 15,943 | | | | 111,107 | | | | — | | | | (635 | ) | | | 15,943 | | | | 110,472 | | | | 126,415 | | | | 11,404 | | | | 1954-2017 | | | | 2015-2021 | | | | | |
| | | — | | | | 9,942 | | | | 117,006 | | | | 290 | | | | 135 | | | | 10,232 | | | | 117,141 | | | | 127,373 | | | | 16,401 | | | | 1984-2011 | | | | 2014-2021 | | | | | |
| | | — | | | | 10,306 | | | | 78,056 | | | | — | | | | 1,212 | | | | 10,306 | | | | 79,268 | | | | 89,574 | | | | 12,550 | | | | 1965-2016 | | | | 2011-2018 | | | | | |
| | | — | | | | 251 | | | | 3,821 | | | | — | | | | 1 | | | | 251 | | | | 3,822 | | | | 4,073 | | | | 343 | | | | 2006 | | | | 2018 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Quick Service Restaurants | | | — | | | | 49,683 | | | | 239,382 | | | | 197 | | | | 3,650 | | | | 49,880 | | | | 243,032 | | | | 292,912 | | | | 42,108 | | | | 1965-2020 | | | | 2009-2020 | | | | | |
| | | — | | | | 36,120 | | | | 222,836 | | | | — | | | | 12 | | | | 36,120 | | | | 222,848 | | | | 258,968 | | | | 34,062 | | | | 1972-2014 | | | | 2011-2021 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | | |
| | | 17,094 | | | | 61,833 | | | | 198,862 | | | | — | | | | 17 | | | | 61,833 | | | | 198,879 | | | | 260,712 | | | | 11,839 | | | | 2003-2019 | | | | 2016-2021 | | | | | |
| | | — | | | | 32,460 | | | | 121,643 | | | | — | | | | 18 | | | | 32,460 | | | | 121,661 | | | | 154,121 | | | | 17,629 | | | | 1909-2019 | | | | 2014-2021 | | | | | |
| | | — | | | | 3,625 | | | | 90,644 | | | | — | | | | 5 | | | | 3,625 | | | | 90,649 | | | | 94,274 | | | | 11,548 | | | | 1974-2014 | | | | 2017-2018 | | | | | |
| | | — | | | | 63 | | | | 2,152 | | | | — | | | | — | | | | 63 | | | | 2,152 | | | | 2,215 | | | | 83 | | | | 1991 | | | | 2017 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | — | | | | 13,027 | | | | 95,721 | | | | — | | | | 1,810 | | | | 13,027 | | | | 97,531 | | | | 110,558 | | | | 10,836 | | | | 1965-2008 | | | | 2012-2021 | | | | | |
| | | — | | | | 7,723 | | | | 90,130 | | | | — | | | | 8,858 | | | | 7,723 | | | | 98,988 | | | | 106,711 | | | | 14,577 | | | | 1984-2012 | | | | 2016-2017 | | | | | |
| | | — | | | | 4,169 | | | | 45,814 | | | | — | | | | 10,228 | | | | 4,169 | | | | 56,042 | | | | 60,211 | | | | 11,678 | | | | 1979-2001 | | | | 2010-2019 | | | | | |
Acquisitions in Process (C) | | | — | | | | — | | | | 83 | | | | — | | | | — | | | | — | | | | 83 | | | | 83 | | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 97,160 | | | | 649,964 | | | | 3,496,443 | | | | 5,410 | | | | 53,374 | | | | 655,374 | | | | 3,549,817 | | | | 4,205,191 | | | | 430,141 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Zephyrhills | | FL | | | — | | | | 127 | | | | 1,696 | | | | — | | | | — | | | | 127 | | | | 1,696 | | | | 1,823 | | | | 262 | | | 1992 | | 2013 | | 15-39 |
Saint Petersburg | | FL | | | — | | | | 233 | | | | 1,440 | | | | — | | | | — | | | | 233 | | | | 1,440 | | | | 1,673 | | | | 218 | | | 1988 | | 2013 | | 15-39 |
Tampa | | FL | | | — | | | | 189 | | | | 1,234 | | | | — | | | | — | | | | 189 | | | | 1,234 | | | | 1,423 | | | | 200 | | | 1996 | | 2013 | | 15-39 |
Dade City | | FL | | | — | | | | 163 | | | | 802 | | | | — | | | | — | | | | 163 | | | | 802 | | | | 965 | | | | 140 | | | 2008 | | 2013 | | 15-39 |
White Marsh | | MD | | | — | | | | 3,223 | | | | 200 | | | | — | | | | — | | | | 3,223 | | | | 200 | | | | 3,423 | | | | 47 | | | 1986 | | 2013 | | 15-39 |
Manassas | | VA | | | — | | | | 1,187 | | | | 197 | | | | — | | | | — | | | | 1,187 | | | | 197 | | | | 1,384 | | | | 39 | | | 1986 | | 2013 | | 15-39 |
Morrisville | | NC | | | — | | | | 235 | | | | 46 | | | | — | | | | — | | | | 235 | | | | 46 | | | | 281 | | | | 12 | | | 1960 | | 2013 | | 15-39 |
Aston | | PA | | | — | | | | 2,554 | | | | 126 | | | | — | | | | — | | | | 2,554 | | | | 126 | | | | 2,680 | | | | 28 | | | 1984 | | 2013 | | 15-39 |
Cincinnati | | OH | | | — | | | | 1,001 | | | | 173 | | | | — | | | | — | | | | 1,001 | | | | 173 | | | | 1,174 | | | | 47 | | | 1976 | | 2013 | | 15-39 |
Columbus | | OH | | | — | | | | 757 | | | | 77 | | | | — | | | | — | | | | 757 | | | | 77 | | | | 834 | | | | 17 | | | 1981 | | 2013 | | 15-39 |
Windsor | | CT | | | — | | | | 1,887 | | | | 204 | | | | — | | | | — | | | | 1,887 | | | | 204 | | | | 2,091 | | | | 56 | | | 1986 | | 2013 | | 15-39 |
Pittsburgh | | PA | | | — | | | | 1,691 | | | | 244 | | | | — | | | | — | | | | 1,691 | | | | 244 | | | | 1,935 | | | | 56 | | | 1989 | | 2013 | | 15-39 |
Palmdale | | CA | | | — | | | | 995 | | | | 2,811 | | | | — | | | | — | | | | 995 | | | | 2,811 | | | | 3,806 | | | | 572 | | | 1991 | | 2013 | | 15-39 |
Palmdale | | CA | | | — | | | | 670 | | | | 1,610 | | | | — | | | | — | | | | 670 | | | | 1,610 | | | | 2,280 | | | | 350 | | | 2006 | | 2013 | | 15-39 |
Palmdale | | CA | | | — | | | | 987 | | | | 3,817 | | | | — | | | | — | | | | 987 | | | | 3,817 | | | | 4,804 | | | | 696 | | | 1991 | | 2013 | | 15-39 |
Alamogordo | | NM | | | — | | | | 22 | | | | 2,117 | | | | — | | | | — | | | | 22 | | | | 2,117 | | | | 2,139 | | | | 292 | | | 1983 | | 2014 | | 15-39 |
Roswell | | NM | | | — | | | | 64 | | | | 2,059 | | | | — | | | | — | | | | 64 | | | | 2,059 | | | | 2,123 | | | | 275 | | | 1990 | | 2014 | | 15-39 |
Moore | | OK | | | — | | | | 64 | | | | 1,249 | | | | — | | | | — | | | | 64 | | | | 1,249 | | | | 1,313 | | | | 179 | | | 1975 | | 2014 | | 15-39 |
Del City | | OK | | | — | | | | 40 | | | | 1,370 | | | | — | | | | — | | | | 40 | | | | 1,370 | | | | 1,410 | | | | 188 | | | 1980 | | 2014 | | 15-39 |
Oklahoma City | | OK | | | — | | | | 105 | | | | 1,150 | | | | — | | | | — | | | | 105 | | | | 1,150 | | | | 1,255 | | | | 157 | | | 1977 | | 2014 | | 15-39 |
Oklahoma City | | OK | | | — | | | | 721 | | | | 1,049 | | | | — | | | | — | | | | 721 | | | | 1,049 | | | | 1,770 | | | | 163 | | | 2003 | | 2014 | | 15-39 |
Mustang | | OK | | | — | | | | 70 | | | | 1,722 | | | | — | | | | — | | | | 70 | | | | 1,722 | | | | 1,792 | | | | 239 | | | 2004 | | 2014 | | 15-39 |
Yukon | | OK | | | — | | | | 63 | | | | 1,851 | | | | — | | | | — | | | | 63 | | | | 1,851 | | | | 1,914 | | | | 262 | | | 1994 | | 2014 | | 15-39 |
Fort Worth | | TX | | | — | | | | 487 | | | | 934 | | | | — | | | | — | | | | 487 | | | | 934 | | | | 1,421 | | | | 133 | | | 2003 | | 2014 | | 15-39 |
Kearney | | NE | | | — | | | | 113 | | | | 1,242 | | | | — | | | | — | | | | 113 | | | | 1,242 | | | | 1,355 | | | | 177 | | | 1982 | | 2014 | | 15-39 |
Kearney | | NE | | | — | | | | 176 | | | | 1,238 | | | | — | | | | — | | | | 176 | | | | 1,238 | | | | 1,414 | | | | 182 | | | 1991 | | 2014 | | 15-39 |
Grand Island | | NE | | | — | | | | 425 | | | | — | | | | — | | | | — | | | | 425 | | | | — | | | | 425 | | | | — | | | 1992 | | 2014 | | — |
Ogallala | | NE | | | — | | | | 291 | | | | 1,243 | | | | — | | | | — | | | | 291 | | | | 1,243 | | | | 1,534 | | | | 194 | | | 1986 | | 2014 | | 15-39 |
McAlester | | OK | | | — | | | | 52 | | | | 1,521 | | | | — | | | | — | | | | 52 | | | | 1,521 | | | | 1,573 | | | | 217 | | | 2006 | | 2014 | | 15-39 |
Oklahoma City | | OK | | | — | | | | 466 | | | | 928 | | | | — | | | | — | | | | 466 | | | | 928 | | | | 1,394 | | | | 106 | | | 1970 | | 2015 | | 15-39 |
Laredo | | TX | | | — | | | | 425 | | | | 2,476 | | | | — | | | | — | | | | 425 | | | | 2,476 | | | | 2,901 | | | | 330 | | | 2001 | | 2014 | | 15-39 |
Mt. Pleasant | | TX | | | — | | | | 1,141 | | | | 997 | | | | — | | | | — | | | | 1,141 | | | | 997 | | | | 2,138 | | | | 208 | | | 1972 | | 2014 | | 15-39 |
Madill | | OK | | | — | | | | 739 | | | | 714 | | | | — | | | | — | | | | 739 | | | | 714 | | | | 1,453 | | | | 89 | | | 1993 | | 2014 | | 15-39 |
Fort Worth | | TX | | | — | | | | 1,142 | | | | 554 | | | | — | | | | — | | | | 1,142 | | | | 554 | | | | 1,696 | | | | 88 | | | 1980 | | 2014 | | 15-39 |
Dallas | | TX | | | — | | | | 454 | | | | 449 | | | | — | | | | — | | | | 454 | | | | 449 | | | | 903 | | | | 81 | | | 1984 | | 2014 | | 15-39 |
Wichita Falls | | TX | | | — | | | | 674 | | | | 186 | | | | — | | | | — | | | | 674 | | | | 186 | | | | 860 | | | | 33 | | | 1995 | | 2014 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Lytle | | TX | | | — | | | | 97 | | | | 815 | | | | — | | | | — | | | | 97 | | | | 815 | | | | 912 | | | | 100 | | | 2008 | | 2015 | | 15-39 |
New Caney | | TX | | | — | | | | 37 | | | | 875 | | | | — | | | | — | | | | 37 | | | | 875 | | | | 912 | | | | 96 | | | 1972 | | 2015 | | 15-39 |
St. George | | UT | | | — | | | | 362 | | | | 2,447 | | | | (80 | ) | | | (539 | ) | | | 282 | | | | 1,908 | | | | 2,190 | | | | 229 | | | 2000 | | 2015 | | 15-39 |
Tooele | | UT | | | — | | | | 389 | | | | 1,945 | | | | (45 | ) | | | (223 | ) | | | 344 | | | | 1,722 | | | | 2,066 | | | | 203 | | | 2000 | | 2015 | | 15-39 |
Cedar City | | UT | | | — | | | | 333 | | | | 2,544 | | | | (4 | ) | | | (31 | ) | | | 329 | | | | 2,513 | | | | 2,842 | | | | 311 | | | 2000 | | 2015 | | 15-39 |
West Valley City | | UT | | | — | | | | 326 | | | | 2,222 | | | | (22 | ) | | | (152 | ) | | | 304 | | | | 2,070 | | | | 2,374 | | | | 236 | | | 1998 | | 2015 | | 15-39 |
Renton | | WA | | | — | | | | 539 | | | | 1,141 | | | | — | | | | — | | | | 539 | | | | 1,141 | | | | 1,680 | | | | 128 | | | 1986 | | 2015 | | 15-39 |
Tacoma | | WA | | | — | | | | 807 | | | | 643 | | | | — | | | | — | | | | 807 | | | | 643 | | | | 1,450 | | | | 91 | | | 1991 | | 2015 | | 15-39 |
Tacoma | | WA | | | — | | | | 562 | | | | 897 | | | | — | | | | — | | | | 562 | | | | 897 | | | | 1,459 | | | | 105 | | | 1993 | | 2015 | | 15-39 |
Tukwila | | WA | | | — | | | | 1,170 | | | | 419 | | | | — | | | | — | | | | 1,170 | | | | 419 | | | | 1,589 | | | | 92 | | | 1993 | | 2015 | | 15-39 |
Federal Way | | WA | | | — | | | | 334 | | | | 1,088 | | | | — | | | | — | | | | 334 | | | | 1,088 | | | | 1,422 | | | | 111 | | | 1995 | | 2015 | | 15-39 |
Lakewood | | WA | | | — | | | | 1,372 | | | | 878 | | | | — | | | | — | | | | 1,372 | | | | 878 | | | | 2,250 | | | | 120 | | | 1995 | | 2015 | | 15-39 |
Burlington | | WA | | | — | | | | 178 | | | | 1,982 | | | | — | | | | — | | | | 178 | | | | 1,982 | | | | 2,160 | | | | 204 | | | 2000 | | 2015 | | 15-39 |
Everett | | WA | | | — | | | | 175 | | | | 1,473 | | | | — | | | | — | | | | 175 | | | | 1,473 | | | | 1,648 | | | | 163 | | | 1986 | | 2015 | | 15-39 |
Puyallup | | WA | | | — | | | | 622 | | | | — | | | | — | | | | — | | | | 622 | | | | — | | | | 622 | | | | — | | | 1994 | | 2015 | | — |
Aberdeen | | WA | | | — | | | | 218 | | | | 1,446 | | | | — | | | | — | | | | 218 | | | | 1,446 | | | | 1,664 | | | | 150 | | | 2006 | | 2015 | | 15-39 |
Florence | | AL | | | — | | | | 337 | | | | 2,609 | | | | — | | | | — | | | | 337 | | | | 2,609 | | | | 2,946 | | | | 267 | | | 2011 | | 2015 | | 15-39 |
Decatur | | AL | | | — | | | | 364 | | | | 3,708 | | | | — | | | | — | | | | 364 | | | | 3,708 | | | | 4,072 | | | | 375 | | | 2014 | | 2015 | | 15-39 |
Tupelo | | MS | | | — | | | | 297 | | | | 3,030 | | | | — | | | | — | | | | 297 | | | | 3,030 | | | | 3,327 | | | | 300 | | | 2012 | | 2015 | | 15-39 |
Russellville | | AR | | | — | | | | 250 | | | | 3,354 | | | | (54 | ) | | | (725 | ) | | | 196 | | | | 2,629 | | | | 2,825 | | | | 268 | | | 2014 | | 2015 | | 15-39 |
Adamsville | | TN | | | — | | | | 59 | | | | 1,675 | | | | — | | | | — | | | | 59 | | | | 1,675 | | | | 1,734 | | | | 158 | | | 2005 | | 2015 | | 15-39 |
Adamsville | | AL | | | — | | | | 123 | | | | 1,924 | | | | — | | | | — | | | | 123 | | | | 1,924 | | | | 2,047 | | | | 191 | | | 1989 | | 2015 | | 15-39 |
Alexandria | | AL | | | — | | | | 79 | | | | 2,318 | | | | — | | | | — | | | | 79 | | | | 2,318 | | | | 2,397 | | | | 214 | | | 2004 | | 2015 | | 15-39 |
Ashville | | AL | | | — | | | | 124 | | | | 1,696 | | | | — | | | | — | | | | 124 | | | | 1,696 | | | | 1,820 | | | | 156 | | | 1999 | | 2015 | | 15-39 |
Athens | | AL | | | — | | | | 143 | | | | 1,996 | | | | — | | | | — | | | | 143 | | | | 1,996 | | | | 2,139 | | | | 184 | | | 2007 | | 2015 | | 15-39 |
Carbon Hill | | AL | | | — | | | | 54 | | | | 1,634 | | | | — | | | | — | | | | 54 | | | | 1,634 | | | | 1,688 | | | | 154 | | | 1998 | | 2015 | | 15-39 |
Carrollton | | GA | | | — | | | | 77 | | | | 2,030 | | | | — | | | | — | | | | 77 | | | | 2,030 | | | | 2,107 | | | | 187 | | | 2008 | | 2015 | | 15-39 |
Centreville | | AL | | | — | | | | 140 | | | | 2,251 | | | | — | | | | — | | | | 140 | | | | 2,251 | | | | 2,391 | | | | 200 | | | 2013 | | 2015 | | 15-39 |
Gadsden | | AL | | | — | | | | 42 | | | | 2,571 | | | | — | | | | — | | | | 42 | | | | 2,571 | | | | 2,613 | | | | 230 | | | 1991 | | 2015 | | 15-39 |
Cullman | | AL | | | — | | | | 71 | | | | 1,799 | | | | — | | | | — | | | | 71 | | | | 1,799 | | | | 1,870 | | | | 164 | | | 1997 | | 2015 | | 15-39 |
Cullman | | AL | | | — | | | | 79 | | | | 1,949 | | | | — | | | | — | | | | 79 | | | | 1,949 | | | | 2,028 | | | | 185 | | | 2006 | | 2015 | | 15-39 |
Dora | | AL | | | — | | | | 18 | | | | — | | | | — | | | | 2,095 | | | | 18 | | | | 2,095 | | | | 2,113 | | | | — | | | 1968 | | 2015 | | 15-39 |
Double Springs | | AL | | | — | | | | 306 | | | | 1,752 | | | | — | | | | — | | | | 306 | | | | 1,752 | | | | 2,058 | | | | 168 | | | 1995 | | 2015 | | 15-39 |
Moulton | | AL | | | — | | | | 117 | | | | 1,752 | | | | — | | | | — | | | | 117 | | | | 1,752 | | | | 1,869 | | | | 169 | | | 2003 | | 2015 | | 15-39 |
Guntersville | | AL | | | — | | | | 382 | | | | 2,020 | | | | — | | | | — | | | | 382 | | | | 2,020 | | | | 2,402 | | | | 197 | | | 2015 | | 2015 | | 15-39 |
Harpersville | | AL | | | — | | | | 48 | | | | 2,645 | | | | — | | | | — | | | | 48 | | | | 2,645 | | | | 2,693 | | | | 230 | | | 1995 | | 2015 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Harvest | | AL | | | — | | | | 163 | | | | 2,060 | | | | — | | | | — | | | | 163 | | | | 2,060 | | | | 2,223 | | | | 194 | | | 2014 | | 2015 | | 15-39 |
Henderson | | TN | | | — | | | | 111 | | | | 1,608 | | | | — | | | | — | | | | 111 | | | | 1,608 | | | | 1,719 | | | | 173 | | | 1987 | | 2015 | | 15-39 |
Madison | | AL | | | — | | | | 209 | | | | 1,958 | | | | — | | | | — | | | | 209 | | | | 1,958 | | | | 2,167 | | | | 190 | | | 2011 | | 2015 | | 15-39 |
Lawrenceburg | | TN | | | — | | | | 117 | | | | 1,832 | | | | — | | | | — | | | | 117 | | | | 1,832 | | | | 1,949 | | | | 215 | | | 2014 | | 2015 | | 15-39 |
Montevallo | | AL | | | — | | | | 60 | | | | 2,203 | | | | — | | | | — | | | | 60 | | | | 2,203 | | | | 2,263 | | | | 202 | | | 2009 | | 2015 | | 15-39 |
Muscle Shoals | | AL | | | — | | | | 44 | | | | — | | | | — | | | | 1,867 | | | | 44 | | | | 1,867 | | | | 1,911 | | | | — | | | 1984 | | 2015 | | 15-39 |
Odenville | | AL | | | — | | | | 100 | | | | 1,652 | | | | — | | | | — | | | | 100 | | | | 1,652 | | | | 1,752 | | | | 169 | | | 2000 | | 2015 | | 15-39 |
Piedmont | | AL | | | — | | | | 33 | | | | 1,934 | | | | — | | | | — | | | | 33 | | | | 1,934 | | | | 1,967 | | | | 170 | | | 1981 | | 2015 | | 15-39 |
Reform | | AL | | | — | | | | 201 | | | | 1,979 | | | | — | | | | — | | | | 201 | | | | 1,979 | | | | 2,180 | | | | 205 | | | 1992 | | 2015 | | 15-39 |
Roanoke | | AL | | | — | | | | 83 | | | | 1,625 | | | | — | | | | — | | | | 83 | | | | 1,625 | | | | 1,708 | | | | 149 | | | 2006 | | 2015 | | 15-39 |
Savannah | | TN | | | — | | | | 62 | | | | 1,693 | | | | — | | | | — | | | | 62 | | | | 1,693 | | | | 1,755 | | | | 165 | | | 2012 | | 2015 | | 15-39 |
Sheffield | | AL | | | — | | | | 43 | | | | 1,730 | | | | — | | | | — | | | | 43 | | | | 1,730 | | | | 1,773 | | | | 150 | | | 1967 | | 2015 | | 15-39 |
Somerville | | AL | | | — | | | | 28 | | | | 1,758 | | | | — | | | | — | | | | 28 | | | | 1,758 | | | | 1,786 | | | | 182 | | | 2001 | | 2015 | | 15-39 |
Springville | | AL | | | — | | | | 31 | | | | 1,994 | | | | — | | | | — | | | | 31 | | | | 1,994 | | | | 2,025 | | | | 176 | | | 1993 | | 2015 | | 15-39 |
Stevenson | | AL | | | — | | | | 306 | | | | 1,862 | | | | — | | | | — | | | | 306 | | | | 1,862 | | | | 2,168 | | | | 170 | | | 1985 | | 2015 | | 15-39 |
Trussville | | AL | | | — | | | | 34 | | | | 2,039 | | | | — | | | | — | | | | 34 | | | | 2,039 | | | | 2,073 | | | | 178 | | | 1992 | | 2015 | | 15-39 |
Tuscumbia | | AL | | | — | | | | 117 | | | | 1,831 | | | | — | | | | — | | | | 117 | | | | 1,831 | | | | 1,948 | | | | 179 | | | 2004 | | 2015 | | 15-39 |
Wedowee | | AL | | | — | | | | 92 | | | | 1,454 | | | | — | | | | — | | | | 92 | | | | 1,454 | | | | 1,546 | | | | 129 | | | 2002 | | 2015 | | 15-39 |
Huntsville | | AL | | | — | | | | 133 | | | | 2,029 | | | | — | | | | — | | | | 133 | | | | 2,029 | | | | 2,162 | | | | 184 | | | 2010 | | 2015 | | 15-39 |
Ashwaubenon | | WI | | | — | | | | 86 | | | | 2,008 | | | | — | | | | — | | | | 86 | | | | 2,008 | | | | 2,094 | | | | 186 | | | 1994 | | 2015 | | 15-39 |
Oshkosh | | WI | | | — | | | | 145 | | | | 1,795 | | | | — | | | | — | | | | 145 | | | | 1,795 | | | | 1,940 | | | | 175 | | | 1996 | | 2015 | | 15-39 |
Green Bay | | WI | | | — | | | | 106 | | | | 1,713 | | | | — | | | | — | | | | 106 | | | | 1,713 | | | | 1,819 | | | | 165 | | | 1996 | | 2015 | | 15-39 |
West Bend | | WI | | | — | | | | 113 | | | | 1,704 | | | | — | | | | — | | | | 113 | | | | 1,704 | | | | 1,817 | | | | 163 | | | 1996 | | 2015 | | 15-39 |
Appleton | | WI | | | — | | | | 96 | | | | 1,637 | | | | — | | | | — | | | | 96 | | | | 1,637 | | | | 1,733 | | | | 157 | | | 1996 | | 2015 | | 15-39 |
Appleton | | WI | | | — | | | | 95 | | | | 2,478 | | | | — | | | | — | | | | 95 | | | | 2,478 | | | | 2,573 | | | | 225 | | | 1976 | | 2015 | | 15-39 |
Manitowoc | | WI | | | — | | | | 106 | | | | 1,714 | | | | — | | | | — | | | | 106 | | | | 1,714 | | | | 1,820 | | | | 166 | | | 1996 | | 2015 | | 15-39 |
Eau Claire | | WI | | | — | | | | 137 | | | | 2,245 | | | | — | | | | — | | | | 137 | | | | 2,245 | | | | 2,382 | | | | 219 | | | 1994 | | 2015 | | 15-39 |
Dover | | DE | | | — | | | | 211 | | | | 3,455 | | | | — | | | | — | | | | 211 | | | | 3,455 | | | | 3,666 | | | | 307 | | | 1991 | | 2015 | | 15-39 |
Norman | | OK | | | — | | | | 232 | | | | 3,733 | | | | — | | | | — | | | | 232 | | | | 3,733 | | | | 3,965 | | | | 334 | | | 1982 | | 2015 | | 15-39 |
Knoxville | | TN | | | — | | | | 151 | | | | 2,775 | | | | — | | | | — | | | | 151 | | | | 2,775 | | | | 2,926 | | | | 267 | | | 1978 | | 2015 | | 15-39 |
Wichita | | KS | | | — | | | | 468 | | | | 3,475 | | | | — | | | | — | | | | 468 | | | | 3,475 | | | | 3,943 | | | | 311 | | | 1982 | | 2015 | | 15-39 |
Las Cruces | | NM | | | — | | | | 108 | | | | 4,069 | | | | — | | | | — | | | | 108 | | | | 4,069 | | | | 4,177 | | | | 369 | | | 1991 | | 2015 | | 15-39 |
Lee's Summit | | MO | | | — | | | | 132 | | | | 3,447 | | | | — | | | | — | | | | 132 | | | | 3,447 | | | | 3,579 | | | | 324 | | | 2010 | | 2015 | | 15-39 |
Gadsden | | AL | | | — | | | | 219 | | | | 2,915 | | | | — | | | | — | | | | 219 | | | | 2,915 | | | | 3,134 | | | | 266 | | | 1981 | | 2015 | | 15-39 |
Murfreesboro | | TN | | | — | | | | 247 | | | | 2,747 | | | | — | | | | — | | | | 247 | | | | 2,747 | | | | 2,994 | | | | 266 | | | 1987 | | 2015 | | 15-39 |
Macon | | GA | | | — | | | | 258 | | | | 3,235 | | | | — | | | | — | | | | 258 | | | | 3,235 | | | | 3,493 | | | | 287 | | | 1972 | | 2015 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Lexington | | KY | | | — | | | | 1,258 | | | | — | | | | — | | | | — | | | | 1,258 | | | | — | | | | 1,258 | | | | — | | | 1976 | | 2015 | | - |
Joliet | | IL | | | — | | | | 686 | | | | 3,072 | | | | — | | | | — | | | | 686 | | | | 3,072 | | | | 3,758 | | | | 298 | | | 1991 | | 2015 | | 15-39 |
Wheat Ridge | | CO | | | — | | | | 451 | | | | 3,614 | | | | — | | | | — | | | | 451 | | | | 3,614 | | | | 4,065 | | | | 317 | | | 1974 | | 2015 | | 15-39 |
Tulsa | | OK | | | — | | | | 125 | | | | 3,846 | | | | — | | | | — | | | | 125 | | | | 3,846 | | | | 3,971 | | | | 338 | | | 1987 | | 2015 | | 15-39 |
Oakdale | | MN | | | — | | | | 197 | | | | 3,455 | | | | — | | | | — | | | | 197 | | | | 3,455 | | | | 3,652 | | | | 303 | | | 2006 | | 2015 | | 15-39 |
Pineville | | NC | | | — | | | | 74 | | | | 3,587 | | | | — | | | | — | | | | 74 | | | | 3,587 | | | | 3,661 | | | | 325 | | | 1991 | | 2015 | | 15-39 |
Albuquerque | | NM | | | — | | | | 196 | | | | 3,389 | | | | — | | | | — | | | | 196 | | | | 3,389 | | | | 3,585 | | | | 311 | | | 2002 | | 2015 | | 15-39 |
Maple Grove | | MN | | | — | | | | 243 | | | | 3,253 | | | | — | | | | — | | | | 243 | | | | 3,253 | | | | 3,496 | | | | 296 | | | 2001 | | 2015 | | 15-39 |
Madison | | TN | | | — | | | | 97 | | | | 4,617 | | | | — | | | | — | | | | 97 | | | | 4,617 | | | | 4,714 | | | | 341 | | | 1972 | | 2016 | | 15-39 |
Florence | | KY | | | — | | | | 61 | | | | 4,687 | | | | — | | | | — | | | | 61 | | | | 4,687 | | | | 4,748 | | | | 350 | | | 1977 | | 2016 | | 15-39 |
Maplewood | | MN | | | — | | | | 315 | | | | 1,551 | | | | — | | | | — | | | | 315 | | | | 1,551 | | | | 1,866 | | | | 154 | | | 1983 | | 2016 | | 15-39 |
Santa Fe | | NM | | | — | | | | 121 | | | | 2,979 | | | | — | | | | — | | | | 121 | | | | 2,979 | | | | 3,100 | | | | 219 | | | 1990 | | 2016 | | 15-39 |
Memphis | | TN | | | — | | | | 103 | | | | 3,327 | | | | — | | | | — | | | | 103 | | | | 3,327 | | | | 3,430 | | | | 260 | | | 2008 | | 2016 | | 15-39 |
Jonesboro | | AR | | | — | | | | 324 | | | | 3,383 | | | | — | | | | — | | | | 324 | | | | 3,383 | | | | 3,707 | | | | 259 | | | 2011 | | 2016 | | 15-39 |
Lafayette | | IN | | | — | | | | 285 | | | | 3,436 | | | | — | | | | — | | | | 285 | | | | 3,436 | | | | 3,721 | | | | 263 | | | 2012 | | 2016 | | 15-39 |
Bridgeport | | WV | | | — | | | | 88 | | | | 4,074 | | | | — | | | | — | | | | 88 | | | | 4,074 | | | | 4,162 | | | | 334 | | | 2007 | | 2016 | | 15-39 |
St. Mary's | | OH | | | — | | | | 56 | | | | 3,997 | | | | — | | | | — | | | | 56 | | | | 3,997 | | | | 4,053 | | | | 335 | | | 2011 | | 2016 | | 15-39 |
Lima | | OH | | | — | | | | 69 | | | | 3,813 | | | | — | | | | — | | | | 69 | | | | 3,813 | | | | 3,882 | | | | 317 | | | 2009 | | 2016 | | 15-39 |
Sterling | | VA | | | 18,260 | | | | 24,395 | | | | — | | | | — | | | | — | | | | 24,395 | | | | — | | | | 24,395 | | | | — | | | 2004 | | 2016 | | — |
Round Rock | | TX | | | — | | | | 769 | | | | 4,176 | | | | — | | | | — | | | | 769 | | | | 4,176 | | | | 4,945 | | | | 304 | | | 1984 | | 2016 | | 15-39 |
Austin | | TX | | | — | | | | 1,184 | | | | 5,678 | | | | — | | | | — | | | | 1,184 | | | | 5,678 | | | | 6,862 | | | | 418 | | | 1998 | | 2016 | | 15-39 |
Austin | | TX | | | — | | | | 2,104 | | | | 7,566 | | | | — | | | | — | | | | 2,104 | | | | 7,566 | | | | 9,670 | | | | 585 | | | 2006 | | 2016 | | 15-39 |
Austin | | TX | | | — | | | | 4,190 | | | | 7,829 | | | | — | | | | — | | | | 4,190 | | | | 7,829 | | | | 12,019 | | | | 579 | | | 1994 | | 2016 | | 15-39 |
Central City | | KY | | | — | | | | 315 | | | | 580 | | | | — | | | | — | | | | 315 | | | | 580 | | | | 895 | | | | 50 | | | 1978 | | 2016 | | 15-39 |
Owensboro | | KY | | | — | | | | 177 | | | | 615 | | | | — | | | | — | | | | 177 | | | | 615 | | | | 792 | | | | 46 | | | 1972 | | 2016 | | 15-39 |
Newburgh | | IN | | | — | | | | 330 | | | | — | | | | — | | | | — | | | | 330 | | | | — | | | | 330 | | | | — | | | 1994 | | 2016 | | — |
Sikeston | | MO | | | — | | | | 205 | | | | 2,235 | | | | — | | | | — | | | | 205 | | | | 2,235 | | | | 2,440 | | | | 171 | | | 1940 | | 2016 | | 15-39 |
Evansville | | IN | | | — | | | | 636 | | | | 3,655 | | | | — | | | | — | | | | 636 | | | | 3,655 | | | | 4,291 | | | | 264 | | | 1949 | | 2016 | | 15-39 |
Evansville | | IN | | | — | | | | 244 | | | | 2,375 | | | | — | | | | — | | | | 244 | | | | 2,375 | | | | 2,619 | | | | 167 | | | 1909 | | 2016 | | 15-39 |
Marion | | IL | | | — | | | | 314 | | | | 2,089 | | | | — | | | | — | | | | 314 | | | | 2,089 | | | | 2,403 | | | | 152 | | | 1970 | | 2016 | | 15-39 |
Kennett | | MO | | | — | | | | 191 | | | | 1,198 | | | | — | | | | — | | | | 191 | | | | 1,198 | | | | 1,389 | | | | 89 | | | 1970 | | 2016 | | 15-39 |
Poplar Bluff | | MO | | | — | | | | 149 | | | | 1,794 | | | | — | | | | — | | | | 149 | | | | 1,794 | | | | 1,943 | | | | 138 | | | 1970 | | 2016 | | 15-39 |
Cape Girardeau | | MO | | | — | | | | 76 | | | | 542 | | | | — | | | | — | | | | 76 | | | | 542 | | | | 618 | | | | 46 | | | 1988 | | 2016 | | 15-39 |
Scott City | | MO | | | — | | | | 260 | | | | 3,052 | | | | — | | | | — | | | | 260 | | | | 3,052 | | | | 3,312 | | | | 225 | | | 1978 | | 2016 | | 15-39 |
Henderson | | KY | | | — | | | | 290 | | | | 729 | | | | — | | | | — | | | | 290 | | | | 729 | | | | 1,019 | | | | 61 | | | 1973 | | 2016 | | 15-39 |
Blytheville | | AR | | | — | | | | 413 | | | | 3,405 | | | | — | | | | — | | | | 413 | | | | 3,405 | | | | 3,818 | | | | 267 | | | 1966 | | 2016 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Harrisburg | | IL | | | — | | | | 131 | | | | 839 | | | | — | | | | — | | | | 131 | | | | 839 | | | | 970 | | | | 59 | | | 1970 | | 2016 | | 15-39 |
Clarksville | | IN | | | — | | | | 1,091 | | | | 3,890 | | | | — | | | | — | | | | 1,091 | | | | 3,890 | | | | 4,981 | | | | 309 | | | 1961 | | 2016 | | 15-39 |
Owensboro | | KY | | | — | | | | 499 | | | | 734 | | | | — | | | | — | | | | 499 | | | | 734 | | | | 1,233 | | | | 59 | | | 1976 | | 2016 | | 15-39 |
Evansville | | IN | | | — | | | | 203 | | | | 369 | | | | — | | | | — | | | | 203 | | | | 369 | | | | 572 | | | | 41 | | | 2001 | | 2016 | | 15-39 |
Haubstadt | | IN | | | — | | | | 379 | | | | 1,349 | | | | — | | | | — | | | | 379 | | | | 1,349 | | | | 1,728 | | | | 117 | | | 2005 | | 2016 | | 15-39 |
Otterbein | | IN | | | — | | | | 177 | | | | 1,385 | | | | — | | | | — | | | | 177 | | | | 1,385 | | | | 1,562 | | | | 127 | | | 1978 | | 2016 | | 15-39 |
Dothan | | AL | | | — | | | | 539 | | | | 2,551 | | | | — | | | | — | | | | 539 | | | | 2,551 | | | | 3,090 | | | | 177 | | | 1997 | | 2016 | | 15-39 |
Tallahassee | | FL | | | — | | | | 864 | | | | 2,184 | | | | — | | | | — | | | | 864 | | | | 2,184 | | | | 3,048 | | | | 161 | | | 1995 | | 2016 | | 15-39 |
Peachtree City | | GA | | | — | | | | 476 | | | | 2,590 | | | | — | | | | — | | | | 476 | | | | 2,590 | | | | 3,066 | | | | 185 | | | 1997 | | 2016 | | 15-39 |
Valdosta | | GA | | | — | | | | 524 | | | | 2,504 | | | | — | | | | — | | | | 524 | | | | 2,504 | | | | 3,028 | | | | 179 | | | 1997 | | 2016 | | 15-39 |
Orland Park | | IL | | | — | | | | 686 | | | | 2,358 | | | | — | | | | — | | | | 686 | | | | 2,358 | | | | 3,044 | | | | 176 | | | 1994 | | 2016 | | 15-39 |
Rockford | | IL | | | — | | | | 450 | | | | 2,701 | | | | — | | | | — | | | | 450 | | | | 2,701 | | | | 3,151 | | | | 188 | | | 1996 | | 2016 | | 15-39 |
Bloomington | | IN | | | — | | | | 240 | | | | 2,761 | | | | — | | | | — | | | | 240 | | | | 2,761 | | | | 3,001 | | | | 177 | | | 1994 | | 2016 | | 15-39 |
Kokomo | | IN | | | — | | | | 106 | | | | 3,065 | | | | — | | | | — | | | | 106 | | | | 3,065 | | | | 3,171 | | | | 189 | | | 1995 | | 2016 | | 15-39 |
Clarkston | | MI | | | — | | | | 284 | | | | 2,788 | | | | — | | | | — | | | | 284 | | | | 2,788 | | | | 3,072 | | | | 212 | | | 1997 | | 2016 | | 15-39 |
Madison Heights | | MI | | | — | | | | 58 | | | | 3,094 | | | | — | | | | — | | | | 58 | | | | 3,094 | | | | 3,152 | | | | 190 | | | 1995 | | 2016 | | 15-39 |
Brighton | | MI | | | — | | | | 102 | | | | 2,920 | | | | — | | | | — | | | | 102 | | | | 2,920 | | | | 3,022 | | | | 209 | | | 1998 | | 2016 | | 15-39 |
Jackson | | MI | | | — | | | | 177 | | | | 2,846 | | | | — | | | | — | | | | 177 | | | | 2,846 | | | | 3,023 | | | | 199 | | | 1996 | | 2016 | | 15-39 |
Hendersonville | | NC | | | — | | | | 165 | | | | 2,928 | | | | — | | | | — | | | | 165 | | | | 2,928 | | | | 3,093 | | | | 215 | | | 2000 | | 2016 | | 15-39 |
New Bern | | NC | | | — | | | | 284 | | | | 2,525 | | | | — | | | | — | | | | 284 | | | | 2,525 | | | | 2,809 | | | | 177 | | | 2000 | | 2016 | | 15-39 |
Las Vegas | | NV | | | — | | | | 962 | | | | 2,086 | | | | — | | | | — | | | | 962 | | | | 2,086 | | | | 3,048 | | | | 165 | | | 2002 | | 2016 | | 15-39 |
Cherry Hill | | NJ | | | — | | | | 791 | | | | 2,340 | | | | — | | | | — | | | | 791 | | | | 2,340 | | | | 3,131 | | | | 174 | | | 1992 | | 2016 | | 15-39 |
Harrisburg | | PA | | | — | | | | 735 | | | | 2,340 | | | | — | | | | — | | | | 735 | | | | 2,340 | | | | 3,075 | | | | 168 | | | 1994 | | 2016 | | 15-39 |
Pittsburgh | | PA | | | — | | | | 363 | | | | 3,488 | | | | — | | | | — | | | | 363 | | | | 3,488 | | | | 3,851 | | | | 241 | | | 1996 | | 2016 | | 15-39 |
Beaumont | | TX | | | — | | | | 206 | | | | 3,241 | | | | — | | | | — | | | | 206 | | | | 3,241 | | | | 3,447 | | | | 222 | | | 1996 | | 2016 | | 15-39 |
Desoto | | TX | | | — | | | | 535 | | | | 2,542 | | | | — | | | | — | | | | 535 | | | | 2,542 | | | | 3,077 | | | | 186 | | | 1999 | | 2016 | | 15-39 |
Lewisville | | TX | | | — | | | | 299 | | | | 2,786 | | | | — | | | | — | | | | 299 | | | | 2,786 | | | | 3,085 | | | | 182 | | | 1994 | | 2016 | | 15-39 |
Webster | | TX | | | — | | | | 591 | | | | 2,622 | | | | — | | | | — | | | | 591 | | | | 2,622 | | | | 3,213 | | | | 188 | | | 1995 | | 2016 | | 15-39 |
Harrisonburg | | VA | | | — | | | | 444 | | | | 2,645 | | | | — | | | | — | | | | 444 | | | | 2,645 | | | | 3,089 | | | | 196 | | | 1998 | | 2016 | | 15-39 |
Beckley | | WV | | | — | | | | 194 | | | | 3,049 | | | | — | | | | — | | | | 194 | | | | 3,049 | | | | 3,243 | | | | 206 | | | 1997 | | 2016 | | 15-39 |
Ithaca | | MI | | | — | | | | 739 | | | | 2,669 | | | | — | | | | — | | | | 739 | | | | 2,669 | | | | 3,408 | | | | 200 | | | 2015 | | 2016 | | 15-39 |
Gillette | | WY | | | — | | | | 366 | | | | 3,447 | | | | — | | | | — | | | | 366 | | | | 3,447 | | | | 3,813 | | | | 245 | | | 2014 | | 2016 | | 15-39 |
Novi | | MI | | | — | | | | 201 | | | | 12,681 | | | | — | | | | — | | | | 201 | | | | 12,681 | | | | 12,882 | | | | 677 | | | 1985 | | 2017 | | 15-39 |
Lansing | | MI | | | — | | | | 88 | | | | 13,919 | | | | — | | | | 3 | | | | 88 | | | | 13,922 | | | | 14,010 | | | | 715 | | | 1999 | | 2017 | | 15-39 |
Flint | | MI | | | — | | | | 83 | | | | 7,987 | | | | — | | | | — | | | | 83 | | | | 7,987 | | | | 8,070 | | | | 412 | | | 1977 | | 2017 | | 15-39 |
Clinton Township | | MI | | | — | | | | 358 | | | | 9,551 | | | | — | | | | — | | | | 358 | | | | 9,551 | | | | 9,909 | | | | 495 | | | 1987 | | 2017 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Chesterfield | | MI | | | — | | | | 753 | | | | 9,716 | | | | — | | | | — | | | | 753 | | | | 9,716 | | | | 10,469 | | | | 519 | | | 2003 | | 2017 | | 15-39 |
Traverse City | | MI | | | — | | | | 106 | | | | 8,468 | | | | — | | | | — | | | | 106 | | | | 8,468 | | | | 8,574 | | | | 438 | | | 1998 | | 2017 | | 15-39 |
Warren | | MI | | | — | | | | 158 | | | | 5,394 | | | | — | | | | — | | | | 158 | | | | 5,394 | | | | 5,552 | | | | 278 | | | 1991 | | 2017 | | 15-39 |
Grandville | | MI | | | — | | | | 339 | | | | 4,368 | | | | — | | | | — | | | | 339 | | | | 4,368 | | | | 4,707 | | | | 232 | | | 2002 | | 2017 | | 15-39 |
Grand Rapids | | MI | | | — | | | | 68 | | | | 1,038 | | | | — | | | | — | | | | 68 | | | | 1,038 | | | | 1,106 | | | | 57 | | | 2014 | | 2017 | | 15-39 |
Portage | | MI | | | — | | | | 38 | | | | 2,041 | | | | — | | | | — | | | | 38 | | | | 2,041 | | | | 2,079 | | | | 108 | | | 1981 | | 2017 | | 15-39 |
Brook Park | | OH | | | — | | | | 180 | | | | 1,875 | | | | — | | | | — | | | | 180 | | | | 1,875 | | | | 2,055 | | | | 96 | | | 2000 | | 2017 | | 15-39 |
Terre Haute | | IN | | | — | | | | 207 | | | | 1,860 | | | | — | | | | — | | | | 207 | | | | 1,860 | | | | 2,067 | | | | 93 | | | 1984 | | 2017 | | 15-39 |
Harmarville | | PA | | | — | | | | 157 | | | | 1,761 | | | | — | | | | — | | | | 157 | | | | 1,761 | | | | 1,918 | | | | 98 | | | 1984 | | 2017 | | 15-39 |
Youngstown | | OH | | | — | | | | 72 | | | | 1,945 | | | | — | | | | — | | | | 72 | | | | 1,945 | | | | 2,017 | | | | 98 | | | 1983 | | 2017 | | 15-39 |
Mars | | PA | | | — | | | | 381 | | | | 1,572 | | | | — | | | | — | | | | 381 | | | | 1,572 | | | | 1,953 | | | | 90 | | | 2004 | | 2017 | | 15-39 |
Lafayette | | IN | | | — | | | | 125 | | | | 1,793 | | | | — | | | | — | | | | 125 | | | | 1,793 | | | | 1,918 | | | | 88 | | | 1976 | | 2017 | | 15-39 |
Joliet | | IL | | | — | | | | 366 | | | | 1,505 | | | | — | | | | — | | | | 366 | | | | 1,505 | | | | 1,871 | | | | 89 | | | 1983 | | 2017 | | 15-39 |
Cincinnati | | OH | | | — | | | | 638 | | | | 1,515 | | | | — | | | | — | | | | 638 | | | | 1,515 | | | | 2,153 | | | | 87 | | | 1988 | | 2017 | | 15-39 |
Delaware | | OH | | | — | | | | 54 | | | | 1,788 | | | | — | | | | — | | | | 54 | | | | 1,788 | | | | 1,842 | | | | 90 | | | 1987 | | 2017 | | 15-39 |
Wadsworth | | OH | | | — | | | | 310 | | | | 1,612 | | | | — | | | | — | | | | 310 | | | | 1,612 | | | | 1,922 | | | | 91 | | | 1989 | | 2017 | | 15-39 |
Fort Wright | | KY | | | — | | | | 68 | | | | 2,374 | | | | — | | | | 9 | | | | 68 | | | | 2,383 | | | | 2,451 | | | | 121 | | | 1997 | | 2017 | | 15-39 |
Akron | | OH | | | — | | | | 134 | | | | 1,605 | | | | — | | | | — | | | | 134 | | | | 1,605 | | | | 1,739 | | | | 106 | | | 1998 | | 2017 | | 15-39 |
Mt. Vernon | | IL | | | — | | | | 68 | | | | 1,849 | | | | — | | | | — | | | | 68 | | | | 1,849 | | | | 1,917 | | | | 102 | | | 2001 | | 2017 | | 15-39 |
Maysville | | KY | | | — | | | | 37 | | | | 1,889 | | | | — | | | | — | | | | 37 | | | | 1,889 | | | | 1,926 | | | | 98 | | | 2003 | | 2017 | | 15-39 |
Parkersburg | | WV | | | — | | | | 280 | | | | 1,631 | | | | — | | | | — | | | | 280 | | | | 1,631 | | | | 1,911 | | | | 88 | | | 2004 | | 2017 | | 15-39 |
Chesterton | | IN | | | — | | | | 343 | | | | 1,613 | | | | — | | | | — | | | | 343 | | | | 1,613 | | | | 1,956 | | | | 88 | | | 2004 | | 2017 | | 15-39 |
Huntington | | WV | | | — | | | | 344 | | | | 1,575 | | | | — | | | | — | | | | 344 | | | | 1,575 | | | | 1,919 | | | | 84 | | | 2005 | | 2017 | | 15-39 |
Amelia | | OH | | | — | | | | 315 | | | | 1,719 | | | | — | | | | — | | | | 315 | | | | 1,719 | | | | 2,034 | | | | 87 | | | 2006 | | 2017 | | 15-39 |
Bellefontaine | | OH | | | — | | | | 100 | | | | 1,833 | | | | — | | | | — | | | | 100 | | | | 1,833 | | | | 1,933 | | | | 99 | | | 1994 | | 2017 | | 15-39 |
Logan | | OH | | | — | | | | 153 | | | | 1,880 | | | | — | | | | — | | | | 153 | | | | 1,880 | | | | 2,033 | | | | 110 | | | 2008 | | 2017 | | 15-39 |
Harrison | | OH | | | — | | | | 204 | | | | 1,514 | | | | — | | | | — | | | | 204 | | | | 1,514 | | | | 1,718 | | | | 82 | | | 2014 | | 2017 | | 15-39 |
Upper Sandusky | | OH | | | — | | | | 171 | | | | 1,198 | | | | — | | | | — | | | | 171 | | | | 1,198 | | | | 1,369 | | | | 64 | | | 1994 | | 2017 | | 15-39 |
San Antonio | | TX | | | — | | | | 300 | | | | 1,277 | | | | — | | | | 1 | | | | 300 | | | | 1,278 | | | | 1,578 | | | | 63 | | | 1998 | | 2017 | | 15-39 |
Selma | | TX | | | — | | | | 269 | | | | 805 | | | | — | | | | — | | | | 269 | | | | 805 | | | | 1,074 | | | | 53 | | | 2013 | | 2017 | | 15-39 |
Linwood | | NC | | | — | | | | 206 | | | | 475 | | | | — | | | | — | | | | 206 | | | | 475 | | | | 681 | | | | 40 | | | 1997 | | 2017 | | 15-39 |
Vinton | | TX | | | — | | | | 469 | | | | 384 | | | | — | | | | — | | | | 469 | | | | 384 | | | | 853 | | | | 30 | | | 2016 | | 2017 | | 15-39 |
Columbus | | MN | | | — | | | | 406 | | | | 945 | | | | — | | | | 2 | | | | 406 | | | | 947 | | | | 1,353 | | | | 48 | | | 1983 | | 2017 | | 15-39 |
Louisville | | KY | | | — | | | | 370 | | | | 240 | | | | — | | | | — | | | | 370 | | | | 240 | | | | 610 | | | | 17 | | | 2002 | | 2017 | | 15-39 |
Dunn | | NC | | | — | | | | 199 | | | | 659 | | | | — | | | | — | | | | 199 | | | | 659 | | | | 858 | | | | 35 | | | 2017 | | 2017 | | 15-39 |
San Marcos | | TX | | | — | | | | 486 | | | | 776 | | | | — | | | | — | | | | 486 | | | | 776 | | | | 1,262 | | | | 44 | | | 2017 | | 2017 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Oshkosh | | WI | | | — | | | | 134 | | | | 5,372 | | | | — | | | | — | | | | 134 | | | | 5,372 | | | | 5,506 | | | | 210 | | | 1995 | | 2017 | | 15-39 |
Sheboygan | | WI | | | — | | | | 266 | | | | 2,787 | | | | — | | | | — | | | | 266 | | | | 2,787 | | | | 3,053 | | | | 127 | | | 2002 | | 2017 | | 15-39 |
Fond du Lac | | WI | | | — | | | | 120 | | | | 658 | | | | — | | | | — | | | | 120 | | | | 658 | | | | 778 | | | | 33 | | | 2006 | | 2017 | | 15-39 |
Green Bay | | WI | | | — | | | | 398 | | | | 9,087 | | | | — | | | | 2 | | | | 398 | | | | 9,089 | | | | 9,487 | | | | 351 | | | 1992 | | 2017 | | 15-39 |
Manitowoc | | WI | | | — | | | | 293 | | | | 2,926 | | | | — | | | | — | | | | 293 | | | | 2,926 | | | | 3,219 | | | | 127 | | | 1993 | | 2017 | | 15-39 |
Boynton Beach | | FL | | | — | | | | 960 | | | | 2,803 | | | | — | | | | 10 | | | | 960 | | | | 2,813 | | | | 3,773 | | | | 197 | | | 2007 | | 2017 | | 7-39 |
Jacksonville | | FL | | | — | | | | 444 | | | | 2,179 | | | | — | | | | — | | | | 444 | | | | 2,179 | | | | 2,623 | | | | 183 | | | 2008 | | 2017 | | 7-39 |
Jacksonville | | FL | | | — | | | | 319 | | | | 2,191 | | | | — | | | | — | | | | 319 | | | | 2,191 | | | | 2,510 | | | | 130 | | | 1999 | | 2017 | | 7-39 |
Miami Gardens | | FL | | | — | | | | 803 | | | | 2,181 | | | | — | | | | — | | | | 803 | | | | 2,181 | | | | 2,984 | | | | 179 | | | 2009 | | 2017 | | 7-39 |
Orange Park | | FL | | | — | | | | 365 | | | | 2,471 | | | | — | | | | — | | | | 365 | | | | 2,471 | | | | 2,836 | | | | 241 | | | 2006 | | 2017 | | 7-39 |
Milton | | FL | | | — | | | | 505 | | | | 1,994 | | | | — | | | | — | | | | 505 | | | | 1,994 | | | | 2,499 | | | | 172 | | | 2005 | | 2017 | | 7-39 |
Wichita | | KS | | | — | | | | 488 | | | | 2,135 | | | | — | | | | — | | | | 488 | | | | 2,135 | | | | 2,623 | | | | 170 | | | 2008 | | 2017 | | 7-39 |
Tulsa | | OK | | | — | | | | 113 | | | | 1,890 | | | | — | | | | — | | | | 113 | | | | 1,890 | | | | 2,003 | | | | 165 | | | 2008 | | 2017 | | 7-39 |
Alcoa | | TN | | | — | | | | 751 | | | | 1,829 | | | | — | | | | — | | | | 751 | | | | 1,829 | | | | 2,580 | | | | 169 | | | 1993 | | 2017 | | 7-39 |
Wichita | | KS | | | — | | | | 233 | | | | 2,443 | | | | — | | | | — | | | | 233 | | | | 2,443 | | | | 2,676 | | | | 58 | | | 2006 | | 2018 | | 7-39 |
Wichita | | KS | | | — | | | | 206 | | | | 2,262 | | | | — | | | | — | | | | 206 | | | | 2,262 | | | | 2,468 | | | | 58 | | | 2006 | | 2018 | | 7-39 |
Wichita | | KS | | | — | | | | 234 | | | | 1,761 | | | | — | | | | — | | | | 234 | | | | 1,761 | | | | 1,995 | | | | 52 | | | 2008 | | 2018 | | 7-39 |
Texarkana | | TX | | | — | | | | 139 | | | | 3,211 | | | | — | | | | — | | | | 139 | | | | 3,211 | | | | 3,350 | | | | 71 | | | 2016 | | 2018 | | 7-39 |
Pace | | FL | | | — | | | | 215 | | | | 2,955 | | | | — | | | | — | | | | 215 | | | | 2,955 | | | | 3,170 | | | | 74 | | | 2015 | | 2018 | | 7-39 |
Hoosick Falls | | NY | | | — | | | | 78 | | | | 1,612 | | | | — | | | | — | | | | 78 | | | | 1,612 | | | | 1,690 | | | | 63 | | | 2012 | | 2017 | | 15-39 |
Hadley | | NY | | | — | | | | 100 | | | | 1,586 | | | | — | | | | — | | | | 100 | | | | 1,586 | | | | 1,686 | | | | 65 | | | 2014 | | 2017 | | 15-39 |
Cairo | | NY | | | — | | | | 106 | | | | 1,609 | | | | — | | | | — | | | | 106 | | | | 1,609 | | | | 1,715 | | | | 58 | | | 2014 | | 2017 | | 15-39 |
Bridgewater | | NY | | | — | | | | 241 | | | | 1,482 | | | | — | | | | — | | | | 241 | | | | 1,482 | | | | 1,723 | | | | 59 | | | 2014 | | 2017 | | 15-39 |
Valatie | | NY | | | — | | | | 102 | | | | 1,720 | | | | — | | | | — | | | | 102 | | | | 1,720 | | | | 1,822 | | | | 62 | | | 2014 | | 2017 | | 15-39 |
Wurtsboro | | NY | | | — | | | | 83 | | | | 1,640 | | | | — | | | | — | | | | 83 | | | | 1,640 | | | | 1,723 | | | | 64 | | | 2014 | | 2017 | | 15-39 |
Ellenburg Center | | NY | | | — | | | | 133 | | | | 1,595 | | | | — | | | | — | | | | 133 | | | | 1,595 | | | | 1,728 | | | | 59 | | | 2014 | | 2017 | | 15-39 |
Marion | | NY | | | — | | | | 149 | | | | 1,457 | | | | — | | | | — | | | | 149 | | | | 1,457 | | | | 1,606 | | | | 50 | | | 2013 | | 2017 | | 15-39 |
Oswego | | NY | | | — | | | | 124 | | | | 1,636 | | | | — | | | | — | | | | 124 | | | | 1,636 | | | | 1,760 | | | | 60 | | | 2015 | | 2017 | | 15-39 |
Cincinnati | | OH | | | — | | | | 367 | | | | 1,168 | | | | — | | | | — | | | | 367 | | | | 1,168 | | | | 1,535 | | | | 40 | | | 2014 | | 2017 | | 15-39 |
Dayton | | OH | | | — | | | | 249 | | | | 1,240 | | | | — | | | | — | | | | 249 | | | | 1,240 | | | | 1,489 | | | | 45 | | | 2013 | | 2017 | | 15-39 |
West Alexandria | | OH | | | — | | | | 371 | | | | 1,108 | | | | — | | | | — | | | | 371 | | | | 1,108 | | | | 1,479 | | | | 39 | | | 2011 | | 2017 | | 15-39 |
Sheffield | | MA | | | — | | | | 109 | | | | 1,687 | | | | — | | | | 6 | | | | 109 | | | | 1,693 | | | | 1,802 | | | | 55 | | | 2015 | | 2017 | | 15-39 |
Cedar Hill | | TX | | | — | | | | 501 | | | | 1,842 | | | | — | | | | — | | | | 501 | | | | 1,842 | | | | 2,343 | | | | 59 | | | 2015 | | 2017 | | 15-39 |
Bear | | DE | | | — | | | | 398 | | | | 2,164 | | | | — | | | | 6 | | | | 398 | | | | 2,170 | | | | 2,568 | | | | 72 | | | 2017 | | 2017 | | 15-39 |
Charlotte | | NC | | | — | | | | 1,148 | | | | 1,789 | | | | — | | | | 6 | | | | 1,148 | | | | 1,795 | | | | 2,943 | | | | 60 | | | 2013 | | 2017 | | 15-39 |
Oak Ridge | | TN | | | — | | | | 1,167 | | | | 1,684 | | | | — | | | | — | | | | 1,167 | | | | 1,684 | | | | 2,851 | | | | 61 | | | 2013 | | 2017 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Alcoa | | TN | | | — | | | | 1,022 | | | | 1,760 | | | | — | | | | — | | | | 1,022 | | | | 1,760 | | | | 2,782 | | | | 63 | | | 2015 | | 2017 | | 15-39 |
Smyrna | | DE | | | — | | | | 1,366 | | | | 2,708 | | | | — | | | | — | | | | 1,366 | | | | 2,708 | | | | 4,074 | | | | 113 | | | 2016 | | 2017 | | 15-39 |
North Fort Myers | | FL | | | — | | | | 1,011 | | | | 3,353 | | | | — | | | | 6 | | | | 1,011 | | | | 3,359 | | | | 4,370 | | | | 139 | | | 2015 | | 2017 | | 15-39 |
Salisbury | | NC | | | — | | | | 131 | | | | 1,243 | | | | — | | | | — | | | | 131 | | | | 1,243 | | | | 1,374 | | | | 27 | | | 1974 | | 2018 | | 15-39 |
High Point | | NC | | | — | | | | 202 | | | | 1,765 | | | | — | | | | — | | | | 202 | | | | 1,765 | | | | 1,967 | | | | 39 | | | 1975 | | 2018 | | 15-39 |
Fayetteville | | NC | | | — | | | | 251 | | | | 3,324 | | | | — | | | | — | | | | 251 | | | | 3,324 | | | | 3,575 | | | | 69 | | | 1970 | | 2018 | | 15-39 |
Raleigh | | NC | | | — | | | | 619 | | | | 3,327 | | | | — | | | | — | | | | 619 | | | | 3,327 | | | | 3,946 | | | | 70 | | | 1971 | | 2018 | | 15-39 |
Gastonia | | NC | | | — | | | | 236 | | | | 1,311 | | | | — | | | | — | | | | 236 | | | | 1,311 | | | | 1,547 | | | | 29 | | | 1991 | | 2018 | | 15-39 |
Virginia Beach | | VA | | | — | | | | 665 | | | | 4,104 | | | | — | | | | — | | | | 665 | | | | 4,104 | | | | 4,769 | | | | 87 | | | 1966 | | 2018 | | 15-39 |
Hampton | | VA | | | — | | | | 642 | | | | 1,108 | | | | — | | | | — | | | | 642 | | | | 1,108 | | | | 1,750 | | | | 28 | | | 2016 | | 2018 | | 15-39 |
Greenville | | SC | | | — | | | | 946 | | | | 3,068 | | | | — | | | | — | | | | 946 | | | | 3,068 | | | | 4,014 | | | | 64 | | | 1973 | | 2018 | | 15-39 |
Riverdale | | GA | | | — | | | | 311 | | | | 2,518 | | | | — | | | | — | | | | 311 | | | | 2,518 | | | | 2,829 | | | | 55 | | | 2003 | | 2018 | | 15-39 |
Marietta | | GA | | | — | | | | 152 | | | | 1,732 | | | | — | | | | — | | | | 152 | | | | 1,732 | | | | 1,884 | | | | 37 | | | 1986 | | 2018 | | 15-39 |
Memphis | | TN | | | — | | | | 632 | | | | 2,376 | | | | — | | | | — | | | | 632 | | | | 2,376 | | | | 3,008 | | | | 54 | | | 1978 | | 2018 | | 15-39 |
Chattanooga | | TN | | | — | | | | 470 | | | | 3,391 | | | | — | | | | — | | | | 470 | | | | 3,391 | | | | 3,861 | | | | 72 | | | 1970 | | 2018 | | 15-39 |
Florence | | AL | | | — | | | | 234 | | | | 1,534 | | | | — | | | | — | | | | 234 | | | | 1,534 | | | | 1,768 | | | | 35 | | | 2004 | | 2018 | | 15-39 |
Madison | | TN | | | — | | | | 325 | | | | 1,026 | | | | — | | | | — | | | | 325 | | | | 1,026 | | | | 1,351 | | | | 23 | | | 2014 | | 2018 | | 15-39 |
Louisville | | KY | | | — | | | | 387 | | | | 4,698 | | | | — | | | | — | | | | 387 | | | | 4,698 | | | | 5,085 | | | | 99 | | | 1965 | | 2018 | | 15-39 |
Louisville | | KY | | | — | | | | 297 | | | | 2,867 | | | | — | | | | — | | | | 297 | | | | 2,867 | | | | 3,164 | | | | 60 | | | 1966 | | 2018 | | 15-39 |
Huntsville | | AL | | | — | | | | 251 | | | | 3,819 | | | | — | | | | — | | | | 251 | | | | 3,819 | | | | 4,070 | | | | 79 | | | 1968 | | 2018 | | 15-39 |
Matthews | | NC | | | — | | | | 432 | | | | 941 | | | | — | | | | — | | | | 432 | | | | 941 | | | | 1,373 | | | | 23 | | | 2013 | | 2018 | | 15-39 |
Brentwood | | TN | | | — | | | | 924 | | | | 803 | | | | — | | | | — | | | | 924 | | | | 803 | | | | 1,727 | | | | 22 | | | 2004 | | 2018 | | 15-39 |
Pensacola | | FL | | | — | | | | 328 | | | | 2,600 | | | | — | | | | — | | | | 328 | | | | 2,600 | | | | 2,928 | | | | 55 | | | 2007 | | 2018 | | 15-39 |
Augusta | | GA | | | — | | | | 253 | | | | 772 | | | | — | | | | — | | | | 253 | | | | 772 | | | | 1,025 | | | | 17 | | | 2012 | | 2018 | | 15-39 |
Columbus | | OH | | | — | | | | 587 | | | | 503 | | | | — | | | | — | | | | 587 | | | | 503 | | | | 1,090 | | | | 14 | | | 1995 | | 2018 | | 15-39 |
Evansville | | IN | | | — | | | | 158 | | | | 1,403 | | | | — | | | | — | | | | 158 | | | | 1,403 | | | | 1,561 | | | | 32 | | | 2003 | | 2018 | | 15-39 |
Mishawaka | | IN | | | — | | | | 330 | | | | 2,074 | | | | — | | | | — | | | | 330 | | | | 2,074 | | | | 2,404 | | | | 46 | | | 2003 | | 2018 | | 15-39 |
Nashville | | TN | | | — | | | | 416 | | | | 1,511 | | | | — | | | | — | | | | 416 | | | | 1,511 | | | | 1,927 | | | | 9 | | | 2003 | | 2018 | | 15-39 |
Miles City | | MT | | | — | | | | 547 | | | | 1,616 | | | | — | | | | — | | | | 547 | | | | 1,616 | | | | 2,163 | | | | 29 | | | 1995 | | 2018 | | 15-39 |
Dickinson | | ND | | | — | | | | 294 | | | | 2,447 | | | | — | | | | — | | | | 294 | | | | 2,447 | | | | 2,741 | | | | 37 | | | 1983 | | 2018 | | 15-39 |
Billings | | MT | | | — | | | | 516 | | | | 2,128 | | | | — | | | | — | | | | 516 | | | | 2,128 | | | | 2,644 | | | | 36 | | | 1977 | | 2018 | | 15-39 |
Billings | | MT | | | — | | | | 356 | | | | 1,728 | | | | — | | | | — | | | | 356 | | | | 1,728 | | | | 2,084 | | | | 29 | | | 1976 | | 2018 | | 15-39 |
Billings | | MT | | | — | | | | 753 | | | | 1,448 | | | | — | | | | — | | | | 753 | | | | 1,448 | | | | 2,201 | | | | 25 | | | 2003 | | 2018 | | 15-39 |
Downers Grove | | IL | | | — | | | | 1,919 | | | | 16,366 | | | | — | | | | — | | | | 1,919 | | | | 16,366 | | | | 18,285 | | | | 243 | | | 1974 | | 2018 | | 15-39 |
Benzonia | | MI | | | — | | | | 89 | | | | 3,009 | | | | — | | | | — | | | | 89 | | | | 3,009 | | | | 3,098 | | | | 49 | | | 2014 | | 2018 | | 15-39 |
Flushing | | MI | | | — | | | | 201 | | | | 2,863 | | | | — | | | | — | | | | 201 | | | | 2,863 | | | | 3,064 | | | | 48 | | | 2014 | | 2018 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Irmo | | SC | | | — | | | | 119 | | | | 4,255 | | | | — | | | | — | | | | 119 | | | | 4,255 | | | | 4,374 | | | | 43 | | | 2006 | | 2018 | | 15-39 |
Anderson | | SC | | | — | | | | 312 | | | | 4,113 | | | | — | | | | — | | | | 312 | | | | 4,113 | | | | 4,425 | | | | 43 | | | 2008 | | 2018 | | 15-39 |
Elizabethton | | TN | | | — | | | | 270 | | | | 4,077 | | | | — | | | | — | | | | 270 | | | | 4,077 | | | | 4,347 | | | | 41 | | | 2005 | | 2018 | | 15-39 |
Albany | | GA | | | — | | | | 164 | | | | 3,816 | | | | — | | | | — | | | | 164 | | | | 3,816 | | | | 3,980 | | | | 40 | | | 2007 | | 2018 | | 15-39 |
Moncks Corner | | SC | | | — | | | | 265 | | | | 4,307 | | | | — | | | | — | | | | 265 | | | | 4,307 | | | | 4,572 | | | | 44 | | | 2006 | | 2018 | | 15-39 |
Greeneville | | TN | | | — | | | | 117 | | | | 4,122 | | | | — | | | | — | | | | 117 | | | | 4,122 | | | | 4,239 | | | | 41 | | | 2003 | | 2018 | | 15-39 |
Lexington | | SC | | | — | | | | 219 | | | | 898 | | | | — | | | | — | | | | 219 | | | | 898 | | | | 1,117 | | | | 11 | | | 2015 | | 2018 | | 15-39 |
Lexington | | SC | | | — | | | | 348 | | | | 714 | | | | — | | | | — | | | | 348 | | | | 714 | | | | 1,062 | | | | 9 | | | 2015 | | 2018 | | 15-39 |
Orangeburg | | SC | | | — | | | | 238 | | | | 3,323 | | | | — | | | | — | | | | 238 | | | | 3,323 | | | | 3,561 | | | | 38 | | | 2006 | | 2018 | | 15-39 |
West Columbia | | SC | | | — | | | | 296 | | | | 1,140 | | | | — | | | | — | | | | 296 | | | | 1,140 | | | | 1,436 | | | | 13 | | | 2016 | | 2018 | | 15-39 |
Brooklet | | GA | | | — | | | | — | | | | 497 | | | | — | | | | — | | | | — | | | | 497 | | | | 497 | | | | 5 | | | 1999 | | 2018 | | 15-39 |
Rex | | GA | | | — | | | | 175 | | | | 885 | | | | — | | | | — | | | | 175 | | | | 885 | | | | 1,060 | | | | 12 | | | 1999 | | 2018 | | 15-39 |
Pendleton | | SC | | | — | | | | 313 | | | | 538 | | | | — | | | | — | | | | 313 | | | | 538 | | | | 851 | | | | 10 | | | 1998 | | 2018 | | 15-39 |
Pembroke | | GA | | | — | | | | 213 | | | | 393 | | | | — | | | | — | | | | 213 | | | | 393 | | | | 606 | | | | 7 | | | 2000 | | 2018 | | 15-39 |
Loganville | | GA | | | — | | | | 422 | | | | 2,353 | | | | — | | | | — | | | | 422 | | | | 2,353 | | | | 2,775 | | | | 34 | | | 1998 | | 2018 | | 15-39 |
Campobello | | SC | | | — | | | | 189 | | | | 437 | | | | — | | | | — | | | | 189 | | | | 437 | | | | 626 | | | | 7 | | | 2000 | | 2018 | | 15-39 |
Central | | SC | | | — | | | | 323 | | | | 552 | | | | — | | | | — | | | | 323 | | | | 552 | | | | 875 | | | | 10 | | | 2001 | | 2018 | | 15-39 |
Moncks Corner | | SC | | | — | | | | 213 | | | | 562 | | | | — | | | | — | | | | 213 | | | | 562 | | | | 775 | | | | 8 | | | 2003 | | 2018 | | 15-39 |
Camden | | SC | | | — | | | | 614 | | | | 613 | | | | — | | | | — | | | | 614 | | | | 613 | | | | 1,227 | | | | 11 | | | 2000 | | 2018 | | 15-39 |
Lincolnton | | GA | | | — | | | | 172 | | | | 625 | | | | — | | | | — | | | | 172 | | | | 625 | | | | 797 | | | | 9 | | | 2001 | | 2018 | | 15-39 |
Louisville | | KY | | | — | | | | 162 | | | | 948 | | | | — | | | | — | | | | 162 | | | | 948 | | | | 1,110 | | | | 4 | | | 2002 | | 2018 | | 15-39 |
Cincinnati | | OH | | | — | | | | 184 | | | | 1,396 | | | | — | | | | — | | | | 184 | | | | 1,396 | | | | 1,580 | | | | 5 | | | 1987 | | 2018 | | 15-39 |
Madison | | IN | | | — | | | | 126 | | | | 2,230 | | | | — | | | | — | | | | 126 | | | | 2,230 | | | | 2,356 | | | | 8 | | | 1996 | | 2018 | | 15-39 |
Big Spring | | TX | | | — | | | | 465 | | | | 2,363 | | | | — | | | | — | | | | 465 | | | | 2,363 | | | | 2,828 | | | | 3 | | | 2008 | | 2018 | | 15-39 |
Cuero | | TX | | | — | | | | 472 | | | | 2,285 | | | | — | | | | — | | | | 472 | | | | 2,285 | | | | 2,757 | | | | 3 | | | 2010 | | 2018 | | 15-39 |
Industrial Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Becker | | MN | | | 750 | | | | 921 | | | | 4,540 | | | | — | | | | — | | | | 921 | | | | 4,540 | | | | 5,461 | | | | 1,405 | | | 2000 | | 2008 | | 15-39 |
Tacoma | | WA | | | — | | | | 1,634 | | | | 4,902 | | | | — | | | | — | | | | 1,634 | | | | 4,902 | | | | 6,536 | | | | 1,244 | | | 1977 | | 2011 | | 15-39 |
New Haven | | IN | | | — | | | | 445 | | | | 2,521 | | | | — | | | | — | | | | 445 | | | | 2,521 | | | | 2,966 | | | | 748 | | | 1960 | | 2011 | | 15-39 |
Raleigh | | NC | | | — | | | | 2,034 | | | | 8,137 | | | | — | | | | — | | | | 2,034 | | | | 8,137 | | | | 10,171 | | | | 1,754 | | | 1999 | | 2012 | | 15-39 |
Eureka | | MO | | | — | | | | 2,328 | | | | 9,311 | | | | — | | | | — | | | | 2,328 | | | | 9,311 | | | | 11,639 | | | | 2,741 | | | 1990 | | 2012 | | 15-39 |
Durham | | NC | | | 11,288 | | | | 3,000 | | | | 17,531 | | | | — | | | | — | | | | 3,000 | | | | 17,531 | | | | 20,531 | | | | 4,022 | | | 2009 | | 2012 | | 15-39 |
Kilgore | | TX | | | — | | | | 160 | | | | 908 | | | | — | | | | — | | | | 160 | | | | 908 | | | | 1,068 | | | | 259 | | | 2008 | | 2012 | | 15-39 |
American Canyon | | CA | | | 8,496 | | | | 2,378 | | | | 26,142 | | | | — | | | | — | | | | 2,378 | | | | 26,142 | | | | 28,520 | | | | 5,277 | | | 2002 | | 2012 | | 15-39 |
Huber Heights | | OH | | | — | | | | 583 | | | | 1,748 | | | | — | | | | — | | | | 583 | | | | 1,748 | | | | 2,331 | | | | 495 | | | 1985 | | 2012 | | 15-39 |
Eastlake | | OH | | | — | | | | 854 | | | | 2,562 | | | | — | | | | — | | | | 854 | | | | 2,562 | | | | 3,416 | | | | 620 | | | 1981 | | 2012 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Houston | | TX | | | — | | | | 3,250 | | | | 9,751 | | | | — | | | | — | | | | 3,250 | | | | 9,751 | | | | 13,001 | | | | 1,766 | | | 2005 | | 2012 | | 15-39 |
Katy | | TX | | | — | | | | 1,978 | | | | 7,912 | | | | — | | | | — | | | | 1,978 | | | | 7,912 | | | | 9,890 | | | | 1,450 | | | 2012 | | 2012 | | 15-39 |
Union Grove | | WI | | | — | | | | 239 | | | | 957 | | | | — | | | | — | | | | 239 | | | | 957 | | | | 1,196 | | | | 167 | | | 1993 | | 2012 | | 15-39 |
Union Grove | | WI | | | — | | | | 347 | | | | 1,386 | | | | — | | | | — | | | | 347 | | | | 1,386 | | | | 1,733 | | | | 233 | | | 1979 | | 2012 | | 15-39 |
Rock Hill | | SC | | | — | | | | 796 | | | | 3,185 | | | | — | | | | 72 | | | | 796 | | | | 3,257 | | | | 4,053 | | | | 769 | | | 1999 | | 2012 | | 15-39 |
Union Grove | | WI | | | — | | | | 427 | | | | 3,413 | | | | — | | | | — | | | | 427 | | | | 3,413 | | | | 3,840 | | | | 437 | | | 2014 | | 2015 | | 15-39 |
Oshkosh | | WI | | | — | | | | 456 | | | | 869 | | | | — | | | | — | | | | 456 | | | | 869 | | | | 1,325 | | | | 116 | | | 2007 | | 2015 | | 15-39 |
Hoffman Estates | | IL | | | — | | | | 12,253 | | | | 23,456 | | | | — | | | | — | | | | 12,253 | | | | 23,456 | | | | 35,709 | | | | 4,450 | | | 1988 | | 2013 | | 15-39 |
Norton Shores | | MI | | | — | | | | 198 | | | | 2,932 | | | | — | | | | — | | | | 198 | | | | 2,932 | | | | 3,130 | | | | 405 | | | 2002 | | 2014 | | 15-39 |
Muskegon | | MI | | | — | | | | 168 | | | | 2,751 | | | | — | | | | 13 | | | | 168 | | | | 2,764 | | | | 2,932 | | | | 468 | | | 1985 | | 2013 | | 15-39 |
Muskegon | | MI | | | — | | | | 454 | | | | 6,889 | | | | — | | | | 3 | | | | 454 | | | | 6,892 | | | | 7,346 | | | | 1,195 | | | 2012 | | 2013 | | 15-39 |
Muskegon | | MI | | | — | | | | 463 | | | | 2,512 | | | | — | | | | 23 | | | | 463 | | | | 2,535 | | | | 2,998 | | | | 463 | | | 1978 | | 2013 | | 15-39 |
Muskegon | | MI | | | — | | | | 257 | | | | 655 | | | | — | | | | — | | | | 257 | | | | 655 | | | | 912 | | | | 129 | | | 2005 | | 2013 | | 15-39 |
Greenwich | | CT | | | — | | | | 16,898 | | | | 959 | | | | — | | | | — | | | | 16,898 | | | | 959 | | | | 17,857 | | | | 168 | | | 1967 | | 2014 | | 15-39 |
Elgin | | IL | | | — | | | | 4,339 | | | | 17,458 | | | | — | | | | — | | | | 4,339 | | | | 17,458 | | | | 21,797 | | | | 2,402 | | | 2009 | | 2014 | | 15-39 |
Shakopee | | MN | | | — | | | | 3,962 | | | | 21,296 | | | | — | | | | — | | | | 3,962 | | | | 21,296 | | | | 25,258 | | | | 3,071 | | | 2014 | | 2014 | | 15-39 |
Houston | | TX | | | — | | | | 1,242 | | | | 2,698 | | | | — | | | | — | | | | 1,242 | | | | 2,698 | | | | 3,940 | | | | 463 | | | 1972 | | 2014 | | 15-39 |
Winona | | MN | | | — | | | | 1,653 | | | | 7,694 | | | | — | | | | — | | | | 1,653 | | | | 7,694 | | | | 9,347 | | | | 920 | | | 2008 | | 2014 | | 15-39 |
Winona | | MN | | | — | | | | 804 | | | | 4,412 | | | | — | | | | — | | | | 804 | | | | 4,412 | | | | 5,216 | | | | 515 | | | 2008 | | 2014 | | 15-39 |
Mt. Pleasant | | TX | | | — | | | | 1,785 | | | | 5,540 | | | | — | | | | — | | | | 1,785 | | | | 5,540 | | | | 7,325 | | | | 737 | | | 1994 | | 2014 | | 15-39 |
Madill | | OK | | | — | | | | 1,395 | | | | 5,796 | | | | — | | | | — | | | | 1,395 | | | | 5,796 | | | | 7,191 | | | | 737 | | | 1999 | | 2014 | | 15-39 |
Madill | | OK | | | — | | | | 2,657 | | | | 1,566 | | | | — | | | | 1,001 | | | | 2,657 | | | | 2,567 | | | | 5,224 | | | | 240 | | | 1972 | | 2014 | | 15-39 |
Madill | | OK | | | — | | | | 621 | | | | 1,759 | | | | — | | | | — | | | | 621 | | | | 1,759 | | | | 2,380 | | | | 224 | | | 1977 | | 2014 | | 15-39 |
Willis Point | | TX | | | — | | | | 3,102 | | | | 2,420 | | | | — | | | | — | | | | 3,102 | | | | 2,420 | | | | 5,522 | | | | 380 | | | 2003 | | 2014 | | 15-39 |
Fitzgerald | | GA | | | — | | | | 1,939 | | | | 3,316 | | | | — | | | | — | | | | 1,939 | | | | 3,316 | | | | 5,255 | | | | 478 | | | 1997 | | 2014 | | 15-39 |
Cordele | | GA | | | — | | | | 2,705 | | | | 3,786 | | | | — | | | | — | | | | 2,705 | | | | 3,786 | | | | 6,491 | | | | 473 | | | 2000 | | 2014 | | 15-39 |
Kingston | | OK | | | — | | | | 1,857 | | | | 1,692 | | | | — | | | | — | | | | 1,857 | | | | 1,692 | | | | 3,549 | | | | 252 | | | 2013 | | 2014 | | 15-39 |
Odessa | | TX | | | — | | | | 529 | | | | 3,327 | | | | — | | | | — | | | | 529 | | | | 3,327 | | | | 3,856 | | | | 409 | | | 2012 | | 2015 | | 15-39 |
Columbia | | MD | | | — | | | | 667 | | | | 9,220 | | | | — | | | | — | | | | 667 | | | | 9,220 | | | | 9,887 | | | | 1,041 | | | 1984 | | 2015 | | 15-39 |
Menomonee Falls | | WI | | | — | | | | 1,378 | | | | 18,557 | | | | — | | | | — | | | | 1,378 | | | | 18,557 | | | | 19,935 | | | | 2,007 | | | 2001 | | 2015 | | 15-39 |
Elk River | | MN | | | — | | | | 763 | | | | 4,937 | | | | — | | | | — | | | | 763 | | | | 4,937 | | | | 5,700 | | | | 632 | | | 2008 | | 2015 | | 15-39 |
Elk River | | MN | | | — | | | | 477 | | | | 2,517 | | | | — | | | | — | | | | 477 | | | | 2,517 | | | | 2,994 | | | | 322 | | | 2006 | | 2015 | | 15-39 |
Sanford | | FL | | | — | | | | 2,075 | | | | 7,600 | | | | — | | | | — | | | | 2,075 | | | | 7,600 | | | | 9,675 | | | | 851 | | | 2002 | | 2015 | | 15-39 |
Columbus | | GA | | | — | | | | 615 | | | | 9,942 | | | | — | | | | — | | | | 615 | | | | 9,942 | | | | 10,557 | | | | 977 | | | 1907 | | 2015 | | 15-39 |
Ephrata | | PA | | | — | | | | 531 | | | | 6,995 | | | | — | | | | — | | | | 531 | | | | 6,995 | | | | 7,526 | | | | 1,021 | | | 2000 | | 2015 | | 15-39 |
Greer | | SC | | | — | | | | 607 | | | | 2,502 | | | | — | | | | — | | | | 607 | | | | 2,502 | | | | 3,109 | | | | 304 | | | 1978 | | 2015 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Joplin | | MO | | | — | | | | 831 | | | | 9,600 | | | | — | | | | — | | | | 831 | | | | 9,600 | | | | 10,431 | | | | 1,027 | | | 1993 | | 2015 | | 15-39 |
Katy | | TX | | | — | | | | 1,493 | | | | 3,883 | | | | — | | | | — | | | | 1,493 | | | | 3,883 | | | | 5,376 | | | | 463 | | | 1996 | | 2015 | | 15-39 |
Kinston | | NC | | | — | | | | 1,017 | | | | 10,418 | | | | — | | | | — | | | | 1,017 | | | | 10,418 | | | | 11,435 | | | | 1,101 | | | 1979 | | 2015 | | 15-39 |
Euless | | TX | | | — | | | | 1,487 | | | | 3,051 | | | | — | | | | — | | | | 1,487 | | | | 3,051 | | | | 4,538 | | | | 337 | | | 1991 | | 2015 | | 15-39 |
Jacksonville | | TX | | | — | | | | 1,221 | | | | 3,316 | | | | — | | | | — | | | | 1,221 | | | | 3,316 | | | | 4,537 | | | | 334 | | | 1974 | | 2015 | | 15-39 |
Lima | | OH | | | — | | | | 656 | | | | 21,645 | | | | — | | | | — | | | | 656 | | | | 21,645 | | | | 22,301 | | | | 1,942 | | | 2009 | | 2015 | | 15-39 |
Sulphur Springs | | TX | | | — | | | | 1,720 | | | | 20,756 | | | | — | | | | — | | | | 1,720 | | | | 20,756 | | | | 22,476 | | | | 1,862 | | | 1989 | | 2015 | | 15-39 |
Portage | | IN | | | — | | | | 1,181 | | | | 13,130 | | | | — | | | | — | | | | 1,181 | | | | 13,130 | | | | 14,311 | | | | 1,375 | | | 2001 | | 2016 | | 15-39 |
St. Cloud | | MN | | | — | | | | 565 | | | | 20,420 | | | | — | | | | — | | | | 565 | | | | 20,420 | | | | 20,985 | | | | 1,391 | | | 1999 | | 2016 | | 15-39 |
New Kensington | | PA | | | — | | | | 907 | | | | 13,058 | | | | — | | | | — | | | | 907 | | | | 13,058 | | | | 13,965 | | | | 778 | | | 2015 | | 2016 | | 15-39 |
Denver | | CO | | | — | | | | 1,105 | | | | 8,077 | | | | — | | | | 1,050 | | | | 1,105 | | | | 9,127 | | | | 10,232 | | | | 389 | | | 1975 | | 2017 | | 15-39 |
Denver | | CO | | | — | | | | 252 | | | | 1,658 | | | | — | | | | — | | | | 252 | | | | 1,658 | | | | 1,910 | | | | 75 | | | 1977 | | 2017 | | 15-39 |
Germantown | | WI | | | — | | | | 612 | | | | 2,062 | | | | — | | | | — | | | | 612 | | | | 2,062 | | | | 2,674 | | | | 85 | | | 1989 | | 2017 | | 15-39 |
Germantown | | WI | | | — | | | | 575 | | | | 2,086 | | | | — | | | | — | | | | 575 | | | | 2,086 | | | | 2,661 | | | | 84 | | | 2000 | | 2017 | | 15-39 |
Green Bay | | WI | | | — | | | | 406 | | | | 7,032 | | | | — | | | | — | | | | 406 | | | | 7,032 | | | | 7,438 | | | | 287 | | | 1989 | | 2017 | | 15-39 |
Two Rivers | | WI | | | — | | | | 445 | | | | 1,885 | | | | — | | | | — | | | | 445 | | | | 1,885 | | | | 2,330 | | | | 97 | | | 1994 | | 2017 | | 15-39 |
Little Chute | | WI | | | — | | | | 342 | | | | 52,744 | | | | — | | | | 2 | | | | 342 | | | | 52,746 | | | | 53,088 | | | | 2,119 | | | 2017 | | 2017 | | 7-39 |
Las Vegas | | NV | | | — | | | | 3,034 | | | | 11,857 | | | | — | | | | — | | | | 3,034 | | | | 11,857 | | | | 14,891 | | | | 375 | | | 2017 | | 2017 | | 15-39 |
Walker | | LA | | | — | | | | 4,646 | | | | 30,310 | | | | — | | | | — | | | | 4,646 | | | | 30,310 | | | | 34,956 | | | | 1,041 | | | 2017 | | 2017 | | 15-39 |
Saxonburg | | PA | | | — | | | | 1,048 | | | | 7,545 | | | | — | | | | 1 | | | | 1,048 | | | | 7,546 | | | | 8,594 | | | | 274 | | | 2008 | | 2017 | | 15-39 |
Butler | | PA | | | — | | | | 1,885 | | | | 6,294 | | | | — | | | | — | | | | 1,885 | | | | 6,294 | | | | 8,179 | | | | 244 | | | 1990 | | 2017 | | 15-39 |
Story City | | IA | | | — | | | | 5,700 | | | | 13,916 | | | | — | | | | 20 | | | | 5,700 | | | | 13,936 | | | | 19,636 | | | | 498 | | | 1997 | | 2017 | | 15-39 |
San Jose | | CA | | | — | | | | 9,489 | | | | 18,617 | | | | — | | | | 956 | | | | 9,489 | | | | 19,573 | | | | 29,062 | | | | 648 | | | 1983 | | 2017 | | 15-39 |
Taunton | | MA | | | — | | | | 3,157 | | | | 16,851 | | | | — | | | | — | | | | 3,157 | | | | 16,851 | | | | 20,008 | | | | 433 | | | 1987 | | 2018 | | 15-39 |
Knoxville | | TN | | | — | | | | 447 | | | | 4,276 | | | | — | | | | — | | | | 447 | | | | 4,276 | | | | 4,723 | | | | 90 | | | 1977 | | 2018 | | 15-39 |
Elk Grove Village | | IL | | | — | | | | 2,014 | | | | 3,686 | | | | — | | | | — | | | | 2,014 | | | | 3,686 | | | | 5,700 | | | | 85 | | | 2014 | | 2018 | | 15-39 |
Elgin | | IL | | | — | | | | 3,265 | | | | 4,947 | | | | — | | | | — | | | | 3,265 | | | | 4,947 | | | | 8,212 | | | | 96 | | | 1981 | | 2018 | | 15-39 |
Lordstown | | OH | | | — | | | | 1,028 | | | | 36,068 | | | | — | | | | — | | | | 1,028 | | | | 36,068 | | | | 37,096 | | | | 540 | | | 2012 | | 2018 | | 15-39 |
Perth Amboy | | NJ | | | 20,674 | | | | 5,622 | | | | 35,420 | | | | — | | | | — | | | | 5,622 | | | | 35,420 | | | | 41,042 | | | | 501 | | | 1933 | | 2018 | | 15-39 |
Indianapolis | | IN | | | — | | | | 840 | | | | 8,395 | | | | — | | | | — | | | | 840 | | | | 8,395 | | | | 9,235 | | | | 133 | | | 1972 | | 2018 | | 15-39 |
Hazelwood | | MO | | | — | | | | 2,936 | | | | 7,565 | | | | — | | | | — | | | | 2,936 | | | | 7,565 | | | | 10,501 | | | | 105 | | | 1966 | | 2018 | | 15-39 |
Fridley | | MN | | | — | | | | 273 | | | | 1,986 | | | | — | | | | — | | | | 273 | | | | 1,986 | | | | 2,259 | | | | 23 | | | 1973 | | 2018 | | 15-39 |
Burnsville | | MN | | | — | | | | 207 | | | | 2,209 | | | | — | | | | — | | | | 207 | | | | 2,209 | | | | 2,416 | | | | 26 | | | 1973 | | 2018 | | 15-39 |
North Canton | | OH | | | — | | | | 338 | | | | 8,263 | | | | — | | | | — | | | | 338 | | | | 8,263 | | | | 8,601 | | | | 51 | | | 1988 | | 2018 | | 15-39 |
Madison | | MS | | | — | | | | 3,348 | | | | 11,997 | | | | — | | | | — | | | | 3,348 | | | | 11,997 | | | | 15,345 | | | | 15 | | | 2003 | | 2018 | | 15-39 |
Novi | | MI | | | — | | | | 872 | | | | 8,274 | | | | — | | | | — | | | | 872 | | | | 8,274 | | | | 9,146 | | | | 10 | | | 2018 | | 2018 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Healthcare Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fayetteville | | GA | | | — | | | | 865 | | | | 4,901 | | | | — | | | | — | | | | 865 | | | | 4,901 | | | | 5,766 | | | | 1,427 | | | 1985 | | 2008 | | 15-39 |
Houston | | TX | | | 1,751 | | | | 598 | | | | 3,388 | | | | — | | | | — | | | | 598 | | | | 3,388 | | | | 3,986 | | | | 958 | | | 1980 | | 2008 | | 15-39 |
Rockford | | IL | | | — | | | | 216 | | | | 1,225 | | | | — | | | | — | | | | 216 | | | | 1,225 | | | | 1,441 | | | | 376 | | | 1993 | | 2008 | | 15-39 |
Machesney Park | | IL | | | — | | | | 218 | | | | 1,237 | | | | — | | | | — | | | | 218 | | | | 1,237 | | | | 1,455 | | | | 403 | | | 1996 | | 2008 | | 15-39 |
Loves Park | | IL | | | 563 | | | | 190 | | | | 890 | | | | — | | | | — | | | | 190 | | | | 890 | | | | 1,080 | | | | 274 | | | 1982 | | 2010 | | 15-39 |
Memphis | | TN | | | — | | | | 530 | | | | 2,722 | | | | — | | | | — | | | | 530 | | | | 2,722 | | | | 3,252 | | | | 804 | | | 1993 | | 2009 | | 15-39 |
Savannah | | GA | | | — | | | | 160 | | | | 641 | | | | — | | | | — | | | | 160 | | | | 641 | | | | 801 | | | | 182 | | | 1986 | | 2009 | | 15-39 |
Pooler | | GA | | | — | | | | 272 | | | | 1,089 | | | | — | | | | — | | | | 272 | | | | 1,089 | | | | 1,361 | | | | 305 | | | 1990 | | 2009 | | 15-39 |
Savannah | | GA | | | — | | | | 114 | | | | 457 | | | | — | | | | — | | | | 114 | | | | 457 | | | | 571 | | | | 116 | | | 1978 | | 2009 | | 15-39 |
Savannah | | GA | | | — | | | | 148 | | | | 590 | | | | — | | | | — | | | | 148 | | | | 590 | | | | 738 | | | | 182 | | | 1981 | | 2009 | | 15-39 |
Houston | | TX | | | — | | | | 2,022 | | | | 6,065 | | | | — | | | | — | | | | 2,022 | | | | 6,065 | | | | 8,087 | | | | 1,561 | | | 2002 | | 2010 | | 15-39 |
Greece | | NY | | | — | | | | 1,391 | | | | 30,442 | | | | — | | | | 3,268 | | | | 1,391 | | | | 33,710 | | | | 35,101 | | | | 7,425 | | | 2011 | | 2010 | | 7-39 |
Tampa | | FL | | | — | | | | 580 | | | | 3,304 | | | | — | | | | — | | | | 580 | | | | 3,304 | | | | 3,884 | | | | 765 | | | 2002 | | 2011 | | 15-39 |
Tampa | | FL | | | — | | | | 790 | | | | 4,021 | | | | — | | | | — | | | | 790 | | | | 4,021 | | | | 4,811 | | | | 903 | | | 1985 | | 2011 | | 15-39 |
Wesley Chapel | | FL | | | — | | | | 340 | | | | 2,862 | | | | — | | | | — | | | | 340 | | | | 2,862 | | | | 3,202 | | | | 650 | | | 2008 | | 2011 | | 15-39 |
Brandon | | FL | | | — | | | | 292 | | | | 1,961 | | | | — | | | | — | | | | 292 | | | | 1,961 | | | | 2,253 | | | | 440 | | | 1998 | | 2011 | | 15-39 |
Plano | | TX | | | — | | | | 965 | | | | 2,895 | | | | — | | | | — | | | | 965 | | | | 2,895 | | | | 3,860 | | | | 642 | | | 2000 | | 2011 | | 15-39 |
Ada | | OK | | | — | | | | 293 | | | | 1,172 | | | | — | | | | — | | | | 293 | | | | 1,172 | | | | 1,465 | | | | 262 | | | 2011 | | 2011 | | 15-39 |
Oklahoma City | | OK | | | — | | | | 427 | | | | 1,282 | | | | — | | | | — | | | | 427 | | | | 1,282 | | | | 1,709 | | | | 270 | | | 2001 | | 2011 | | 15-39 |
Sapulpa | | OK | | | — | | | | 510 | | | | 1,271 | | | | — | | | | — | | | | 510 | | | | 1,271 | | | | 1,781 | | | | 245 | | | 2011 | | 2012 | | 15-39 |
Lawton | | OK | | | — | | | | 357 | | | | 1,422 | | | | — | | | | — | | | | 357 | | | | 1,422 | | | | 1,779 | | | | 258 | | | 2012 | | 2012 | | 15-39 |
McAlester | | OK | | | — | | | | 413 | | | | 1,669 | | | | — | | | | — | | | | 413 | | | | 1,669 | | | | 2,082 | | | | 301 | | | 2012 | | 2012 | | 15-39 |
Weatherford | | OK | | | — | | | | 357 | | | | 1,419 | | | | — | | | | — | | | | 357 | | | | 1,419 | | | | 1,776 | | | | 266 | | | 2012 | | 2012 | | 15-39 |
Ardmore | | OK | | | — | | | | 575 | | | | 1,400 | | | | — | | | | — | | | | 575 | | | | 1,400 | | | | 1,975 | | | | 227 | | | 2013 | | 2013 | | 15-39 |
Wichita | | KS | | | — | | | | 295 | | | | 1,606 | | | | — | | | | — | | | | 295 | | | | 1,606 | | | | 1,901 | | | | 252 | | | 2013 | | 2013 | | 15-39 |
Bartlesville | | OK | | | — | | | | 505 | | | | 1,629 | | | | — | | | | — | | | | 505 | | | | 1,629 | | | | 2,134 | | | | 262 | | | 2013 | | 2013 | | 15-39 |
Melbourne | | FL | | | — | | | | 3,320 | | | | 13,281 | | | | — | | | | — | | | | 3,320 | | | | 13,281 | | | | 16,601 | | | | 2,490 | | | 1993 | | 2012 | | 15-39 |
Sarasota | | FL | | | — | | | | 1,290 | | | | 4,899 | | | | — | | | | — | | | | 1,290 | | | | 4,899 | | | | 6,189 | | | | 848 | | | 2002 | | 2013 | | 15-39 |
Sarasota | | FL | | | — | | | | 934 | | | | 5,013 | | | | — | | | | 282 | | | | 934 | | | | 5,295 | | | | 6,229 | | | | 836 | | | 2002 | | 2013 | | 15-39 |
Englewood | | FL | | | — | | | | 207 | | | | 679 | | | | — | | | | — | | | | 207 | | | | 679 | | | | 886 | | | | 116 | | | 1985 | | 2013 | | 15-39 |
Brookfield | | WI | | | — | | | | 338 | | | | 4,603 | | | | — | | | | — | | | | 338 | | | | 4,603 | | | | 4,941 | | | | 767 | | | 2005 | | 2013 | | 15-39 |
Waukesha | | WI | | | — | | | | 302 | | | | 11,218 | | | | — | | | | — | | | | 302 | | | | 11,218 | | | | 11,520 | | | | 1,724 | | | 2005 | | 2013 | | 15-39 |
Plainfield | | IL | | | — | | | | 128 | | | | 7,843 | | | | 702 | | | | 1,489 | | | | 830 | | | | 9,332 | | | | 10,162 | | | | 1,297 | | | 2012 | | 2013 | | 15-39 |
Greenfield | | WI | | | — | | | | 212 | | | | 7,163 | | | | — | | | | — | | | | 212 | | | | 7,163 | | | | 7,375 | | | | 1,097 | | | 2011 | | 2013 | | 15-39 |
Brookfield | | WI | | | — | | | | 331 | | | | 7,542 | | | | — | | | | — | | | | 331 | | | | 7,542 | | | | 7,873 | | | | 1,194 | | | 2008 | | 2013 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on | |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which | |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation | |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed | |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) | |
Goodyear | | AZ | | | — | | | | 558 | | | | 3,529 | | | | — | | | | — | | | | 558 | | | | 3,529 | | | | 4,087 | | | | 534 | | | 2013 | | 2013 | | 15-39 | |
Richmond | | VA | | | — | | | | 348 | | | | 2,986 | | | | — | | | | — | | | | 348 | | | | 2,986 | | | | 3,334 | | | | 420 | | | 2011 | | 2013 | | 15-39 | |
Montgomery | | AL | | | — | | | | 94 | | | | 1,303 | | | | — | | | | — | | | | 94 | | | | 1,303 | | | | 1,397 | | | | 214 | | | 2013 | | 2013 | | 15-39 | |
Kingwood | | TX | | | — | | | | 253 | | | | 5,236 | | | | — | | | | — | | | | 253 | | | | 5,236 | | | | 5,489 | | | | 630 | | | 2009 | | 2014 | | 15-39 | |
Lubbock | | TX | | | — | | | | 1,616 | | | | 6,195 | | | | — | | | | 135 | | | | 1,616 | | | | 6,330 | | | | 7,946 | | | | 751 | | | 2001 | | 2014 | | 15-39 | |
Russellville | | AR | | | — | | | | 1,232 | | | | 4,752 | | | | — | | | | — | | | | 1,232 | | | | 4,752 | | | | 5,984 | | | | 653 | | | 2010 | | 2014 | | 15-39 | |
Little Rock | | AR | | | — | | | | 1,866 | | | | 5,294 | | | | — | | | | — | | | | 1,866 | | | | 5,294 | | | | 7,160 | | | | 747 | | | 2012 | | 2014 | | 15-39 | |
Conway | | AR | | | — | | | | 1,522 | | | | 3,579 | | | | — | | | | 5,624 | | | | 1,522 | | | | 9,203 | | | | 10,725 | | | | 821 | | | 2007 | | 2014 | | 15-39 | |
Hudsonville | | MI | | | — | | | | 199 | | | | 3,631 | | | | — | | | | — | | | | 199 | | | | 3,631 | | | | 3,830 | | | | 385 | | | 2007 | | 2015 | | 15-39 | |
Franklin | | TN | | | — | | | | 766 | | | | 3,728 | | | | — | | | | — | | | | 766 | | | | 3,728 | | | | 4,494 | | | | 451 | | | 2005 | | 2015 | | 15-39 | |
Elk Grove Village | | IL | | | — | | | | 252 | | | | 2,933 | | | | — | | | | — | | | | 252 | | | | 2,933 | | | | 3,185 | | | | 314 | | | 1985 | | 2015 | | 15-39 | |
Virginia Beach | | VA | | | — | | | | 827 | | | | 3,310 | | | | — | | | | — | | | | 827 | | | | 3,310 | | | | 4,137 | | | | 262 | | | 2008 | | 2016 | | 15-39 | |
Tampa | | FL | | | — | | | | 42 | | | | 6,945 | | | | — | | | | — | | | | 42 | | | | 6,945 | | | | 6,987 | | | | 378 | | | 1999 | | 2016 | | | 39 | |
Tampa | | FL | | | — | | | | 8 | | | | 732 | | | | — | | | | — | | | | 8 | | | | 732 | | | | 740 | | | | 40 | | | 1999 | | 2016 | | | 39 | |
Tampa | | FL | | | — | | | | 33 | | | | 2,094 | | | | — | | | | — | | | | 33 | | | | 2,094 | | | | 2,127 | | | | 114 | | | 2013 | | 2016 | | | 39 | |
Houston | | TX | | | — | | | | 405 | | | | 2,586 | | | | — | | | | — | | | | 405 | | | | 2,586 | | | | 2,991 | | | | 151 | | | 2002 | | 2016 | | 15-39 | |
Mt. Dora | | FL | | | — | | | | 1,338 | | | | 4,788 | | | | — | | | | — | | | | 1,338 | | | | 4,788 | | | | 6,126 | | | | 482 | | | 1988 | | 2015 | | 15-39 | |
Mt. Dora | | FL | | | — | | | | 477 | | | | 691 | | | | — | | | | — | | | | 477 | | | | 691 | | | | 1,168 | | | | 92 | | | 1987 | | 2015 | | 15-39 | |
Summerfield | | FL | | | — | | | | 295 | | | | 2,146 | | | | — | | | | — | | | | 295 | | | | 2,146 | | | | 2,441 | | | | 216 | | | 2000 | | 2015 | | 15-39 | |
Summerfield | | FL | | | — | | | | 362 | | | | 2,632 | | | | — | | | | — | | | | 362 | | | | 2,632 | | | | 2,994 | | | | 265 | | | 2008 | | 2015 | | 15-39 | |
Leesburg | | FL | | | — | | | | 402 | | | | 1,869 | | | | — | | | | — | | | | 402 | | | | 1,869 | | | | 2,271 | | | | 201 | | | 1994 | | 2015 | | 15-39 | |
Tempe | | AZ | | | — | | | | 1,181 | | | | 14,580 | | | | — | | | | — | | | | 1,181 | | | | 14,580 | | | | 15,761 | | | | 1,529 | | | 2006 | | 2015 | | 15-39 | |
Lincoln | | NE | | | — | | | | 1,300 | | | | 13,163 | | | | — | | | | — | | | | 1,300 | | | | 13,163 | | | | 14,463 | | | | 1,319 | | | 1973 | | 2015 | | 15-39 | |
North Little Rock | | AR | | | — | | | | 532 | | | | 51,843 | | | | — | | | | — | | | | 532 | | | | 51,843 | | | | 52,375 | | | | 4,391 | | | 2005 | | 2015 | | 15-39 | |
Worthington | | OH | | | — | | | | 264 | | | | 12,053 | | | | — | | | | — | | | | 264 | | | | 12,053 | | | | 12,317 | | | | 878 | | | 1979 | | 2016 | | 15-39 | |
Carmel | | IN | | | — | | | | 243 | | | | 3,519 | | | | — | | | | — | | | | 243 | | | | 3,519 | | | | 3,762 | | | | 343 | | | 2006 | | 2016 | | 15-39 | |
Copley | | OH | | | — | | | | 104 | | | | 6,359 | | | | — | | | | — | | | | 104 | | | | 6,359 | | | | 6,463 | | | | 245 | | | 1996 | | 2017 | | 15-39 | |
Cleveland | | OH | | | — | | | | 323 | | | | 2,744 | | | | — | | | | — | | | | 323 | | | | 2,744 | | | | 3,067 | | | | 116 | | | 2007 | | 2017 | | 15-39 | |
Girard | | OH | | | — | | | | 75 | | | | 1,107 | | | | — | | | | — | | | | 75 | | | | 1,107 | | | | 1,182 | | | | 56 | | | 2003 | | 2017 | | 15-39 | |
Moraine (Dayton) | | OH | | | — | | | | 336 | | | | 3,654 | | | | — | | | | 2 | | | | 336 | | | | 3,656 | | | | 3,992 | | | | 128 | | | 2017 | | 2017 | | 15-39 | |
Commerce Township | | MI | | | — | | | | 412 | | | | 1,935 | | | | — | | | | 2 | | | | 412 | | | | 1,937 | | | | 2,349 | | | | 75 | | | 2007 | | 2017 | | 15-39 | |
Modesto | | CA | | | — | | | | 689 | | | | 19,200 | | | | — | | | | — | | | | 689 | | | | 19,200 | | | | 19,889 | | | | 1,226 | | | 1984 | | 2016 | | 15-39 | |
Modesto | | CA | | | — | | | | 300 | | | | 4,273 | | | | — | | | | — | | | | 300 | | | | 4,273 | | | | 4,573 | | | | 285 | | | 1984 | | 2016 | | 15-39 | |
Clinton Township | | MI | | | — | | | | 396 | | | | 6,694 | | | | — | | | | 35 | | | | 396 | | | | 6,729 | | | | 7,125 | | | | 328 | | | 2016 | | 2017 | | 15-39 | |
Westland | | MI | | | — | | | | 394 | | | | 6,106 | | | | — | | | | 9 | | | | 394 | | | | 6,115 | | | | 6,509 | | | | 286 | | | 1994 | | 2017 | | 15-39 | |
Lenoir | | NC | | | — | | | | 150 | | | | 3,622 | | | | — | | | | — | | | | 150 | | | | 3,622 | | | | 3,772 | | | | 167 | | | 2010 | | 2017 | | 15-39 | |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Morganton | | NC | | | — | | | | 164 | | | | 3,010 | | | | — | | | | — | | | | 164 | | | | 3,010 | | | | 3,174 | | | | 141 | | | 2000 | | 2017 | | 15-39 |
Rutherford College | | NC | | | — | | | | 130 | | | | 2,692 | | | | — | | | | — | | | | 130 | | | | 2,692 | | | | 2,822 | | | | 126 | | | 2007 | | 2017 | | 15-39 |
Hickory | | NC | | | — | | | | 473 | | | | 4,991 | | | | — | | | | — | | | | 473 | | | | 4,991 | | | | 5,464 | | | | 244 | | | 2000 | | 2017 | | 15-39 |
Newton | | NC | | | — | | | | 195 | | | | 1,085 | | | | — | | | | — | | | | 195 | | | | 1,085 | | | | 1,280 | | | | 56 | | | 1994 | | 2017 | | 15-39 |
Newton | | NC | | | — | | | | 101 | | | | 458 | | | | — | | | | — | | | | 101 | | | | 458 | | | | 559 | | | | 22 | | | 1998 | | 2017 | | 15-39 |
Wilson | | NC | | | — | | | | 547 | | | | 6,214 | | | | — | | | | 51 | | | | 547 | | | | 6,265 | | | | 6,812 | | | | 294 | | | 1993 | | 2017 | | 15-39 |
Overland Park | | KS | | | — | | | | 456 | | | | 3,789 | | | | — | | | | — | | | | 456 | | | | 3,789 | | | | 4,245 | | | | 147 | | | 2006 | | 2017 | | 15-39 |
Overland Park | | KS | | | — | | | | 205 | | | | 8,045 | | | | — | | | | — | | | | 205 | | | | 8,045 | | | | 8,250 | | | | 287 | | | 2016 | | 2017 | | 15-39 |
Overland Park | | KS | | | — | | | | 571 | | | | 3,715 | | | | — | | | | — | | | | 571 | | | | 3,715 | | | | 4,286 | | | | 173 | | | 1965 | | 2017 | | 15-39 |
Crestview Hills | | KY | | | 5,051 | | | | 192 | | | | 8,342 | | | | — | | | | — | | | | 192 | | | | 8,342 | | | | 8,534 | | | | 266 | | | 2005 | | 2017 | | 15-39 |
Pittsburg | | KS | | | — | | | | 103 | | | | 2,264 | | | | — | | | | — | | | | 103 | | | | 2,264 | | | | 2,367 | | | | 70 | | | 2016 | | 2017 | | 15-39 |
Prairieville | | LA | | | — | | | | 369 | | | | 3,275 | | | | — | | | | — | | | | 369 | | | | 3,275 | | | | 3,644 | | | | 103 | | | 2016 | | 2017 | | 15-39 |
Charlotte | | NC | | | — | | | | 825 | | | | 4,969 | | | | — | | | | 14 | | | | 825 | | | | 4,983 | | | | 5,808 | | | | 151 | | | 1989 | | 2017 | | 15-39 |
Tulsa | | OK | | | — | | | | 734 | | | | 3,143 | | | | — | | | | — | | | | 734 | | | | 3,143 | | | | 3,877 | | | | 97 | | | 2016 | | 2017 | | 15-39 |
Rhinelander | | WI | | | — | | | | 55 | | | | 1,689 | | | | — | | | | — | | | | 55 | | | | 1,689 | | | | 1,744 | | | | 55 | | | 2013 | | 2017 | | 15-39 |
Charlotte | | NC | | | — | | | | 534 | | | | 1,101 | | | | — | | | | — | | | | 534 | | | | 1,101 | | | | 1,635 | | | | 58 | | | 1999 | | 2017 | | 15-39 |
Zionsville | | IN | | | — | | | | 591 | | | | 4,243 | | | | — | | | | — | | | | 591 | | | | 4,243 | | | | 4,834 | | | | 25 | | | 2016 | | 2018 | | 15-39 |
Noblesville | | IN | | | — | | | | — | | | | 6,216 | | | | — | | | | — | | | | — | | | | 6,216 | | | | 6,216 | | | | 33 | | | 2017 | | 2018 | | 15-39 |
Warren | | MI | | | — | | | | 110 | | | | 1,604 | | | | — | | | | — | | | | 110 | | | | 1,604 | | | | 1,714 | | | | 9 | | | 1998 | | 2018 | | 15-39 |
Tullahoma | | TN | | | — | | | | 114 | | | | 3,674 | | | | — | | | | — | | | | 114 | | | | 3,674 | | | | 3,788 | | | | 22 | | | 2003 | | 2018 | | 15-39 |
Brandon | | FL | | | — | | | | 475 | | | | 2,438 | | | | — | | | | — | | | | 475 | | | | 2,438 | | | | 2,913 | | | | 3 | | | 2008 | | 2018 | | 15-39 |
Atlanta | | GA | | | — | | | | 2,397 | | | | 12,271 | | | | — | | | | — | | | | 2,397 | | | | 12,271 | | | | 14,668 | | | | 14 | | | 1999 | | 2018 | | 15-39 |
Northfield | | IL | | | — | | | | 548 | | | | 4,184 | | | | — | | | | — | | | | 548 | | | | 4,184 | | | | 4,732 | | | | 5 | | | 1964 | | 2018 | | 15-39 |
Ann Arbor | | MI | | | — | | | | 209 | | | | 562 | | | | — | | | | — | | | | 209 | | | | 562 | | | | 771 | | | | 1 | | | 1954 | | 2018 | | 15-39 |
Southfield | | MI | | | — | | | | 1,013 | | | | 14,967 | | | | — | | | | — | | | | 1,013 | | | | 14,967 | | | | 15,980 | | | | 17 | | | 2004 | | 2018 | | 15-39 |
Clearwater | | FL | | | — | | | | 819 | | | | 961 | | | | — | | | | — | | | | 819 | | | | 961 | | | | 1,780 | | | | 1 | | | 1977 | | 2018 | | 15-39 |
Arlington | | TX | | | — | | | | 1,931 | | | | 15,873 | | | | — | | | | — | | | | 1,931 | | | | 15,873 | | | | 17,804 | | | | 18 | | | 2015 | | 2018 | | 15-39 |
Naperville | | IL | | | — | | | | 711 | | | | 5,349 | | | | — | | | | — | | | | 711 | | | | 5,349 | | | | 6,060 | | | | 6 | | | 2005 | | 2018 | | 15-39 |
Yorkville | | IL | | | — | | | | 234 | | | | 4,003 | | | | — | | | | — | | | | 234 | | | | 4,003 | | | | 4,237 | | | | 5 | | | 2000 | | 2018 | | 15-39 |
Yorkville | | IL | | | — | | | | 260 | | | | 1,944 | | | | — | | | | — | | | | 260 | | | | 1,944 | | | | 2,204 | | | | 2 | | | 2006 | | 2018 | | 15-39 |
Sycamore | | IL | | | — | | | | 152 | | | | 3,621 | | | | — | | | | — | | | | 152 | | | | 3,621 | | | | 3,773 | | | | 4 | | | 1999 | | 2018 | | 15-39 |
Sycamore | | IL | | | — | | | | 13 | | | | 282 | | | | — | | | | — | | | | 13 | | | | 282 | | | | 295 | | | | — | | | 1999 | | 2018 | | 15-39 |
Sandwich | | IL | | | — | | | | 315 | | | | 4,876 | | | | — | | | | — | | | | 315 | | | | 4,876 | | | | 5,191 | | | | 6 | | | 1995 | | 2018 | | 15-39 |
Olympia Fields | | IL | | | — | | | | 565 | | | | 5,698 | | | | — | | | | — | | | | 565 | | | | 5,698 | | | | 6,263 | | | | 7 | | | 2007 | | 2018 | | 15-39 |
Shelby | | NC | | | — | | | | 124 | | | | 2,217 | | | | — | | | | — | | | | 124 | | | | 2,217 | | | | 2,341 | | | | 2 | | | 2006 | | 2018 | | 15-39 |
Lacey | | WA | | | — | | | | 2,441 | | | | 15,769 | | | | — | | | | — | | | | 2,441 | | | | 15,769 | | | | 18,210 | | | | 18 | | | 2004 | | 2018 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
Aberdeen | | WA | | | — | | | | 899 | | | | 4,482 | | | | — | | | | — | | | | 899 | | | | 4,482 | | | | 5,381 | | | | 5 | | | 2007 | | 2018 | | 15-39 |
Bremerton | | WA | | | — | | | | 140 | | | | 3,154 | | | | — | | | | — | | | | 140 | | | | 3,154 | | | | 3,294 | | | | 4 | | | 1999 | | 2018 | | 15-39 |
Spartanburg | | SC | | | — | | | | 251 | | | | 3,821 | | | | — | | | | — | | | | 251 | | | | 3,821 | | | | 4,072 | | | | 5 | | | 2006 | | 2018 | | 15-39 |
Newport News | | VA | | | — | | | | 831 | | | | 3,977 | | | | — | | | | — | | | | 831 | | | | 3,977 | | | | 4,808 | | | | 5 | | | 2004 | | 2018 | | 15-39 |
Newport News | | VA | | | — | | | | 587 | | | | 3,466 | | | | — | | | | — | | | | 587 | | | | 3,466 | | | | 4,053 | | | | 4 | | | 2006 | | 2018 | | 15-39 |
Hanover | | PA | | | — | | | | 80 | | | | 3,752 | | | | — | | | | — | | | | 80 | | | | 3,752 | | | | 3,832 | | | | 4 | | | 2003 | | 2018 | | 15-39 |
Roanoke | | VA | | | — | | | | 267 | | | | 3,027 | | | | — | | | | — | | | | 267 | | | | 3,027 | | | | 3,294 | | | | 3 | | | 1990 | | 2018 | | 15-39 |
Wayland | | MI | | | — | | | | 373 | | | | 2,592 | | | | — | | | | — | | | | 373 | | | | 2,592 | | | | 2,965 | | | | 3 | | | 1999 | | 2018 | | 15-39 |
Johnson City | | NY | | | — | | | | 357 | | | | 4,934 | | | | — | | | | — | | | | 357 | | | | 4,934 | | | | 5,291 | | | | 5 | | | 1970 | | 2018 | | 15-39 |
Bradenton | | FL | | | — | | | | 547 | | | | 5,055 | | | | — | | | | — | | | | 547 | | | | 5,055 | | | | 5,602 | | | | 6 | | | 1984 | | 2018 | | 15-39 |
Bradenton | | FL | | | — | | | | 292 | | | | 2,085 | | | | — | | | | — | | | | 292 | | | | 2,085 | | | | 2,377 | | | | 2 | | | 1982 | | 2018 | | 15-39 |
Bradenton | | FL | | | — | | | | 112 | | | | 1,167 | | | | — | | | | — | | | | 112 | | | | 1,167 | | | | 1,279 | | | | 1 | | | 1982 | | 2018 | | 15-39 |
Bradenton | | FL | | | — | | | | 274 | | | | 1,589 | | | | — | | | | — | | | | 274 | | | | 1,589 | | | | 1,863 | | | | 2 | | | 1995 | | 2018 | | 15-39 |
Ruskin | | FL | | | — | | | | 203 | | | | 1,526 | | | | — | | | | — | | | | 203 | | | | 1,526 | | | | 1,729 | | | | 3 | | | 2004 | | 2018 | | 15-39 |
Office Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Union Grove | | WI | | | — | | | | 85 | | | | 340 | | | | — | | | | — | | | | 85 | | | | 340 | | | | 425 | | | | 59 | | | 1993 | | 2012 | | 15-39 |
Milwaukee | | WI | | | — | | | | 668 | | | | 5,650 | | | | — | | | | — | | | | 668 | | | | 5,650 | | | | 6,318 | | | | 647 | | | 1989 | | 2014 | | 15-39 |
Mt. Pleasant | | TX | | | — | | | | 2,214 | | | | 3,717 | | | | — | | | | — | | | | 2,214 | | | | 3,717 | | | | 5,931 | | | | 573 | | | 2008 | | 2014 | | 15-39 |
Harleysville | | PA | | | — | | | | 3,513 | | | | 24,767 | | | | — | | | | — | | | | 3,513 | | | | 24,767 | | | | 28,280 | | | | 2,167 | | | 1950 | | 2016 | | 15-39 |
Harrisburg | | PA | | | — | | | | 958 | | | | 19,060 | | | | — | | | | — | | | | 958 | | | | 19,060 | | | | 20,018 | | | | 1,439 | | | 1976 | | 2016 | | 15-39 |
Wood Dale | | IL | | | — | | | | 2,806 | | | | 8,726 | | | | — | | | | — | | | | 2,806 | | | | 8,726 | | | | 11,532 | | | | 659 | | | 1986 | | 2016 | | 15-39 |
Milpitas | | CA | | | — | | | | 1,478 | | | | 8,164 | | | | — | | | | — | | | | 1,478 | | | | 8,164 | | | | 9,642 | | | | 501 | | | 1982 | | 2016 | | 15-39 |
Austin | | TX | | | — | | | | 300 | | | | 29,681 | | | | — | | | | 8,649 | | | | 300 | | | | 38,330 | | | | 38,630 | | | | 2,312 | | | 1984 | | 2016 | | 7-39 |
Melbourne | | FL | | | — | | | | 1,701 | | | | 12,141 | | | | — | | | | — | | | | 1,701 | | | | 12,141 | | | | 13,842 | | | | 723 | | | 2012 | | 2016 | | 15-39 |
Pittsford | | NY | | | — | | | | 40 | | | | 29,530 | | | | — | | | | 1,000 | | | | 40 | | | | 30,530 | | | | 30,570 | | | | 1,243 | | | 1975 | | 2017 | | 15-39 |
Mesa | | AZ | | | — | | | | 785 | | | | 5,034 | | | | — | | | | — | | | | 785 | | | | 5,034 | | | | 5,819 | | | | 162 | | | 1998 | | 2017 | | 15-39 |
Albuquerque | | NM | | | — | | | | 987 | | | | 11,357 | | | | — | | | | 3 | | | | 987 | | | | 11,360 | | | | 12,347 | | | | 346 | | | 1996 | | 2017 | | 15-39 |
Jacksonville | | FL | | | — | | | | 1,251 | | | | 19,784 | | | | — | | | | — | | | | 1,251 | | | | 19,784 | | | | 21,035 | | | | 598 | | | 1984 | | 2017 | | 15-39 |
Troy | | MI | | | — | | | | 1,665 | | | | 19,798 | | | | — | | | | 1 | | | | 1,665 | | | | 19,799 | | | | 21,464 | | | | 618 | | | 1984 | | 2017 | | 15-39 |
Tampa | | FL | | | — | | | | 3,954 | | | | 10,732 | | | | — | | | | — | | | | 3,954 | | | | 10,732 | | | | 14,686 | | | | 215 | | | 1984 | | 2018 | | 15-39 |
Carrollton | | TX | | | — | | | | 3,743 | | | | 28,025 | | | | — | | | | — | | | | 3,743 | | | | 28,025 | | | | 31,768 | | | | 357 | | | 1999 | | 2018 | | 15-39 |
Other Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rochester | | NY | | | 4,692 | | | | 589 | | | | 9,872 | | | | — | | | | — | | | | 589 | | | | 9,872 | | | | 10,461 | | | | 2,420 | | | 2001 | | 2010 | | 15-39 |
Knoxville | | TN | | | — | | | | 744 | | | | 2,246 | | | | — | | | | — | | | | 744 | | | | 2,246 | | | | 2,990 | | | | 576 | | | 1975 | | 2011 | | 15-39 |
Melbourne | | FL | | | — | | | | 809 | | | | 3,235 | | | | — | | | | — | | | | 809 | | | | 3,235 | | | | 4,044 | | | | 678 | | | 1998 | | 2012 | | 15-39 |
Groveport | | OH | | | — | | | | 710 | | | | 5,087 | | | | — | | | | — | | | | 710 | | | | 5,087 | | | | 5,797 | | | | 817 | | | 1979 | | 2014 | | 15-39 |
| | | | | | | | | | | | | | | | Costs Capitalized | | | | | | | | | | | | | | | | | | | | | | | Life on |
| | | | | | | | Initial Costs to | | | Subsequent | | | Gross Amount at Which Carried at | | | | | | | | | | | Which |
| | | | | | | | Company(A) | | | to Acquisition | | | Close of Period | | | | | | | | | | | Depreciation |
| | | | | | | | | | | | Buildings and | | | | | | | | | | | | | | | Buildings and | | | | | | | Accumulated | | | Date of | | Date | | is Computed |
City | | State | | Encumbrance | | | Land | | | Improvements | | | Land | | | Improvements | | | Land | | | Improvements | | | Total(B) | | | Depreciation | | | Construction | | Acquired | | (Years) |
West Valley City | | UT | | | — | | | | 1,336 | | | | 5,822 | | | | — | | | | 10,000 | | | | 1,336 | | | | 15,822 | | | | 17,158 | | | | 2,610 | | | 1998 | | 2014 | | 15-39 |
San Jose | | CA | | | — | | | | 914 | | | | 2,704 | | | | — | | | | — | | | | 914 | | | | 2,704 | | | | 3,618 | | | | 238 | | | 1920 | | 2016 | | 15-27.5 |
Norman | | OK | | | — | | | | 68 | | | | 5,358 | | | | — | | | | — | | | | 68 | | | | 5,358 | | | | 5,426 | | | | 472 | | | 1965 | | 2016 | | 15-27.5 |
Corvallis | | OR | | | — | | | | 122 | | | | 1,114 | | | | — | | | | — | | | | 122 | | | | 1,114 | | | | 1,236 | | | | 100 | | | 1939 | | 2016 | | 15-27.5 |
Oneonta | | NY | | | — | | | | 23 | | | | 838 | | | | — | | | | — | | | | 23 | | | | 838 | | | | 861 | | | | 36 | | | 1893 | | 2017 | | 15-27.5 |
Lexington | | KY | | | — | | | | 28 | | | | 2,605 | | | | — | | | | — | | | | 28 | | | | 2,605 | | | | 2,633 | | | | 109 | | | 1985 | | 2017 | | 15-27.5 |
Tallahassee | | FL | | | 6,467 | | | | 74 | | | | 7,476 | | | | — | | | | — | | | | 74 | | | | 7,476 | | | | 7,550 | | | | 310 | | | 2015 | | 2017 | | 15-27.5 |
Greenville | | NC | | | — | | | | 122 | | | | 1,700 | | | | — | | | | — | | | | 122 | | | | 1,700 | | | | 1,822 | | | | 74 | | | 1923 | | 2017 | | 15-27.5 |
Indianapolis | | IN | | | — | | | | 1,086 | | | | 18,552 | | | | — | | | | 1,050 | | | | 1,086 | | | | 19,602 | | | | 20,688 | | | | 620 | | | 1995 | | 2017 | | 15-39 |
Acquisitions in Progress(C) | | | | | — | | | | — | | | | 202 | | | | — | | | | — | | | | — | | | | 202 | | | | 202 | | | | | | | | | | | |
Total(D) | | | | $ | 79,451 | | | $ | 410,546 | | | $ | 2,399,494 | | | $ | 497 | | | $ | 38,198 | | | $ | 411,043 | | | $ | 2,437,692 | | | $ | 2,848,735 | | | $ | 206,989 | | | | | | | |
Notes:
| (A) | (A)
| The initial cost to the Company represents the original purchase price of the property (see Note 4)5). |
| (B) | (B)
| The aggregate cost of real estate owned as of December 31, 20182021 for U.S. federal income tax purposes was approximately $3,000,000. $4.4 billion. |
| (C) | (C)
| Acquisition costs in progress represents costs incurred during the year ended December 31, 20182021 related to asset acquisitions expected to close during the year ended December 31, 2019. 2022. |
| (D) | (D)
| This schedule excludes properties subject to leases that are classified as direct financing leases. leases, sales-type leases, as well as the value of right-of-use assets recorded on certain of the properties where the Company is lessee under a ground lease. |
Change in Total Real Estate Assets
| | For the years ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Balance, beginning of period | | $ | 2,334,524 | | | $ | 1,743,403 | | | $ | 1,306,515 | |
Acquisitions and building improvements | | | 568,036 | | | | 640,961 | | | | 469,460 | |
Dispositions | | | (51,950 | ) | | | (47,181 | ) | | | (32,572 | ) |
Impairment | | | (1,875 | ) | | | (2,659 | ) | | | — | |
Balance, end of period | | $ | 2,848,735 | | | $ | 2,334,524 | | | $ | 1,743,403 | |
| | | For the Year Ended December 31, | |
| | | | | | | | | | |
| Balance, beginning of period | | $ | 3,704,488 | | | $ | 3,686,444 | | | $ | 2,848,735 | |
| Acquisitions and building improvements | | | 613,646 | | | | 108,868 | | | | 984,760 | |
| Dispositions | | | (109,761 | ) | | | (69,941 | ) | | | (143,688 | ) |
| Impairment | | | (3,182 | ) | | | (20,883 | ) | | | (3,363 | ) |
| | | | | | | | | | | | | |
| Balance, end of period | | $ | 4,205,191 | | | $ | 3,704,488 | | | $ | 3,686,444 | |
| | | | | | | | | | | | | |
Change in Accumulated Depreciation
| | For the years ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Balance, beginning of period | | $ | 148,383 | | | $ | 105,703 | | | $ | 70,171 | |
Acquisitions and building improvements | | | 66,156 | | | | 49,832 | | | | 37,976 | |
Dispositions | | | (7,376 | ) | | | (6,942 | ) | | | (2,444 | ) |
Impairment | | | (174 | ) | | | (210 | ) | | | — | |
Balance, end of period | | $ | 206,989 | | | $ | 148,383 | | | $ | 105,703 | |
| | | For the Year Ended December 31, | |
| | | | | | | | | | |
| Balance, beginning of period | | $ | 349,977 | | | $ | 271,044 | | | $ | 206,989 | |
| Acquisitions and building improvements | | | 100,878 | | | | 93,741 | | | | 83,797 | |
| Dispositions | | | (19,543 | ) | | | (12,369 | ) | | | (19,317 | ) |
| Impairment | | | (1,171 | ) | | | (2,439 | ) | | | (425 | ) |
| | | | | | | | | | | | | |
| Balance, end of period | | $ | 430,141 | | | $ | 349,977 | | | $ | 271,044 | |
| | | | | | | | | | | | | |
| Changes in and Disagreements with AccountantsAccountants on Accounting and Financial Disclosure.
|
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 year ended December 31,
2018,2021, 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.
Management's
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
Internal Control — Control—Integrated Framework (2013)
2018.2021.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There werehave been no changes toin our internal control over financial reporting during the quarter ended December 31, 2018,2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Broadstone Net Lease, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Broadstone Net Lease, Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established inInternal Control—Integrated Framework (2013)
Internal Control—Integrated Framework (2013)
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 23, 2022, expressed an unqualified opinion on those financial statements.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
| Disclosure Regarding Foreign Jurisdictions That Prevent Inspections. |
|
Directors, Executive Officers, and Corporate Governance. |
The information required by this Item will be set forth underincluded in the captions Information About Director Nominees, Executive Officers of the Companydefinitive proxy statement and Section 16(a) Beneficial Ownership Reporting Compliance in our Proxy Statement and areis incorporated herein by reference. The Company will file such definitive proxy statement with the SEC pursuant to Regulation 14A no later than 120 days after the end of the Company’s 2021 fiscal year covered by this Annual Report on Form 10-K.
The information required by this Item will be set forth under the captions Executive Compensation, Director Compensation, and Compensation Committee Interlocks and Insider Participationincluded in the Proxy Statementdefinitive proxy statement and areis incorporated herein by reference. The Company will file such definitive proxy statement with the SEC pursuant to Regulation 14A no later than 120 days after the end of the Company’s 2021 fiscal year covered by this Annual Report on Form 10-K.
|
Security Ownership of Certain Beneficial Owners and Management. |
The information required by this Item will be set forth under the caption Security Ownership of Certain Beneficial Owners and Managementincluded in the Proxy Statementdefinitive proxy statement and is incorporated herein by reference. The Company will file such definitive proxy statement with the SEC pursuant to Regulation 14A no later than 120 days after the end of the Company’s 2021 fiscal year covered by this Annual Report on Form 10-K.
|
Certain Relationships and Related Transactions and Director Independence. |
The information required by this Item will be
set forth under the captions Director Independence and Related Party Transactions and Certain Relationships and Related Transactions included in the
Proxy Statementdefinitive proxy statement and is incorporated herein by reference.
Item 14.Principal Accountant Fees and Services.
The Company will file such definitive proxy statement with the SEC pursuant to Regulation 14A no later than 120 days after the end of the Company’s 2021 fiscal year covered by this Annual Report on Form 10-K.
| Principal Accountant Fees and Services. |
The information required by this Item will be set forth under the caption Proposal No. 2 : Ratification of the Appointment of Independent Registered Public Accounting Firmincluded in the Proxy Statementdefinitive proxy statement and is incorporated herein by reference. The Company will file such definitive proxy statement with the SEC pursuant to Regulation 14A no later than 120 days after the end of the Company’s 2021 fiscal year covered by this Annual Report on Form 10-K.
|
Exhibits and Financial Statement Schedules. |
See Item 8. “Financial Statements and Supplementary Data” of this
Annual Report on Form 10-K.
Financial Statement Schedules
See Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. All other schedules are omitted because they are not applicable or because the required information is shown in the financial statements or the notes thereto.
Exhibit No.
| | Description
|
| | |
3.1
| |
| 3.1 | | |
| | |
3.2 | | |
| |
| 3.3 | | |
| |
| 3.4 | | |
| |
| 3.5 | | |
| |
| 4.1* | | |
| |
| 4.2 | | |
| |
| 4.3 | | |
| |
| 10.1 | | |
| |
| 10.2* | | |
| |
| 10.3 | | |
| | |
4.1
10.4 | | Broadstone Net Lease, Inc. Distribution Reinvestment Plan (filed as Exhibit 4.1 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
4.2
| | Broadstone Net Lease, Inc. Share Redemption Program (filed as Exhibit 4.2 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
4.3
| | Amended and Restated Broadstone Net Lease, Inc. Share Redemption Program, dated June 28, 2017 (filed as Exhibit 4.2 to the Company’s Amended Registration on Form 10 filed June 29, 2017 and incorporated herein by reference)
|
| | |
10.1
| | Amended and Restated Asset Management Agreement, dated February 8, 2013, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC and Broadstone Asset Management, LLC (filed as Exhibit 10.1 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.2
| | Second Amended and Restated Property Management Agreement, dated December 31, 2007, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC and Broadstone Real Estate, LLC (filed as Exhibit 10.2 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.3
| | Amendment No. 1 to Amended and Restated Asset Management Agreement, dated June 30, 2015, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC and Broadstone Asset Management, LLC (filed as Exhibit 10.3 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.4
| | Amendment No. 1 to Second Amended and Restated Property Management Agreement, dated June 30, 2015, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC and Broadstone Real Estate, LLC (filed as Exhibit 10.4 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.5
| | Credit Agreement, dated October 2, 2012, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (the “Credit Agreement”) (filed as Exhibit 10.5 to the Company’s Amended Registration Statement on Form 10 filed June 1, 2017 and incorporated herein by reference)
|
| | |
10.6
| | First Amendment to Credit Agreement, dated as of June 27, 2014, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.6 to the Company’s Amended Registration Statement on Form 10 filed June 1, 2017 and incorporated herein by reference)
|
| | |
10.7
| | Second Amendment to Credit Agreement, dated as of December 22, 2014, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.7 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.8
| | Third Amendment to Credit Agreement, dated as of November 6, 2015, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.8 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
Exhibit No.
| | Description
|
| | |
10.9
| | Fourth Amendment to Credit Agreement, dated as of June 30, 2016, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.9 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.10
| | Fifth Amendment to Credit Agreement, dated as of December 23, 2016, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.10 to the Company’s Registration Statement on Form 10 filed on April 24, 2017 and incorporated herein by reference)
|
| | |
10.11
| | Sixth Amendment to Credit Agreement, dated as of March 23, 2017, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.11 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.12
| | Term Loan Agreement, dated May 24, 2013, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC and Regions Bank (“Regions Term Loan Agreement”) (filed as Exhibit 10.12 to the Company’s Amended Registration Statement on Form 10 filed June 1, 2017 and incorporated herein by reference)
|
| | |
10.13
| | First Amendment to Regions Term Loan Agreement, dated as of October 11, 2013, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC and Regions Bank, as administrative agent, and the lenders party thereto (filed as Exhibit 10.13 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.14
| | Second Amendment to Regions Term Loan Agreement, dated as of November 6, 2015, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Regions Bank, as administrative agent, and the lenders party thereto (filed as Exhibit 10.14 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.15
| | Third Amendment to Regions Term Loan Agreement, dated as of June 30, 2016, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Regions Bank, as administrative agent, and the lenders party thereto (filed as Exhibit 10.15 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.16
| | Fourth Amendment to Regions Term Loan Agreement, dated as of December 23, 2016, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Regions Bank, as administrative agent, and the lenders party thereto (filed as Exhibit 10.16 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.17
| | Term Loan Agreement, dated November 6, 2015, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, SunTrust Bank, as administrative agent, and the lenders party thereto (“SunTrust Term Loan Agreement”) (filed as Exhibit 10.17 to the Company’s Amended Registration Statement on Form 10 filed June 1, 2017 and incorporated herein by reference)
|
| | |
10.18
| | First Amendment to SunTrust Term Loan Agreement, dated as of June 30, 2016, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, SunTrust Bank, as administrative agent, and the lenders party thereto (filed as Exhibit 10.18 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.19
| | Second Amendment to SunTrust Term Loan Agreement, dated as of December 23, 2016, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, SunTrust Bank, as administrative agent, and the lenders party thereto (filed as Exhibit 10.19 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.20
| | Guaranty, dated October 2, 2012, by Broadstone Net Lease, Inc. and Broadstone Net Lease, LLC in favor of Manufacturers and Traders Trust Company, as administrative agent, and the lenders party to the Credit Agreement (filed as Exhibit 10.20 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
Exhibit No.
| | Description
|
| | |
10.21
| | Guaranty, dated May 24, 2013, by Broadstone Net Lease, Inc. and Broadstone Net Lease, LLC in favor of Regions Bank, as administrative agent, and the lenders party to the Regions Term Loan Agreement (filed as Exhibit 10.21 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.22
| | Guaranty, dated November 6, 2015, by Broadstone Net Lease, Inc. and Broadstone Net Lease, LLC in favor of SunTrust Bank, as administrative agent, and the lenders party to the SunTrust Term Loan Agreement (filed as Exhibit 10.22 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.23
| | Note and Guaranty Agreement, dated March 16, 2017, for 4.84% Guaranteed Senior Notes due April 18, 2027, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, and the purchasers party thereto (filed as Exhibit 10.23 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference) |
| | |
10.24
10.5 | | Director Compensation and Stock Ownership Policy, effective as of January 1, 2017 (filed as Exhibit 10.24 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.25
| | Form of Indemnification Agreement, between Broadstone Net Lease, Inc. and each of its officers and directors (filed as Exhibit 10.25 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)
|
| | |
10.26
| | Seventh Amendment to Credit Agreement, dated as of May 25, 2017, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.26 to the Company’s Amended Registration Statement on Form 10 filed June 1, 2017 and incorporated herein by reference)
|
| | |
10.27
| | Revolving Credit and Term Loan Agreement, dated as of June 23, 2017, by and among Broadstone Net Lease, LLC, Broadstone Net Lease, Inc., Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 29, 2017, and incorporated herein by reference) |
| | |
10.28
10.6 | | Amended and Restated Term Loan Agreement, dated as of June 23, 2017, by and among Broadstone Net Lease, LLC, Broadstone Net Lease, Inc., SunTrust Bank, as administrative agent, and the lenders party thereto (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 29, 2017, and incorporated herein by reference) |
| | |
10.29
| | Director Compensation and Stock Ownership Policy, effective as of January 1, 2018 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 13, 2017, and incorporated herein by reference)
|
| | |
10.30
| | Consent and Agreement Regarding Commitment Increases and Additional Term Loans, dated as of November 20, 2017,by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.1 onto the Company’s Current Report on Form 8-K filed November 27, 2017, and incorporated herein by reference) |
| | |
| 10.7 | | |
10.31
| | Second Amended and Restated Asset Management Agreement, effective as of January 1, 2018,First Amendment Regarding Commitment Increases, dated February 28, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Broadstone Asset Management, LLCTraders Trust Company and the other parties thereto (filed as Exhibit 10.1 on10.2 to the Company’s Current Report on Form 8-K filed December 22, 2017,March 5, 2019, and incorporated herein by reference) |
| | |
10.32
10.8 | | Third AmendedSecond Amendment to Revolving Credit and Restated Property ManagementTerm Loan Agreement, effectivedated as of JanuaryJuly 1, 2018,2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Broadstone Real Estate, LLCTraders Trust Company, and other parties thereto (filed as Exhibit 10.2 on10.1 to the Company’s Current Report on Form 8-K filed December 22, 2017,July 3, 2019, and incorporated herein by reference) |
Exhibit No.
| | Description
|
| | |
10.33
10.9 | | Third Amendment to Revolving Credit and Term Loan Agreement, dated as of September 21, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, and other parties thereto (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed September 21, 2020, and incorporated by reference) |
| |
| 10.10 | | Note and Guaranty Agreement, dated July 2, 2018, for 5.09% Series B Guaranteed Senior Notes due July 2, 2028 and 5.19% Series C Guaranteed Senior Notes due July 2, 2030, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, and the purchasers party thereto (filed as Exhibit 10.1 onto the Company’s Current Report on Form 8-K filed July 6, 2018, and incorporated herein by reference) |
| | |
21.1*
10.11 | | Term Loan Agreement, dated February 27, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Capital One, National Association, and the other parties thereto (“Capital One Term Loan Agreement”) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 5, 2019, and incorporated by reference) |
| |
| 10.12 | | |
| |
| 10.13 | | First Amendment to Capital One Term Loan Agreement, dated July 1, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed November 12, 2019, and incorporated by reference) |
| |
| 10.14 | | Second Amendment to Capital One Term Loan Agreement, dated September 21, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 21, 2020, and incorporated by reference) |
| |
| 10.15 | | Third Amendment to Capital One Term Loan Agreement, dated March 12, 2021, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 18, 2021, and incorporated by reference) |
| |
| 10.16 | | Term Loan Agreement, dated February 7, 2020, by and among Broadstone Net Lease, LLC, Broadstone Net Lease, Inc., JPMorgan Chase Bank, N.A., and the other lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) |
| |
| 10.17 | | Guaranty, dated February 7, 2020, by Broadstone Net Lease, Inc. in favor of JPMorgan Chase Bank, N.A (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) |
| |
| 10.18 | | Amendment No.1 to Term Loan Agreement, dated September 21, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, JP Morgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 21, 2020 and incorporated by reference) |
| | |
| 10.19 | | Revolving Credit Agreement, dated as of September 4, 2020, by and among Broadstone Net Lease, LLC, Broadstone Net Lease, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 11, 2020 and incorporated by reference) |
| |
| 10.20 | | Guaranty, dated September 4, 2020, by Broadstone Net Lease, Inc. in favor of JPMorgan Chase Bank, N.A (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 11, 2020 and incorporated by reference) |
| |
| 10.21 | | Amended and Restated Revolving Credit Agreement, dated as of January 28, 2022, by and among, Broadstone Net Lease, LLC, Broadstone Net Lease, Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 3, 2022 and incorporated by reference) |
| |
| 10.22 | | Guaranty, dated January 28, 2022, by Broadstone Net Lease, Inc. in favor of JPMorgan Chase Bank, N.A (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed February 3, 2022 and incorporated by reference) |
| |
| 10.23 | | |
| |
| 10.24 | | |
| |
| 10.25+ | | Amended and Restated Employment Agreement, effective February 7, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Christopher J. Czarnecki (filed as Exhibit 10.7 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) |
| |
| 10.26+ | | Amended and Restated Employment Agreement, effective February 7, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Ryan M. Albano (filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) |
| |
| 10.27+ | | Amended and Restated Employment Agreement, effective February 7, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Sean T. Cutt (filed as Exhibit 10.9 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) |
| |
| 10.28+ | | Amended and Restated Employment Agreement, effective February 7, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and John D. Moragne (filed as Exhibit 10.10 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference) |
| |
| 10.29+ | | |
| |
| 10.30+ | | |
| |
| 21.1* | | |
| | |
31.1*
23.1* | | |
| | |
| 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 |
| | |
101.1
101.INS | | The following materials fromInline XBRL Instance Document – the Company’s annual report on Form 10-K forinstance document does not appear in Interactive Data File because XBRL tags are embedded within the year ended December 31, 2017, formatted in Extensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, (v) Notes to Consolidated Financial Statements, and (vi) Schedule III Real Estate and Accumulated Depreciation.
|
*
| Filed herewith.
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) |
| + | Management contract or compensatory plan or arrangement. |
| † | In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference. |
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | |
| | | | | | BROADSTONE NET LEASE, INC. |
| | | |
Date: March 14, 2019 February 23, 2022 | | | | | | /s/ Christopher J. Czarnecki |
| | | | | | Christopher J. Czarnecki |
| | | | | | Chief Executive Officer and President |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 14, 2019
| | /s/ Amy L. Tait
| | | | |
| Date: February 23, 2022 | | Amy L. Tait
| | | | /s/ Laurie A. Hawkes |
| | | | | | Laurie A. Hawkes |
| | | | | | Chairman of the Board of Directors |
| | | |
Date: March 14, 2019 February 23, 2022 | | | | | | /s/ Christopher J. Czarnecki |
| | | | | | Christopher J. Czarnecki |
| | | | | | Director, Chief Executive Officer and President (Principal (Principal Executive Officer)
|
| | | |
Date: March 14, 2019 February 23, 2022 | | | | | | /s/ Laurie A. HawkesDenise Brooks-Williams |
| | Laurie A. Hawkes
| | | | Denise Brooks-Williams |
| | | | | | Director |
| | | |
Date: March 14, 2019 February 23, 2022 | | | | | | /s/ Michael A. Coke |
| | | | | | Michael A. Coke |
| | | | | | Director |
| | | |
| Date: February 23, 2022 | | | | | | /s/ David M. Jacobstein |
| | | | | | David M. Jacobstein |
| | | | | | Director |
| | | |
Date: March 14, 2019 February 23, 2022 | | | | | | /s/ Agha S. Khan |
| | | | | | Agha S. Khan |
| | | | | | Director |
| | | |
Date: March 14, 2019 February 23, 2022 | | /s/ Thomas P. Lydon, Jr.
|
| | Thomas P. Lydon, Jr.
|
| | Director
|
| | |
Date: March 14, 2019
| | /s/ Shekar Narasimhan |
| | | | | | Shekar Narasimhan |
| | | | | | Director |
| | | |
Date: March 14, 2019 February 23, 2022 | | | | | | /s/ Geoffrey H. Rosenberger |
| | | | | | Geoffrey H. Rosenberger |
| | | | | | Director |
| | | |
Date: March 14, 2019 February 23, 2022 | | | | | | /s/ James H. Watters |
| | | | | | James H. Watters |
| | | | | | Director |
| | | | | | |
| Date: February 23, 2022 | | |
Date: March 14, 2019
| | | | /s/ Ryan M. Albano |
| | | | | | Ryan M. Albano |
| | | | | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
| | | |
Date: March 14, 2019 February 23, 2022 | | | | | | /s/ Timothy D. Dieffenbacher |
| | | | | | Timothy D. Dieffenbacher |
| | | | | | Senior Vice President, Chief Accounting Officer and Treasurer (Principal Accounting Officer) |
140
