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

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

Indicate by check mark whether the ~~registrant:~~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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes☒ No ☐

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

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

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

There were ~~18,491,182.216~~187,204,038 shares of the ~~Registrant’s common stock, $0.001~~Registrants’ Common Stock, $0.00025 par value per share, outstanding as of ~~November 13, 2017.~~May 1, 2023.

The accompanying notes are an integral part of these condensed consolidated financial statements.

3. Acquisitions of Rental Property

The Company ~~did not have any assets measured at fair value~~closed on ~~a nonrecurring basis at December 31, 2016.~~

~~Taxes Collected From Tenants and Remitted to Governmental Authorities~~

~~Substantially all of~~ the Company’s leases are triple-net, which provide that the lessees are responsible for the payment of all property operating expenses, including property taxes, maintenance and insurance. The Company records such expenses on a net basis. Forfollowing acquisition during the three months ended September 30, 2017 and 2016, the Company’s tenants, pursuant to their lease obligations, have made direct payment for property taxes to the taxing authorities of approximately $2,448 and $1,609, respectively. For the nine months ended September 30, 2017 and 2016, the Company’s tenants, pursuant to their lease obligations, have made direct payment for property taxes to the taxing authorities of approximately $13,405 and $11,176, respectively.March 31, 2023:

In some 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 of $608 and $551 is included in Operating expenses reimbursed from tenants and expense of $885 and $718 is included in Property and operating expenses in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the three months ended September 30, 2017 and 2016, respectively. Taxes collected from tenants were $1,787 and $1,379, while taxes remitted to governmental authorities were $2,084 and $1,442 for the nine months ended September 30, 2017 and 2016, respectively.

~~Recently Adopted Accounting Standards~~

~~In January 2017, the Financial Accounting Standards Boards (“FASB”) issued ASU 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~ (“ASU 2017-01”), which 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. Under ASU 2017-01, the Company expects that most of its investments in real estate will be considered asset acquisitions. While there are various differences between accounting for an asset acquisition and a business combination, the largest impact is the capitalization of acquisition expenses for asset acquisitions, which are expensed for business combinations. ASU 2017-01 is effective, on a prospective basis, for interim and annual periods beginning after January 1, 2019, with early adoption permitted. The Company adopted the guidance, effective January 1, 2017. As a result of the adoption, the Company
(in thousands, except number of properties)

Number of

Real Estate

Date

Property Type

Properties

Acquisition Price

March 14, 2023

Retail

1

$
5,221

(a)

(a)

Acquisition price excludes capitalized ~~$6,583 of~~ acquisition costs ~~in connection with investments in real estate closed during the nine months ended September 30, 2017 that qualified as asset acquisitions under the adopted guidance.~~

of $0.1 million.

~~Other Recently Issued Accounting Standards~~

~~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. Currently, there is 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 currently reflects the change in restricted cash in its cash flows from investing activities. Upon adoption, these amounts will be included in the cash and cash equivalents balance when reconciling the beginning and end of period total amounts. For the nine months ended September 30, 2017 the decrease in restricted cash included in cash flows from investing activities was $543.

~~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 2016-18 is effective, on a retrospective basis, for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company has assessed the impact of adopting ASU 2016-15, noting the classification of debt extinguishment costs in the Condensed Consolidated Statement of Cash Flows is applicable to the Company, however, will have no impact as the Company currently classifies these as cash flows used in financing activities.

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 requires lessees to recognize a right-of-use asset and a corresponding lease liability, initially measured at the present value of lease payments, for both operating and financing leases. For leases with a term of 12 months or less, lessees will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. The Company does not have any material leases where the Company is the lessee. Under the new pronouncement, lessor accounting will be largely unchanged from existing GAAP. However, there are certain changes, including 1) accounting for non-lease components of leases and 2) lease classification tests. In adopting the new guidance, companies are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The amendments are effective January 1, 2019, with early adoption permitted. The Company is continuing to evaluate the impact that adoption of this guidance will have on its Condensed Consolidated Financial Statements and footnote disclosures until the guidance becomes effective.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. ASU 2014-09 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 and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,~~ ~~which defers the effective date of ASU 2014-09,~~ ~~Revenue from Contracts with Customers,~~ for all entities by one year. With the deferral, ASU 2014-09 is effective January 1, 2018, with early adoption permitted beginning January 1, 2017. While the Company anticipates additional disclosure, it does not expect the adoption of this pronouncement to have a material effect on the amount or timing of revenue recognized in its Condensed Consolidated Financial Statements as it believes its revenue, excluding revenue streams recognized in Other income from real estate transactions and Gain on sale of real estate, falls outside the scope of this guidance. The Company expects to adopt the guidance using the modified retrospective approach on January 1, 2018. The Company will, however, continue to evaluate the impact of this guidance until it becomes effective.

~~In February 2017, the FASB issued ASU 2017-05,~~ ~~Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets.~~ This new guidance is required to be adopted concurrently with the amendments in ASU 2014-09. The new pronouncement, which 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 currently recognizes revenue on sales of real estate at the time the asset is transferred (i.e., at the time of closing). Upon adoption of ASU 2014-09, and therefore ASU 2017-05, the Company will need to evaluate any separate contracts or performance obligations to determine proper timing of revenue recognition, as well as transaction price allocation. The Company does not expect the adoption of this pronouncement to have a material effect on the amount or timing of revenue recognized in its Condensed Consolidated Financial Statements. The Company expects to adopt the guidance using the modified retrospective approach on January 1, 2018. The Company will, however, continue to evaluate the impact of this guidance until it becomes effective.

~~3. Related-Party Transactions~~

~~Property Management Agreement~~

The Corporation and the Operating Company have entered into a property management agreement (the “Property Management Agreement”) with the Manager, a related party in which certain officers and directors of the Corporation have either a direct or indirect ownership interest. Under the terms of the Property Management Agreement, the Manager manages and coordinates certain aspects of the leasing of the Company’s rental property.

~~In exchange for various services provided under the Property Management Agreement, the Manager is compensated as outlined in the agreement.~~

In addition, the Manager may also provide, but is not obligated to provide, short-term financing to, or guarantees for, the Operating Company. In exchange for these services, the Manager is 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 outstanding or made during the nine months ended September 30, 2017 and 2016, respectively.

The initial term of the Property Management Agreement is effective through December 31, 2017, after which it automatically renews for successive one year periods, unless either party provides written notice of termination in accordance with the Property Management Agreement. The Corporation’s Independent Directors Committee (“IDC”) has approved the renewal of the Property Management Agreement through December 31, 2018. If the Corporation terminates the Property Management Agreement prior to any renewal term or the IDC terminates the agreement within 30 days following a change in control of the Manager (as defined in Property Management Agreement), the Corporation will be required to pay to the Manager 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 as of September 30, 2017, if the Property Management Agreement had been terminated at September 30, 2017 subject to the conditions noted above, the termination fee would have been $14,121.

~~Asset Management Agreement~~

The Corporation and the Operating Company have entered into an asset management agreement (the “Asset Management Agreement”) with the Asset Manager, a wholly-owned subsidiary of the Manager, and therefore a related party in which certain officers and directors of the Company have an indirect ownership interest. Under the terms of the Asset Management Agreement, the Asset Manager is responsible for, among other things, the Corporation’s acquisition, initial leasing, and disposition strategies, financing activities, and providing support to the IDC for its valuation functions and other duties. The Asset Manager also designates two individuals to serve on the Board of Directors of the Corporation.

Under the terms of the Asset Management Agreement, the Asset Manager receives an annual asset management fee (“Asset Management Fee”) equal to 1% of the aggregate value of the Corporation’s common stock, based on the Determined Share Value (as defined in Note 13) as determined by the IDC each quarter, on a fully diluted basis as if all interests in the Operating Company had been converted into shares of the Corporation’s common stock. Through December 31, 2017, compensation to the Asset Manager for any quarter will be deferred in whole or in part at any time during a rolling 12 month period when cumulative distributions are below $3.50 per share. Any deferred compensation under the Asset Management Agreement will accrue interest at the rate of 7% per annum until paid and will be paid from available funds after cumulative 12 month distributions equal $3.50 per share. No compensation to the Asset Manager was deferred during the nine months ended September 30, 2017 and 2016. In addition, the Company pays the Asset Manager, or its designee, a marketing fee equal to 0.5% of all contributions of cash or property to the Corporation or the Operating Company, excluding reinvestments of distributions pursuant to the Distribution Reinvestment Plan (See Note 13), as compensation for its internal and third party offering and marketing costs and expenses. The Asset Manager has the responsibility to cover offering, marketing, and brokerage expenses associated with investor related matters of the Corporation and Operating Company.

~~The Asset Management Agreement includes various other fees paid to the Asset Manager in exchange for services provided under the agreement, as noted in the table below.~~

The initial term of the Asset Management Agreement is effective through December 31, 2017, after which it automatically renews for successive one year periods, unless either party provides written notice of termination in accordance with the Asset Management Agreement. The IDC has approved the renewal of the agreement through December 31, 2018. If the Corporation terminates the agreement prior to any renewal term or the IDC terminates the agreement within thirty days following a change in control of the Asset Manager (as defined in the Asset Management Agreement), 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 as of September 30, 2017, if the Asset Management Agreement had been terminated at September 30, 2017 subject to the conditions noted above, the termination fee would have been $41,552. Total fees incurred under the Property Management Agreement and Asset Management Agreement for the three and nine months ended September 30, 2017 and 2016 are as follows:

For the three months ended

For the nine months ended

(in thousands)

September 30,

September 30,

Type of Fee

Financial Statement Presentation

2017

2016

2017

2016

Asset management fee

Asset management fees

$
3,844

$
2,789

$
10,666

$
7,770

Property management fee

Property management fees

1,249

1,010

3,635

2,868

Total management fee expense

5,093

3,799

14,301

10,638

Marketing fee

Additional paid-in capital

342

318

1,144

976

Acquisition fee

Capitalized as a component of assets acquired in 2017 (See Note 4) and included as acquisition expenses in 2016

1,591

1,354

3,520

3,810

Leasing fee

Leasing fees, net

801

797

2,597

2,827

Disposition fee

Gain on sale of real estate

219

23

522

61

Total management fees

$
8,046

$
6,291

$
22,084

$
18,312

Included in management fees are $1,688 and $364 of unpaid fees recorded in Due to related parties on the Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, respectively. All fees related to the Property Management Agreement and the Asset Management Agreement are paid for in cash within the Company’s normal payment cycle for vendors.

~~Legal Services~~

The Company retains the legal services of Vaisey Nicholson & Nearpass, PLLC (“VNN”), formerly a related party. One former minority partner of VNN is an immediate family member to a member of the management of the Company and an indirect minority owner of the Manager. Beginning January 2017, the family member was no longer an owner or partner of VNN and therefore, prospectively, VNN will no longer be deemed a related party. Legal services obtained from VNN are mainly for acquisition and disposition of real estate related matters, as well as general counsel regarding property management and financing. The IDC has reviewed the billings and other aspects of the relationship between VNN and the Company. The Company utilizes the services of other outside legal counsel as well. These fees are paid for in cash within the Company’s normal payment cycle for vendor payments. Included in these expenses are $527 of unpaid fees recorded in Accounts payable and other liabilities at September 30, 2016. The following table details the type of legal fees incurred from VNN for the three and nine months ended September 30, 2016:

(in thousands)

Financial Statement

For the three months ended

For the nine months ended

Type of Fee

Presentation

September 30, 2016

September 30, 2016

Legal services – general

General and administrative

$
107

$
276

Organization costs

General and administrative

4

18

111

294

Finance related

Debt issuance costs^(a)

47

94

Acquisition related fees

Acquisition expenses

89

1,756

Property disposition related

Gain on sale of real estate

34

34

Legal services - tenant related

Property and operating expenses

28

40

Total related party legal expenses

$
309

$
2,218

^(a)	~~Amounts are recorded within Debt issuance costs – unsecured revolver, net, Mortgage and notes payable, net, and Unsecured term notes, net, on the accompanying Condensed Consolidated Balance Sheets.~~

~~4. Acquisitions~~

The Company closed on the following acquisitions during the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2022:


(in thousands, except number of properties)		Number of		Real Estate
Date	Property Type	Properties		Acquisition Price
January 7, 2022	Retail		2	$	2,573
February 10, 2022	Industrial		1		21,733
February 15, 2022	Retail		1		1,341
February 28, 2022	Industrial		1		5,678
March 4, 2022	Retail		6		79,061
March 31, 2022	Restaurant		16		99,587
			27	$	209,973	(b)

(in thousands, except number of properties)

Date

Tenant Type

Number of
Properties

Real Estate
Acquisition
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

Retail

2

13,300

June 15, 2017

Retail

2

2,700

June 30, 2017

Industrial

2

12,250

June 30, 2017

Office

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

70

$
352,021

^(a)
(b)

Acquisition price excludes capitalized acquisition costs of $2.0 million.

^(a)	~~Acquisition price does not include acquisition costs of $6,583 capitalized in accordance with the adoption of ASU 2017-01 (see Note 2).~~

~~The Company closed on the following acquisitions during the nine months ended September 30, 2016:~~

(in thousands, except number of properties)

Date

Tenant Type

Number of
Properties

Real Estate
Acquisition
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

Office

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

^(b)

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

71

$
381,012

^(b)	~~Acquisition of capital expansion of existing property.~~

The Company allocated the purchase price of these properties to the ~~relative~~ fair value of the ~~real estate~~ assets acquired and liabilities assumed. The following table summarizes the purchase price allocation for completed real estate acquisitions:


	For the Three Months Ended March 31,
(in thousands)	2023			2022
Land	$	781		$	54,784
Land improvements		360			5,410
Buildings and improvements		3,890			142,269
Acquired in-place leases(c)		501			16,037
Acquired below-market lease (d)		(166	)		(76	)
Non-real estate liabilities assumed		—			(6,440	)
	$	5,366		$	211,984

(c)

The weighted average amortization period for acquired in-place leases is 20 years and 19 years for acquisitions completed during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, discussed above, excluding non-real estate liabilities assumed of $1,000~~2022, respectively.

(d)

The weighted average amortization period for the acquired below-market leases is 20 years and nine years for acquisitions completed during the three ~~and nine~~ months ended ~~September 30, 2017:~~

September 30,

September 30,

(in thousands)

2017

2016

Land

$
18,499

$
63,918

Land improvements

28,463

28,250

Buildings and other improvements

279,110

251,861

Equipment

508

-

Acquired in-place leases^(c)

37,110

38,456

Acquired above-market leases^(d)

13,229

16,090

Acquired below-market leases^(e)

(21,861
)

(18,107
)
Direct financing

3,546

544

$
358,604

$
381,012

March 31, 2023 and 2022, respectively.

^(c)	~~The weighted average amortization period for acquired in-place leases is 17 and 18 years for acquisitions completed during the nine months ended September 30, 2017 and 2016, respectively.~~

^(d)	~~The weighted average amortization period for acquired above-market leases is 17 and 18 years for acquisitions completed during the nine months ended September 30, 2017 and 2016, respectively.~~

^(e)	~~The weighted average amortization period for acquired below-market leases is 17 and 18 years for acquisitions completed during the nine months ended September 30, 2017 and 2016, respectively.~~

The above acquisitions were funded using a combination of available cash on hand and ~~proceeds from the Company’s~~ unsecured revolving ~~line of credit.~~credit facility borrowings. All ~~of the~~real estate acquisitions closed during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023, and 2022, 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 nine months ended September 30, 2016, expenses of $2,233 and $7,614 for the three and nine months ended September 30, 2016 were incurred and included in Acquisition expenses in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss). From the date of acquisition through September 30, 2016, the Company recorded revenues of $5,173 and $8,515 for the three and nine months ended September 30, 2016, respectively, related to the properties acquired and accounted for as business combinations, and recognized net income of $2,655 and $5,204 for the three and nine months ended September 30, 2016, excluding the impact of one-time acquisition expenses from the date of acquisition through September 30, 2016.

~~Subsequent to September 30, 2017, the Company closed on the following acquisitions (see Note 17):~~

(in thousands, except number of properties)

Date

Property Type

Number of
Properties

Acquisition Price

October 13, 2017

Healthcare

1

$
10,000

November 1, 2017

Other

4

15,693

^(f)

5

$
25,693

^(f)	~~The acquisition was conducted with a related party. The fees required under the Asset Management Agreement (see Note 3) were waived by the Asset Manager.~~

The Company has not completed the allocation of the acquisition date relative fair values for the properties acquired subsequent to September 30, 2017; 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.

~~Condensed Pro Forma Financial Information~~

The results of operations, excluding the impact of one-time acquisition costs, of the acquisitions accounted for as business combinations, for which financial information was available, are included in the following condensed 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 condensed pro forma financial information is presented as if the 2016 acquisitions were completed as of January 1, 2015. Pro forma financial information is not presented for the 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 condensed pro forma financial information are as follows for the three and nine months ended September 30, 2016:~~

For the three months ended

For the nine months ended

(in thousands)

September 30, 2016

September 30, 2016

Revenues

$
39,290

$
117,175

Net income

18,394

38,088

5.4. Sale of Real Estate

The Company closed on the following sales of real estate, none of which qualified as discontinued ~~operations, during~~operations:


	For the Three Months Ended March 31,
(in thousands, except number of properties)	2023			2022
Number of properties disposed		3			1
Aggregate sale price(a)	$	51,874		$	5,212
Aggregate carrying value		(46,995	)		(3,824	)
Additional sales expenses		(1,464	)		(192	)
Gain on sale of real estate	$	3,415		$	1,196

(a)

Includes $32.0 million of proceeds from the ~~three and nine months ended September 30, 2017 and 2016:~~sale of an underlying office property which was executed simultaneously with a lease termination in exchange for a fee of $7.5 million.

For the three months ended

For the nine months ended

September 30,

September 30,

(in thousands, except number of properties)

2017

2016

2017

2016

Number of properties disposed

4

2

10

4

Aggregate sale price

$
27,725

$
12,345

$
58,170

$
16,095

Aggregate carrying value

22,335

9,163

44,984

11,519

Additional sales expenses

1,338

199

2,854

487

Gain on sale of real estate

4,052

2,983

10,332

4,089

6.5. 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 ~~September 30, 2017,~~March 31, 2023, the Company had ~~462~~801 real estate properties,789 of which were leased under leases that have been classified as operating leases ~~and 15~~, nine that have been classified as direct financing ~~leases.~~leases, one that has been classified as a sales-type lease, and two that were vacant. Of the 15nine leases classified as direct financing leases ~~five~~, three include land portions which are accounted for as operating ~~leases (see~~ ~~Revenue Recognition~~ ~~within Note 2). Substantially all~~leases. The sales-type lease includes a land portion which is accounted for as an operating lease. Most leases have initial terms of 10 to 20 ~~years and provide for minimum rentals as defined in ASC 840,~~ ~~Leases. In addition, the~~years. The Company’s leases generally provide for limited increases in rent as a result of fixed increases, increases in the ~~consumer price index, and/~~Consumer Price Index (“CPI”), or increases in the tenant’s sales volume. Generally, ~~the tenant is~~tenants are also required to pay all property taxes and assessments, substantially maintain the interior and exterior of the building, and maintain property and liability insurance coverage. The leases also typically provide for one or more ~~multiple year~~multiple-year renewal options, at the election of the tenant, and are subject to generally the same terms and conditions as the initial lease.

Investment in Rental Property – Accounted for Using the Operating Method

~~Rental property subject to non-cancelable operating leases with tenants are as follows at September 30, 2017 and December 31, 2016:~~

September 30,

December 31,

(in thousands)

2017

2016

Land

$
300,633

$
288,276

Land improvements

185,776

162,341

Buildings

1,530,429

1,283,322

Tenant improvements

9,656

8,665

Equipment

519

799

2,027,013

1,743,403

Less accumulated depreciation

(135,305
)

(105,703
)

$
1,891,708

$
1,637,700

Depreciation expense on investment in rental property was ~~$12,600 and $9,796 for the three months ended September 30, 2017 and 2016, respectively, and $36,455 and $27,323 for the nine months ended September 30, 2017 and 2016, respectively.~~as follows:


	For the Three Months Ended March 31,
(in thousands)	2023		2022
Depreciation	$	31,157	$	26,658

Estimated ~~minimum future rental receipts required~~lease payments to be received under non-cancelable operating leases with tenants at ~~September 30, 2017~~March 31, 2023 are as follows:

(in thousands)

Remainder of 2017

$
40,732

2018

165,923

2019

169,255

2020

171,908

2021

174,168

Thereafter

1,778,342

$
2,500,328


(in thousands)
Remainder of 2023	$	291,129
2024		389,055
2025		386,026
2026		381,109
2027		363,946
Thereafter		3,044,506
	$	4,855,771

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, such~~Such amounts exclude any potential variable rent increases that are based on changes in the ~~consumer price index~~CPI or future ~~contingent~~variable rents which may be received under the leases based on a percentage of the tenant’s gross sales. Additionally, certain of our leases provide tenants with the option to terminate their leases in exchange for termination penalties, or that are contingent upon the occurrence of a future event. Future lease payments within the table above have not been adjusted for these termination rights.

Investment in Rental Property – ~~Accounted for Using the~~ Direct Financing ~~Method~~Leases

The Company’s net investment in direct financing leases ~~is as follows at September 30, 2017 and December 31, 2016:~~was comprised of the following:


(in thousands)	March 31, 2023			December 31, 2022
Undiscounted estimated lease payments to be received	$	37,492		$	38,268
Estimated unguaranteed residual values		14,547			14,547
Unearned revenue		(24,967	)		(25,645	)
Reserve for credit losses		(125	)		(125	)
Net investment in direct financing leases	$	26,947		$	27,045

September 30,

December 31,

(in thousands)

2017

2016

Minimum lease payments to be received

$
78,837

$
90,447

Estimated unguaranteed residual values

19,758

22,335

Less unearned revenue

(56,983
)

(65,511
)
Net investment in direct financing leases

$
41,612

$
47,271

~~Minimum future rental receipts required~~Undiscounted estimated lease payments to be received under non-cancelable direct financing leases with tenants at ~~September 30, 2017~~March 31, 2023 are as follows:

(in thousands)

Remainder of 2017

$
947

2018

3,857

2019

3,931

2020

4,037

2021

4,126

Thereafter

61,939

$
78,837


(in thousands)
Remainder of 2023	$	2,337
2024		3,171
2025		3,285
2026		3,357
2027		3,426
Thereafter		21,916
	$	37,492

The above rental receipts do not include future ~~minimum~~ lease payments for renewal periods, potential variable ~~consumer price index~~CPI rent increases, or ~~contingent rental~~variable percentage rent payments that may become due in future periods.

The following table summarizes amounts reported as Lease revenues, net on the Condensed Consolidated Statements of Income and Comprehensive Income:


	For the Three Months Ended March 31,
(in thousands)	2023				2022
Contractual rental amounts billed for operating leases	$	98,102			$	84,396
Adjustment to recognize contractual operating lease billings on a straight-line basis		7,370				5,021
Net write-offs of accrued rental income		(105	)			(1,326	)
Variable rental amounts earned		341				186
Earned income from direct financing leases		691				723
Interest income from sales-type leases		14				14
Operating expenses billed to tenants		5,075				4,735
Other income from real estate transactions		7,392		(a)		42
Adjustment to revenue recognized for uncollectible rental amounts billed, net		112				50
Total lease revenues, net	$	118,992			$	93,841

(a)

Other income from real estate transactions during the three months ended March 31, 2023, includes $7.5 million of lease termination fee income recognized in connection with the simultaneous lease termination and sale of an underlying office property for an additional $32.0 million in proceeds.

7.11

6. Intangible Assets and Liabilities

The following is a summary of intangible assets and liabilities and related accumulated amortization:


(in thousands)	March 31, 2023			December 31, 2022
Lease intangibles:
Acquired above-market leases	$	45,740		$	45,740
Less accumulated amortization		(19,138	)		(18,436	)
Acquired above-market leases, net		26,602			27,304
Acquired in-place leases		428,535			436,401
Less accumulated amortization		(137,659	)		(134,120	)
Acquired in-place leases, net		290,876			302,281
Total intangible lease assets, net	$	317,478		$	329,585
Acquired below-market leases	$	101,249		$	105,059
Less accumulated amortization		(41,890	)		(42,204	)
Intangible lease liabilities, net	$	59,359		$	62,855
Leasing fees	$	14,911		$	14,430
Less accumulated amortization		(6,145	)		(5,924	)
Leasing fees, net	$	8,766		$	8,506

Amortization of intangible lease assets and liabilities was as follows:


(in thousands)		For the Three Months Ended March 31,
Intangible	Financial Statement Presentation	2023		2022
Acquired in-place leases and leasing fees	Depreciation and amortization	$	10,588	$	7,601
Above-market and below-market leases	Lease revenues, net		2,694		1,161

For the three months ended March 31, 2023, amortization ~~at September 30, 2017 and December 31, 2016:~~

September 30,

December 31,

(in thousands)

2017

2016

Lease intangibles:

Acquired above-market leases

$
57,922

$
45,490

Less accumulated amortization

(8,047
)

(4,940
)
Acquired above-market leases, net

49,875

40,550

Acquired in-place leases

177,044

141,676

Less accumulated amortization

(21,450
)

(14,105
)
Acquired in-place leases, net

155,594

127,571

Total intangible lease assets, net

$
205,469

$
168,121

Acquired below-market leases

$
75,038

$
54,062

Less accumulated amortization

(8,735
)

(6,191
)
Intangible lease liabilities, net

$
66,303

$
47,871

Leasing fees

$
15,543

$
13,279

Less accumulated amortization

(2,497
)

(1,950
)
Leasing fees, net

$
13,046

$
11,329

~~Amortization~~ expense ~~for acquired in-place leases and fees~~includes $0.9 million of accelerated amortization resulting from early lease terminations. There was ~~$3,043 and $2,318~~no accelerated amortization for the three months ended September 30, 2017 and 2016, respectively and $8,514 and $5,950 for the nine months ended September 30, 2017 and 2016, respectively. Amortization of acquired above-market and below-market leases, net, was a (decrease) increase in rental income of $(99) and $100 for the three months ended September 30, 2017 and 2016, respectively, and $(487) and $373 for the nine months ended September 30, 2017 and 2016, respectively. March 31, 2022.

Estimated future amortization of intangible assets and liabilities at ~~September 30, 2017~~March 31, 2023 is as follows:


(in thousands)
Remainder of 2023	$	20,694
2024		26,913
2025		25,781
2026		24,619
2027		22,876
Thereafter		146,002
	$	266,885

(in thousands)

Remainder of 2017

$
3,273

2018

12,224

2019

11,439

2020

11,330

2021

11,278

Thereafter

102,667

$
152,211

8.7. Unsecured Credit Agreements

~~2017 Unsecured Revolving Credit and Term Loan Agreement~~

On June 23, 2017, the Corporation and the Operating Company entered into an $800,000 unsecured Revolving Credit and Term Loan Agreement (“Credit 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. The Credit Agreement consists of a $400,000 senior unsecured revolving credit facility (“Revolver”), a $250,000 senior unsecured delayed draw term loan (“5.5-Year Term Loan”), and a $150,000 senior unsecured delayed draw term loan (“7-Year Term Loan”). The Credit Agreement provides an accordion feature for up to a total of $1,000,000. The Revolver includes a $35,000 sublimit for swingline loans and $20,000 available for issuance of letters of credit. Proceeds from the Company’s borrowings under the Credit Agreement were used to repay the Company’s existing unsecured revolving credit facility and term notes with M&T and Regions Bank for $5,000 and $100,000, respectively, the Company’s existing unsecured term note with Regions Bank for $185,000, and $50,000 of the Company’s unsecured term note with SunTrust Bank. The Revolver has an initial maturity date of January 2022 and provides for one five month extension, at the election of the Company, 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 at variable rates based on LIBOR plus a margin based on the Operating Company’s investment grade credit rating ranging between 0.825% and 1.55% per annum. The initial applicable facility fee on the Revolver is 0.25% per annum. The 5.5-Year Term Loan provides for up to three delayed draws from inception through June 2018 at the request of the Company. Borrowings under the 5.5-Year Term Loan bear interest at variable rates based on LIBOR plus a margin based on the Operating Company’s credit rating ranging between 0.90% and 1.75% per annum through the maturity date of January 2023. The 7-Year Term Loan provides for up to three delayed draws from inception through June 2018 at the request of the Company. Borrowings under the 7-Year Term Loan bear interest at variable rates based on LIBOR plus a margin based on the Operating Company’s credit rating ranging between 1.50% and 2.45% through the maturity date of June 2024. Based on the Operating Company’s current credit rating of Baa3, the applicable margin under the Revolver, 5.5-Year Term Loan, and 7-Year Term Loan are 1.20%, 1.35% and 1.90%, respectively. The 5.5-Year Term Loan and 7-Year Term Loan are both subject to a fee of 0.25% per annum on the amount of the commitments, reduced by the amount of term loans outstanding under the applicable loan. The Company is subject to various financial and nonfinancial covenants under the Credit Agreement.

~~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 “Restated Term Loan Agreement”). The Restated Term Loan Agreement amended certain terms, conditions, covenants, and other provisions to align them with those included in the Credit Agreement described above. The Restated Term Loan Agreement has an initial maturity date of February 2019 and provides for two one year extension options, at the election of the Company, subject to compliance with all covenants and the payment of a 0.01% fee. Borrowings under the Restated Term Loan Agreement bear interest at variable rates based on the one month LIBOR plus a margin based on the Operating Company’s investment grade credit rating ranging between 0.90% and 1.75%. Based on the Operating Company’s current credit rating of Baa3, the applicable margin under the Restated Term Loan Agreement is 1.40%.

~~2017 Senior Notes~~

In January 2017, the Company commenced a private offering of unsecured, fixed rate, guaranteed senior promissory notes (“Senior Notes”). On March 16, 2017, the Company entered into a Note and Guaranty Agreement with each of the purchasers of the Senior Notes. On April 18, 2017, the Company closed the offering and issued the Senior Notes for an aggregate principal amount of $150,000. The Senior Notes were issued by the Operating Company and guaranteed by the Corporation. The Senior 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 have a 10 year maturity, maturing on April 18, 2027. J.P. Morgan Securities, LLC and Wells Fargo Securities, LLC served as the joint placement agents.

The following table summarizes the Company’s unsecured credit agreements:


	Outstanding Balance
(in thousands, except interest rates)	March 31, 2023			December 31, 2022			Interest Rate	Maturity Date
Unsecured revolving credit facility	$	108,330		$	197,322		Applicable reference rate + 0.85% (a)	Mar. 2026
Unsecured term loans:
2026 Unsecured Term Loan		400,000			400,000		one-month LIBOR + 1.00% (b)	Feb. 2026
2027 Unsecured Term Loan		200,000			200,000		one-month adjusted SOFR + 0.95% (c)	Aug. 2027
2029 Unsecured Term Loan		300,000			300,000		one-month adjusted SOFR + 1.25% (c)	Aug. 2029
Total unsecured term loans		900,000			900,000
Unamortized debt issuance costs, net		(4,994	)		(5,308	)
Total unsecured term loans, net		895,006			894,692
Senior unsecured notes:
2027 Senior Unsecured Notes - Series A		150,000			150,000		4.84%	Apr. 2027
2028 Senior Unsecured Notes - Series B		225,000			225,000		5.09%	Jul. 2028
2030 Senior Unsecured Notes - Series C		100,000			100,000		5.19%	Jul. 2030
2031 Senior Unsecured Public Notes		375,000			375,000		2.60%	Sep. 2031
Total senior unsecured notes		850,000			850,000
Unamortized debt issuance costs and original issuance discount, net		(5,256	)		(5,445	)
Total senior unsecured notes, net		844,744			844,555
Total unsecured debt, net	$	1,848,080		$	1,936,569

Outstanding Balance

September 30,

December 31,

Interest

Maturity
(in thousands, except interest rates)

2017

2016

Rate^(d)

Date
2015 Unsecured Term Loan Agreement^(a)

$
325,000

$
375,000

1 month LIBOR + 1.40%

Feb. 2019

2017 Unsecured Revolving Credit and Term Loan Agreement^(a)

Revolver ^(f)

126,500

-

1 month LIBOR + 1.20%

Jan. 2022
5.5-Year term loan

250,000

-

1 month LIBOR + 1.35%

Jan. 2023
7-Year term loan

-

-

1 month LIBOR + 1.90%

June 2024

376,500

-

2017 Senior Notes^(a)

150,000

-

4.84%

Apr. 2027

2012 Unsecured Credit Agreement^(a)

Term note

-

50,000

3 month LIBOR + 1.45%

June 2017
Term note

-

50,000

1 month LIBOR + 1.45%

June 2017
Revolver^(b)

-

102,000

1 month LIBOR + 1.45%

June 2017

-

202,000

2013 Unsecured Credit Agreement^(a)

-

185,000

1 month LIBOR + 1.75%
to 2.50%^(e)

Oct. 2018

Total

851,500

762,000

Debt issuance costs, net^(c)

(3,093
)

(2,109
)

$
848,407

$
759,891

(a)

^(a)	~~The Company believes it was in compliance with all financial covenants for all periods presented.~~

^(b)	~~At December 31, 2016, $273,200 of the revolving credit facility’s $300,000 capacity was available, due to a borrowing base limitation.~~

^(c)	~~Amounts presented include debt issuance costs, net, related to the unsecured term notes only.~~

^(d)	~~At September 30, 2017 and December 31, 2016, the one month LIBOR rate was 1.23% and 0.62%, respectively. At December 31, 2016, the three month LIBOR was 0.93%.~~

^(e)	~~The margin is based on the Company’s overall leverage ratio and was 1.75% at December 31, 2016.~~

^(f)	At September 30, 2017 the Company had an outstanding balance of $28,000 on the swingline loan feature of the Revolver, due within five business days. On October 4, 2017 the balance became a part of the Revolver and therefore matures January 2022.

At ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, a balance of $34.5 million and $123.5 million was subject to the one-month SOFR of 4.8% and 4.36%, respectively. The remaining balance includes $100 million CAD borrowings remeasured to $73.8 million USD, at March 31, 2023 and December 31, 2022, respectively, and was subject to the one-month CDOR of 4.95% and 4.74%, respectively.

At March 31, 2023, the weighted average interest rate on all outstanding borrowings was ~~2.96%~~5.03%, exclusive of interest rate swap agreements.

The Company is subject to various financial and ~~2.14%, respectively.~~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 March 31, 2023, and for all periods presented, the Company believes it was in compliance with all of its loan covenants. Failure to comply with the covenants would result in a default which, if the Company were unable to cure or obtain a waiver from the lenders, could accelerate the repayment of the obligations. Further, in the event of default, the Company may be restricted from paying dividends to its stockholders in excess of dividends required to maintain its REIT qualification. Accordingly, an event of default could have a material and adverse impact on the Company.

For the three months ended March 31, 2022, the Company incurred $3.8 million in debt issuance costs associated with the unsecured revolving credit facility. The Company did not incur debt issuance costs during the three months ended March 31, 2023.

Debt issuance costs ~~were~~and original issuance discounts are amortized ~~and recorded~~ as ~~interest~~a component of Interest expense in the accompanying Condensed Consolidated Statements of Income and Comprehensive ~~Income (Loss) of $486 and $403 for the three months ended September 30, 2017 and 2016, respectively, and $1,343 and $1,279 for the nine months ended September 30, 2017 and 2016, respectively.~~

~~For the nine months ended September 30, 2017, the Company paid $8,344 in~~Income. The following table summarizes debt issuance ~~costs associated with the Senior Notes, the Credit Agreement with M&T as Administrative Agent,~~cost and ~~the Amended and Restated Term Loan Agreement with SunTrust Bank. 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 is deemed to be new debt, a modification of existing debt, or an extinguishment of existing debt. Debt~~original issuance costs are either deferred and amortized over the term of the associated debt or expensed as incurred. Based on this assessment, $5,443 of the debt issuance costs were related to new 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 was associated with lenders whose commitments under 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 Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the nine months ended September 30, 2017. Additionally, $654 of unamortized debt issuance costs were expensed and included in cost of debt extinguishment in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the nine months ended September 30, 2017.discount amortization:

~~At September 30, 2017,~~2023, investment in rental property of ~~$91,326 is~~$142.4 million was pledged as collateral against the Company’s ~~mortgages and notes payable.~~

The Company extinguished six and four mortgages totaling $46,804 and $8,199, during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. For the three months ended September 30, 2017 and 2016, the cost of extinguishment for the mortgages was $1,404 and $52, respectively. For the nine months ended September 30, 2017 and 2016, the cost of extinguishment for the mortgages was $1,464 and $105, respectively.mortgages.

Estimated future principal payments to be made under the above ~~mortgage and note payable agreements,~~mortgages and the Company’s unsecured credit agreements (see Note 8)7) at ~~September 30, 2017~~March 31, 2023 are as follows:

Certain of the Company’s ~~mortgage and note payable agreements~~mortgages provide for prepayment fees and can be terminated under certain events of default as defined under the related ~~agreements which~~agreements. These prepayment fees are not reflected as part of the table above.

The Company recognized rental income related to UPREIT transactions in the amount of $3,539 and $3,025 for the three months ended September 30, 2017 and 2016, respectively. The Company recognized rental income related to UPREIT transactions in the amount of $9,503 and $8,754 for the nine months ended September 30, 2017 and 2016, respectively.

The Company maintained bank balances that, at times, exceeded the federally insured limit during the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2023. The Company has not experienced losses relating to these deposits and management does not believe that the Company is exposed to any significant credit risk with respect to these ~~amounts.~~

~~The Company’s rental property is managed by~~amounts based on the ~~Manager~~financial position and ~~the Asset Manager as described in Note 3. Management fees and expense reimbursements paid to the Manager and Asset Manager represent 21% and 26%~~capitalization of the ~~Company’s total operating expenses for~~banks.

For the three months ended ~~September 30, 2017~~March 31, 2023 and 2016, and 21% and 25% of the Company’s total operating expenses for the nine months ended September 30, 2017 and 2016, respectively. The Company has mortgages and notes payable with five institutions that comprise 32%, 20%, 16%, 10%, and 10% of total mortgages and notes payable at September 30, 2017. The Company has mortgages and notes payable with four institutions that comprise 20%, 18%, 12%, and 11% of total mortgages and notes payable at December 31, 2016. For the three and nine months ended September 30, 2017 and 2016,2022, the Company had no individual tenants or common franchises that accounted for more than ~~10%~~10% of ~~total revenues.~~Lease revenues, net, excluding lease termination fees.

During the three months ended March 31, 2023 and 2022, the Company issued target grants of 186,481 and 121,883 performance-based restricted stock units (“PRSUs”), respectively, under the ~~Share Redemption Program for~~Company's equity incentive plan to the ~~three~~officers of the Company. The awards are non-vested restricted stock units where the vesting percentages and ~~nine months ended September 30, 2017 and 2016:~~

~~The Corporation has adopted~~ the ~~DRIP, pursuant~~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 ~~which~~ the ~~Corporation’s stockholders and holders~~rTSR of ~~membership units~~peer companies, as identified in the ~~Operating Company (other than~~grant agreements, over a three-year period, and 50% based on the ~~Corporation), may elect to have cash distributions reinvested in additional shares~~rTSR of the ~~Corporation’s common stock. Cash distributions will be reinvested in additional shares of~~Company’s common stock ~~pursuant~~as compared to the ~~DRIP at~~rTSR of the MSCI US REIT Index over a ~~per~~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 the ex-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. The grant date fair value of the PRSUs was measured using a Monte Carlo simulation model based on assumptions including share price ~~equal to 98%~~volatility, among others.

Item 2. Management’s Discussion and ~~the Operating Company’s unit holders~~Analysis of ~~record on the last day~~Financial Condition and Results of the month. In addition, the IDC determined the Determined Share Value for the Corporation’s common stock to be $81.00 per share for subscription agreements received from November 1, 2017 through January 31, 2018.Operations

Except where the context suggests otherwise, as used in this Quarterly Report on Form 10-Q, the terms ~~“we,~~“BNL,” ~~“us,~~“we,” ~~“our,~~“us,”“our,” and ~~“our company”~~“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 ~~“Operating Company,~~"OP,” and to their respective subsidiaries.

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

This Quarterly Report on Form 10-Q ~~may contain~~contains forward-looking statements, ~~within~~which reflect our current views regarding our business, financial performance, growth prospects and strategies, market opportunities, and market trends, that are intended to be made pursuant to the ~~meaning~~safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)~~, regarding, among other things, our plans, strategies, and prospects, both business and financial.~~. Forward-looking statements include ~~but~~all 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 terminology~~words such as ~~but not limited to,~~“outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” ~~“expect,~~“could,” ~~“anticipate,~~“seeks,” ~~“estimate,~~“approximately,” ~~“would be,~~“projects,” ~~“believe,~~“predicts,” ~~or “continue”~~“intends,” “plans,” “estimates,” “anticipates,” or the negative version of these words or other ~~variations~~comparable words. All of ~~comparable terminology. Because these~~the forward-looking statements ~~are based~~included in this Quarterly Report on ~~estimates and assumptions that~~Form 10-Q are subject to ~~significant~~various risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business ~~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, and~~the expectations reflected in ~~or suggested by these~~such forward-looking statements are based on reasonable ~~we cannot assure you that we will achieve~~assumptions, our actual results, performance, and achievements could differ materially from those expressed in or ~~realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. Readers are cautioned not to place undue reliance on these~~by the forward-looking statements ~~which speak only as~~and may be affected by a variety of ~~the date this Form 10-Q is filed with the Securities~~risks and ~~Exchange Commission (the “SEC”). Except as required by law, we do not undertake any obligation~~other factors. Accordingly, there are or will be important factors that could cause actual outcomes or results to ~~update or revise any~~differ materially from such forward-looking ~~statements contained in this Form 10-Q.~~ statements.

Important factors that could cause ~~actual~~ results to differ materially from the forward-looking statements are ~~disclosed~~described in Item 1. “Business,” Item 1A. “Risk ~~Factors”~~Factors,” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in ~~Amendment No. 2 to~~ our ~~Registration Statement~~2022 Annual Report on Form ~~10,~~10-K, as filed with the SEC on ~~June 29, 2017 (the “Form 10”).~~February 23, 2023. The “Risk Factors” of our 2022 Annual Report should not be construed as exhaustive and should be read in conjunction with other cautionary statements included elsewhere in this Quarterly Report on Form 10-Q.

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

We use any of the following to comply with our disclosure obligations under Regulation FD: U.S. Securities and Exchange Commission (“SEC”) filings, press releases, public conference calls, or our website. We routinely post important information on our website at www.broadstone.com, including information that may be deemed material. We encourage our shareholders and others interested in our company to monitor these distribution channels for material disclosures. Our website address is included in this Quarterly Report as a textual reference only and the information on the website is not incorporated by reference in this Quarterly Report.

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

We are an ~~externally managed~~internally-managed real estate investment trust (“REIT”)~~, formed as a Maryland corporation in 2007 to acquire~~ that acquires, owns, and ~~hold~~manages primarily single-tenant commercial real estate properties ~~throughout the United States~~ that are net leased on a long-term basis to a diversified group of tenants. Since our inception in 2007, we have selectively invested in net leased assets in the ~~properties’ operators under long-term leases.~~ industrial, healthcare, restaurant, retail, and office property types. As of March 31, 2023, our portfolio includes 801 properties, with 794 properties located in 44 U.S. states and seven properties located in four Canadian provinces.

We focus on investing in real estate that is operated by acreditworthy single ~~tenant which is~~tenants 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 service~~tenants’ businesses and casual dining restaurants, healthcare facilities, industrial manufacturing facilities, warehouse and distribution centers, and corporate offices, amongst others. We target properties with credit-worthy tenants that lookare therefore opportunities to ~~engage in a~~secure long-term ~~lease relationship.~~net leases. Through long-term net leases, our tenants are able to retain operational control of their ~~critical~~strategically important locations, while ~~conserving~~allocating their debt and equity capital to fund ~~their fundamental~~core business ~~operations.~~operations rather than real estate ownership.

Extensive Tenant Financial Reporting. Approximately 94.3% of our ~~IDC. Subsequent to quarter end, we updated our Investment Policy to require a 9.5% minimum return on equity, net of fees, calculated~~tenants, based on ~~the average return recognized across all acquisitions during~~ABR, provide financial reporting, of which 86.4% are required to provide us with specified financial information on a ~~calendar year, with a minimum required return of 8.5%, net of fees, for any particular transaction. The IDC approved this update following the regular annual review~~periodic basis, and an additional 7.9% of our Investment Policy at the November 2017 meeting of our board of directors. We believe the changes will allow us greater flexibility in deploying capital in investment opportunities that maximize the risk-adjusted return to our shareholders. Our criteria for selecting properties (“Property Selection Criteria”) is based on three pillars of underwriting evaluation:

~~fundamental value and characteristics of the underlying real estate,~~

~~creditworthiness of the tenant, and~~

~~transaction structure and pricing.~~

tenants report financial statements publicly, either through SEC filings or otherwise.

We believe we can achieve an appropriate risk-adjusted return through these pillars 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.22

~~To achieve an appropriate risk-adjusted return, we maintain a diversified portfolio of real estate spread across multiple tenants, industries, and geographic locations.~~ Real Estate Portfolio Information

The following charts summarize our portfolio diversification by property type, tenant, brand, industry, and geographic location as of ~~September 30, 2017.~~March 31, 2023. The percentages below are calculated based on our contractual rental revenue over the next twelve months (“NTM Rent”), on a per property type basis divided by total NTM Rent. Late payments, non-payments or other unscheduled payments are not considered in the calculation. NTM Rent includes the impactABR of ~~contractual rent escalations, excluding any potential variable rent increases that are based on consumer price index (“CPI”) and/or the tenants’ sales volume.~~$389.5 million as of March 31, 2023.

~~Industry~~ Diversification by ~~% of NTM Rent~~Property Type


Property Type	# Properties	ABR ($'000s)	ABR as a % of Total Portfolio	Square Feet ('000s)	SF as a % of Total Portfolio
Industrial
Manufacturing	79	$64,375	16.5%	12,142	31.1%
Distribution & Warehouse	47	51,610	13.3%	9,459	24.2%
Food Processing	33	44,215	11.4%	5,442	13.9%
Flex and R&D	7	17,666	4.5%	1,457	3.7%
Cold Storage	4	12,827	3.3%	933	2.4%
Industrial Services	22	10,891	2.8%	587	1.5%
Untenanted	1	—	—	122	0.3%
Industrial Total	193	201,584	51.8%	30,142	77.1%
Healthcare
Clinical	52	27,181	7.0%	1,091	2.8%
Healthcare Services	30	11,118	2.9%	496	1.3%
Animal Health Services	27	10,846	2.8%	405	1.0%
Surgical	12	10,475	2.7%	329	0.9%
Life Science	9	7,901	2.0%	549	1.4%
Healthcare Total	130	67,521	17.4%	2,870	7.4%
Restaurant
Casual Dining	101	27,341	7.0%	673	1.7%
Quick Service Restaurants	146	25,027	6.4%	499	1.3%
Restaurant Total	247	52,368	13.4%	1,172	3.0%
Retail
General Merchandise	132	24,714	6.3%	1,865	4.8%
Automotive	68	12,628	3.2%	777	2.0%
Home Furnishings	13	7,147	1.8%	797	2.0%
Child Care	2	731	0.3%	20	0.1%
Retail Total	215	45,220	11.6%	3,459	8.9%
Office
Strategic Operations	5	9,912	2.5%	615	1.6%
Corporate Headquarters	7	8,389	2.2%	408	0.9%
Call Center	3	4,478	1.1%	346	0.8%
Untenanted	1	—	—	46	0.3%
Office Total	16	22,779	5.8%	1,415	3.6%
Total	801	$389,472	100.0%	39,058	100.0%

~~Property Type~~	~~% NTM Rent~~
~~Retail – casual dining~~		~~13.4~~	%
~~Retail – quick service restaurants (QSR)~~		~~11.9~~	%
~~Retail – other~~		~~10.7~~	%
~~Total Retail~~		~~36.0~~	%
~~Industrial – manufacturing~~		~~11.1~~	%
~~Industrial – warehouse/distribution~~		~~10.0~~	%
~~Industrial – flex~~		~~5.3~~	%
~~Industrial – other~~		~~3.8~~	%
~~Total Industrial~~		~~30.2~~	%
~~Healthcare – clinical~~		~~11.4~~	%
~~Healthcare – surgical~~		~~5.7~~	%
~~Healthcare – other~~		~~4.3~~	%
~~Total Healthcare~~		~~21.4~~	%
~~Other – corporate office~~		~~8.3~~	%
~~Other – other~~		~~4.1~~	%
~~Total Other~~		~~12.4~~	%

~~Top Tenant Industries~~
~~Industry~~	~~% NTM Rent~~
~~Restaurants~~		~~25.3~~	%
~~Healthcare Facilities~~		~~20.8~~	%
~~Home Furnishing Retail~~		~~5.6~~	%
~~Packaged Foods & Meats~~		~~5.3~~	%
~~Auto Parts & Equipment~~		~~5.0~~	%
~~Specialized Consumer Services~~		~~3.7~~	%
~~Industrial Conglomerates~~		~~2.6~~	%
~~Multi-line Insurance~~		~~2.3~~	%
~~Life Sciences Tools & Services~~		~~2.3~~	%
~~Distributors~~		~~2.3~~	%
~~Industrial Machinery~~		~~2.0~~	%
~~Food Retail~~		~~1.9~~	%
~~Metal & Glass Containers~~		~~1.8~~	%
~~Managed Healthcare~~		~~1.8~~	%
~~Soft Drinks~~		~~1.7~~	%
~~Top 15 Tenant Industries~~		~~84.4~~	%
~~Other (22 industries)~~		~~15.6~~	%
~~Total~~		~~100.0~~	%

~~Geographic~~ Diversification by %Tenant


Tenant	Property Type	# Properties	ABR ($'000s)	ABR as a % of Total Portfolio	Square Feet ('000s)	SF as a % of Total Portfolio
Roskam Baking Company, LLC*	Food Processing	7	$15,605	4.0%	2,250	5.8%
AHF, LLC*	Distribution & Warehouse/Manufacturing	8	9,377	2.4%	2,284	5.8%
Jack's Family Restaurants LP*	Quick Service Restaurants	43	7,309	1.9%	147	0.4%
Joseph T. Ryerson & Son, Inc	Distribution & Warehouse	11	6,491	1.7%	1,537	3.9%
Red Lobster Hospitality & Red Lobster Restaurants LLC*	Casual Dining	19	6,178	1.6%	157	0.4%
Axcelis Technologies, Inc.	Flex and R&D	1	6,126	1.6%	417	1.1%
J. Alexander's, LLC*	Casual Dining	16	6,115	1.6%	131	0.3%
Hensley & Company*	Distribution & Warehouse	3	5,989	1.5%	577	1.5%
Dollar General Corporation	General Merchandise	60	5,962	1.5%	562	1.4%
BluePearl Holdings, LLC**	Animal Health Services	13	5,591	1.4%	166	0.5%
Total Top 10 Tenants		181	74,743	19.2%	8,228	21.1%

Outback Steakhouse of Florida LLC*1	Casual Dining	22	5,365	1.4%	140	0.4%
Tractor Supply Company	General Merchandise	21	5,349	1.4%	417	1.1%
Big Tex Trailer Manufacturing Inc.*	Automotive/Distribution & Warehouse/Manufacturing/ Corporate Headquarters	17	5,056	1.3%	1,302	3.3%
Krispy Kreme Doughnut Corporation	Quick Service Restaurants/ Food Processing	27	5,034	1.3%	156	0.4%
Salm Partners, LLC*	Food Processing	2	4,592	1.2%	368	0.9%
Nestle' Dreyer's Ice Cream Company2	Cold Storage	1	4,543	1.2%	309	0.8%
Carvana, LLC*	Industrial Services	2	4,510	1.2%	230	0.6%
Klosterman Bakery*	Food Processing	11	4,500	1.2%	549	1.4%
Arkansas Surgical Hospital	Surgical	1	4,476	1.0%	129	0.3%
American Signature, Inc.	Home Furnishings	6	4,309	1.0%	474	1.2%
Total Top 20 Tenants		291	$122,477	31.4%	12,302	31.5%

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

2 Nestle's ABR excludes $1.6 million of ~~NTM Rent~~rent paid under a sub-lease for an additional property, which will convert to a prime lease no later than August 2024.

* Subject to a master lease.

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

Diversification by Brand


Brand	Property Type	# Properties	ABR ($'000s)	ABR as a % of Total Portfolio	Square Feet ('000s)	SF as a % of Total Portfolio
Roskam Baking Company, LLC*	Food Processing	7	$15,605	4.0%	2,250	5.8%
AHF Products*	Distribution & Warehouse/ Manufacturing	8	9,377	2.4%	2,284	5.8%
Jack's Family Restaurants*	Quick Service Restaurants	43	7,309	1.9%	147	0.4%
Ryerson	Distribution & Warehouse	11	6,491	1.7%	1,537	3.9%
Red Lobster*	Casual Dining	19	6,178	1.6%	157	0.4%
Axcelis	Flex and R&D	1	6,126	1.6%	417	1.1%
Hensley*	Distribution & Warehouse	3	5,989	1.5%	577	1.5%
Dollar General	General Merchandise	60	5,962	1.5%	562	1.4%
BluePearl Veterinary Partners**	Animal Health Services	13	5,591	1.5%	165	0.4%
Bob Evans Farms*1	Casual Dining/Food Processing	21	5,391	1.5%	281	0.7%
Total Top 10 Brands		186	74,019	19.0%	8,377	21.4%

Tractor Supply Co.	General Merchandise	21	5,349	1.4%	417	1.1%
Big Tex Trailers*	Automotive/Distribution & Warehouse/Manufacturing/ Corporate Headquarters	17	5,056	1.3%	1,302	3.3%
Krispy Kreme	Quick Service Restaurants/ Food Processing	27	5,034	1.3%	156	0.4%
Outback Steakhouse*	Casual Dining	20	4,641	1.2%	126	0.3%
Salm Partners, LLC*	Food Processing	2	4,592	1.2%	368	0.9%
Nestle'	Cold Storage	1	4,543	1.2%	309	0.8%
Carvana*	Industrial Services	2	4,510	1.2%	230	0.6%
Klosterman Baking Company*	Food Processing	11	4,500	1.2%	549	1.4%
Arkansas Surgical Hospital	Surgical	1	4,476	1.1%	129	0.3%
Wendy's	Quick Service Restaurants	29	4,325	1.1%	84	0.2%
Total Top 20 Brands		317	$121,045	31.1%	12,047	30.7%

1Brand 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


Industry	# Properties	ABR ($'000s)	ABR as a % of Total Portfolio	Square Feet ('000s)	SF as a % of Total Portfolio
Healthcare Facilities	104	$53,183	13.7%	2,062	5.3%
Restaurants	250	53,141	13.6%	1,214	3.1%
Packaged Foods & Meats	29	38,843	10.0%	4,713	12.1%
Distributors	27	15,962	4.1%	2,695	6.9%
Auto Parts & Equipment	43	15,623	4.0%	2,676	6.9%
Specialty Stores	31	14,078	3.6%	1,338	3.4%
Food Distributors	7	13,799	3.5%	1,712	4.4%
Home Furnishing Retail	18	12,684	3.3%	1,858	4.8%
Specialized Consumer Services	49	12,672	3.3%	728	1.9%
Metal & Glass Containers	8	10,114	2.6%	2,206	5.6%
General Merchandise Stores	96	9,640	2.5%	880	2.3%
Industrial Machinery	20	9,408	2.4%	1,949	5.0%
Forest Products	8	9,377	2.4%	2,284	5.8%
Healthcare Services	18	9,299	2.4%	515	1.3%
Aerospace & Defense	6	7,565	1.9%	746	1.9%
Other (39 industries)	85	104,084	26.7%	11,258	28.7%
Untenanted properties	2	—	—	224	0.6%
Total	801	$389,472	100.0%	39,058	100.0%

Diversification by Geographic Location


State / Province	# Properties	ABR ($'000s)	ABR as a % of Total Portfolio	Square Feet ('000s)	SF as a % of Total Portfolio	State / Province	# Properties	ABR ($'000s)	ABR as a % of Total Portfolio	Square Feet ('000s)	SF as a % of Total Portfolio
TX	72	$38,037	9.8%	3,621	9.3%	WA	15	4,330	1.1%	150	0.4%
MI	55	32,555	8.4%	3,811	9.8%	LA	4	3,407	0.9%	194	0.5%
IL	32	24,165	6.2%	2,424	6.2%	MS	11	3,320	0.9%	430	1.1%
WI	35	21,792	5.6%	2,163	5.5%	NE	6	3,175	0.8%	509	1.3%
CA	13	18,827	4.8%	1,718	4.4%	MD	4	3,052	0.8%	293	0.7%
OH	47	18,680	4.8%	1,728	4.4%	SC	13	2,937	0.8%	308	0.8%
FL	42	16,411	4.2%	844	2.2%	IA	4	2,804	0.7%	622	1.6%
IN	32	15,843	4.1%	1,906	4.9%	NM	9	2,734	0.7%	107	0.3%
MN	21	15,396	4.0%	2,500	6.4%	CO	4	2,501	0.6%	126	0.3%
TN	50	15,150	3.9%	1,103	2.8%	UT	3	2,432	0.6%	280	0.7%
NC	37	14,023	3.6%	1,435	3.7%	CT	2	1,767	0.5%	55	0.1%
AL	53	12,151	3.1%	873	2.2%	MT	7	1,582	0.4%	43	0.1%
GA	33	11,535	3.0%	1,576	4.0%	DE	4	1,167	0.3%	133	0.3%
AZ	9	10,876	2.8%	909	2.3%	ND	2	954	0.2%	28	0.1%
PA	22	9,677	2.5%	1,836	4.7%	VT	2	420	0.1%	24	0.1%
NY	26	9,268	2.4%	680	1.7%	WY	1	307	0.1%	21	0.1%
KY	24	8,465	2.2%	900	2.3%	NV	1	268	0.1%	6	0.0%
MA	4	8,232	2.1%	744	1.9%	OR	1	136	0.0%	9	0.0%
OK	22	8,107	2.1%	987	2.5%	SD	1	81	0.0%	9	0.0%
AR	11	7,722	2.0%	283	0.7%	Total U.S.	794	$381,406	97.9%	38,628	98.9%
MO	12	6,119	1.6%	1,138	2.9%	BC	2	4,584	1.2%	253	0.6%
KS	11	5,638	1.4%	648	1.7%	ON	3	2,126	0.5%	101	0.3%
VA	17	5,479	1.4%	204	0.5%	AB	1	999	0.3%	51	0.1%
WV	17	4,975	1.3%	884	2.3%	MB	1	357	0.1%	25	0.1%
NJ	3	4,909	1.3%	366	1.1%	Total Canada	7	$8,066	2.1%	430	1.1%
						Grand Total	801	$389,472	100.0%	39,058	100.0%

Our Leases

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 ~~triple-net,~~net, meaning ~~that~~ our tenants are ~~responsible for the maintenance, insurance, and property taxes~~generally obligated to pay all expenses associated with the leased property (such as real estate taxes, insurance, maintenance, repairs, and capital costs). In scenarios where we lease multiple properties ~~they~~to a single tenant (multi-site tenants), we seek to use master lease ~~from us. Since inception~~structures on an all-or-none basis. When we acquire properties associated with a tenant that has an existing master lease structure with us, we seek to add the new properties to the existing master lease structure to strengthen the existing lease with such tenant. As of March 31, 2023, master leases contributed to 69.3% of the ABR associated with multi-site tenants (409 of our 676 properties) and ~~at September 30, 2017,~~41.2% of our overall ABR (409 of our 801 properties).

As of March 31, 2023, approximately 99.4% of our portfolio, representing all but two of our properties, was subject to a lease. Because substantially all of our properties are subject to 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 properties and the corresponding cash inflows from rental receipts. Our cash flows from operations are primarily generated through our real estate investment portfolio and the monthly lease payments under our long-term leases with our tenants.

~~Due to the fact that all of our properties are~~ leased ~~to single tenants~~ under long-term leases, we are not currently required to perform significant ongoing leasing activities on our properties. ~~The leases for only two of our properties, representing less than 1% of our annual rental streams (calculated based on NTM Rent), will expire before 2020.~~ As of ~~September 30, 2017,~~March 31, 2023, the ABR weighted average remaining term of our leases ~~(calculated based on NTM Rent)~~ was approximately ~~13.2 years, excluding renewal options, which are exercisable at the option of our tenants upon expiration of their base lease term. Less than 5%~~10.8 years. Approximately 3% of the properties in our portfolio are subject to leases without at least one renewal option. Furthermore, the weighted average lease term on the $159.2 million in properties acquired during the three months ended September 30, 2017, was 13.0 years. Over 50% of our rental revenue is from leases that expire during 2030 and thereafter. As of September 30, 2017, not more than 10% of our rental revenue is from leases that expire in any single year in the decade between 2020 and 2030. The following chart sets forth our lease expirations based upon the terms of ~~our~~the leases in place as of ~~September 30, 2017.~~March 31, 2023.

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


Expiration Year	# Properties	# Leases	ABR ($'000s)	ABR as a % of Total Portfolio	Square Feet ('000s)	SF as a % of Total Portfolio
2023	5	7	$4,497	1.2%	504	1.3%
2024	9	9	10,640	2.7%	1,239	3.2%
2025	19	22	6,905	1.8%	385	1.0%
2026	34	35	17,235	4.4%	1,150	2.9%
2027	29	30	24,166	6.2%	2,079	5.3%
2028	36	36	24,220	6.2%	2,262	5.8%
2029	72	73	22,541	5.8%	2,724	7.0%
2030	101	101	54,479	14.0%	5,110	13.1%
2031	33	33	8,640	2.2%	805	2.1%
2032	62	63	31,896	8.2%	3,469	8.9%
2033	50	50	18,888	4.8%	1,593	4.1%
2034	33	33	6,305	1.6%	409	1.0%
2035	19	19	13,966	3.6%	2,021	5.2%
2036	87	87	26,485	6.8%	2,931	7.5%
2037	23	23	17,111	4.4%	1,124	2.9%
2038	36	36	9,573	2.5%	725	1.9%
2039	10	10	6,858	1.8%	798	2.0%
2040	31	31	5,784	1.5%	312	0.8%
2041	40	40	20,875	5.4%	1,731	4.4%
2042	59	59	43,758	11.2%	4,813	12.3%
Thereafter	11	11	14,650	3.7%	2,650	6.7%
Untenanted properties	2	—	—	—	224	0.6%
Total	801	808	$389,472	100.0%	39,058	100.0%

Substantially all of our leases provide for periodic contractual rent escalations. As of March 31, 2023, leases contributing 97.3% of our ABR provided for increases in future ABR, generally ranging from 1.5% to 3.0% annually, with an ABR weighted average 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 revenue growth and a measure of inflation protection. Additional information on lease escalation frequency and weighted average annual escalation rates as of March 31, 2023 is displayed below:


Lease Escalation Frequency	% of ABR	Weighted Average Annual Minimum Increase (a)
Annually	80.3%	2.2%
Every 2 years	0.1%	1.8%
Every 3 years	2.2%	3.1%
Every 4 years	1.0%	2.4%
Every 5 years	7.2%	1.7%
Other escalation frequencies	6.5%	1.6%
Flat	2.7%	—
Total/Weighted Average (b)	100.0%	2.0%

(a)

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 March 31, 2023, leases contributing 5.2% 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.

(b)

Weighted by ABR.

The escalation provisions of our leases (by percentage of ABR) as of March 31, 2023, are displayed in the following chart:

Results of Operations

The following discussion includes the results of our operations for the periods presented.

Three Months Ended March 31, 2023 Compared to Three Months Ended December 31, 2022

Lease ~~Maturity Schedule,~~Revenues, net


	For the Three Months Ended
	March 31,			December 31,			Increase/(Decrease)
(in thousands)	2023			2022			$			%
Contractual rental amounts billed for operating leases	$	98,102		$	96,208		$	1,894		2.0	%
Adjustment to recognize contractual operating lease billings on a straight-line basis		7,370			6,897			473		6.9	%
Net write-offs of accrued rental income		(105	)		—			(105	)	(100.0)	%
Variable rental amounts earned		341			721			(380	)	(52.7)	%
Earned income from direct financing leases		691			693			(2	)	(0.3)	%
Interest income from sales-type leases		14			14			—		0.0	%
Operating expenses billed to tenants		5,075			5,720			(645	)	(11.3)	%
Other income from real estate transactions		7,392			2,019			5,373		> 100.0	%
Adjustment to revenue recognized for uncollectible rental amounts billed, net		112			(138	)		250		> (100.0)	%
Total Lease revenues, net	$	118,992		$	112,134		$	6,858		6.1	%

The increase in Lease revenues, net was primarily attributable to $7.5 million of lease termination income recognized in the first quarter of 2023 as Other income from real estate transactions, associated with the early lease termination and sale of an office property for total proceeds of $39.5 million. The timing and amount of lease termination income varies from period to period. The increase was also attributable to full revenue from property investments made during the fourth quarter of 2022, as well as the partial revenue from property investments made during the first quarter of 2023. As we acquire properties throughout the period, the full benefit of lease revenues from newly acquired properties will not be realized in the quarter of acquisition. During the fourth quarter of 2022, we invested $310.3 million, excluding capitalized acquisition costs, in 18 properties at a weighted average initial cash capitalization rate of 6.7%, the full benefit of which we realized during the first quarter of 2023. During the first quarter of 2023, we invested $20.0 million, excluding capitalized acquisition costs, in three properties at a weighted average initial cash capitalization rate of 7.0%, the full benefit of which we anticipate will be realized during the second quarter of 2023.

Operating Expenses


	For the Three Months Ended
	March 31,	December 31,	Increase/(Decrease)
(in thousands)	2023	2022	$	%
Operating expenses
Depreciation and amortization	$41,784	$45,605	$(3,821)	(8.4)	%
Property and operating expense	5,886	6,397	(511)	(8.0)	%
General and administrative	10,416	9,318	1,098	11.8	%
Provision for impairment of investment in rental properties	1,473	—	1,473	> 100.0	%
Total operating expenses	$59,559	$61,320	$(1,761)	(2.9)	%

Depreciation and amortization

The decrease in depreciation and amortization for the three months ended March 31, 2023 was primarily due to accelerated amortization of in-place lease intangibles associated with an early lease termination and simultaneous sale of an office property during the quarter, partially offset by %growth in our real estate portfolio.

Provision for impairment of ~~NTM Rent~~investment in rental properties

During the three months ended March 31, 2023 we recognized $1.5 million of impairment on our investments in rental properties due to change in our long-term hold strategy for one property. During the three months ended December 31, 2022, we did not recognize any impairment on our investments in rental properties. The following table presents the ~~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~~impairment charges 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, excluding any potential variable rent increases that are based on CPI and/or the tenants’ sales volume. Amounts are in thousands, except the number of tenants and properties.three months ended March 31, 2023:

Year

Number of
Tenants

Number of
Properties

Square
Footage

NTM Rent

Percentage of
NTM Rent

2017

—

—

—

$
—

—
%
2018

1

1

2

131

<0.1
%
2019

1

1

2

117

<0.1
%
2020

3

4

116

1,376

0.8
%
2021

2

4

9

576

0.3
%
2022

3

3

87

2,393

1.4
%
2023

9

13

724

6,786

4.0
%
2024

12

15

1,741

13,933

8.2
%
2025

2

8

28

1,034

0.6
%
2026

17

27

620

9,964

5.9
%
2027

16

30

1,210

14,785

8.8
%
2028

12

22

1,025

11,184

6.6
%
2029

12

54

2,483

15,623

9.2
%
2030 and thereafter

61

295

6,015

91,023

53.9
%

Our top tenants and brands at September 30, 2017, are listed in the tables below. The percentages are calculated based on our NTM Rent on a per property type basis 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, excluding any potential variable rent increases that are based on CPI and/or the tenants’ sales volume.

~~Top Ten Tenants, by % of NTM Rent~~

Tenant

Property Type

% NTM Rent

Properties

Red Lobster Hospitality LLC & Red Lobster Restaurants LLC

Retail

4.3
%

25

Art Van Furniture, LLC

Retail

3.9
%

9

Jack’s Family Restaurants LP

Retail

3.4
%

36

Outback Steakhouse of Florida, LLC⁽¹⁾

Retail

3.1
%

24

Big Tex Trailer Manufacturing Inc.

Industrial/Retail

2.7
%

17

Siemens Medical Solutions USA, Inc. & Siemens Corporation

Industrial

2.6
%

2

Nestle' Dreyer's Ice Cream Company

Industrial

2.5
%

1

Nationwide Mutual Insurance Company

Other

2.3
%

2

Arkansas Surgical Hospital LLC

Healthcare

2.3
%

1

Bob Evans Restaurants, LLC

Retail

2.2
%

25

Total

29.3
%

142

All Other

70.7
%

335


⁽¹⁾(in thousands, except number of properties)	~~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

Bob Evans Farms⁽¹⁾

Industrial/Retail

4.3
%

27

Red Lobster

Retail

4.3
%

25

Art Van Furniture

Retail

3.9
%

9

Jack's Family Restaurants

Retail

3.4
%

36

Taco Bell

Retail

3.1
%

41

Wendy's

Retail

2.9
%

35

Outback Steakhouse

Retail

2.8
%

22

Big Tex Trailers

Industrial/Retail

2.7
%

17

Siemens

Industrial

2.6
%

2

Nestle'

Retail

2.5
%

1

Total

32.5
%

215

All Other

67.5
%

262

⁽¹⁾	~~Brand includes two BEF Foods, Inc. properties and 25 Bob Evans Restaurants, LLC restaurants.~~

As previously mentioned, the IDC approved certain updates to our Investment Policy following the regular annual review of the policy at the November 2017 meeting of our board of directors. As updated, our Investment Policy generally requires us to seek diversification of our investments. Based on the aggregate 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 single state.~~

We may exceed these diversification targets from time to time with the approval of the IDC. 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 IDC:

~~Asset Category~~	~~Target~~			~~Range~~
~~Retail~~Number of properties		30	%	~~15-45%~~1
~~Healthcare~~Carrying value prior to impairment charge		20	%	~~15-40%~~$4,236
~~Industrial~~Fair value		25	%	~~15-40%~~2,763
~~Office~~Impairment charge		15	%	~~10-20%~~
~~Other~~		10	%	~~5-15%~~$1,473

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

Other income (expenses)


	For the Three Months Ended
	March 31,		December 31,		Increase/(Decrease)
(in thousands)	2023		2022		$		%
Other income (expenses)
Interest income	$	162	$	40	$	122	> 100	%
Interest expense		(21,139)		(23,773)		(2,634)	(11.1)	%
Cost of debt extinguishment		—		(77)		(77)	(100.0)	%
Gain on sale of real estate		3,415		10,625		(7,210)	(67.9)	%
Income taxes		(479)		(105)		374	> 100	%
Other expenses		(18)		(751)		(733)	(97.6)	%

Interest expense

The decrease in interest expense reflects a decrease in our weighted average outstanding borrowings during the three months ended March 31, 2023 compared to during the three months ended December 31, 2022.

Gain on sale of real estate

Our ~~Investment Policy provides~~recognition of a gain or loss on the ~~Asset Manager~~sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market. During the three months ended March 31, 2023, we recognized a gain of $3.4 million on the sale of three properties, compared to a gain of $10.6 million on the sale of three properties during the three months ended December 31, 2022. Our proactive asset management strategy includes selectively selling properties where we believe the risk profile has changed and become misaligned with our then current risk-adjusted return objectives.

Net income and Net earnings per diluted share


	For the Three Months Ended
	March 31,	December 31,	Increase/(Decrease)
(in thousands, except per share data)	2023	2022	$	%
Net income	$41,374	$36,773	$4,601	12.5%
Net earnings per diluted share	0.21	0.20	0.01	5.0%

The increase in net income is primarily attributable to a $6.9 million increase in lease revenue associated with incremental lease termination fees and growth in our real estate portfolio, a $3.8 million decrease in depreciation and amortization, and a $2.6 million decrease in interest expense, partially offset by a $7.2 million decrease in gain on sale of real estate and a $1.5 million increase in impairment of investment in rental properties.

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

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Lease Revenues, net


	For the Three Months Ended
	March 31,						Increase/(Decrease)
(in thousands)	2023			2022			$			%
Contractual rental amounts billed for operating leases	$	98,102		$	84,396		$	13,706		16.2	%
Adjustment to recognize contractual operating lease billings on a straight-line basis		7,370			5,021			2,349		46.8	%
Net write-offs of accrued rental income		(105	)		(1,326	)		1,221		92.1	%
Variable rental amounts earned		341			186			155		83.3	%
Earned income from direct financing leases		691			723			(32	)	(4.4)	%
Interest income from sales-type leases		14			14			—		0.0	%
Operating expenses billed to tenants		5,075			4,735			340		7.2	%
Other income from real estate transactions		7,392			42			7,350		> 100.0	%
Adjustment to revenue recognized for uncollectible rental amounts billed, net		112			50			62		> 100.0	%
Total Lease revenues, net	$	118,992		$	93,841		$	25,151		26.8	%

The increase in Lease revenues, net was primarily attributable to growth in our real estate portfolio through property acquisitions closed since March 31, 2022. During the twelve months ended March 31, 2023, we invested $716.6 million, excluding capitalized acquisition costs, in 63 properties at a weighted average initial cash capitalization rate of 6.6%. The increase is also attributable to an increase in lease termination income.

Operating Expenses


	For the Three Months Ended
	March 31,		Increase/(Decrease)
(in thousands)	2023	2022	$	%
Operating expenses
Depreciation and amortization	$41,784	$34,290	$7,494	21.9	%
Property and operating expense	5,886	5,044	842	16.7	%
General and administrative	10,416	8,828	1,588	18.0	%
Provision for impairment of investment in rental properties	1,473	—	1,473	> 100.0	%
Total operating expenses	$59,559	$48,162	$11,397	23.7	%

Depreciation and amortization

The increase in depreciation and amortization for the three months ended March 31, 2023 was primarily due to growth in our real estate portfolio.

General and administrative

The increase in general and administrative expense for the three months ended March 31, 2023 was primarily due to increased stock-based compensation expense associated with an additional grant to employees in February 2022, a change in director compensation to include grants of restricted stock awards beginning in 2022, and accelerated amortization of stock-based compensation in connection with the ~~authority to make any acquisition or sale~~departure of ~~any property or group~~our previous chief executive officer during the first quarter of ~~related~~2023.

Provision for impairment of investment in rental properties ~~involving up to $50~~

During the three months ended March 31, 2023, we recognized $1.5 million ~~for any single or portfolio transaction, $75 million per cumulative tenant concentration, or $100 million per cumulative brand concentration~~of impairment on our behalf, without approval of the IDC, provided that any properties so acquired otherwise meet our Investment Policy and Property Selection Criteria, and any financing related to any such acquisitions does not violate our Leverage Policy (as defined below), as such are established by the IDC from time to time. Our Investment Policy permits investments in ~~properties that do not otherwise meet our Investment Policy or Property Selection Criteria with~~rental properties. There was no impairment recognized during the ~~approval of the IDC.~~

~~Leverage Policy~~

In March of 2016, Moody’s Investors Service (“Moody’s”) assigned the Operating Company an investment grade credit rating of Baa3 with a stable outlook. Moody’s re-affirmed the investment grade credit rating in March 2017. The investment grade credit rating allowed us to take advantage of preferential borrowing margins on our outstanding debt, including the $800 million credit facility we entered into on June 23, 2017. The investment grade credit ratings will also allow us more attractive access to the debt private placement markets. The 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. We are strongly committed to maintaining modest leverage, commensurate with our investment grade rating. While Moody’s utilizes other factors outside of our leverage ratio, our leverage policy (“Leverage Policy”) is to maintain a leverage ratio in the 35% to 45% range based on the market value of assets, recognizing that the actual leverage ratio will 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 IDC.

To reduce its exposure to variable rate debt, the Operating Company enters into interest rate swap agreements to fix the rate of interest as a hedge against interest rate fluctuations. 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 market activity. We limit our total exposure to floating rate debt to no more than 5% of the market value of total assets, measured at quarter end.

~~During the nine~~three months ended September 30, 2017, we added $150 million of unsecured Senior Notes (as defined below) to our capital structure. The Senior Notes bear interest at a fixed of 4.84% per annum, with a 10 year maturity. We strategically used this channel of long-term, fixed rate debt capital to help mitigate interest rate risk, lengthen our maturity profile, and diversify our sources of debt capital.

~~The IDC 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.~~

~~As of September 30, 2017, our total outstanding indebtedness was $910.1 million, and the ratio of our total indebtedness to the market value of our assets was approximately 36.5%.~~

~~Determined Share Value~~

Our shares of common stock are sold by us in our ongoing private offering at a price equal to a determined share value (the “Determined Share Value”), which is established quarterly by the IDC based on the net asset value (“NAV”) of our portfolio, input from management, and such other factors as the IDC may determine. Shares of our common stock are also sold pursuant to our DRIP, and repurchased by us pursuant to our share redemption program, at a price based upon the Determined Share Value. For additional information regarding our valuation policy and procedures, please see the section titled “~~Determined Share Value” in Item 1 of our Form 10.~~March 31, 2022. The following table presents ~~our Determined Share Value for each period indicated below, together with~~ the ~~corresponding NAV as of the preceding quarter-end:~~

Period

NAV as of

Determined
Share Value

NAV per
share

November 1, 2017 - January 31, 2018

September 30, 2017

$
81.00

$
80.55

August 1, 2017 - October 31, 2017

June 30, 2017

$
80.00

$
79.90

~~The adjustments to NAV per share in arriving at the Determined Share Value~~impairment charges for the ~~periods presented above account for~~three months ended March 31, 2023:


(in thousands, except number of properties)
Number of properties		1
Carrying value prior to impairment charge		$4,236
Fair value		2,763
Impairment charge		$1,473

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

Other income (expenses)


	For the Three Months Ended
	March 31,				Increase/(Decrease)
(in thousands)	2023		2022		$		%
Other income (expenses)
Interest income	$	162	$	—	$	162	100.0	%
Interest expense		(21,139)		(16,896)		4,243	25.1	%
Gain on sale of real estate		3,415		1,196		2,219	> 100.0	%
Income taxes		(479)		(412)		67	16.3	%
Other income (expenses)		(18)		(1,126)		(1,108)	(98.4)	%

Interest expense

The increase in interest expense reflects an increase in our weighted average cost of borrowings combined with increased average outstanding borrowings during the three months ended March 31, 2023 compared to the three months ended March 31, 2022. Since March 31, 2022, we increased total outstanding borrowings by $141.8 million to partially fund our acquisitions. Of our $1.9 billion of total outstanding indebtedness, approximately $34.4 million, or 1.8%, is variable and therefore subject to the impact of fluctuations in interest rates.

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 ~~valuation estimates. In February 2018,~~real estate market. During the ~~IDC will review~~three months ended March 31, 2023, we recognized a gain of $3.4 million on the ~~NAV calculations as~~sale of ~~December~~three properties, compared to a gain of $1.2 million on the sale of one property during the three months ended March 31, ~~2017, and will assess~~2022. Our proactive asset management strategy includes determining whether ~~adjustments~~ to ~~the current Determined Share Value of $81.00 are appropriate.~~

~~The following table provides a breakdown of the major components~~sell any of our ~~estimated NAV~~properties where we believe the risk profile has changed and ~~NAV~~become misaligned with our then current risk-adjusted return objectives.

Other income (expenses)

The decrease in other expenses during the three months ended March 31, 2023 was primarily due to a $0.01 million unrealized foreign exchange loss recognized on the quarterly remeasurement of our $100 million CAD revolver borrowings, compared to a $1.1 million unrealized foreign exchange loss recognized during the three months ended March 31, 2022.

Net income and Net earnings per diluted share ~~amounts as~~


	For the Three Months Ended
	March 31,		Increase/(Decrease)
(in thousands, except per share data)	2023	2022	$	%
Net income	$41,374	$28,441	$12,933	45.5%
Net earnings per diluted share	0.21	0.16	0.05	31.3%

The increase in net income is primarily due to revenue growth of ~~September 30, 2017~~$25.2 million, $2.2 million increase on gain on sale of real estate and ~~June 30, 2017 (in thousands, except per share amounts):~~

NAV as of:

September 30,
2017

June 30,
2017

Investment in rental property

$
2,502,140

$
2,351,989

Debt

(909,416
)

(883,112
)
Other assets and liabilities, net

1,348

34,790

NAV

$
1,594,072

$
1,503,667

Number of outstanding shares, including noncontrolling interests

$
19,790

$
18,820

NAV per share

$
80.55

$
79.90

~~The following table details the implied market capitalization rates (shown on~~ a ~~weighted average basis) used to value the~~$1.1 million decrease in foreign exchange loss. These factors were partially offset by a $7.5 million increase in depreciation and amortization, a $4.2 million increase in interest expense, a $1.5 million increase in general and administrative expense, and a $1.5 million increase in impairment of investment in rental ~~property, by property type,~~properties.

GAAP net income includes items such as gain or loss on sale of September 30, 2017 and June 30, 2017, supporting the Determined Share Value in effect for the periods of November 1, 2017 through January 31, 2018, and August 1, 2017 through October 31, 2017, respectively:

Market capitalization rates, as of:

Retail

Industrial

Healthcare

Other

Portfolio
Total

September 30, 2017

6.38
%

6.96
%

6.95
%

7.11
%

6.75
%
June 30, 2017

6.40
%

6.96
%

6.87
%

7.05
%

6.73
%

~~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 September 30, 2017, 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 share would have been $76.03.~~provisions for impairment, among others, which can vary from quarter to quarter and impact period-over-period comparisons.

~~Distributions and Distribution Reinvestment~~33

At its November 7, 2017, meeting, our board of directors declared monthly distributions of $0.415 per share of our common stock and unit of membership interest in the Operating Company to be paid by us to our stockholders and members of the Operating Company (other than us) of record prior to the end of November 2017, December 2017, and January 2018:

Dividend Per Share/Unit

Record Date

Payment Date
(on or before)
$
0.415

November 29, 2017

December 15, 2017
$
0.415

December 28, 2017

January 15, 2018
$
0.415

January 30, 2018

February 15, 2018

Investors may purchase additional shares of our common stock by electing to reinvest their distributions through our DRIP. The purchase price for shares of our common stock acquired through our DRIP will be 98% of the then-current Determined Share Value. Please refer to Item 11. “~~Description of Registrant’s Securities to Be Registered” of our Form 10 for additional discussion of our DRIP.~~

~~The following table summarizes distributions paid in cash and pursuant to our DRIP for the nine months ended September 30, 2017 (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

TOTAL

$
32,528

$
4,465

$
28,095

$
936

$
66,024

⁽¹⁾	~~Distributions are paid in shares of common stock.~~

~~The following table summarizes our distributions paid during the nine months ended September 30, 2017 and 2016, including the source of distributions and a comparison against FFO (in thousands).~~

For the nine months ended

September 30,

2017

2016

Distributions:

Paid in cash

$
37,929

$
31,229

Reinvested in shares

28,095

19,781

Total Distributions

$
66,024

$
51,010

Source of Distributions:

Cash flow from operating activities

$
66,024

$
51,010

Cash flow from investing activities

—

—

Cash flow from financing activities

—

—

Total Sources of Distributions

$
66,024

$
51,010

FFO

$
79,974

$
55,658

~~For the nine months ended September 30, 2017 and 2016, we paid distributions from our cash flow from operating activities. Refer to “Net Income and Non-GAAP Measures (FFO and AFFO)” below for further discussion of our FFO.~~

~~We intend 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.~~

~~Share Redemptions~~

The following table sets forth the redemption requests honored pursuant to our share redemption program during the three and nine months ended September 30, 2017. We did not defer or reject any redemption requests during this period. Please refer to Item 11. “~~Description of Registrant’s Securities to Be Registered” of our Form 10 for additional discussion of our share redemption program.~~

Period

Shares
Redeemed

Average
Determined
Share
Value⁽¹⁾

Average
Redemption
Price

Redemption
Amount

Discount on
Redemption⁽²⁾

Q1 2017

17,861

$
79.00

$
77.24

$
1,379,570

2.2
%
Q2 2017

20,641

$
80.00

$
79.29

$
1,636,650

0.9
%
Q3 2017

23,374

$
80.00

$
77.36

$
1,808,288

3.3
%
YTD 2017

61,876

$
79.67

$
77.97

$
4,824,508

2.1
%

⁽¹⁾	~~Average Determined Share Value represents the weighted average Determined Share Value in effect during the applicable period.~~

⁽²⁾	~~Discount on redemption represents the weighted average discount applied to the Determined Share Value as a result of redemption limitations.~~

Liquidity and Capital Resources

General

We acquire real estate ~~with~~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 ~~shareholders~~stockholders through an appropriate balance of debt and equity in our capital structure. ~~Therefore, we attempt~~We are committed to ~~maintain a conservative debt level on our~~maintaining an investment grade balance sheet ~~with appropriate interest and fixed charge coverage ratios. We target a leverage ratio with total debt equal to 35% to 45% of the approximate market value~~through active management of our ~~assets.~~leverage profile and overall liquidity position. We believe our ~~current~~ leverage ~~model~~strategy has allowed us to take advantage of the lower cost of debt while simultaneously strengthening our balance sheet, as evidenced by ~~the~~our current investment grade credit ~~rating the Operating Company received in March~~ratings of ~~2016~~‘BBB’ from S&P Global Ratings (“S&P”) and ~~re-affirmed in March~~‘Baa2’ from Moody’s Investors Service (“Moody’s”). We manage our leverage profile using a ratio of ~~2017. The actual leverage ratio will vary over time but may not exceed 50% without the approval of the IDC. As of September 30, 2017, the leverage ratio was approximately 36.5% of the market value~~Net Debt to Annualized Adjusted EBITDAre, a non-GAAP financial measure, which we believe is a useful measure of our ~~assets. From~~ability to repay debt and a ~~management perspective~~relative measure of leverage, and is used in communications with ~~the credit~~lenders and with rating agencies regarding our credit rating. We seek to maintain on a sustained basis a Net Debt to Annualized Adjusted EBITDAre ratio that is generally less than 6.0x. As of March 31, 2023, we ~~also consider our leverage position as~~had total debt outstanding of $1.9 billion, Net Debt of $1.9 billion, and a ~~multiple~~Net Debt to Annualized Adjusted EBITDAre ratio of ~~Earnings Before Interest Taxes Depreciation~~5.1x.

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

Liquidity/REIT Requirements

Liquidity is a ~~tool~~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 ~~use~~are required to ~~measure leverage~~distribute to our stockholders at least 90% of our REIT taxable income determined without regard to the dividends paid deduction and excluding net capital gains, on an annual basis. As a result, it is unlikely that we will be able to retain substantial cash balances to meet our long-term liquidity needs, including repayment of debt and the acquisition of additional properties, from our annual taxable income. Instead, we expect to meet our long-term liquidity needs primarily by relying upon external sources of capital.

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 and interest payments on our outstanding debt, to pay distributions, to fund our acquisitions that are under control or expected to close within a short time period, and to pay for commitments to fund tenant improvements and revenue generating capital expenditures. We do not currently anticipate making significant capital expenditures or incurring other significant property costs, including as a result of inflationary pressures in the ~~context~~current economic environment, because of the strong occupancy levels across our portfolio and the net lease nature of our leases. We expect to meet our short-term liquidity requirements primarily from cash ~~flow expectations~~ and ~~projections. Furthermore, given the significance of~~cash equivalents balances and net cash provided by operating activities, supplemented by borrowings under our growth over the past two years, adding $352.0 million in investments during the nine months ended September 30, 2017, $518.8 million in investments during 2016, and $550.1 million in investments during 2015, coupled withRevolving Credit Facility. We intend to match fund our ~~continued strategic growth initiatives, historical EBITDA may not provide investors~~acquisitions with an adequate picture of the contractual cash in-flows associated with these investments. Our investments are typically made throughout 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 ~~tool to manage our leverage profile. We utilize this analysis inclusive of our focus on debt-to-market value metrics.~~

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 three and nine months ended September 30, 2017, we raised $79.2 million and $249.6 million, respectively, in equity capital to be used in our acquisition activities, including distributions reinvested through our DRIP and properties exchanged for membership units in the Operating Company through UPREIT transactions. We seek to maintain an appropriate balancemix of debt and equity capital. We use cash on hand and borrowings under our Revolving Credit Facility to initially fund acquisitions, which are subsequently repaid or replaced with proceeds from our equity and debt capital markets activities.

As detailed in the contractual obligations table below, we have approximately $63.4 million of expected obligations due throughout the remainder of 2023, primarily consisting of $56.6 million of interest expense due and $6.8 million of mortgage maturities. 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 repay the maturing mortgage with available cash on hand generated from our results of operations or borrowings under our Revolving Credit Facility.

Long-term Liquidity Requirements

Our long-term liquidity requirements consist primarily of funds necessary to repay debt and invest in additional revenue generating properties. We expect to source debt capital from unsecured term loans from commercial banks, revolving credit facilities, private placement senior unsecured notes, and public bond offerings.

The source and mix of our debt capital in the future will be impacted by market conditions as well as our ~~overall leverage policy, while maintaining a~~continued focus on ~~increasing core value for existing stockholders (achieved via share appreciation~~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 ~~earnings growth).~~managing our exposure to interest rate risk. As of March 31, 2023, we have $891.7 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 ~~is provided through unsecured term notes, revolving~~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 ~~facilities,~~ and ~~senior unsecured notes.~~equity capitalization. We also, from time to time, obtain or assume non-recourse mortgage financing from banks and insurance companies secured by mortgages on the corresponding specific property. Mortgages, however, are not currently a strategic focus of the active management of our ~~leverage profile. Rather,~~capital structure.

Equity Capital Resources

Our equity capital is primarily provided through our at-the-market common equity offering program (“ATM Program”), as well as follow-on equity offerings. Under the terms of our ATM Program we ~~enter into mortgages~~may, from time to time, publicly offer and ~~notes payable as ancillary business transactions on~~sell shares of our common stock having an ~~as-needed basis.~~

~~To reduce our exposure to variable rate debt, the Operating Company enters into interest rate swap agreements to fix the rate~~aggregate gross sales price of ~~interest as a hedge against interest rate fluctuations. These interest rate hedges have staggered maturities~~ up to ~~ten years in duration in order~~$400 million. The ATM Program provides for forward sale agreements, enabling us to ~~reduce~~set the ~~exposure to interest rate fluctuations in any one year. The interest rate swaps are applied against a pool~~price of ~~debt, which offers flexibility in maintaining our hedge designation concurrent with our ongoing capital market activity. We attempt to limit our total floating rate debt exposure to no more than 5%~~shares upon pricing the offering while delaying the issuance of ~~total assets, measured at quarter end. To reduce counterparty concentration risk with respect to~~shares and the ~~interest rate hedges, we diversify the institutions that serve as swap counterparties. No more than 30%~~receipt of the ~~nominal value~~net proceeds. We did not raise any equity on our ATM Program during the quarter, and have approximately $145.4 million of capacity remaining on the ATM Program as of March 31, 2023.

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 ~~total hedged~~ debt ~~may be with any one institution,~~and equity capitalization, while maintaining a Net Debt to ~~be measured~~Annualized Adjusted EBITDAre ratio below 6.0x on a sustained basis, through the anticipated use of follow-on equity offerings and the ATM Program.

Unsecured Indebtedness as of March 31, 2023

The following table sets forth our outstanding revolving credit facility, unsecured term loans and senior unsecured notes at ~~the time we enter into an interest rate swap transaction and at quarter end. We may deviate from these policies from time-to-time~~March 31, 2023.


(in thousands, except interest rates)	Outstanding Balance			Interest Rate	Maturity Date
Unsecured revolving credit facility	$	108,330		Applicable reference rate + 0.85% (a)	Mar. 2026
Unsecured term loans:
2026 Unsecured Term Loan		400,000		one-month LIBOR + 1.00%	Feb. 2026
2027 Unsecured Term Loan		200,000		one-month adjusted SOFR + 0.95%	Aug. 2027
2029 Unsecured Term Loan		300,000		one-month adjusted SOFR + 1.25%	Aug. 2029
Total unsecured term loans		900,000
Unamortized debt issuance costs, net		(4,994	)
Total unsecured term loans, net		895,006
Senior unsecured notes:
2027 Senior Unsecured Notes - Series A		150,000		4.84%	Apr. 2027
2028 Senior Unsecured Notes - Series B		225,000		5.09%	Jul. 2028
2030 Senior Unsecured Notes - Series C		100,000		5.19%	Jul. 2030
2031 Senior Unsecured Public Notes		375,000		2.60%	Sep. 2031
Total senior unsecured notes		850,000
Unamortized debt issuance costs and original issuance discount, net		(5,256	)
Total senior unsecured notes, net		844,744
Total unsecured debt, net	$	1,848,080

(a)

At March 31, 2023, a balance of $34.5 million was subject to the ~~approval~~one-month SOFR of ~~the IDC.~~4.80% plus a 0.10% adjustment. The ~~interest rate swaps are considered cash flow hedges. Under these agreements, we receive monthly payments from the counterparties equal~~remaining balance includes $100 million CAD borrowings remeasured to $73.8 million USD, which was subject 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 impactone-month CDOR of ~~these transactions is that we pay a fixed interest rate on our variable rate borrowings.~~4.95%.

Debt Covenants

We also mitigate interest rate risk by strategically adding long-term, fixed rate debt to our capital structure. During the nine months ended September 30, 2017, we added $150 million of unsecured Senior Notes (as defined below) to our capital structure. The Senior Notes bear interest at a fixed rate of 4.84% per annum, with a 10 year maturity.

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 credit-worthy tenants and lease guarantors, and maintaining an appropriate mix of debt and equity capitalization. Specifically, we recognized a 100% collection rate on rentals during 2016, and over a 99% collection rate on rentals during the nine months ended September 30, 2017. Additionally, Moody’s issued an investment grade credit rating of Baa3 to the Operating Company in March 2016, further evidencing our active management of a conservative capital structure. Moody’s re-affirmed the investment grade credit rating in March 2017. We have arranged our debt facilities to have multiple year terms in order to reduce the risk that short-term real estate financing would not be available to us in any given year. 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. Refer to “Contractual Obligations” below for further details of the maturities on our contractual obligations, including long-term debt.

As of September 30, 2017, the historical cost basis of our real estate investment portfolio totaled $1.9 billion, consisting of investments in 477 properties with rent and interest due from our tenants aggregating $14.7 million per month on a straight-line basis. During the nine months ended September 30, 2017, we closed 14 real estate acquisitions totaling $352.0 million, adding 70 new properties to our portfolio. The 70 new properties will provide approximately $2.6 million in monthly rent on a straight-line basis. Substantially all of our cash from operations is generated by our real estate portfolio.

Our primary cash expenditures are 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 all of our leases are triple-net, our tenants are generally responsible for the maintenance, insurance, and property taxes associated with the properties they lease from us. In certain circumstances, the terms of the lease require us to pay these expenses, however, in most cases we are reimbursed by the tenants. Accordingly, we do not currently anticipate making significant capital expenditures or incurring other significant property costs during the term of a property lease, unless we incur substantial vacancies. To the extent that we have vacant properties, we will incur certain costs to operate and maintain the properties, however, we do not currently expect these costs to be material. For the nine months ended September 30, 2017, we maintained a 100% leased portfolio, with the leases for only two of our properties, representing less than 1% of our annual rental streams (calculated based on NTM Rent), expiring before 2020.

We intend to continue to grow through additional real estate investments. To accomplish this objective, we must continue to identify real estate acquisitions that are consistent with our underwriting guidelines and raise additional future debt and equity capital. We have financed our acquisition of properties using both equity investments as well as a combination of unsecured term, revolving debt, senior unsecured notes, and mortgage loans. The mix of financing sources may change over time based on market conditions and our liquidity needs. We have three outstanding unsecured term loans with an outstanding principal balance of approximately $725.0 million as of September 30, 2017, and a $400.0 million line of credit with $126.5 million of outstanding borrowings as of September 30, 2017.

On April 18, 2017, the Operating Company closed the issuance of unsecured, fixed rate, guaranteed senior promissory notes (“Senior Notes”) with an aggregate principal amount of $150 million. The Senior Notes were issued by the Operating Company and upon issuance, were guaranteed by us and each of the Operating Company’s subsidiaries that guarantee our other unsecured credit facilities. The Senior 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. We used the proceeds from the sale of the Senior Notes to pay down $115 million of the outstanding balance on our existing line of credit (the “Revolver”) at the time of closing and to fund other general corporate purposes, including acquisitions. The financial covenants associated with the Senior Notes are materially consistent with the covenant tables set forth below.

On June 23, 2017, together with the Operating Company, we closed on an $800 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, and includes (i) a $400 million senior unsecured revolving credit facility (the “New Revolver”), (ii) a five and a half year, $250 million senior unsecured delayed draw term loan (the “5.5-Year Term Loan”), and (iii) a seven year, $150 million senior unsecured delayed draw term loan (the “7-Year Term Loan”). The following table summarizes the amounts drawn and available to be drawn on the Credit Facility upon closing (in thousands).

Loan Tranche

Amount Drawn

Amount Available

Total Capacity

Maturity Date
New Revolver

90,000

310,000

400,000

January 21, 2022
5.5-Year Term Loan

250,000

—

250,000

January 23, 2023
7-Year Term Loan

—

150,000

150,000

June 21, 2024

At closing, we borrowed $250 million under the 5.5-Year Term Loan and drew down $90 million on the New Revolver. We used the proceeds from these borrowings to pay off our $100 million term note (“Term Note 1”), our $185 million term note (“Term Note 2”), the outstanding balance of $5 million on our Revolver, and to pay down $50 million of the outstanding borrowings on our $375 term note (“Term Note 3”). The $50 million payment on Term Note 3 was made via a one-time, non-pro rata payment provision included in our amended and restated Term Note 3 agreement, which was amended and restated simultaneously with the closing of the Credit Facility to align its terms with the Credit Facility. We did not draw down funds from the 7-Year Term Loan at closing. The remaining capacity on the Credit Facility will also be used to partially fund future acquisition activity in our real estate portfolio, and for general corporate purposes. Prior to extension options, Term Note 1 and the Revolver were set to mature on June 27, 2017, and Term Note 2 was set to mature on October 11, 2018.

~~Included in the terms of the Credit Facility and through our amendment and restatement of Term Note 3, we removed the subsidiary guarantees supporting our term notes and Senior Notes.~~

Our $400 million New Revolver matures on January 21, 2022, with one extension option for an additional five month period through 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. The rate of interest payable on the New Revolver, at our option, is equal to LIBOR plus a margin. The margin for New Revolver borrowings is adjustable based upon the Operating Company’s credit rating and is between 0.825% and 1.55% per annum. Based on the Operating Company’s current investment grade credit rating of Baa3, the applicable margin for the New Revolver equals 1.2% per annum. Borrowings under the New Revolver are payable interest only during the term, with the principal amount due in full at maturity. As of September 30, 2017, and at closing on June 23, 2017, there were $126.5 million and $90 million, respectively, in outstanding LIBOR borrowings under the New Revolver. As of September 30, 2017, $28 million of the total $126.5 million outstanding New Revolver borrowings were in the form of swingline borrowings, which allow us to draw down funds on the New Revolver immediately upon request. The swingline borrowings are short-term in nature, with a maturity date equal to five business days after draw. As of September 30, 2017, we expect to replace the $28 million in swingline borrowings with New Revolver borrowings. Should the Operating Company lose its investment grade credit rating, the margin would be 1.55% until such time as the Operating Company regains its investment grade credit rating. The current margin on the New Revolver of 1.2% represents a 25 basis point reduction from the margin of 1.45% on the previous Revolver, prior to consideration of the applicable facility fee discussed below. The following table presents the margins on the New Revolver based on credit ratings from S&P or Moody’s.

~~Level~~	~~Credit Rating~~ ~~(S&P/Moody’s)~~	~~Applicable Margin~~ ~~for LIBOR Loans~~
I	~~A-/A3 or better~~		~~0.83%~~
II	~~BBB+/Baa1~~		~~0.88%~~
~~III~~	~~BBB/Baa2~~		~~1.00%~~
IV	~~BBB-/Baa3~~		~~1.20%~~
V	~~Lower than BBB-/Baa3~~		~~1.55%~~

An applicable facility fee is payable on the amount of the revolving commitments, as defined in the Credit Facility, based on the Operating Company’s credit rating. The initial applicable facility fee equals 0.25% per annum. The previous Revolver contained an unused commitment fee. The following table presents the applicable facility fee on the New Revolver based on credit ratings from S&P or Moody’s.

~~Level~~	~~Credit Rating~~ ~~(S&P/Moody’s)~~	~~Applicable~~ ~~Facility Fee~~
I	~~A-/A3 or better~~		~~0.13%~~
II	~~BBB+/Baa1~~		~~0.15%~~
~~III~~	~~BBB/Baa2~~		~~0.20%~~
IV	~~BBB-/Baa3~~		~~0.25%~~
V	~~Lower than BBB-/Baa3~~		~~0.30%~~

Our $250 million 5.5-Year Term Loan matures on January 23, 2023, and was fully drawn as of June 30, 2017. Borrowings under the 5.5-Year Term Loan bear interest at variable rates based on LIBOR plus a margin ranging from 0.90% to 1.75% based on the Operating Company’s credit rating. Based on the Operating Company’s current investment grade credit rating of Baa3, the applicable margin under the 5.5-Year Term Loan equals 1.35% per annum. As compared to the applicable margin for Term Note 1 and Term Note 2 of 1.45% and 1.75%, respectively, the applicable margin of 1.35% on the 5.5-Year Term Loan represents a 10 basis point and 40 basis point reduction, respectively. Borrowings under the 5.5-Year Term Loan are payable interest only during the term, with the principal amount due in full at maturity. The following table presents the margins on the 5.5-Year Term Loan.

~~Level~~	~~Credit Rating~~ ~~(S&P/Moody’s)~~	~~Applicable Margin for~~ ~~LIBOR Loans~~
I	~~A-/A3 or better~~		~~0.90%~~
II	~~BBB+/Baa1~~		~~0.95%~~
~~III~~	~~BBB/Baa2~~		~~1.10%~~
IV	~~BBB-/Baa3~~		~~1.35%~~
V	~~Lower than BBB-/Baa3~~		~~1.75%~~

Our $150 million 7-Year Term Loan matures on June 21, 2024. We are permitted to request up to three borrowings under the delayed draw feature of the 7-Year Term Loan, which may be drawn from June 23, 2017, to but excluding June 22, 2018. As of September 30, 2017, we have not drawn upon the 7-Year Term Loan. The rate of interest payable on the 7-Year Term Loan is equal to LIBOR plus a margin. The margin for 7-Year Term Loan borrowings is adjustable based upon the Operating Company’s credit rating and is between 1.5% and 2.45% per annum. Based on the Operating Company’s current investment grade credit rating of Baa3, the initial margin under the 7-Year Term Loan equals 1.9% per annum. A ticking fee is payable on the amount of the commitments for the 7-Year Term Loan, as reduced by the amount of any term loans outstanding under the 7-Year Term Loan, equal to 0.25% per annum. Borrowings under the 7-Year Term Loan are payable interest only during the term, with the principal amount due in full at maturity. The following table presents the margins on the 7-Year Term Loan based on credit ratings from S&P or Moody’s.

~~Level~~	~~Credit Rating~~ ~~(S&P/Moody’s)~~	~~Applicable Margin~~ ~~for LIBOR Loans~~
I	~~A-/A3 or better~~		~~1.50%~~
II	~~BBB+/Baa1~~		~~1.55%~~
~~III~~	~~BBB/Baa2~~		~~1.65%~~
IV	~~BBB-/Baa3~~		~~1.90%~~
V	~~Lower than BBB-/Baa3~~		~~2.45%~~

Our $325 million Term Note 3 matures on February 6, 2019, was fully drawn as of September 30, 2017, and provides for two one year extension options, at our option, subject to compliance with all covenants and the payment of a 0.10% fee. The Term Note 3 agreement contains an accordion feature that can increase the note size up to a total of $600 million. Borrowings under Term Note 3 originally bore interest at variable rates based on the one month LIBOR plus a margin. Moody’s assignment of an investment grade credit rating to the Operating Company led to a margin of 1.40% on Term Note 3, effective April 1, 2016. Should the Operating Company lose its investment grade credit rating, the margin would be 1.75% until such time as the Operating Company regains its investment grade credit rating. The following tables present the margins on Term Note 3 based on credit ratings from S&P or Moody’s.

~~Level~~	~~Credit Rating~~ ~~(S&P/Moody’s)~~	~~Applicable Margin~~ ~~for LIBOR Loans~~
I	~~A-/A3 or better~~		~~0.90%~~
II	~~BBB+/Baa1~~		~~0.95%~~
~~III~~	~~BBB/Baa2~~		~~1.10%~~
IV	~~BBB-/Baa3~~		~~1.40%~~
V	~~Lower than BBB-/Baa3~~		~~1.75%~~

The Operating Company achieved its investment grade credit rating based on our conservative leverage profile, diversified portfolio, and earnings stability based on the credit-worthiness 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 secured debt levels; a significant decline in our unencumbered asset base; weakening of our corporate governance structure; and a significant decline in our portfolio diversification. We have aligned our strategic growth priorities with these factors, as we believe the favorable debt pricing and access to additional 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.

We intend to draw down on the $150 million 7-Year Term Loan as we acquire additional real estate as part of our strategic growth initiatives. Additionally, we intend to exercise the extension provisions of the New Revolver and Term Note 3, refinance, or replace the existing borrowings as they become due. The extensions would delay the New Revolver’s maturities until June 2022, and Term Note 3’s maturity until February 2021. We do not intend to make principal payments on these obligations in the foreseeable future, and plan to replace our existing credit facilities with new debt prior to maturity. 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 of debt to fund future acquisitions, our ability to recognize growth in earnings and return on investment for stockholders, and our ability to recast 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 stockholders. 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, and we may be forced to liquidate properties to satisfy our obligations.

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,~~our debt facilities, which are ~~substantially the same across each of our loan agreements.~~summarized below. As of ~~September 30, 2017,~~March 31, 2023, we believe we were in compliance with all of our ~~covenants.~~covenants on all outstanding borrowings. In the event of default, either through default on payments or breach of covenants, we may be ~~prohibited~~restricted from paying dividends onto our ~~common stock above the annual 90%~~stockholders in excess of dividends required to maintain our REIT ~~taxable income distribution requirement.~~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 ~~distribution amounts.~~to maintain our REIT qualification.


Covenants	~~Required~~	~~Actual~~ ~~(as of~~ ~~September 30, 2017)~~		Requirements
Leverage Ratio⁽¹⁾	≤ 0.60 to 1.00		~~0.37~~
Secured Indebtedness Ratio⁽²⁾	≤ 0.40 to 1.00	~~0.02~~
Unencumbered Coverage Ratio⁽³⁾	≥ 1.75 to 1.00	~~5.49~~
Fixed Charge Coverage Ratio⁽⁴⁾	≥ 1.50 to 1.00	~~3.11~~
Total Unsecured Indebtedness to Total Unencumbered Eligible Property Value⁽⁵⁾	≤ 0.60 to 1.00		~~0.43~~
Dividends and Other Restricted Payments	Only applicable in case of default
Aggregate Debt Ratio	~~Not Applicable~~≤ 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
Secured Debt Ratio	≤ 0.40 to 1.00

⁽¹⁾

The leverage ratio is calculated as the ratio of total indebtedness to total market value. Total market value is computed as the net operating income for the most recently completed fiscal quarter on properties owned for four consecutive quarters at a capitalization rate of 7.50%, multiplied by four, plus the acquisition price of properties in the last four quarters, plus tangible assets comprised of current assets on a GAAP basis and notes receivable.

⁽²⁾	~~The secured indebtedness ratio is the ratio of secured indebtedness to total market value. The secured indebtedness represents outstanding mortgage borrowings.~~

⁽³⁾

Unencumbered Coverage Ratio is the ratio of adjusted EBITDA to interest expense for the most recent fiscal quarter. Adjusted EBITDA is calculated as net income adjusted for depreciation and amortization, interest, taxes, gain/loss on sale of properties, dividend income, gain/loss on debt extinguishment, straight-line rent adjustments, transaction costs expensed, amortization of intangibles, and interest rate swap ineffectiveness, if applicable.

⁽⁴⁾	Fixed Charge Coverage Ratio is the ratio of adjusted EBITDA to fixed charges for the most recent fiscal quarter. Fixed charges are calculated as interest expense plus any principal payments on debt, excluding balloon payments, if applicable.

In connection with our closing of the Credit Facility and amending and restating Term Note 3, we removed the maximum recourse secured indebtedness ratio, minimum tangible net worth requirement, minimum eligible properties, and maximum permitted investments covenants from our term loan and revolving credit agreements. The new debt covenants are characteristic of investment grade credit facilities within the REIT industry.

~~We believe our leverage policy and capital structure provides us with several advantages, including the ability to:~~36

~~create a growing and diversified real estate portfolio;~~

~~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 tax-sheltered REIT status in the event of contractual default, which we believe increases our corporate flexibility.

We do not anticipate utilizing mortgage loans as a strategic priority in our capital structure to fund growth. When utilized, mortgage loans 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 or the Operating Company, provided that we attempt to limit the use of guarantees to the extent possible. The Operating Company may assume debt when conducting a transaction or it may mortgage existing properties. The maturities on our mortgages are staggered from 2017 to 2031. As of September 30, 2017, the aggregate GAAP principal balance of outstanding mortgage loans approximated $57.9 million, net of unamortized debt issuance costs.

As part of acquisitions closed during 2016, we entered into tenant improvement allowances with a balance of $9.5 million at December 31, 2016, included in Accounts payable and other liabilities in the Condensed Consolidated Balance Sheets within this Form 10-Q. During the nine months ended September 30, 2017, we entered into $1.0 million of additional tenant improvement allowances and paid $3.9 million towards the allowances. We expect to pay the $6.6 million balance of tenant improvement allowances within the next twelve months out of cash flows from operations.

As shown in the table below, net cash provided by operating activities increased by $20.2 million during the nine months ended September 30, 2017, from $52.1 million for the nine months ended September 30, 2016. The increase in cash provided by operating activities is primarily due to the increase in the size of our real estate investment portfolio. Our real estate investing activities have grown in volume as we continue to identify and acquire income-producing, net leased commercial real estate, primarily through sale-leaseback transactions, as a result of increased access to debt and equity capital and favorable investment opportunities. 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 dividends to our stockholders and non-controlling members of the Operating Company, net of reinvestments through our DRIP, totaling $38.2 million and $31.3 million for the nine months ended September 30, 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 totaled $13.7 million and $33.0 million at September 30, 2017 and September 30, 2016, respectively.

For the nine months ended

September 30,

(In thousands)

2017

2016

Net cash provided by operating activities

$
72,365

$
52,148

Net cash used in investing activities

(297,497
)

(360,093
)
Net cash provided by financing activities

217,195

313,898

Increase (decrease) in cash and cash equivalents

$
(7,937
)

$
5,953

Management believes that the cash generated by our operations and our ongoing private offering, our cash and cash equivalents at September 30, 2017, our current borrowing capacity on our New Revolver and three unsecured credit facilities, 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 future and allow us to acquire the real estate to meet our strategic objectives.

~~Impact of Inflation~~

Our leases with tenants of our properties are long-term in nature, with a current weighted average remaining lease term of 13.2 years as of September 30, 2017. To mitigate the impact of inflation on our fixed revenue streams, we have implemented limited escalation clauses in our leases. As of September 30, 2017, all of our leases had contractual lease escalations, with a weighted average of 2.1%. A substantial majority of our leases have fixed annual rent increases, and the remaining portion has annual lease escalations based on increases in the CPI, or periodic escalations over the term of the lease (~~e.g.~~, a 10% increase every five years). 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, triple-net leases also shelters us from fluctuations in the cost of services and maintenance as a result of inflation. For an insignificant portion of our portfolio, we have leases that are not triple-net, and therefore we bear certain responsibilities for the maintenance and structural component replacement that may be required in the future. Inflation and increased costs may have an adverse impact to our tenants and their credit-worthiness if the increase in costs are greater than their increase in revenue. In the limited circumstances where we cannot implement a triple-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.

~~Off-Balance Sheet Arrangements~~

~~We have no off-balance sheet arrangements as of September 30, 2017.~~

Contractual Obligations

The following table provides information with respect to our contractual commitments and obligations as of ~~September 30, 2017~~March 31, 2023 (in thousands). Refer to the discussion in the Liquidity and Capital Resources section above for further discussion over our short and long-term obligations.


Year of Maturity	Revolving Credit Facility	Mortgages	Term Loans	Senior Notes	Interest Expense (a)	Total
Remainder of 2023	$—	$6,820	$—	$—	$56,620	$63,440
2024	—	2,260	—	—	74,944	77,204
2025	—	20,195	—	—	77,162	97,357
2026	108,330	16,843	400,000	—	56,444	581,617
2027	—	1,597	200,000	150,000	42,483	394,080
Thereafter	—	38,278	300,000	700,000	64,133	1,102,411
Total	$108,330	$85,993	$900,000	$850,000	$371,786	$2,316,109

Year of
Maturity

Term Note 3⁽¹⁾

5.5-Year Term Loan

New Revolver⁽²⁾

Senior Notes

Mortgages

Interest
Expense⁽³⁾

Tenant
Improvement
Allowances⁽⁴⁾

Total

2017

$
—

$
—

$
28,000

$
—

$
677

$
8,842

$
6,627

$
44,146

2018

—

—

—

—

2,829

34,915

—

37,744

2019

325,000

—

—

—

3,036

26,907

—

354,943

2020

—

—

—

—

8,450

25,459

—

33,909

2021

—

—

—

—

13,306

24,537

—

37,843

Thereafter

—

250,000

98,500

150,000

30,274

70,467

—

599,241

Total

$
325,000

$
250,000

$
126,500

$
150,000

$
58,572

$
191,127

$
6,627

$
1,107,826

(a)

Interest expense is projected based on the outstanding borrowings and interest rates in effect as of March 31, 2023. This amount includes the impact of interest rate swap agreements.

⁽¹⁾	~~We may extend Term Note 3 twice, for a one year period each time, subject to compliance with all covenants and the payment of 0.10% fee.~~

⁽²⁾	~~We may extend the New Revolver once, for a five month period, subject to compliance with all covenants and the payment of an extension fee equal to 0.0625% of the revolving commitments.~~

⁽³⁾

Interest expense is projected based on the outstanding borrowings and interest rates in effect as of September 30, 2017. This amount includes the impact of interest rate swap agreements. The interest expense projections on the New Revolver include management’s expectation that the $28 million in outstanding borrowings due during 2017 will be replaced with borrowings due January 21, 2022.

⁽⁴⁾	The tenant improvement allowance is included within the Accounts payable and other liabilities financial statement caption included within the Condensed Consolidated Balance Sheets within this Form 10-Q.

At ~~September 30, 2017,~~March 31, 2023 investment in rental property of ~~$91.3~~$142.4 million iswas pledged as collateral against our ~~mortgages and notes payable.~~mortgages.

Additionally, ~~as of September 30, 2017,~~ we ~~have~~are a party to two separate ~~Tax Protection Agreements (the “Agreements”)~~tax protection agreements with the contributing members ~~(the “Protected Members”)~~ of two distinct UPREIT transactions ~~conducted in November 2015~~ and ~~February 2016. Subsequent to September 30, 2017,~~ we entered into a third ~~Tax Protection Agreement~~tax protection agreement in connection with ~~additional Protected Members through one UPREIT transaction conducted in October 2017.~~the internalization. The ~~Agreements~~tax protection agreements require us to ~~pay monetary damages~~indemnify the beneficiaries in the event of a sale, exchange, transfer, or other disposal of the contributed property, and in the case of the tax protection agreement entered into in connection with our internalization, the entire Company, in a taxable transaction that would cause ~~a Protected Member~~such beneficiaries to recognize a ~~Protected Gain, as defined in~~gain that is protected under the ~~Agreements and~~agreements, subject to certain exceptions. ~~In such an event, we will pay monetary damages to the Protected Members in the amount~~Based on values as of March 31, 2023, 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 this Form 10-Q. 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 is~~three agreements of approximately ~~$12.3~~$20.4 million. Based on information available, we do not believe that the events resulting in ~~damages~~liability as detailed above have occurred or are likely to occur in the foreseeable future. Accordingly, we have excluded ~~this commitment~~these commitments from the contractual commitments table above.

~~Results~~In the normal course of ~~Operations~~

~~For the three months ended September 30, 2017 and 2016~~

~~Overview~~

As of September 30, 2017, our real estate investment portfolio had a net book value of $1.9 billion, consisting of investments in 477 property locations in 37 states and various industries. All of our real estate investment portfolio represents commercial real estate properties subject to long-term leases, and all of our owned properties were subject to a lease as of September 30, 2017. During the three months ended September 30, 2017 and 2016, none of our leases with tenants expired, and all of our leasing activity related to our real estate acquisitions.

~~Revenues~~

For the three months ended

September 30,

Increase/

(in thousands)

2017

2016

(Decrease)

Revenues:

Rental income from operating leases

$
43,233

$
34,806

$
8,427

Earned income from direct financing leases

968

1,143

(175
)
Operating expenses reimbursed from tenants

1,995

1,056

939

Other income from real estate transactions

39

5

34

Total revenues

$
46,235

$
37,010

$
9,225

Total revenues increased by $9.2 million, or 24.9%, to $46.2 million for the three months ended September 30, 2017, compared to $37.0 million for the three months ended September 30, 2016. The growth in revenue period-over-period is primarily attributable to the growth in our real estate portfolio. During the three months ended September 30, 2017,business, we closed seven real estate acquisitions and acquired $159.2 million in real estate, excluding capitalized acquisition costs, comprised of 22 new properties. We capitalized approximately $2.4 million in acquisition expenses and $0.8 million in leasing fees as part of the acquisitions. Additionally, subsequent to September 30, 2016 and for the twelve month period ended September 30, 2017, we closed 22 real estate acquisitions and acquired approximately $489.8 million in real estate comprised of 88 new properties, contributing to the growth in current quarter revenue. The rental rates we receive on sale-leaseback transactions and lease assumptions on theenter into various types of ~~properties we target across the United States vary from transaction~~commitments 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 contractual cash lease payments on acquisitions during the three months ended September 30, 2017, excluding capitalized acquisition expenses, represented a weighted average capitalization rate of 7.5%.

~~Operating Expenses~~

For the three months ended

September 30,

Increase/

(in thousands)

2017

2016

(Decrease)

Operating expenses

Depreciation and amortization

$
15,643

$
12,114

$
3,529

Asset management fees

3,844

2,789

1,055

Property management fees

1,249

1,010

239

Acquisition expenses

—

2,367

(2,367
)
Property and operating expense

2,009

1,184

825

General and administrative

1,173

598

575

State and franchise tax

301

71

230

Provision for impairment of investment in rental properties

2,608

—

2,608

Total operating expenses

$
26,827

$
20,133

$
6,694

~~Depreciation and amortization~~

Depreciation and amortization increased by $3.5 million, or 29.1%, to $15.6 million for the three months ended September 30, 2017, primarily as a result of the growth in our real estate portfolio. During the three months ended September 30, 2017, we closed seven real estate acquisitions and acquired $159.2 million in real estate, excluding capitalized acquisition costs, comprised of 22 new properties. Additionally, subsequent to September 30, 2016 and for the twelve month period ended September 30, 2017, we closed 22 real estate acquisitions and acquired approximately $489.8 million in real estate comprised of 88 new properties. In addition to the $159.2 million purchase ~~price for acquisitions during the three months ended September 30, 2017, we capitalized $2.4 million in acquisition expenses as the result of adopting 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 tangible and intangible assets acquired, and are depreciated over the respective useful lives. For acquisitions made during 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 by $1.1 million, or 37.8%, to $3.8 million for the three months ended September 30, 2017. The Asset Manager receives an annual asset management fee equal to 1% 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 the three months ended September 30, 2017 compared to the comparable period in 2016 is a result of an increase in our outstanding equity on a fully diluted basis and the increase in the Determined Share Value.

The $80.00 per share Determined Share Value in effect as of September 30, 2017, reflected an increase of 3.9% from the $77.00 per share Determined Share Value in effect as of September 30, 2016. Additionally, the weighted average number of shares of our common stock and non-controlling membership units of the Operating Company outstanding increased as the result of continued equity capital investments. For the three months ended September 30, 2017, the weighted average number of shares of our common stock and non-controlling membership units of the Operating Company outstanding was 19.1 million, compared to 15.1 million for the three months ended September 30, 2016. The increase in equity capital was used to partially fund the continued growth in our real estate portfolio.

~~Acquisition expenses~~

Acquisition expenses decreased by $2.4 million for the three months ended September 30, 2017. 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).

We adopted ASU 2017-01 effective January 1, 2017, and under this new accounting standard, we capitalize acquisition expenses as part of the cost basis of the underlying tangible and intangible assets acquired, as opposed to expensing them as incurred. We adopted ASU 2017-01 on a prospective basis. For the three months ended September 30, 2017, we capitalized $2.4 million in acquisition expenses relating to $159.2 million in acquisitions, which approximated the acquisition expenses recognized during the three months ended September 30, 2016.

~~Provision for impairment of investment in rental properties~~

During the three months ended September 30, 2017, we recognized $2.6 million of impairment on our investments in rental properties. 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. We recognized impairment on four properties whose carrying amounts we determined were not recoverable. In determining the fair value of the assets at the time of measurement, we utilized capitalization rates ranging from 7.25% to 12%, and a weighted average discount rate of 8%.

~~Other income (loss)~~

For the three months ended

September 30,

Increase/

(in thousands)

2017

2016

(Decrease)

Other income (expenses)

Preferred distribution income

$
187

$
181

$
6

Interest income

127

4

123

Interest expense

(9,380
)

(4,576
)

(4,804
)
Cost of debt extinguishment

(1,404
)

(52
)

(1,352
)
Gain on sale of real estate

4,052

2,983

1,069

~~Interest expense~~

Interest expense increased $4.8 million, or 105%, to $9.4 million for the three months ended September 30, 2017, from $4.6 million for the three months ended September 30, 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. Our total outstanding debt, excluding capitalized debt issuance costs, increased from $831.3 million at September 30, 2016, to $910.1 million at September 30, 2017. Additionally, during the three months ended September 30, 2016, we recognized approximately $3.0 million of interest rate swap ineffectiveness, which resulted in a reduction of interest expense. Ineffectiveness during the three months ended September 30, 2016 was attributable to inconsistencies in certain terms between the interest rate swaps and the loan agreements for the Term Notes and Revolver. The interest rate swaps continued to qualify for hedge accounting, with the effective portion of mark-to-market adjustments included in accumulated other comprehensive income. During the fourth quarter of 2016, we amended the terms of the credit agreements, thereby reversing the impact of the ineffectiveness and rendering a $0 full year 2016 impact to the consolidated income statement. We did not recognize any ineffectiveness on our interest rate swaps during the three months ended September 30, 2017.

~~Cost of debt extinguishment~~

The cost of debt extinguishment represents the difference between the price paid to extinguish the debt compared to the carrying value of the debt, 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 (cost) on extinguishment. The loss would be increased by the amount of previously capitalized debt issuance costs that remain unamortized at the time of extinguishment. 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 increased by $1.4 million, to $1.4 million for the three months ended September 30, 2017, from $0.1 million for the three months ended September 30, 2016. The fluctuation is a direct result of a $1.4 million prepayment penalty recognized on the extinguishment of a mortgage, with no similar activity during the three months ended September 30, 2016.

~~Gain on sale of real estate~~

During the three months ended September 30, 2017, we recognized a $4.1 million gain on the sale of real estate, compared to a gain of $3.0 million for the three months ended September 30, 2016. During the three months ended September 30, 2017 and 2016, we sold four properties and two 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.

~~For the nine months ended September 30, 2017 and 2016~~

~~Overview~~

As of September 30, 2017, our real estate investment portfolio had grown to a net book value of $1.9 billion, consisting of investments in 477 property locations in 37 states and various industries. All of our real estate investment portfolio represents commercial real estate properties subject to long-term leases, and all of our owned properties were subject to a lease as of September 30, 2017. During the nine months ended September 30, 2017 and 2016, none of our leases expired, and all of our leasing activity related to our real estate acquisitions.

~~Revenues~~

For the nine months ended

September 30,

Increase/

(In thousands)

2017

2016

(Decrease)

Revenues:

Rental income from operating leases

$
123,890

$
96,779

$
27,111

Earned income from direct financing leases

3,175

3,406

(231
)
Operating expenses reimbursed from tenants

4,908

3,059

1,849

Other income from real estate transactions

117

176

(59
)
Total revenues

$
132,090

$
103,420

$
28,670

Total revenues increased by $28.7 million, or 27.7%, to $132.1 million for the nine months ended September 30, 2017, compared to $103.4 million for the nine months ended September 30, 2016. The growth in revenue year over year is primarily attributable to the growth in our real estate portfolio. During the nine months ended September 30, 2017, we closed 14 real estate acquisitions and acquired $352.0 million in real estate comprised of 70 new properties. We capitalized approximately $6.6 million in acquisition expenses and $2.6 million in leasing fees as part of the acquisitions. Additionally, subsequent to September 30, 2016 and for the three month period ended December 31, 2016, we closed eight real estate acquisitions and acquired approximately $137.8 million in real estate comprised of 17 new properties. 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 contractual cash lease payments on acquisitions during the nine months ended September 30, 2017, excluding capitalized acquisition expenses, represented a weighted average capitalization rate of 7.4%.

~~Operating Expenses~~

For the nine months ended

September 30,

Increase/

(in thousands)

2017

2016

(Decrease)

Operating expenses:

Depreciation and amortization

$
44,969

$
33,273

$
11,696

Asset management fees

10,666

7,770

2,896

Property management fees

3,635

2,868

767

Acquisition expenses

—

8,256

(8,256
)
Property and operating expense

4,710

3,005

1,705

General and administrative

3,297

1,951

1,346

State and franchise tax

511

181

330

Provision for impairment of investment in rental properties

2,608

—

2,608

Total operating expenses

$
70,396

$
57,304

$
13,092

~~Depreciation and amortization~~

Depreciation and amortization increased by $11.7 million, or 35.2%, to $45.0 million for the nine months ended September 30, 2017, primarily as a result of the growth in our real estate portfolio. During the nine months ended September 30, 2017, we acquired $352.0 million in real estate comprised of 70 new properties. In addition to the $352.0 million purchase price for acquisitions during the nine months ended September 31, 2017, we capitalized $6.6 million in acquisition expenses as the result of adopting ASU 2017-01. The capitalized acquisition expenses are capitalized as part of the cost basis of the underlying tangible and intangible assets acquired, and are depreciated over their respective useful lives. For acquisitions made during 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 by $2.9 million, or 37.3%, to $10.7 million for the nine months ended September 30, 2017. The Asset Manager receives an annual asset management fee equal to 1% 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 2016 is a result of an increase in the equity on a fully diluted basis and the increase in the Determined Share Value.

The $80.00 per share Determined Share Value in effect as of September 30, 2017, reflected an increase of 3.9% from the $77.00 per share Determined Share Value in effect as of September 30, 2016. Additionally, the weighted average number of shares of our common stock and non-controlling membership units of the Operating Company outstanding increased as the result of continued equity capital investments. For the nine months ended September 30, 2017, the weighted average number of shares of our common stock and non-controlling membership units of the Operating Company outstanding was 18.1 million compared to 14.2 million for the nine months ended September 30, 2016. The increase in equity capital was used to partially fund the continued growth in our real estate portfolio.

~~Acquisition expenses~~

Acquisition expenses decreased by $8.3 million for the nine months ended September 30, 2017. 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).

We adopted ASU 2017-01 effective January 1, 2017, and under this new accounting standard, we capitalize acquisition expenses as part of the cost basis of the underlying tangible and intangible assets acquired, as opposed to expensing them as incurred. We adopted ASU 2017-01 on a prospective basis. For the nine months ended September 30, 2017, we capitalized $6.6 million in acquisition expenses relating to $352.0 million in acquisitions. The $1.7 million decrease in acquisition expenses incurred during the comparable periods relates to a decrease in acquisition activity. During the nine months ended September 30, 2016, we acquired $381.0 million in real estate.

~~Property and operating expense~~

Property and operating expense increased by $1.7 million, or 56.7%, to $4.7 million for the nine months ended September 30, 2017. The increase is attributable to an increase in the number of properties we own, whereby we are responsible for engaging a third party property manager to manage the respective ongoing property maintenance. 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 by tenants revenue balance.

~~General and administrative~~

General and administrative expenses increased by $1.3 million, or 69.0% to $3.3 million for the nine months ended September 30, 2017. The increase is primarily attributable to increased fees for costs and services associated with becoming a public reporting entity in accordance with Section 12(g) of the Exchange Act.

~~Provision for impairment of investment in rental properties~~

During the nine months ended September 30, 2017, we recognized $2.6 million of impairment on our investments in rental properties. 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. We recognized impairment on four properties whose carrying amounts we determined were not recoverable. In determining the fair value of the assets at the time of measurement, we utilized capitalization rates ranging from 7.25% to 12%, and a weighted average discount rate of 8%.

~~Other income (loss)~~

For the nine months ended

September 30,

Increase/

(in thousands)

2017

2016

(Decrease)

Other revenue (expenses)

Preferred distribution income

$
550

$
531

$
19

Interest income

354

9

345

Interest expense

(25,182
)

(24,166
)

(1,016
)
Cost of debt extinguishment

(5,019
)

(105
)

(4,914
)
Gain on sale of real estate

10,332

4,089

6,243

~~Interest expense~~

Interest expense increased $1.0 million, or 4.2%, to $25.2 million for the nine months ended September 30, 2017, from $24.2 million for the nine months ended September 30, 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. Our total outstanding debt, excluding capitalized debt issuance costs, increased from $831.3 million at September 30, 2016, to $910.1 million at September 30, 2017.

The increase in outstanding debt was slightly offset by $2.2 million in ineffectiveness recognized on interest rate swaps during the nine months ended September 30, 2016 that was not recognized during the nine months ended September 30, 2017. Ineffectiveness during the nine months ended September 30, 2016 was attributable to inconsistencies in certain terms between the interest rate swaps and the loan agreements for the Term Notes and Revolver. The interest rate swaps continued to qualify for hedge accounting, with the effective portion of mark-to-market adjustments included in accumulated other comprehensive income. During the fourth quarter of 2016, we amended the terms of the credit agreements, thereby reversing the impact of the ineffectiveness and rendering a $0 full year 2016 impact to the consolidated income statement. The increase in interest expense was also offset by a $1.2 million decrease in interest expense during the nine months ended September 30, 2017 related to the termination of an interest rate swap that occurred concurrent with the paydown of a mortgage.

~~Cost of debt extinguishment~~

The cost of debt extinguishment represents the difference between the price paid to extinguish the debt compared to the carrying value of the debt, plus any unamortized debt acquisition 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 (cost) on extinguishment. The loss would be increased by the amount of previously capitalized debt acquisition costs that remain unamortized at the time of extinguishment. 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 increased by $4.9 million, to $5.0 million for the nine months ended September 30, 2017, from $0.1 million for the nine months ended September 30, 2016. The fluctuation is a direct result of the $800 million Credit Facility we closed on June 23, 2017, prior to quarter end, together with the corresponding extinguishment of the Revolver, Term Note 1, and Term Note 2, with no similar activity during the nine months ended September 30, 2016.

~~Gain on sale of real estate~~

During the nine months ended September 30, 2017, we recognized a $10.3 million gain on the sale of real estate, compared to a gain of $4.1 million for the nine months ended September 30, 2016. During the nine months ended September 30, 2017 and 2016 we sold ten properties and four 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 dilutive share are presented in accordance with GAAP. We also disclose FFO and AFFO, each of which are non-GAAP measures. We believe the use 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 2002 White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains (losses) from sales of depreciated real estate assets, depreciation and amortization expense from real estate assets, and impairment charges related to 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, 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 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. Additionally, we 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 acquisition expenses as part of the cost-basis of the tangible and intangible assets acquired. Therefore, effective January 1, 2017, we will no longer adjust for acquisition expenses in our AFFO computation. We also exclude the amortization of debt issuance costs and net mortgage premiums as they are not indicative of ongoing operational results of the portfolio. 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 or 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.

~~Net Income, FFO, and AFFO for the three months ended September 30, 2017 and 2016~~

The following table presents our net income and our non-GAAP FFO and AFFO for the three months ended September 30, 2017 and 2016. Our measures of FFO and AFFO are computed on the basis of amounts attributable to both us and non-controlling interests. As the non-controlling interests share in our net income on a one-for-one basis, the basic and diluted per share amounts are the same.

For the three months ended

September 30,

Increase/

(in thousands, except per share data)

2017

2016

Decrease

Net income

$
12,990

$
15,417

$
(2,427
)
Net earnings per diluted share

0.68

1.02

(0.34
)
FFO

27,189

24,548

2,641

FFO per diluted share

1.42

1.63

(0.21
)
AFFO

24,813

20,476

4,337

AFFO per diluted share

1.30

1.36

(0.06
)
Diluted WASO⁽¹⁾

19,147

15,074

⁽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 decreased by $2.4 million, or 15.7%, to $13.0 million for the three months ended September 30, 2017, compared to $15.4 million for the three months ended September 30, 2016. Net earnings per diluted share decreased by $0.34 during the same period, down to $0.68 per share. The decrease in net income is primarily attributable to $2.6 million of asset impairment charges recognized during the three months ended September 30, 2017, with no impairment recognized during the three months ended September 30, 2016. The decrease in net income was partially offset by our investments in real estate properties. ~~During the three months ended September 30, 2017, we closed seven real estate acquisitions~~These commitments are generally subject to our customary due diligence process and, acquired $159.2 million in real estate, excluding capitalized acquisition costs, comprised of 22 new properties. Additionally, subsequent to September 30, 2016 and for the twelve month period ended September 30, 2017, we closed 22 real estate acquisitions and acquired approximately $489.8 million in real estate comprised of 88 new properties.

The fluctuation in net income was also impacted by acquisition expenses. During the three months ended September 30, 2016 we recognized $2.4 million in acquisition expenses. We adopted ASU 2017-01 effective January 1, 2017, and under this new accounting standard, we capitalize acquisition expenses as part of the cost basis of the underlying assets acquired, as opposed to expensing them as incurred. We adopted ASU 2017-01 onaccordingly, a prospective basis. For the three months ended September 30, 2017, we capitalized $2.4 million in acquisition expenses relating to $159.2 million in acquisitions. As such, net income for the three months ended September 30, 2016 was impacted by acquisition expenses, however, net income for the three months ended September 30, 2017 was not. The impact of capitalizing acquisition expenses during the three months ended September 30, 2017 was partially offset by increased depreciation expense relating to the capitalized costs.

The fluctuation in net income for the three months ended September 30, 2017 was also impacted by a $4.1 million gain on the sale of real estate, representing a $1.1 million increase as compared to the three months ended September 30, 2016.

~~Earnings per share were further impacted by a 4.1 million increase in the diluted weighted average~~ number of ~~shares of our common stock outstanding as a result of ongoing equity raises.~~specific conditions must be met before we are obligated to purchase the properties.

~~FFO~~Derivative Instruments and Hedging Activities

FFO increased by $2.6 million, or 10.8%, to $27.2 million for the three months ended September 30, 2017, compared to $24.5 million for the three months ended September 30, 2016. FFO per diluted share decreased by $0.21 during the same period to $1.42 per share. The increase in FFO is primarily driven by increased revenue year over year as a result of growth in our real estate investment portfolio, as discussed for net income above. Additionally, we added back $2.6 million of asset impairment charges recognized during the three months ended September 30, 2017, which were not recognized during the three months ended September 30, 2016.

Consistent with the decrease in net earnings per diluted share, the increase in FFO was more than offset by a 4.1 million increase in the diluted weighted average number of shares of our common stock outstanding as a result of ongoing equity raises.

~~AFFO~~

AFFO increased by $4.3 million, or 21.2%, to $24.8 million for the three months ended September 30, 2017, compared to $20.5 million for the three months ended September 30, 2016. AFFO per diluted share decreased by $0.06 during the same period to $1.30 per diluted share.

The period-over-period growth in AFFO was $1.7 million greater than the comparable growth in FFO, primarily as a result of a $3.0 million gain on interest rate swaps and other non-cash interest expense recognized during the three months ended September 30, 2016, which is subtracted from FFO in the AFFO calculation. We did not recognize a gain or loss on interest rate swaps and other non-cash interest expense during the three months ended September 30, 2017. Additionally, AFFO during the three months ended September 30, 2017 was reduced by $1.4 million of debt extinguishment costs, compared to $0.1 million of debt extinguishment costs recognized during the three months ended September 30, 2016. These increases were partially offset by a reduction in the addback for acquisition expenses. During the three months ended September 30, 2016, we added back $2.4 million in acquisition expenses in our AFFO calculation. For the three months ended September 30, 2017, we capitalized all acquisition expenses to the cost basis of the real estate acquired. The capitalized acquisition expenses, beginning in 2017, result in increased depreciation expenses, which is an add-back in the FFO computation. Accordingly, our capitalization of acquisition expenses has no net impact to AFFO.

Consistent with the decrease in net earnings per diluted share, the increase in AFFO was more than offset by a 4.1 million increase in the diluted weighted average number of shares of our common stock outstanding as a result of ongoing equity raises.

~~Net Income, FFO, and AFFO for the nine months ended September 30, 2017 and 2016~~

The following table presents our net income and our non-GAAP FFO and AFFO for the nine months ended September 30, 2017 and 2016. Our measures of FFO and AFFO are computed on the basis of amounts attributable to both us and non-controlling interests. As the non-controlling interests share in our net income on a one-for-one basis, the basic and diluted per share amounts are the same.

For the nine months ended

September 30,

Increase/

(in thousands, except per share data)

2017

2016

Decrease

Net income

$
42,729

$
26,474

$
16,255

Net earnings per diluted share

2.36

1.87

0.49

FFO

79,974

55,658

24,316

FFO per diluted share

4.43

3.93

0.50

AFFO

72,946

57,093

15,853

AFFO per diluted share

4.04

4.03

0.01

Diluted WASO

18,069

14,154

~~Net income~~

Net income increased by $16.3 million, or 61.4%, to $42.7 million for the nine months ended September 30, 2017, compared to $26.5 million for the nine months ended September 30, 2016. Net earnings per diluted share increased by $0.49 during the same period, up to $2.36 per share. The increase in net income and earnings per share is attributable to accretive investments in real estate properties made during 2017, coupled with the annualized revenue streams from the real estate investments made during the nine months ended September 30, 2016. We added $352.0 million and $381.0 million in real estate investments during the nine months ended September 30, 2017 and 2016, respectively.

In increase in net income was also impacted by acquisition expenses. During the nine months ended September 30, 2016 we recognized $8.3 million in acquisition expenses. We adopted ASU 2017-01 effective January 1, 2017, and under this new accounting standard, we capitalize acquisition expenses as part of the cost basis of the underlying assets acquired, as opposed to expensing them as incurred. We adopted ASU 2017-01 on a prospective basis. For the nine months ended September 30, 2017, we capitalized $6.6 million in acquisition expenses relating to $352.0 million in acquisitions. As such, net income for the nine months ended September 30, 2016 was impacted by acquisition expenses, however, net income for the nine months ended September 30, 2017 was not. The impact of capitalizing acquisition expenses during the nine months ended September 30, 2017 was partially offset by increased depreciation expense relating to the capitalized costs.

The increase in net income for the nine months ended September 30, 2016 was also impacted by a $10.3 million gain on the sale of real estate, representing a $6.2 million increase as compared to the nine months ended September 30, 2016.

The increase in net income in the earnings per share computation was partially offset by a 3.9 million increase in the diluted weighted average number of shares of our common stock outstanding as a result of ongoing equity raises.

~~FFO~~

FFO increased by $24.3 million, or 43.7%, to $80.0 million for the nine months ended September 30, 2017, compared to $55.7 million for the nine months ended September 30, 2016. FFO per diluted share increased by $0.50 during the same period to $4.43 per share. The increase in FFO is primarily driven by increased revenue period-over-period as the result of growth in our real estate investment portfolio. We added $352.0 million in real estate investments during the nine months ended September 30, 2017. Growth in FFO per diluted share was less than growth in net earnings per diluted share primarily as a result of a $10.3 million gain on sale of real estate recognized in net income during the nine months ended September 30, 2017, which was adjusted and excluded in the FFO computation.

~~AFFO~~

AFFO increased by $15.9 million, or 27.8%, to $72.9 million for the nine months ended September 30, 2017, compared to $57.1 million for the nine months ended September 30, 2016. AFFO per diluted share increased by $0.01 during the same period to $4.04 per diluted share.

AFFO per diluted share growth of $0.01 as compared to FFO per diluted share growth of $0.50 was primarily impacted by acquisition expenses. During the nine months ended September 30, 2016, we recognized $8.3 million in acquisition expenses that were added back to FFO in computing AFFO. For the nine months ended September 30, 2017, we capitalized all acquisition expenses to the cost basis of the real estate acquired. The capitalized acquisition expenses, beginning in 2017, result in increased depreciation expenses, which is an add-back in the FFO computation. AFFO per diluted share growth as compared to FFO per diluted share growth was also impacted by the (gain) loss on interest rate swaps and other non-cash interest expense. During the nine months ended September 30, 2016, we recognized an add-back of $2.2 million, compared to a deduction of $1.3 million for the nine months ended September 30, 2017. These impacts were offset by a $4.9 million increase in the add-back for the cost of debt extinguishment. During the nine months ended September 30, 2017 we recognized $5.0 million in debt extinguishment costs, compared to $0.1 million for the nine months ended September 30, 2016.

~~Reconciliation of Non-GAAP Measures~~

The following is a reconciliation of net income to FFO and AFFO for the three and nine months ended September 30, 2017 and 2016. Also presented is information regarding distributions paid to common stockholders and non-controlling interests and the weighted average number of shares of our common stock and non-controlling membership units of the Operating Company used for the basic and diluted computation per share:

For the three months ended

For the nine months ended

(in thousands, except per share data)

September 30,

September 30,

2017

2016

2017

2016

Net income

$
12,990

$
15,417

$
42,729

$
26,474

Real property depreciation and amortization

15,643

12,114

44,969

33,273

Gain on sale of real estate

(4,052
)

(2,983
)

(10,332
)

(4,089
)
Asset impairment

2,608

—

2,608

—

FFO

$
27,189

$
24,548

$
79,974

$
55,658

Capital improvements / reserves

(49
)

(49
)

(147
)

(147
)
Straight line rent adjustment

(4,520
)

(3,759
)

(12,585
)

(9,761
)
Cost of debt extinguishment

1,404

52

5,019

105

Amortization of debt issuance costs

486

456

1,343

1,279

Amortization of net mortgage premiums

205

(48
)

135

(143
)
(Gain) Loss on interest rate swaps and other non-cash interest expense

—

(2,991
)

(1,280
)

2,219

Amortization of lease intangibles

99

(100
)

487

(373
)
Acquisition expenses

—

2,367

—

8,256

AFFO

$
24,813

$
20,476

$
72,946

$
57,093

Diluted WASO

19,147

15,074

18,069

14,154

Net earnings per share, basic and diluted

$
0.68

$
1.02

$
2.36

$
1.87

FFO per diluted share

1.42

1.63

4.43

3.93

AFFO per diluted share

$
1.30

$
1.36

$
4.04

$
4.03

~~Critical Accounting Policies~~

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no significant changes during the nine months ended September 30, 2017 to the items that we disclosed as our critical accounting policies and estimates under Item 2. ~~“Financial Information - Management’s Discussion and Analysis of Financial Condition and Results of Operations,”~~ ~~in our Form 10.~~

~~Impact of Recent Accounting Pronouncements~~

~~For information on the impact of recent accounting pronouncements on our business, see Note 2 of the notes to the condensed consolidated financial statements included in this Form 10-Q.~~

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk~~

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

We attempt to manage ~~a portion of our~~the interest rate risk on variable rate borrowings by entering into interest rate ~~swap agreements. Our~~swaps. As of March 31, 2023, we had 32 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. As of September 30, 2017, we had 24 interest rate swap agreementsswaps outstanding with an aggregate notional amount of ~~$640~~$973.8 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~~variable-rate borrowings. The interest rate swaps have been designated by us as ~~effective~~ cash flow hedges for accounting purposes and are reported at fair value. We assess, both at inception and on an ongoing basis, the effectiveness of our qualifying cash flow hedges. We have not entered, and do not intend to enter, into derivative or interest rate transactions for speculative purposes.

In addition, we own investments in Canada, and as a result are subject to risk from the effects of exchange rate movements in the Canadian dollar, which may affect future costs and cash flows. We funded a significant portion of our Canadian investments through Canadian dollar borrowings under our Revolving Credit Facility, which is intended to act as a natural hedge against our Canadian dollar investments. The Canadian dollar revolving borrowings are remeasured each reporting period, with the unrealized foreign currency gains and losses flowing through earnings. These unrealized foreign currency gains and losses do not impact our cash flows from operations until settled, and are expected to directly offset the changes in the value of our net investments as a result of changes in the Canadian dollar. Our Canadian investments are recorded at their historical exchange rates, and therefore are not impacted by changes in the value of the Canadian dollar.

Cash Flows

Cash and cash equivalents and restricted cash totaled $19.3 million and $65.5 million at March 31, 2023 and March 31, 2022, respectively. The table below ~~summarizes~~shows information concerning cash flows for the ~~terms~~three months ended March 31, 2023 and 2022:


	For the Three Months Ended
	March 31,	March 31,
(In thousands)	2023	2022
Net cash provided by operating activities	$74,376	$59,104
Net cash provided by (used in) investing activities	29,633	(207,678)
Net cash (used in) provided by financing activities	(144,739)	186,352
(Decrease) increase in cash and cash equivalents and restricted cash	$(40,730)	$37,778

The increase in net cash provided by operating activities during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, was mainly due to growth in our real estate portfolio and associated incremental net lease revenues.

The increase in cash provided by investing activities during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, was mainly due to decreased acquisition volume during the three months ended March 31, 2023 as well as increased disposition volume during the three months ended March 31, 2023.

The increase in net cash used in financing activities during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, mainly reflects an increased repayments on the unsecured revolving credit facility and increased distributions paid to shareholders.

Non-GAAP Measures

FFO, Core FFO, and AFFO

We compute Funds From Operations (“FFO”) in accordance with the standards established by the Board of Governors of Nareit, the worldwide representative voice for REITs and publicly traded real estate companies with an interest in the U.S. real estate and capital markets. Nareit defines FFO as GAAP net income or loss adjusted to exclude net gains (losses) from sales of certain depreciated real estate assets, depreciation and amortization expense from real estate assets, gains and losses from change in control, and impairment charges related to certain previously depreciated real estate assets. FFO is used by management, investors, and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers, primarily because it excludes the effect of real estate depreciation and amortization and net gains (losses) on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions.

We compute Core Funds From Operations (“Core FFO”) by adjusting FFO, as defined by Nareit, to exclude certain GAAP income and expense amounts that we believe are infrequently recurring, unusual in nature, or not related to its core real estate operations, including write-offs or recoveries of accrued rental income, lease termination fees, gain on insurance recoveries, cost of debt extinguishments, unrealized and realized gains or losses on foreign currency transactions, severance and executive transition costs, and other extraordinary items. Exclusion of these items from similar FFO-type metrics is common within the equity REIT industry, and management believes that presentation of Core FFO provides investors with a metric to assist in their evaluation of our operating performance across multiple periods and in comparison to the operating performance of our peers, because it removes the effect of unusual items that are not expected to impact our operating performance on an ongoing basis.

We compute Adjusted Funds From Operations (“AFFO”), by adjusting Core FFO for certain non-cash revenues and expenses, including straight-line rents, amortization of lease intangibles, amortization of debt issuance costs, amortization of net mortgage premiums, (gain) loss on interest rate swaps and other non-cash interest expense, stock-based compensation, and other specified non-cash items. We believe that excluding such items assists management and investors in distinguishing whether changes in our operations are due to growth or decline of operations at our properties or from other factors. We use AFFO as a measure of our performance when we formulate corporate goals, and is a factor in determining management compensation. We believe that AFFO is a useful supplemental measure for investors to consider because it will help them to better assess our operating performance without the distortions created by non-cash revenues or expenses.

Specific to our adjustment for straight-line rents, our leases include cash rents that increase over the term of the lease to compensate us for anticipated increases in market rental rates over time. Our leases do not include significant front-loading or back-loading of payments, or significant rent-free periods. Therefore, we find it useful to evaluate rent on a contractual basis as it allows for comparison of existing rental rates to market rental rates.

FFO, Core FFO, and AFFO may not be comparable to similarly titled measures employed by other REITs, and comparisons of our FFO, Core FFO, and AFFO with the same or similar measures disclosed by other REITs may not be meaningful.

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

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


	For the Three Months Ended
(in thousands, except per share data)	March 31, 2023	December 31, 2022	March 31, 2022
Net income	$41,374	$36,773	$28,441
Real property depreciation and amortization	41,745	45,570	34,259
Gain on sale of real estate	(3,415)	(10,625)	(1,196)
Provision for impairment on investment in rental properties	1,473	—	—
FFO	$81,177	$71,718	$61,504
Net write-offs of accrued rental income	297	—	1,326
Lease termination fees	(7,500)	(1,678)	—
Gain on insurance recoveries	—	(341)	—
Cost of debt extinguishment	—	77	—
Severance and executive transition costs (a)	481	—	120
Other expenses (b)	18	751	1,126
Core FFO	$74,473	$70,527	$64,076
Straight-line rent adjustment	(7,271)	(6,826)	(4,934)
Amortization of debt issuance costs	986	988	856
Amortization of net mortgage premiums	(26)	(26)	(27)
Loss on interest rate swaps and other non-cash interest expense	522	522	659
Amortization of lease intangibles	(2,691)	(1,308)	(1,158)
Stock-based compensation	1,492	1,503	929
Deferred taxes	—	204	—
AFFO	$67,485	$65,584	$60,401

(a)

Amount includes $0.4 million of accelerated stock-based compensation and $0.1 million of executive transition costs during the three months ended March 31, 2023, related to the departure of our previous chief executive officer.

(b)

Amount includes $18 thousand, $0.8 million, and $1.1 million of unrealized and realized foreign exchange loss during the three months ended March 31, 2023, December 31, 2022, and March 31, 2022, respectively.

EBITDA, EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre

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

We are focused on a disciplined and targeted 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 ~~swap agreements relating~~quarter acquisitions. However, the full benefit of EBITDAre from newly acquired properties will not be received in the same quarter in which the properties are acquired. Additionally, EBITDAre for the quarter includes amounts generated by properties that have been sold during the quarter. Accordingly, the variability in EBITDAre caused by the timing of our acquisitions and dispositions can temporarily distort our leverage ratios. We adjust EBITDAre (“Adjusted EBITDAre”) for the most recently completed quarter (i) to recalculate as if all acquisitions and dispositions had occurred at the beginning of the quarter, (ii) to exclude certain GAAP income and expense amounts that are either non-cash, such as cost of debt extinguishments, realized or unrealized gains and losses on foreign currency transactions, or gains on insurance recoveries, or that we believe are one time, or unusual in nature because they relate to unique circumstances or transactions that had not previously occurred and which we do not anticipate occurring in the future, and (iii) to eliminate the impact of lease termination fees and other items that are not a result of normal operations. We then annualize quarterly Adjusted EBITDAre by multiplying it by four (“Annualized Adjusted EBITDAre”). You should not unduly rely on this measure as it is based on assumptions and estimates that may prove to be inaccurate. Our actual reported EBITDAre for future periods may be significantly different from our Annualized Adjusted EBITDAre. Adjusted EBITDAre and Annualized Adjusted EBITDAre are not measurements of performance under GAAP, and our Adjusted EBITDAre and Annualized Adjusted EBITDAre may not be comparable to similarly titled measures of other companies. You should not consider our Adjusted EBITDAre and Annualized Adjusted EBITDAre as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.

The following table reconciles net income (which is the most comparable GAAP measure) to EBITDA, EBITDAre, and Adjusted EBITDAre. Information is also presented with respect to Annualized EBITDAre and Annualized Adjusted EBITDAre:


	For the Three Months Ended
(in thousands)	March 31, 2023	December 31, 2022	March 31, 2022
Net income	$41,374	$36,773	$28,441
Depreciation and amortization	41,784	45,606	34,290
Interest expense	21,139	23,773	16,896
Income taxes	479	105	412
EBITDA	$104,776	$106,257	$80,039
Provision for impairment of investment in rental properties	1,473	—	—
Gain on sale of real estate	(3,415)	(10,625)	(1,196)
EBITDAre	$102,834	$95,632	$78,843
Adjustment for current quarter acquisition activity (a)	406	1,283	3,225
Adjustment for current quarter disposition activity (b)	(365)	(440)	(79)
Adjustment to exclude non-recurring and other expenses (c)	(1,023)	—	—
Adjustment to exclude gain on insurance recoveries	—	(341)	—
Adjustment excludes net write-offs of accrued rental income	297	—	1,326
Adjustment to exclude realized / unrealized foreign exchange (gain) loss	18	796	1,125
Adjustment to exclude cost of debt extinguishments	—	77	—
Adjustment to exclude lease termination fees	(7,500)	(1,678)	—
Adjusted EBITDAre	$94,667	$95,329	$84,440
Annualized EBITDAre	$411,336	$382,528	$315,375
Annualized Adjusted EBITDAre	$378,668	$381,315	$337,759

(a)

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

(b)

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

(c)

Amounts include $0.1 million of executive transition costs and $0.4 million of accelerated stock-based compensation associated with the departure of executive officers, and ($1.5) million of accelerated amortization of lease intangibles during the three months ended March 31, 2023.

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

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


(in thousands)	March 31, 2023	December 31, 2022	March 31, 2022
Debt
Unsecured revolving credit facility	$108,330	$197,322	$266,118
Unsecured term loans, net	895,006	894,692	586,884
Senior unsecured notes, net	844,744	844,555	843,990
Mortgages, net	85,853	86,602	96,141
Debt issuance costs	10,390	10,905	9,419
Gross Debt	1,944,323	2,034,076	1,802,552
Cash and cash equivalents	(15,412)	(21,789)	(54,103)
Restricted cash	(3,898)	(38,251)	(11,444)
Net Debt	$1,925,013	$1,974,036	$1,737,005
Net Debt to Annualized EBITDAre	4.7x	5.2x	5.5x
Net Debt to Annualized Adjusted EBITDAre	5.1x	5.2x	5.1x

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses as well as other disclosures in the financial statements. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and assumptions; however, actual results may differ from these estimates and assumptions, which in turn could have a material impact on our financial statements. A summary of our significant accounting policies and procedures are included in Note 2, "Summary of Significant Accounting Policies," in the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. We believe there have been no significant changes during the three months ended March 31, 2023, to the items that we disclosed as our critical accounting policies and estimates in our 2022 Annual Report on Form 10-K.

Impact of Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to certain market risks, one of the most predominant of which is a change in interest rates. Increases in interest rates can result in increased interest expense under our Revolving Credit Facility and other variable-rate debt. Increases in interest rates can also result in increased interest expense when our fixed rate debt matures and needs to be refinanced. We attempt to manage interest rate risk by entering into long-term fixed rate debt, entering into interest rate swaps to convert certain variable-rate debt to a fixed rate, and staggering our debt maturities. We have designated the interest rate swaps ~~agreements set forth~~as cash flow hedges for accounting purposes and they are reported at fair value. We have not entered, and do not intend to enter, into derivative or interest rate transactions for speculative purposes. Further information concerning our interest rate swaps can be found in Note 9 in our Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report on Form 10-Q.

Our fixed-rate debt includes our senior unsecured notes, mortgages, and variable-rate debt converted to a fixed rate with the use of interest rate swaps. Our fixed-rate debt had a carrying value and fair value of approximately $1.9 billion and $1.7 billion, respectively, as of March 31, 2023. Changes in market interest rates impact the fair value of our fixed-rate debt, 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 ~~table below were entered~~fair value of our fixed-rate debt of approximately $72.2 million as of March 31, 2023.

Borrowings pursuant to our Revolving Credit Facility and other variable-rate debt bear interest at rates based on the applicable reference rate plus an applicable margin, and totaled $1.0 billion as of March 31, 2023, of which $973.8 million was swapped to a fixed rate by our use of interest rate swaps. Taking into account the effect of our interest rate swaps, a 1% increase or decrease in ~~conjunction with previous secured and unsecured borrowings that were retired and the swaps~~interest rates would have ~~since been reapplied~~a corresponding $0.3 million increase or decrease in ~~support of the current unsecured credit facilities.~~interest expense annually.

Counterparty

Maturity Date

Fixed
Rate

Variable Rate
Index

Notional
Amount

Fair Value

Bank of America, N.A.

November-23

2.80%

1 month LIBOR

$
25,000,000

(1,177,353
)
Bank of Montreal

July-24

1.16%

1 month LIBOR

40,000,000

2,146,861

Bank of Montreal

January-25

1.91%

1 month LIBOR

25,000,000

192,803

Bank of Montreal

July-25

2.32%

1 month LIBOR

25,000,000

(489,600
)
Bank of Montreal

January-26

1.92%

1 month LIBOR

25,000,000

297,340

Bank of Montreal

January-26

2.05%

1 month LIBOR

40,000,000

84,117

Bank of Montreal

December-26

2.33%

1 month LIBOR

10,000,000

(175,375
)
Capital One, N.A.

December-21

1.05%

1 month LIBOR

15,000,000

486,922

Capital One, N.A.

December-24

1.58%

1 month LIBOR

15,000,000

459,406

Capital One, N.A.

January-26

2.08%

1 month LIBOR

35,000,000

38,960

Capital One, N.A.

July-26

1.32%

1 month LIBOR

35,000,000

2,289,026

Manufacturers & Traders Trust Co.

September-22

2.83%

1 month LIBOR

25,000,000

(1,149,860
)
Manufacturers & Traders Trust Co.

November-23

2.65%

1 month LIBOR

25,000,000

(1,023,132
)
Regions Bank

March-18

1.77%

1 month LIBOR

25,000,000

(46,329
)
Regions Bank

March-19

1.91%

3 month LIBOR

25,000,000

(105,943
)
Regions Bank

May-20

2.12%

1 month LIBOR

50,000,000

(561,657
)
Regions Bank

March-22

2.43%

3 month LIBOR

25,000,000

(550,191
)
Regions Bank

December-23

1.18%

1 month LIBOR

25,000,000

1,177,710

SunTrust Bank

April-24

1.99%

1 month LIBOR

25,000,000

(63,116
)
SunTrust Bank

April-25

2.20%

1 month LIBOR

25,000,000

(331,624
)
SunTrust Bank

July-25

1.99%

1 month LIBOR

25,000,000

71,593

SunTrust Bank

January-26

1.93%

1 month LIBOR

25,000,000

248,334

Wells Fargo Bank, N.A.

February-21

2.39%

1 month LIBOR

35,000,000

(738,635
)
Wells Fargo Bank, N.A.

October-24

2.72%

1 month LIBOR

15,000,000

(706,367
)

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

AsForeign Currency Exchange Rate Risk

We own investments in Canada, and as a result are subject to risk from the effects of ~~September 30, 2017,~~exchange rate movements in the Canadian dollar, which may affect future costs and cash flows. We funded a significant portion of our ~~financial instruments were not exposed~~Canadian investments through Canadian dollar borrowings under our Revolving Credit Facility, which is intended to ~~significant market~~act as a natural hedge against our Canadian dollar investments. To the extent that currency fluctuations increase or decrease rental revenues, as translated to U.S. dollars, the change in debt service (comprised of interest payments), as translated to U.S. dollars, will partially offset the effect of fluctuations in revenue and, to some extent, mitigate the risk ~~due to~~from changes in foreign currency exchange ~~risk.~~rates. We believe the foreign currency exchange rate risk on the remaining cash flows is immaterial.

~~Item 4.~~

~~Controls and Procedures~~

Additionally, our Canadian dollar revolving borrowings are remeasured each reporting period, with the unrealized foreign currency gains and losses flowing through earnings. These unrealized foreign currency gains and losses do not impact our cash flows from operations until settled, and are expected to directly offset the changes in the value of our net investments as a result of changes in the Canadian dollar. Our Canadian investments are recorded at their historical exchange rates, and therefore are not impacted by changes in the value of the Canadian dollar.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the ~~Securities~~ Exchange ~~Act of 1934, as amended (the “Exchange Act”))~~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 ~~Securities and Exchange Commission’s~~SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of and for the quarter ended ~~September 30, 2017,~~March 31, 2023, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at a reasonable assurance level.

Changes in Internal Control ~~over~~Over Financial Reporting

There ~~were~~have been no changes toin our internal control over financial reporting ~~that occurred~~ during the quarter ended ~~September 30, 2017,~~March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II – ~~OTH~~EROTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings.~~

Item 1. Legal Proceedings.

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 matters~~We are ~~generally covered by insurance or are subject~~not currently a party to ~~our right to be indemnified by our tenants~~legal proceedings that we ~~include in~~believe would reasonably be expected to have material adverse effect on our ~~leases. Management is~~business, 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.

~~Item 1A.~~

~~Risk Factors.~~

Item 1A. Risk Factors.

There have been no material changes from the risk factors set forth in our 2022 Annual Report on Form 10-K for the ~~Form 10.~~year ended December 31, 2022.

~~Item 2.~~

Item 2. Unregistered Sales ~~of Equity Securities and Use of Proceeds.~~

~~Sales of Common Stock~~

In December 2007, we commenced our ongoing private offering of shares of our common stock. The following table provides information regarding the sale of shares of our common stock pursuant to our ongoing private offering during the nine months ended September 30, 2017 (in thousands, except year and Determined Share Value amounts).

Month

Year

Common
Shares
Sold

Determined
Share Value –
Common
Shares ⁽¹⁾

Total
Proceeds –
Common
Shares Sold

Common Shares
DRIP

Determined
Share Value
– DRIP⁽²⁾

Total
Proceeds –
Common
Share DRIP⁽³⁾

Total
Proceeds

January

2017

413

$
77

$
31,827

38

$
75

$
2,836

$
34,663

February

2017

270

79

21,314

39

75

2,934

24,248

March

2017

368

79

28,946

39

77

3,071

32,017

April

2017

234

79

18,462

41

77

3,166

21,628

May

2017

291

80

23,242

42

78

3,266

26,508

June

2017

352

80

28,064

42

79

3,319

31,383

July

2017

220

80

17,601

44

78

3,394

20,995

August

2017

343

80

27,455

45

78

3,501

30,956

September

2017

297

80

23,676

45

78

3,544

27,220

TOTAL

2,788

$
220,587

375

$
29,031

$
249,618

⁽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 rate 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 13 to the consolidated financial statements included in this Form 10-Q 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 accredited investors.

~~Issuances of Membership Units~~

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. During June 2017 we issued 103,478 membership units in the Operating Company in exchange for property in the amount of $8.3 million. There were no other membership unit issuances during the nine months ended September 30, 2017.

None of the membership units in the Operating Company discussed 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 membership units in the Operating Company discussed 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 accredited investors.

~~Repurchases~~ of Equity Securities and Use of Proceeds from Registered Securities.

~~During~~On March 14, 2023, the ~~three months ended September 30, 2017, we fulfilled~~Company’s Board of Directors approved a stock repurchase ~~requests~~program (the “Repurchase Program”), which authorized the Company to repurchase up to $150.0 million of the Company’s common stock. These purchases could be made in the open market or through private transactions from time to time over the 12-month time period following authorization, depending on prevailing market conditions and ~~repurchased~~applicable legal and regulatory requirements. The timing, manner, price and amount of any repurchases of common stock under the Repurchase Program may be determined by us in our discretion, using available cash resources. No shares of ~~our~~the Company’s common stock ~~pursuant to our share redemption program as follows.~~ were repurchased under the program.

Item 3. Defaults Upon Senior Securities.

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
July 2017

—

—

$
—

(3)
August 2017

—

—

$
—

(3)
September 2017

23,374

23,374

$
77.36

(3)

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits


⁽¹⁾No.	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.

~~Item 3.~~

~~Defaults Upon~~ ~~Senior Securities.~~

~~None.~~

~~Item 4.~~

~~Mine Safety Disclosures.~~

~~Not applicable.~~

~~Item 5.~~

~~Other Information.~~

~~Not applicable.~~

~~Item 6.~~

~~Exhibits~~

		Description
~~No.~~		~~Description~~
3.1
~~3.1~~^(a)		Articles of Incorporation of Broadstone Net Lease, Inc. (filed as Exhibit 3.1 to the Corporation’s Registration Statement on Form 10 filed April 24, 2017 and incorporated herein by reference)

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

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

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

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

4.1^(a)		Indenture, dated as of September 15, 2021, among the Issuer, the Company and the Trustee, including the form of the Guarantee (filed as Exhibit 4.1 to the Corporation’s Current Report on Form 8-K filed September 10, 2021 and incorporated herein by reference)

4.2		First Supplemental Indenture, dated as of September 15, 2021, among the Issuer, the Company and the Trustee, including the form of the Notes (filed as Exhibit 4.2 to the Corporation’s Current Report on Form 8-K filed September 10, 2021 and incorporated herein by reference)

4.3		First Supplemental Indenture, dated as of September 15, 2021, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC and U.S. Bank National Association, as trustee, including the form of the Notes (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed September 15, 2021 and incorporated by reference)

10.1		Second Amended and Restated Operating Agreement of Broadstone Net Lease, LLC, dated September 21, 2020 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 21, 2020 and incorporated by reference)

10.2		Director Compensation and Stock Ownership Policy, effective as of May 5, 2022

10.3		Form of Indemnification Agreement, between Broadstone Net Lease, Inc. ~~Distribution Reinvestment Plan~~and each of its officers and directors (filed as Exhibit 10.25 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated by reference)

~~4.2~~^(b)10.4		Note and Guaranty Agreement, dated March 16, 2017, for 4.84% Guaranteed Senior Notes due April 18, 2027, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, and the purchasers party thereto (filed as Exhibit 10.23 to the Company’s Registration Statement on Form 10 filed April 24, 2017 and incorporated by reference)

10.5		Revolving Credit and Term Loan Agreement, dated as of June 23, 2017, by and among Broadstone Net Lease, LLC, Broadstone Net Lease, Inc., Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 29, 2017, and incorporated by reference)

10.6		Consent and Agreement Regarding Commitment Increases and Additional Term Loans, dated as of November 20, 2017, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 27, 2017, and incorporated by reference)

10.7		First Amendment Regarding Commitment Increases, dated February 28, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company and the other parties thereto (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 5, 2019, and incorporated by reference)

10.8		Second Amendment to Revolving Credit and Term Loan Agreement, dated as of July 1, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, and other parties thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 3, 2019, and incorporated by reference)

10.9		Third Amendment to Revolving Credit and Term Loan Agreement, dated as of September 21, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, and other parties thereto (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed September 21, 2020, and incorporated by reference)

10.10		Fourth Amendment to Revolving Credit and Term Loan Agreement, dated as of March 31, 2022, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, and other parties thereto (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed May 5, 2022 and incorporated by reference)



10.11		Note and Guaranty Agreement, dated July 2, 2018, for 5.09% Series B Guaranteed Senior Notes due July 2, 2028 and 5.19% Series C Guaranteed Senior Notes due July 2, 2030, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, and the purchasers party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 6, 2018, and incorporated by reference)

10.12		Term Loan Agreement, dated February 27, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Capital One, National Association, and the other parties thereto (“Capital One Term Loan Agreement”) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 5, 2019, and incorporated by reference)

10.13		Guaranty, dated February 27, 2019, by Broadstone Net Lease, Inc., in favor of Capital One, National Association (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 5, 2019, and incorporated by reference)

10.14		First Amendment to Capital One Term Loan Agreement, dated July 1, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed November 12, 2019, and incorporated by reference)

10.15		Second Amendment to Capital One Term Loan Agreement, dated September 21, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 21, 2020, and incorporated by reference)

10.16		Third Amendment to Capital One Term Loan Agreement, dated March 12, 2021, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 18, 2021 and incorporated by reference)

10.17		Fourth Amendment to Capital One Term Loan Agreement, dated March 31, 2022, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed May 5, 2022 and incorporated by reference)

10.18		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)

10.19		Guaranty, dated February 7, 2020, by Broadstone Net Lease, Inc. ~~Share Redemption Program~~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)

~~31.1~~10.20		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)

10.21		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)

10.22		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)

10.23		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)

10.24		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)

10.25		Term Loan Credit Agreement, dated as of August 1, 2022, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Regions Bank, as administrative agent, and the lender parties thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 3, 2022 and incorporated by reference)

10.26		Guaranty, dated August 1, 2022, by Broadstone Net Lease, Inc. in favor of Regions Bank (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 3, 2022 and incorporated by reference)

10.27		Tax Protection Agreement, dated February 7, 2020, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, and the persons named therein (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference)

10.28		Registration Rights Agreement, dated February 7, 2020, between Broadstone Net Lease, Inc. and the persons named therein (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed February 7, 2020 and incorporated by reference)



10.29+		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)

10.30+*		First Amended and Restated Employment Agreement, dated January 10, 2023 and effective February 28, 2023, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and John D. Moragne

10.31+		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)

10.32+*		First Amended and Restated Employment Agreement, dated January 10, 2023 and effective February 28, 2023, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Ryan M. Albano

10.33+*		Severance Protection Agreement, dated January 10, 2023 and effective February 28, 2023, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Kevin M. Fennell

10.34+*		Chief Executive Officer Transition Agreement, dated January 10, 2023, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Christopher J. Czarnecki

10.35		Broadstone Net Lease, Inc. 2020 Omnibus Equity and Incentive Plan, dated August 4, 2020 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 4, 2020 and incorporated by reference)

10.36		Form of Broadstone Net Lease, Inc. 2020 Omnibus Equity and Incentive Plan Restricted Stock Unit Award Agreement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 4, 2020 and incorporated by reference)

10.37		Broadstone Net Lease, Inc. Change in Control Severance Protection Policy (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 4, 2022 and incorporated by reference)

21.1*		List of Subsidiaries of Broadstone Net Lease, Inc.

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 ~~(filed herewith)~~

~~31.2~~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 ~~(filed herewith)~~

~~32.1~~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 ~~(furnished herewith)~~

~~32.2~~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 ~~(furnished herewith)~~

~~101.1~~101.INS		~~The following materials from~~Inline XBRL Instance Document – the ~~Company’s Quarterly Report on Form 10-Q for~~instance document does not appear in Interactive Data File because its XBRL tags are embedded within the ~~quarterly period ended September 30, 2017, formatted in~~Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial StatementsDocument

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)

^(a)	~~Incorporated herein by reference to the General Form for Registration of Securities on Form 10, filed on April 24, 2017.~~

^(b)	~~Incorporated herein by reference to the Company’s Amendment No. 2 to the General Form for Registration of Securities on Form 10, filed on June 29, 2017.~~

~~SIGNATURES~~* Filed herewith.

+ Management contract or compensatory plan or arrangement.

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

SIGNATURES

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


		BROADSTONE NET LEASE, INC.

Date: ~~November 13, 2017~~May 4, 2023		/s/ ~~Christopher J. Czarnecki~~John D. Moragne
		~~Christopher J. Czarnecki~~John D. Moragne
		Chief Executive Officer

Date: ~~November 13, 2017~~May 4, 2023		/s/ ~~Ryan~~Kevin M. ~~Albano~~Fennell
		~~Ryan~~Kevin M. ~~Albano~~Fennell
		Executive Vice President and Chief Financial Officer


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


Large accelerated filer	☐☒	Accelerated filer	☐
Non-accelerated filer	☒ ~~(Do not check if a smaller reporting company)~~☐	Smaller reporting company	☐
Emerging growth company	☒☐

	September 30,			December 31,
	2017			2016			March 31, 2023			December 31, 2022
Assets
Accounted for using the operating method, net of accumulated depreciation	$	1,891,708		$	1,637,700
Accounted for using the operating method:
Land							$	760,142		$	768,667
Land improvements								337,296			340,385
Buildings and improvements								3,866,952			3,888,756
Equipment								10,422			10,422
Total accounted for using the operating method								4,974,812			5,008,230
Less accumulated depreciation								(558,410	)		(533,965	)
Accounted for using the operating method, net								4,416,402			4,474,265
Accounted for using the direct financing method		41,612			47,271			26,947			27,045
Accounted for using the sales-type method								571			571
Investment in rental property, net		1,933,320			1,684,971			4,443,920			4,501,881

Cash and cash equivalents		13,698			21,635			15,412			21,789
Restricted cash		925			1,468
Accrued rental income		47,766			36,577			142,031			135,666
Tenant and other receivables, net		1,120			355			2,004			1,349
Tenant and capital reserves		897			767
Prepaid expenses and other assets		699			260			15,456			49,661
Notes receivable		6,527			6,527
Investment in related party		10,000			10,000
Interest rate swap, assets		7,493			9,598			45,490			63,390
Goodwill								339,769			339,769
Intangible lease assets, net		205,469			168,121			317,478			329,585
Debt issuance costs – unsecured revolver, net		3,139			446
Debt issuance costs – unsecured revolving credit facility, net								5,542			6,013
Leasing fees, net		13,046			11,329			8,766			8,506
Total assets	$	2,244,099		$	1,952,054		$	5,335,868		$	5,457,609

Liabilities and equity
Unsecured revolver	$	126,500		$	102,000
Mortgages and notes payable, net		57,883			106,686
Unsecured term notes, net		721,907			657,891
Interest rate swap, liabilities		7,119			10,217
Unsecured revolving credit facility							$	108,330		$	197,322
Mortgages, net								85,853			86,602
Unsecured term loans, net								895,006			894,692
Senior unsecured notes, net								844,744			844,555
Accounts payable and other liabilities		18,426			17,396			46,090			47,547
Due to related parties		1,688			364
Tenant improvement allowances		6,627			9,490
Dividends payable								54,515			54,460
Accrued interest payable		4,880			1,602			9,654			7,071
Intangible lease liabilities, net		66,303			47,871			59,359			62,855
Total liabilities		1,011,333			953,517			2,103,551	��		2,195,104

Commitments and contingencies (See Note 16)

Equity
Broadstone Net Lease, Inc. stockholder’s 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, 18,260 and 15,158 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		18			15
Broadstone Net Lease, Inc. stockholders' equity:
Preferred stock, $0.001 par value; 20,000 shares authorized, no shares issued or outstanding								—			—
Common stock, $0.00025 par value; 500,000 shares authorized, 187,203 and 186,114 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively								47			47
Additional paid-in capital		1,253,431			1,009,431			3,434,534			3,419,395
Subscriptions receivable		(470	)		(9,790	)
Cumulative distributions in excess of retained earnings		(112,725	)		(89,960	)		(398,890	)		(386,049	)
Accumulated other comprehensive income		(40	)		2,092			43,516			59,525
Total Broadstone Net Lease, Inc. stockholders’ equity		1,140,214			911,788
Total Broadstone Net Lease, Inc. stockholders' equity								3,079,207			3,092,918
Non-controlling interests		92,552			86,749			153,110			169,587
Total equity		1,232,766			998,537			3,232,317			3,262,505
Total liabilities and equity	$	2,244,099		$	1,952,054		$	5,335,868		$	5,457,609

	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		-		-			-			23,874			-			2,600			26,474
Issuance of 2,809 shares of common stock, net		3		209,049			(1,977	)		-			-			-			207,075
Other offering costs		-		(976	)		-			-			-			-			(976	)
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 September 2016)		-		-			-			(51,558	)		-			(5,860	)		(57,418	)
Change in fair value of interest rate swap agreements		-		-			-			-			(18,394	)		(2,157	)		(20,551	)
Redemption of 87 shares of common stock		-		(6,487	)		-			-			-	��		-			(6,487	)
Balance, September 30, 2016	$	14	$	940,495		$	(3,483	)	$	(84,595	)	$	(28,734	)	$	79,555		$	903,252

	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, 2017	$	15	$	1,009,431		$	(9,790	)	$	(89,960	)	$	2,092		$	86,749		$	998,537
Net income		-		-			-			39,269			-			3,460			42,729
Issuance of 3,163 shares of common stock, net		3		249,942			9,320			-			-			-			259,265
Other offering costs		-		(1,144	)		-			-			-			-			(1,144	)
Issuance of 103 membership units		-		-			-			-			-			8,278			8,278
Distributions declared ($0.410 per share January 2017, $0.415 per share February through September 2017)		-		-			-			(62,034	)		-			(5,719	)		(67,753	)
Change in fair value of interest rate swap agreements		-		-			-			-			(1,328	)		(120	)		(1,448	)
Realized loss on interest rate swap agreements		-		-			-			-			(804	)		(69	)		(873	)
Conversion of 1 membership unit to 1 share of common stock		-		27			-			-			-			(27	)		-
Redemption of 62 shares of common stock		-		(4,825	)		-			-			-			-			(4,825	)
Balance, September 30, 2017	$	18	$	1,253,431		$	(470	)	$	(112,725	)	$	(40	)	$	92,552		$	1,232,766


		Page
Part I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Income and Comprehensive Income ~~(Loss)~~ (Unaudited)	2
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2621
	Cautionary Note Regarding Forward-Looking Statements	2621
	~~Overview~~Regulation FD Disclosures	2621
	Explanatory Note and Certain Defined Terms	22
	Overview	22
	Real Estate Portfolio Information	23
	Results of Operations	30
	Liquidity and Capital Resources	3534
	~~Impact of Inflation~~Derivative Instruments and Hedging Activities	4037
	~~Off-Balance Sheet Arrangements~~Cash Flows	4138
	~~Contractual Obligations~~Non-GAAP Measures	4138
	~~Results of Operations~~Critical Accounting Policies and Estimates	41
	~~Net Income and Non-GAAP Measures (FFO and AFFO)~~	47
	~~Critical Accounting Policies~~	51
	Impact of Recent Accounting Pronouncements	5141
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5142
Item 4.	Controls and Procedures	5242
Part II - OTHER INFORMATION		5343
Item 1.	Legal Proceedings	5343
Item 1A.	Risk Factors	5343
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5343
Item 3.	Defaults upon Senior Securities	5543
Item 4.	Mine Safety Disclosures	5543
Item 5.	Other Information	5543
Item 6.	Exhibits	5544

	For the three months ended						For the nine months ended
	September 30,						September 30,						For the Three Months Ended March 31,
	2017			2016			2017			2016			2023			2022
Revenues
Rental income from operating leases	$	43,233		$	34,806		$	123,890		$	96,779
Earned income from direct financing leases		968			1,143			3,175			3,406
Operating expenses reimbursed from tenants		1,995			1,056			4,908			3,059
Other income from real estate transactions		39			5			117			176
Total revenues		46,235			37,010			132,090			103,420
Lease revenues, net													$	118,992		$	93,841

Operating expenses
Depreciation and amortization		15,643			12,114			44,969			33,273			41,784			34,290
Asset management fees		3,844			2,789			10,666			7,770
Property management fees		1,249			1,010			3,635			2,868
Acquisition expenses		-			2,367			-			8,256
Property and operating expense		2,009			1,184			4,710			3,005			5,886			5,044
General and administrative		1,173			598			3,297			1,951			10,416			8,828
State and franchise tax		301			71			511			181
Provision for impairment of investment in rental properties		2,608			-			2,608			-			1,473			—
Total operating expenses		26,827			20,133			70,396			57,304			59,559			48,162

Operating income		19,408			16,877			61,694			46,116

Other income (expenses)
Preferred distribution income		187			181			550			531
Interest income		127			4			354			9			162			—
Interest expense		(9,380	)		(4,576	)		(25,182	)		(24,166	)		(21,139	)		(16,896	)
Cost of debt extinguishment		(1,404	)		(52	)		(5,019	)		(105	)
Gain on sale of real estate		4,052			2,983			10,332			4,089			3,415			1,196
Income taxes														(479	)		(412	)
Other expenses														(18	)		(1,126	)
Net income		12,990			15,417			42,729			26,474			41,374			28,441

Net income attributable to non-controlling interests		(1,042	)		(1,459	)		(3,460	)		(2,600	)		(2,070	)		(1,683	)
Net income attributable to Broadstone Net Lease, Inc.	$	11,948		$	13,958		$	39,269		$	23,874		$	39,304		$	26,758

Weighted average number of common shares outstanding
Basic		17,617			13,647			16,607			12,738			186,130			163,809
Diluted		19,147			15,074			18,069			14,154			196,176			174,288
Net Earnings per common share
Net earnings per share attributable to common stockholders
Basic and diluted	$	0.68		$	1.02		$	2.36		$	1.87		$	0.21		$	0.16

Comprehensive income (loss)
Comprehensive income
Net income	$	12,990		$	15,417		$	42,729		$	26,474		$	41,374		$	28,441
Other comprehensive income (loss)
Other comprehensive income
Change in fair value of interest rate swaps		283			1,280			(1,448	)		(20,551	)		(17,899	)		34,961
Realized loss on interest rate swaps		-			-			(873	)		-			522			659
Comprehensive income		13,273			16,697			40,408			5,923			23,997			64,061
Comprehensive income attributable to non-controlling interests		(1,046	)		(1,581	)		(3,271	)		(443	)		(1,200	)		(3,790	)
Comprehensive income attributable to Broadstone Net Lease, Inc.	$	12,227		$	15,116		$	37,137		$	5,480		$	22,797		$	60,271


	Common Stock			Additional Paid-in Capital			Cumulative Distributions in Excess of Retained Earnings			Accumulated Other Comprehensive Income			Non- controlling Interests			Total Stockholders' Equity
Balance, January 1, 2023	$	47		$	3,419,395		$	(386,049	)	$	59,525		$	169,587		$	3,262,505
Net income		—			—			39,304			—			2,070			41,374
Issuance of 259 shares of common stock under equity incentive plan		—			—			—			—			—			—
Offering costs, discounts, and commissions		—			(2	)		—			—			—			(2	)
Stock-based compensation, net of zero shares of restricted stock forfeited		—			1,879			—			—			—			1,879
Retirement of 66 shares of common stock under equity incentive plan		—			(1,175	)		—			—			—			(1,175	)
Conversion of 896 OP units to 896 shares of common stock		—	��		14,897			—			—			(14,897	)		—
Distributions declared ($0.275 per share and OP Unit)		—			—			(52,145	)		—			(2,742	)		(54,887	)
Change in fair value of interest rate swap agreements		—			—			—			(17,003	)		(896	)		(17,899	)
Realized loss on interest rate swap agreements		—			—			—			496			26			522
Adjustment to non-controlling interests		—			(460	)		—			498			(38	)		—
Balance, March 31, 2023	$	47		$	3,434,534		$	(398,890	)	$	43,516		$	153,110		$	3,232,317


	March 31, 2023									December 31, 2022
(in thousands)	Shares of Common Stock			OP Units			Total Diluted Shares			Shares of Common Stock			OP Units			Total Diluted Shares
Ownership interest		187,203			9,309			196,512			186,114			10,205			196,319
Percent ownership of OP		95.3	%		4.7	%		100.0	%		94.8	%		5.2	%		100.0	%

	September 30, 2017
(in thousands)	Carrying Amount			Allocation of Impairment			Net Carrying Amount
Investments in rental property accounted for using the operating method, net of accumulated depreciation	$	16,159		$	(2,401	)	$	13,758
Intangible lease assets, net		1,263			(204	)		1,059
Leasing fees, net		123			(16	)		107
Intangible lease liabilities, net		(101	)		13			(88	)
	$	17,444		$	(2,608	)	$	14,836

	December 31, 2016
	Total			Level 1		Level 2			Level 3
Interest rate swaps, assets	$	9,598		$	-	$	9,598		$	-
Interest rate swap, liabilities		(10,217	)		-		(10,217	)		-
	$	(619	)	$	-	$	(619	)	$	-

(in thousands)	Financial Statement	For the three months ended		For the nine months ended
Type of Fee	Presentation	September 30, 2016		September 30, 2016
Legal services – general	General and administrative	$	107	$	276
Organization costs	General and administrative		4		18
			111		294

Finance related	Debt issuance costs^(a)		47		94
Acquisition related fees	Acquisition expenses		89		1,756
Property disposition related	Gain on sale of real estate		34		34
Legal services - tenant related	Property and operating expenses		28		40
Total related party legal expenses		$	309	$	2,218

(in thousands, except number of properties)
Date	Tenant Type	Number of Properties		Real Estate Acquisition 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	Retail		2		13,300
June 15, 2017	Retail		2		2,700
June 30, 2017	Industrial		2		12,250
June 30, 2017	Office		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
			70	$	352,021	^(a)

(in thousands)
Remainder of 2017	$	40,732
2018		165,923
2019		169,255
2020		171,908
2021		174,168
Thereafter		1,778,342
	$	2,500,328

(in thousands)
Remainder of 2017	$	3,273
2018		12,224
2019		11,439
2020		11,330
2021		11,278
Thereafter		102,667
	$	152,211


	Origination	Maturity
(in thousands, except interest rates)	Date	Date	Interest	March 31,			December 31,
Lender	(Month/Year)	(Month/Year)	Rate	2023			2022
Wilmington Trust National Association	Apr-19	Feb-28	4.92%	$	45,187		$	45,516		(a) (b) (c) (d)
Wilmington Trust National Association	Jun-18	Aug-25	4.36%		19,043			19,150		(a) (b) (c) (e)
PNC Bank	Oct-16	Nov-26	3.62%		16,566			16,675		(b) (c)
Aegon	Apr-12	Oct-23	6.38%		5,197			5,413		(b) (f)
Total mortgages					85,993			86,754
Debt issuance costs, net					(140	)		(152	)
Mortgages, net				$	85,853		$	86,602

(in thousands, except interest rates)
		Origination Date	Maturity Date			September 30,			December 31,
Lender		(Month/Year)	(Month/Year)	Interest Rate		2017			2016
(1)	M&T Bank	Dec-10	Apr-20	1 month LIBOR+1.90%		$	-		$	21,335		(b) (f) (g)
(2)	Sun Life	Mar-12	Oct-21		5.13%		11,763			12,036		(b) (i)
(3)	Aegon	Apr-12	Oct-23		6.38%		9,330			9,804		(b) (j)
(4)	Legg Mason Mortgage Capital Corporation	Aug-10	Aug-22		7.06%		5,900			6,538		(b) (e)
(5)	Columbian Mutual Life Insurance Company	Aug-10	Sep-25		7.00%		1,510			1,538		(b) (c) (d)
(6)	Symetra Financial	Mar-11	Apr-31		6.34%		1,015			1,036		(a) (b)
(7)	Note holders	Dec-08	Dec-23		6.25%		750			750		(d)
(8)	Standard Insurance Co.	Jul-10	Aug-30		6.75%		585			597		(b) (c) (d) (h)
(9)	Siemens Financial Services, Inc.	Sep-10	Sep- 20		5.47%		5,869			6,010		(a) (b)
(10)	Standard Insurance Co.	Apr-09	May-34		6.88%		1,827			1,870		(b) (c) (h)
(11)	Wells Fargo Bank, N.A.	May-07	Jun-17		6.69%		-			1,694		(a) (b)
(12)	Standard Insurance Co.	May-09	Jun-34		6.88%		1,312			1,342		(b) (c) (h) (l)
(13)	Standard Insurance Co.	Mar-10	Apr-31		7.00%		-			1,058		(b) (c) (d) (h)
(14)	Standard Insurance Co.	Mar-10	Apr-31		7.00%		-			844		(b) (c) (d) (h)
(15)	Columbus Life Insurance	Feb-13	Jan-26		4.65%		-			9,400		(b) (k)
(16)	Athene Annuity & Life Co.	Feb-12	Feb-17		3.76%		-			12,701		(b)
(17)	PNC Bank	Oct-16	Nov-26		3.62%		18,711			18,971		(b) (c)
							58,572			107,524
	Debt issuance costs, net						(689	)		(838	)
						$	57,883		$	106,686

(in thousands)
Remainder of 2017	$	28,677
2018		2,829
2019		328,034
2020		8,449
2021		13,305
Thereafter		528,778
	$	910,072


(in thousands)
Remainder of 2023	$	6,820
2024		2,260
2025		20,195
2026		525,173
2027		351,597
Thereafter		1,038,278
	$	1,944,323

(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%	LIBOR 1 month	$	25,000	$	(1,177	)
Bank of Montreal	July 2024		1.16%	LIBOR 1 month		40,000		2,147
Bank of Montreal	January 2025		1.91%	LIBOR 1 month		25,000		193
Bank of Montreal	July 2025		2.32%	LIBOR 1 month		25,000		(490	)
Bank of Montreal	January 2026		1.92%	LIBOR 1 month		25,000		297
Bank of Montreal	January 2026		2.05%	LIBOR 1 month		40,000		84
Bank of Montreal	December 2026		2.33%	LIBOR 1 month		10,000		(175	)
Capital One, N.A.	December 2021		1.05%	LIBOR 1 month		15,000		487
Capital One, N.A.	December 2024		1.58%	LIBOR 1 month		15,000		459
Capital One, N.A.	January 2026		2.08%	LIBOR 1 month		35,000		39
Capital One, N.A.	July 2026		1.32%	LIBOR 1 month		35,000		2,289
M&T Bank	September 2022		2.83%	LIBOR 1 month		25,000		(1,150	)
M&T Bank	November 2023		2.65%	LIBOR 1 month		25,000		(1,023	)
Regions Bank	March 2018		1.77%	LIBOR 1 month		25,000		(46	)
Regions Bank	March 2019		1.91%	LIBOR 3 month		25,000		(106	)
Regions Bank	May 2020		2.12%	LIBOR 1 month		50,000		(562	)
Regions Bank	March 2022		2.43%	LIBOR 3 month		25,000		(550	)
Regions Bank	December 2023		1.18%	LIBOR 1 month		25,000		1,178
SunTrust Bank	April 2024		1.99%	LIBOR 1 month		25,000		(63	)
SunTrust Bank	April 2025		2.20%	LIBOR 1 month		25,000		(332	)
SunTrust Bank	July 2025		1.99%	LIBOR 1 month		25,000		72
SunTrust Bank	January 2026		1.93%	LIBOR 1 month		25,000		248
Wells Fargo Bank, N.A.	February 2021		2.39%	LIBOR 1 month		35,000		(739	)
Wells Fargo Bank, N.A.	October 2024		2.72%	LIBOR 1 month		15,000		(706	)
					$	640,000	$	374

	Effective Portion			Ineffective Portion
(in thousands)	Location of Loss Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Income		Location of Loss Recognized in Income on Derivatives	Amount of Gain Recognized in Income on Derivatives
Interest rate swaps
2017	Interest expense	$	448	Interest expense	$	-
2016	Interest expense		2,426	Interest expense		(2,991	)


	For the Three Months Ended March 31,
(in thousands, except per share amounts)	2023		2022
Number of common shares issued		—		6,273
Weighted average sale price per share	$	—	$	21.82
Net proceeds	$	—	$	134,326
Gross proceeds		—		136,544


	For the Three Months Ended March 31,
	2023					2022
(in thousands, except per share amounts)	Number of Shares			Weighted Average Grant Date Fair Value per Share		Number of Shares			Weighted Average Grant Date Fair Value per Share
Unvested at beginning of period		396		$	20.36		372		$	19.62
Granted		259			17.75		142			21.66
Vested		(160	)		20.36		(146	)		19.80
Forfeited		—			—		(1	)		26.41
Unvested at end of period		495			19.00		367			20.33

Year	Number of Tenants		Number of Properties		Square Footage		NTM Rent		Percentage of NTM Rent
2017		—		—		—	$	—		—	%
2018		1		1		2		131		<0.1	%
2019		1		1		2		117		<0.1	%
2020		3		4		116		1,376		0.8	%
2021		2		4		9		576		0.3	%
2022		3		3		87		2,393		1.4	%
2023		9		13		724		6,786		4.0	%
2024		12		15		1,741		13,933		8.2	%
2025		2		8		28		1,034		0.6	%
2026		17		27		620		9,964		5.9	%
2027		16		30		1,210		14,785		8.8	%
2028		12		22		1,025		11,184		6.6	%
2029		12		54		2,483		15,623		9.2	%
2030 and thereafter		61		295		6,015		91,023		53.9	%

Tenant	Property Type	% NTM Rent			Properties
Red Lobster Hospitality LLC & Red Lobster Restaurants LLC	Retail		4.3	%		25
Art Van Furniture, LLC	Retail		3.9	%		9
Jack’s Family Restaurants LP	Retail		3.4	%		36
Outback Steakhouse of Florida, LLC⁽¹⁾	Retail		3.1	%		24
Big Tex Trailer Manufacturing Inc.	Industrial/Retail		2.7	%		17
Siemens Medical Solutions USA, Inc. & Siemens Corporation	Industrial		2.6	%		2
Nestle' Dreyer's Ice Cream Company	Industrial		2.5	%		1
Nationwide Mutual Insurance Company	Other		2.3	%		2
Arkansas Surgical Hospital LLC	Healthcare		2.3	%		1
Bob Evans Restaurants, LLC	Retail		2.2	%		25
Total			29.3	%		142
All Other			70.7	%		335

NAV as of:	September 30, 2017			June 30, 2017
Investment in rental property	$	2,502,140		$	2,351,989
Debt		(909,416	)		(883,112	)
Other assets and liabilities, net		1,348			34,790
NAV	$	1,594,072		$	1,503,667
Number of outstanding shares, including noncontrolling interests	$	19,790		$	18,820
NAV per share	$	80.55		$	79.90

Dividend Per Share/Unit		Record Date	Payment Date (on or before)
$	0.415	November 29, 2017	December 15, 2017
$	0.415	December 28, 2017	January 15, 2018
$	0.415	January 30, 2018	February 15, 2018

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
TOTAL		$	32,528	$	4,465	$	28,095	$	936	$	66,024

Period	Shares Redeemed		Average Determined Share Value⁽¹⁾		Average Redemption Price		Redemption Amount		Discount on Redemption⁽²⁾
Q1 2017		17,861	$	79.00	$	77.24	$	1,379,570		2.2	%
Q2 2017		20,641	$	80.00	$	79.29	$	1,636,650		0.9	%
Q3 2017		23,374	$	80.00	$	77.36	$	1,808,288		3.3	%
YTD 2017		61,876	$	79.67	$	77.97	$	4,824,508		2.1	%

Loan Tranche	Amount Drawn		Amount Available		Total Capacity		Maturity Date
New Revolver		90,000		310,000		400,000	January 21, 2022
5.5-Year Term Loan		250,000		—		250,000	January 23, 2023
7-Year Term Loan		—		150,000		150,000	June 21, 2024

Year of Maturity	Term Note 3⁽¹⁾		5.5-Year Term Loan		New Revolver⁽²⁾		Senior Notes		Mortgages		Interest Expense⁽³⁾		Tenant Improvement Allowances⁽⁴⁾		Total
2017	$	—	$	—	$	28,000	$	—	$	677	$	8,842	$	6,627	$	44,146
2018		—		—		—		—		2,829		34,915		—		37,744
2019		325,000		—		—		—		3,036		26,907		—		354,943
2020		—		—		—		—		8,450		25,459		—		33,909
2021		—		—		—		—		13,306		24,537		—		37,843
Thereafter		—		250,000		98,500		150,000		30,274		70,467		—		599,241
Total	$	325,000	$	250,000	$	126,500	$	150,000	$	58,572	$	191,127	$	6,627	$	1,107,826

	For the three months ended
	September 30,				Increase/
(in thousands)	2017		2016		(Decrease)
Revenues:
Rental income from operating leases	$	43,233	$	34,806	$	8,427
Earned income from direct financing leases		968		1,143		(175	)
Operating expenses reimbursed from tenants		1,995		1,056		939
Other income from real estate transactions		39		5		34
Total revenues	$	46,235	$	37,010	$	9,225

Counterparty	Maturity Date	Fixed Rate		Variable Rate Index	Notional Amount		Fair Value
Bank of America, N.A.	November-23		2.80%	1 month LIBOR	$	25,000,000		(1,177,353	)
Bank of Montreal	July-24		1.16%	1 month LIBOR		40,000,000		2,146,861
Bank of Montreal	January-25		1.91%	1 month LIBOR		25,000,000		192,803
Bank of Montreal	July-25		2.32%	1 month LIBOR		25,000,000		(489,600	)
Bank of Montreal	January-26		1.92%	1 month LIBOR		25,000,000		297,340
Bank of Montreal	January-26		2.05%	1 month LIBOR		40,000,000		84,117
Bank of Montreal	December-26		2.33%	1 month LIBOR		10,000,000		(175,375	)
Capital One, N.A.	December-21		1.05%	1 month LIBOR		15,000,000		486,922
Capital One, N.A.	December-24		1.58%	1 month LIBOR		15,000,000		459,406
Capital One, N.A.	January-26		2.08%	1 month LIBOR		35,000,000		38,960
Capital One, N.A.	July-26		1.32%	1 month LIBOR		35,000,000		2,289,026
Manufacturers & Traders Trust Co.	September-22		2.83%	1 month LIBOR		25,000,000		(1,149,860	)
Manufacturers & Traders Trust Co.	November-23		2.65%	1 month LIBOR		25,000,000		(1,023,132	)
Regions Bank	March-18		1.77%	1 month LIBOR		25,000,000		(46,329	)
Regions Bank	March-19		1.91%	3 month LIBOR		25,000,000		(105,943	)
Regions Bank	May-20		2.12%	1 month LIBOR		50,000,000		(561,657	)
Regions Bank	March-22		2.43%	3 month LIBOR		25,000,000		(550,191	)
Regions Bank	December-23		1.18%	1 month LIBOR		25,000,000		1,177,710
SunTrust Bank	April-24		1.99%	1 month LIBOR		25,000,000		(63,116	)
SunTrust Bank	April-25		2.20%	1 month LIBOR		25,000,000		(331,624	)
SunTrust Bank	July-25		1.99%	1 month LIBOR		25,000,000		71,593
SunTrust Bank	January-26		1.93%	1 month LIBOR		25,000,000		248,334
Wells Fargo Bank, N.A.	February-21		2.39%	1 month LIBOR		35,000,000		(738,635	)
Wells Fargo Bank, N.A.	October-24		2.72%	1 month LIBOR		15,000,000		(706,367	)

Month	Year	Common Shares Sold		Determined Share Value – Common Shares ⁽¹⁾		Total Proceeds – Common Shares Sold		Common Shares DRIP		Determined Share Value – DRIP⁽²⁾		Total Proceeds – Common Share DRIP⁽³⁾		Total Proceeds
January	2017		413	$	77	$	31,827		38	$	75	$	2,836	$	34,663
February	2017		270		79		21,314		39		75		2,934		24,248
March	2017		368		79		28,946		39		77		3,071		32,017
April	2017		234		79		18,462		41		77		3,166		21,628
May	2017		291		80		23,242		42		78		3,266		26,508
June	2017		352		80		28,064		42		79		3,319		31,383
July	2017		220		80		17,601		44		78		3,394		20,995
August	2017		343		80		27,455		45		78		3,501		30,956
September	2017		297		80		23,676		45		78		3,544		27,220
TOTAL			2,788			$	220,587		375			$	29,031	$	249,618

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
July 2017		—		—	$	—	(3)
August 2017		—		—	$	—	(3)
September 2017		23,374		23,374	$	77.36	(3)